DAKTRONICS, INC. AND SUBSIDIARIES
SPECIAL NOTE REGARDING FORWARD–LOOKING STATEMENTS
This Annual Report on Form 10-K (including exhibits and any information incorporated by reference herein) (the "Form 10-K" or the "Report") contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21B of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, beliefs, intentions and strategies for the future. These statements appear in a number of places in this Report and include all statements that are not historical statements of fact regarding the intent, belief or current expectations with respect to, among other things: (i.) our competition; (ii.) our financing plans;plans and ability to maintain adequate liquidity; (iii.) trends affecting our financial condition or results of operations; (iv.) our growth strategy and operating strategy;strategies; (v.) the declaration and payment of dividends; (vi.) the timing and magnitude of future contracts; (vii.) partsraw material shortages and lead times;times and supply chain disruptions; (viii.) fluctuations in margins; (ix.) the seasonality of our business; (x.) the introduction of new products and technology; (xi.) the amount and (xi.frequency of warranty claims; (xii.) our ability to manage the impact that new or adjusted tariffs may have on the cost of raw materials and components and our ability to sell product internationally; (xiii.) the resolution of litigation contingencies; (xiv.) the timing and magnitude of any acquisitions or dispositions.dispositions; (xv.) the impact of governmental laws, regulations, and orders, including as a result of the COVID-19 pandemic caused by the coronavirus; (xvi) disruptions to our business caused by geopolitical events, military actions, work stoppages, natural disasters, or international health emergencies, such as the COVID-19 pandemic; (xvii) uncertainties related to market conditions and entry into financing transactions; (xviii) the Company’s potential need to seek additional strategic alternatives, including seeking additional debt or equity capital or other strategic transactions and/or measures; (xix) our financing plans and ability to maintain adequate liquidity; (xx) the Company’s ability to increase cash flow to support the Company’s operating activities and fund its obligations and working capital needs; (xxi) our ability to obtain additional financing on terms favorable to us, or at all; and (xxii) any future goodwill impairment charges. The words “may,” “would,” “could,” “should,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plans”“plan” and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve riskrisks and uncertainties, many of which are beyond our ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein, including those discussed in the section of this Form 10-K entitled “Item“Part I, Item 1A. Risk Factors” and “Item“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and those factors discussed in detail in our other filings with the Securities and Exchange Commission.
PART I.
Item 1. BUSINESS
Business Overview
Daktronics, Inc. and its subsidiaries (the “Company”, “Daktronics”, “we”, “our”, or “us”) is a world-leading supplier ofare industry leaders in designing and manufacturing electronic scoreboards, large electronicprogrammable display systems digital messaging solutions, software and serviceslarge screen video displays for sporting, commercial and transportation applications. We serve our customers by providing the highesthigh quality standard display products as well as custom-designed and integrated systems. We offer a complete line of products, from small scoreboards and electronic displays to large multi-million dollarmultimillion-dollar video display systems as well as related control, timing, and sound systems. We are recognized as a technical leader with the capabilities to design, market, manufacture, install and service complete integrated systems displaying real-time data, graphics, animation and video. We engage in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services and customer service and support.
We were founded in 1968 by Drs. Aelred Kurtenbach and Duane Sander, professors of electrical engineering at South Dakota State University in Brookings, South Dakota. The Company began with the design and manufacture of electronic voting systems for state legislatures. In 1971, Daktronics developed the patented Matside® wrestling scoreboard, the first product in the Company's growing and evolving line. In 1994, Daktronics became a publicly tradedpublicly-traded company offering shares under the symbol DAKT on the NASDAQ National Market system. Today, Daktronics has grownand invested in display technologies and new markets. We have continued these investments and have supported our long-term customer relationships to grow from a small company operating out of a garage to a world leader offering the most complete product lineup in the display industry. We currently employ 2,734 people globally. We are headquartered at 201 Daktronics Dr., Brookings, SD 57006 telephone 605-692-4200. Our Internet address is https://www.daktronics.com.
Our annual, quarterly and current reports and any amendments to those reports are freely available in the "Investor Relations" section of our website. We post each of these documents on our website as soon as reasonably practicable after it is electronically filed with the Securities and Exchange Commission (the "SEC"). These reports and other reports, proxy
statements, and electronic filings are also found on the SEC’s website at www.sec.gov. Information contained on our website is not deemed to be incorporated by reference into this Report or filed with the SEC.
We have organizedfocus our sales and marketing efforts on markets, geographical regions and products. Our five business into five segments:segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and International. These segments are based on the type of customer or geography and are the same as our business units.Canada. Financial information concerning these segments is set forth in this Form 10-K in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Note 2.3. Segment Reporting" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
We make significant investments to complement and develop our existing innovative, high quality products. We employ engineering expertise with electrical, mechanical, and software design capabilities. In addition, we invest in quality and reliability capabilities, process development and testing capabilities, and sourcing processes.
We strive to grow into new geographic markets by strategically adding resources and emerging markets. Three of our targeted acquisitions were in fiscal 2014, 2015, and 2016; these acquisitions support our long-term growth objectives which are to increase sales and profitability. For more information regarding these acquisitions, see "Note 4. Business Combinations" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
Our annual, quarterly and current reports and any amendments to those reports are filed with the Securities and Exchange Commission (“SEC”) and are available at http://investor.daktronics.com. We post each of these documents on our website as soon as reasonably practicable after it is electronically filed with the SEC. These reports also may be found on the SEC’s website at www.sec.gov. Information contained on our website is not deemed to be incorporated by reference into this Report or filed with the SEC.
Industry Background
Over the years, our products have evolved significantly from scoreboards and matrix displays with related software applications to complex, integrated visual display systems which include full color video with text and graphics displays located on a local or remote network that are tied together through sophisticated control systems. In the mid-1990's, as light emitting diodes (“LEDs”) became available in red, blue and green colors with outdoor brightness, we pioneered the development of full color LED video displays capable of replicating trillions of colors, thereby producing large format video systems with excellent color, brightness, energy efficiency and lifetime. Due to our foundation of developing scoring and graphics display systems, we were able to add video capabilities so we could meet all of our customers' large format display needs could be met in a complete, integrated system. This has proven to be a key factor in Daktronics becoming a leader in large electronic displays. LED technologies continue to evolve and advance, creating new high-resolution and micro-LED display options of all shapes and sizes. Today, the industry continues development in both the construct of the micro-LED and production methods of micro-LED display panels using mass-transfer technology.
Integrated visual display systems are increasingly used across a variety of vertical markets including: media/advertising, stadiums/venues, hospitality/leisure, transportation, military and government, broadcast, control room, corporate and education, and retail. Generally, these vertical markets use systems to collaboratively communicate, inform, entertain, and advertise to various sized audiences. Advances in technologies and the decrease in costs of systems have opened up and increased the market's size. Description of Business
We are engaged in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services and customer service and support. Each of those activities is described below:
Marketing and Sales. Our sales force is comprised of direct sales staff and resellers located throughout the world supporting all customer types in both sales and service. We primarily use a direct sales force for large integrated display systemssystem sales in professional sports, colleges and universities, and commercial spectacular projects. We also use our direct sales force to sell third-party advertising and transportation applications. We utilize resellers outside North America for large integrated system sales where we do not have a direct sales presence. The majority of theour products sold by resellers in North America are standard catalog products. We support our resellers through direct mailmail/email advertising, social media campaigns, trade journal advertising, product and installation training, trade show exhibitions and accessibility to our regional sales or service teams.teams and demonstration equipment.
Engineering and Product Design and Development. The large format electronic display industry is characterized by ongoing product innovations and developments in technology and complementary services. To remain competitive, we have a tradition of applying engineering resources throughout our business to anticipate and respond rapidly to the system needs in the marketplace. We employ and contract with engineers and technicians in the areas of mechanical and electrical design; applications engineering; software design; quality design; and customer and product support. We assign productProduct managers assigned to each product family to assist our sales staff in training and implementing product improvements which ensures each product is designed for maximum reliability and serviceability. We employ and contract with process engineers to assist in quality and reliability processing in our product design testing and manufacturing areas. We also make selected investments in and contract with affiliated companies to support and advance technologies and capabilities for our product lines and solutions.
Manufacturing. A The majority of our products are manufactured in the United States, specifically in South Dakota and Minnesota. We also have manufacturing facilities in China Belgium, and Ireland. For more details on our facilities, see "Item 2. Properties."
Our manufacturing is somewhat aligned with our business segments and is co-located with product development to accelerate technology improvements and improve our cost structure. We perform component manufacturing, system
manufacturing (metal fabrication, electronic assembly, sub-assembly and final assembly) and testing in-house for most of our products to control quality, improve response time and maximize cost-effectiveness. We make our products in focused factories and product cells. We generally align sales, marketing, engineering and manufacturing into a cohesive business unit with a focus on customers. Given the cyclical nature of some parts of our business and dispersed sales geography, we also need to balance and maintain our ability to manufacture the same products across our plants so we can smooth out the customer demand of the various business units.efficiently utilize our capacity and reduce costs. A key strategy of ours is to increase standardization and commonality of parts and manufacturing processes across product lines through the use of product platform strategies.
Our manufacturing facilities have embracedplatforms to increase efficiencies. Other strategies include supplier management programs and lean manufacturing techniques throughout all areas. We have also placed significant emphasistechniques. For more details on lean techniques in the non-manufacturing areas. Our goal is to eliminate waste and timely deliver products to a customer while maintaining minimal inventory and eliminating non-value added tasks.our facilities, see "Part II, Item 2. Properties".
Technical Contracting. We serve as a technical contractor for larger display system installations requiring custom designs and innovative product solutions. The purchase of display systems typically involves competitive proposals. As part of our response to a proposal request, we may suggest additional products or features to assist the prospective customer in analyzing the optimal type of display system. We usually include site preparation and installation services related to the display system in our proposal. In these cases, we serve as a contractor and may retain subcontractors for electrical, steel and installation labor. We have developed relationships with many subcontractors throughout the United States and the world, which is an advantage for us in bidding and delivering on these projects. We are licensed in a number of jurisdictions as a general contractor. contractor in many jurisdictions.
Professional Services. Our To assist our clients' ability to engage, inform and entertain their audiences, we provide professional services are essential to continued market penetration and growth. Professional services includeincluding event support, content creation, product maintenance, marketing assistance, training on hardware and software, control room design, and continuing technical support training for operators.
Customer Service and Support. We offer limited warranties on our products, ranging from one to 10 years, against failure due to defective parts or workmanship. In addition, we offer service agreements of various scopes. To serve our customers, we provide help-desk access, parts repair and replacement, display monitoring and on-site support. Our technical help desk has experienced technicians who are on-call 24 hours a day to support events and sites. Our field service personnel and third-party service partners are trained to provide on-site support. We use third-party service partners to allow us to respond to the changes in volume of service requests during our seasonal peaks.
Products and Technologies
The two principal components of our systems are the display and the controller,control system, which manages the operation of the display. We produce displays varying in complexity, size and resolution. 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. The controllercontrol system is comprised of various combinations of computer hardware, video processing hardware and software products designed to compile information provided by the operator and other integrated sources to display information, graphics, video or animation on the displays. We customize our products according to the design specifications of the customer and the conditions of the environment in which our products function.
Our products are comprised of the following product families, all of which include control systems and software:families:
•Video displays/video walls
•Video displays
•Scoreboards and timing systems
•Message displays
•ITS (intelligent transportation systems) dynamic message signs
•Space availabilityMass Transit displays
•AudioSound systems
•Advertising displaysDigital billboards
•Digital street furniture
•Digit and price displays
•DigitalIndoor dynamic messaging systems and indoor liquid crystal display ("LCD") signs
•Software and controllers including Venus® Control Suite, Show Control Studio and Show Control Live
Each of these product families is described below:
Video Displays.Displays/Video Walls. These displays are comprised of a large number of full-color pixels capable of showing various levels of video feeds, pre-rendered graphics and animation plus controllers.animated content with Real Time Data capabilities. These displays include red, green and blue LEDs arranged in various combinations to form pixels. The electronic circuitry, which controls the pixels, allows for variances in the relative brightness of each LED to provide a full color spectrum, thereby displaying
video images in striking, vibrant colors. Variables in video displays include the spacing of the pixels (pixel pitch), the resolution of the displays (number of pixels), the brightness of the displays (nits), the number of discrete colors the display is able to produce (color depth), the viewing angles, and the LED mount technology (surface mount vs. through hole). technology.
OurWe offer a broad range of indoor and outdoor LED video displays with these varying features. Examples of offerings include centerhung displays, landmark displays, video walls, ribbon board displays, are ultra-slim, customizablehanging banners, roadside displays, that accommodate curveddigital billboards, corporate office entrance displays, conference room displays, control room displays, and 360° installations. Thesevideo displays are useddesigned for end zones, sidelines, encircling a stadium, outfields, concourses, stadium exterior orarenas, stadiums, retail stores, restaurants, malls, transportation hubs and other linear applications. For new construction projects, our ProRail® attachment system is combined with ribbon board technologysimilar indoor facilities.
Video displays provide content to provide improved sight lines for fans. Digital ribbon boards generally serve as a revenue generation source for teams and facilities through advertising or as well as another location to displayan information suchand communication medium (such as scoring, statistics, wayfinding, advertising, and statistics.
Our mobile and modular display systems are transportable and are comprised of lightweight individual LED video panels less than a square meter in size and are assembled togethercontrol center information), or to form a display in a customizable size. These displays are used for touring shows and the events market.
Our display technology may be integrated with architectural mesh to deliver a dynamic communication medium that provides a semi-transparent viewing experience within a building. These displays can be mounted over a solid facade or in front of windows resulting in a finished solution that is free from visible cabling, and delivers a clean, semi-transparent view. These are less than one inch in depth and provide an elegant, refined structural appearance.
Our line of Freeform LED displays are architectural lighting and display products. The ProPixel® freeform products use mountable LEDinterior design elements to transform ordinary structures into stunning visual landmarks. A flexible mounting platform allows designerscreate luxurious space to transform any structure into a full-motion video display.
feature digital art.
The control components for video displays in live event applications areinclude our Show Control Software Suite, proprietary digital media players and video processors. These control components provide advanced capabilities for the display of live video and real timereal-time content on our displays. The Show Control Software Suite can operate an entire networksnetwork of displays within a venue from a single, intuitive control interface. FeaturesIts features allow users to instantly deliver media clips, camera feeds, and streaming information to any display in a network.venue.
Scoreboards and Timing Systems. Our line of scoreboards and timing products include indoor and outdoor scoreboards for many different sports, digit displays, scoring and timing controllers, statistics software and other related products. Indoor and outdoor systems range in complexity from small scoreboards to larger systems incorporating scoring, timing, video, message centers, advertising panels and control software.
We offer a variety of controllers complementing our scoreboards and displays. These controllers vary in complexity from the All Sport® 100, a handheld controller for portable scoreboards, to the All Sport® 5000,Pro, designed for more sophisticated scoring systems and allowing for more user-defined options.
We also offer timing systems for sports events, primarily aquatics and track competitions. A component of these systems is our OmniSport® 2000 timing console. The system has the capability to time and rank the competitors and to interface with event management software to facilitate the sporting event. Other timing system components include swimming touchpads, race start systems, and relay take-off platforms.
As a key component of an integrated system, we market sports statistics and results software under the DakStats® trademark. The software allows the entry and display of sports statistics and other information. It is one of the leading applications of its type in collegiate and high school sports.
Message Displays. The keyGalaxy® product lines in this group are the Galaxy® and GalaxyPro® and are generally controlled with our Venus® 1500 display controller.
Galaxy®line is a family of full-matrix displays, available in both indoor and outdoor models are our leading product line for commercial applications.and controlled with the Venus® Control Suite. Galaxy® displays are full color monochrome, or tri-color,monochrome with varying pixel spacing depending on color, size and viewing distance. They are used primarily as message centers to convey information and advertising to consumers.
GalaxyPro®Galaxy® displays are full-matrix outdoor displays capable of displayingcan display text, graphics and animation, as well as prerecorded video clips. The product was developedThey are used primarily to meet the video needs of the commercial market, primarily large retail market applications such as auto dealershipsconvey information and shopping centers. GalaxyPro® displays have varying pixel spacing and are capable of producing 68 billion colors.
on-premises advertising to consumers.
The Venus® 1500 display controlControl Suite software is used to control the creation of messages and graphic sequences for uploading to the Galaxy® and GalaxyPro® displays. This software is designed to be user friendly and applicable to all general advertising or message applications. We alsoIt can be used to control a single message display or can scale up to provide software kits, allowing system integrators to write their own software using the Venus® 1500 to communicate to thea secure, cloud-based control center for large networks of message displays.
ITS Dynamic Message Signs (DMS)("DMS"). DMS products include a wide range of LED displays for road management mass transit and aviation applications. The Vanguard® family of dynamic message displays is typically used to direct traffic and inform motorists. These displays are used over freeways, on arterial roads, near bridges, at toll booths and in other locations. We have also developed a Vanguard® control system for these displays to help transportation agencies manage large networks of displays.
Mass Transit Displays. Our Mass Transit products include a wide range of LCD and LED display solutions for public transportation applications. Installations often involve a network of displays located on railway platforms, at bus stations, or on concourses within a transportation hub to guide travelers to their intended destination.
Space Availability Displays. This product line is our digit and directional displays, which are primarily marketed and sold for use in parking facilities. They include multi-line displays delivered in vertical cabinets or drop-in digit panels designed to be mounted in existing structures or signs.
AudioSound Systems. Our audiosound systems include both standard and custom options. Standard audio systems are designed to meet the needs of a variety of indoor and outdoor sports venues based on the size and configuration of the facility. Custom indoor and outdoor systems are tailored for larger venues and venues with unique seating configurations. Our sound systemsconfigurations and are often integrated into an overall venue solution for scoring, timing, message display and/or video capability.
Out-of-Home Advertising Displays.Digital Billboards. Our line of out-of-home advertising displays includes billboards and street furniture displays.
Our line of static and digital billboards offers a unique display solution for the Out-of-Home (“OOH”) advertising industry. The products are used to display static images which change at regular intervals. These systems include many features unique to the outdoor advertising market, such as our patented mounting system, self-adjusting brightness, improvedoptimized energy consumption, and enhanced network security.
The Visiconn® systemDigital street furniture. Our LED street furniture features some of the brightest imagery in the industry and is the software application for controlling content and playback loops for digital billboard applications. This system can transform any Internet-ready computer into a secure, global control center for multiple LED displays, flat panel monitors and other display technologies.
built to withstand full-sun conditions. Our line of digital street furniture engages people with advertising content at eye level as they walk through campuses, cityscapes, and outlet malls. This design enhances the message and complements surrounding architecture. These advertising light boxesstreet furniture displays are our most flexible solution for static, scrolling and digital OOH campaigns.
Digit and Price Displays. This product line includes our DataTime® and Fuelight™ displays. The DataTime® product line consists of outdoor time and temperature displays which use a remote sensor for temperature data. Fuelight™ digit displays are specifically designed for the petroleum industry, offering high visibility and quick fuel price updates using the Fuelink™ control software.
Indoor Dynamic Messaging Systems™: and LCD screens. Our dynamic messagingADFLOW DMS™ systems include indoor networked solutions for retailers, convenience stores and other businesses. These solutions, allowsusing either LED or LCD technologies, allow customers to broadcast advertising campaigns and other information through the software, media players and visual hardware.
Software and Controllers including Venus® Control Suite. The Venus® Control Suite is our platform for scheduled control capability. It can be used in any application where the intended message is created in advance and scheduled to play at a predetermined time. It is available in an on-premise or hosted cloud-based configuration and is capable of supporting a single display or scaling to support many displays. For applications that require both scheduled content and live video or real time content, a control solution can combine the capabilities of Venus® Control Suite with the capabilities of the Show Control Software Suite to create a powerful solution that enables customers to easily manage content on their displays. Content includes media, scoring, timing, statistics, advertising, way-finding information, playback loops and entertainment type visualizations.
Our Show Control Suite is an easy-to-use and powerful integrated solution to achieve a dynamic, seamless and fully immersive game-day production. Show Control Studio offers products designed for display control, while Show Control Live is designed for video production. Raw Materials
Materials used in the production of our video display and control systems are sourced from around the world. Examples of the materials we use in production include LEDs, integrated circuits, printed circuit boards, power supplies, plastics, aluminum, and steel. We source some of our materials from a single-source or a limited number of suppliers due to the proprietary nature of the materials. The loss of a key supplier, part unavailability, tariff changes, price changes, war or a defectother geopolitical impacts to trade or transport, or defects in the supplied material or component could have an adverse impact on our business and operations. Our sourcing group worksis responsible to maintain and implement strategies to mitigate these evolving risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We sometimes prepay for future supply.
Since late fiscal 2021, we have been affected by supply chain disruptions and inflationary pressures stemming from the coronavirus pandemic ("COVID-19"), shipping container shortages, weather events, and the changes in global demand. Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight. While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business. Intellectual Property
We own or hold licenses to use numerous patents, copyrights, and trademarks on a global basis. Our policy is to protect our competitive position by filing U.S.United States and international patent applications to protect technology and improvements that we consider important to the development of our business. This will allow us to pursue infringement claims against competitors for protection due to patent violations. Although we own a number of patents and possess rights under others
to which we attach importance, we do not believe that our business as a whole is materially dependent upon any such patents or rights. We also own a number of trademarks that we believe are important in connection with the identification of our products and associated goodwill with customers, but no part of our business materially depends on such trademarks. We also rely on nondisclosure agreements with our employees and agents to protect our intellectual property. Despite these intellectual property protections, there can be no assurance a competitor will not copy the functions or features of our products.
Seasonality
Our net sales and profitability historically have fluctuated due to the impact of large projectuniquely configured orders, such as display systems for professional sports facilities, colleges and universities, and spectacular projects in the commercial area, as well as the seasonality of the sports market. Large projectUniquely configured orders can include a number ofseveral displays, controllers, and subcontracted structure builds, each of which can occur on varied schedules according toper the customer's needs. NetOur third fiscal quarter sales and gross profit percentages also have fluctuatedlevels are lighter than other quarters due to other seasonal factors, including the impactseasonality of our sports business, construction cycles, and the reduced number of production days due to holidays which primarily affects our thirdin the quarter.
Our gross margins on large custom and large standard orders tend to fluctuate more on uniquely configured orders than on small standardlimited configured orders. Large productUniquely configured orders involving competitive bidding and substantial subcontractsubcontracting work for product installation generally have lower gross margins. Although we follow the percentage of completionover time method of recognizing revenues for large customuniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.
Because of the seasonality and volatility in business demand and variety of product types, we may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results. Working Capital
For information regarding working capital items, see “Management’s“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” in Part II, Item 7 of this Form 10-K.
Customers
We have a large and diverse worldwide customer base, ranging from local main street business owners, out-of-home companies, and schools to the owners and operators of premier professional sports arenas. Our customers are important to us, and we strive to serve them over the long-term to earn their future business. The loss of one or more customers could have an adverse effect on us. While we are not economically dependent on any single customer, within our Commercial business unit digital billboard niche, two major customers account for more than 50 percent of sales. See "Note 2.3. Segment Reporting" of the Notes to our Consolidated Financial Statements included in this Form 10-K for our primary markets and customers of each business unit.
Backlog
Our backlog consists represents the dollar value of orders for integrated electronic display systems and related products and services which are expected to be recognized in net sales in the future. Orders are contractually binding sales agreements or purchase orders we expect to fill within the next 24 months.commitments from customers. Orders are booked and included in backlog only uponwhen we are in receipt of an executed contract and any required deposits. As a result, certaindeposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be bookedincluded in backlog until all required contractual documents and deposits
are received. In addition, order bookings can vary significantly on a quarterly basis as a result of the timing of large orders. Because orderOrders and backlog may be subject to extended delivery schedules, orders may be canceled, and orders have varied estimated profitability, our backlog isare not necessarily indicative of future net sales or net income. Backlog can fluctuate due to large order booking timing and seasonality. Backlog is not a measuremeasures defined by U.S.accounting principles generally accepted accounting principlesin the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts.
Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multimillion dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning. We believe order information is useful to investors because it provides an indication of our market share and future revenues.
Our product order backlog as of April 29, 2023 was $400.7 million as compared to $471.6 million as of April 30, 2022. This decrease in backlog is driven by fulfilling orders from our April 30, 2022 backlog. During fiscal 2022 we had record order volume and muted conversion to sales due to supply chain challenges. Our customers had also placed orders for future deliveries to secure our manufacturing capacity during fiscal 2022.
We expect to fulfill the backlog as of April 29, 2023 within the next 24 months. The timing of backlog may be impacted by project delays resulting from parts availability and other constraints stemming from the supply chain disruptions.
Government and Other Regulation
In the United States and other countries, various laws, regulations and ordinances related to our products and controllers restrict the installation of outdoor signs and displays, particularly in the commercial market.and transportation markets. These laws and regulations impose greater restrictions on electronic displays versus non-electronic displays due to alleged concerns over aesthetics or driver safety. TheseGlobally, our products are also subject to various regulations and standards including electromagnetic interference, electromagnetic compatibility, electrical safety, and flammability standards. We design and have our products tested for these regulations; however, these factors may prevent or inhibit us from selling products to some prospective customers.
customers in certain geographies.
Our manufacturing facilities and products comply with industry specific requirements, including environmental rules and regulations and safety standards. These requirements include quality, manufacturing process controls, manufacturing documentation, supplier certification of raw materials, and various safety tests. Our products and production processes require the storage, use and disposal of a variety of hazardous chemicals under applicable laws.
Our global supply chain and sales distribution channels subject us to various trade compliance regulations. These requirements can include certification of country of origin, classification within the various tariff codes and trade agreements; compliance with other specific product or country import/export regulations.regulations; and payment of certain import or export tariffs, duties, or taxes.
Our global operations subject us to various laws and regulations, including laws and regulations relating to tax compliance, anti-corruption, data privacy, cybersecurity, governance, and disclosure reporting. These requirements vary and can involve matters and processes such as using resources for related expertise and information systems, records management, policy creation and maintenance, data protection programs, compliance filings, control design and testing, and continued training of employees.
We are subject to regulations restricting the movement and interaction of people and business operations. Countries and states and/or localities in the United States can issue lock down orders impacting the availability of employees, third parties, suppliers, customers, and other services we need to operate our business.
We believe we are in material compliance with thesegovernment and other regulatory requirements.
Competition
We encounter a wide variety of competitors that vary by product, geographic area, and business unit. Our competitors areinclude both United Statesdomestic and foreign companies andwhich range in size and product offerings. Some of ourOur competitors compete in certain markets by providingmay develop lower-cost display systems, which are of a lesser quality withor lower-featured products, may be willing to charge lower product performanceprices to increase their market share, or include lessdifferent service and controller offerings. Some competitors have more capital, governmental funding, supply chain access, and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer support.requirements. Other competitors use sponsorships as a meansway to win the business at a location.
particular location or market. In addition, our products compete with other forms of advertising, such as television, print media, digital and mobile, and fixed display signs.
We believe that our ability to compete depends upon customer centric product and service quality and features, technical expertise, service breadth, and cost-effective solutions.
Research and Development
We believe ourOur experience in engineering, process design, and product and service design and development capabilitycapabilities and experienceinvestments made in affiliates are very important factors to continuein continuing to develop, produce, and offer the most up-to-date digital displays and control system solutions desired by the market.
We invest in our development and our affiliates to increase differentiated product platforms, advance our software architecture and offerings, support customer requirements, advance new competitive narrow pixel and micro-electronic technologies, and advance sustainable technologies and related products.
During the first half of fiscal 2023, our design teams focused on adjusting designs to utilize available components as a strategy to gain stability in our production levels. During fiscal 2024, we will continue to invest in product design and development to improve our video technology over a wide range of pixel pitches and sustainable technologies for both indoor and outdoor applications and to advance micro-LED devices and placement processes. These new or improved technologies are focused on varied pixel density for image quality and use, expanded product line offerings for our various markets and geographies, improved quality and reliability, and improved cost points.
Employees and Human Capital Resource Management
Our core values of Honest, Helpful and Humble support our commitment to diversity, equity and inclusion, which leads to our vision of every person at Daktronics being able to contribute their best every day. We seek to recruit, retain, and develop our existing and future workforce for decades-long engagements to build long-term mutual prosperity. We facilitate company-wide teams to inspire a more inclusive culture and achieve company goals through teamwork. We encourage each employee to proactively and continuously build self-awareness, understanding of aspects of diversity, and openness to others’ experiences and perspectives. We also foster and encourage self development and a continuous learning environment to build talent.
The safety and well-being of our team are a top priority, and we believe each and every team member plays an essential role in creating a safe and healthy workplace. We provide training for safety measures on the job site and in our facilities. We provide our employees and their families with access to a variety of health programs, including benefits that support their physical and mental health.
As of April 30, 2016,29, 2023, we employed approximately 2,4702,441 full-time employees and approximately 315293 part-time and temporary employees. Of these employees, approximately 1,0001,121 were in manufacturing, 560451 were in sales and marketing, 575561 were in customer service, 395378 were in engineering and 255223 were in general and administrative. None of our employees are represented by a collective bargaining agreement. We believe employee relations are good.
Item 1A. RISK FACTORS
The factors that are discussed below, as well as the matters that are generally set forth in this Form 10-K and the documents incorporated by reference herein, could materially and adversely affect the Company’s business, results of operations and financial condition.
Macroeconomic Risks
Our business is sensitive to global economic conditions, including recessions, inflation, and interest rate fluctuations. Weakened global economic or recessionary conditions may adversely affect our industry, business and results of operations.
Our overall performance depends in part on worldwide economic conditions. The United States and other key international economies have experienced downturns and recessions from time to time during which economic activity was impacted by falling demand for a variety of goods and services; restricted credit; poor liquidity; reduced corporate profitability; volatility in credit, equity and foreign exchange markets; increased unemployment; bankruptcies; and overall uncertainty with respect to the economy. These conditions affect consumer and entertainment spending and could adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value of their contracts, or affect attrition rates, all of which could adversely affect our operating results.
These demand fluctuations and various factors may reduce our ability to effectively utilize our capacity and impact our results of operations.
We rely on global supply chains, and inflationary pressures can increase our input costs faster than our ability to raise prices. These could eliminate our ability to sell our products or receive parts and components through our global supply chains.
The rate of interest we pay on our asset-based lending facility with JPMorgan Chase Bank, N.A. is correlated to the Standard Overnight Fund Rate (SOFR), which is determined by governmental policy decisions. Increases in SOFR will increase the rate of any extended borrowing on this facility.
Geopolitical issues, conflicts, governmental actions and other global events could adversely affect our results of operations and financial condition.
Our business is subject to global political issues and conflicts and governmental actions. Such factors can create trade restrictions, increase tariff costs, increase prices for raw materials and components used in our products, increase the cost of sales, decrease demand for our products, or cause other implications to our business operations. These impacts could reduce profitability and could have a material adverse effect on our results of operations and financial condition if they escalate into geographies in which we do business, manufacture our products, or obtain raw materials and components for production.
For example, the continuing conflict arising from the invasion of Ukraine by Russia, or tensions between Taiwan, China, the United States or other countries, could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the United States and the international community in a manner that adversely affects our Company, including to the extent that any such actions cause material business interruptions or restrict our ability in these regions to conduct business with certain suppliers or vendors. Additionally, such conflict or sanctions may significantly devalue various global currencies and have a negative impact on economies in geographies in which we do business.
We face risks related to actual or threatened health epidemics and other outbreaks, which have had and could have a material adverse effect on our operations, liquidity, financial conditions, and financial results.
A serious global pandemic can adversely impact, shock and weaken the global economy. These impacts can amplify other risk factors and could have a material impact on our operations, liquidity, financial conditions, and financial results.
Our business, operations, and financial results have been, and may continue to be, impacted by the COVID-19 pandemic. Impacts on our business include, but are not limited to:
•Inability to meet our customers' demand due to disruptions in our manufacturing caused by delays and disruptions in obtaining certain raw material and other manufacturing components and because of restrictions affecting our ability to conduct work at sites during shutdowns;
•Rapid increases in raw material, components, and personnel related costs and expenses; and
•Rapid declines and increases in demand for our products.
Unexpected events, including natural disasters, weather events, war, terrorist acts, and pandemics, may increase our cost of doing business or disrupt our operations.
We operate manufacturing operations in three locations in the United States - Brookings, South Dakota, Sioux Falls, South Dakota, and Redwood Falls, Minnesota, and we have production facilities in Ireland and China. Unexpected events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition.
The occurrence of one or more unexpected events in the United States or in other countries in which we operate may disrupt our operations and the operations of our customers and suppliers. Such events could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects or cause our suppliers not to perform, resulting in parts and component shortages.
Risks Related to Our Business and Industry
We operate in highly competitive markets and face significant competition and pricing pressure.pressures. If we are unable to keep up with the rapidly changing product marketdevelopments and new technologies or if we cannot compete effectively, we could lose market share and orders, which would negatively impact our results of operations could be negatively impacted.
operations.
The electronic display industry is characterized by ongoing product improvement, innovations and development. We compete against products produced in foreign countries and the United States. In addition, our products compete with other forms of advertising, such as television, print media and fixed display signs. Our competitors may develop cheaper, more efficientlower-cost or lower-featured products, or they may be willing to charge lower prices to increase their market share.share, or market new and unique product, service and controller offerings. Some competitors have more capital and other resources, which may allow them to take advantage of acquisition opportunities or adapt more quickly to changes in customer requirements. Other competitors use sponsorships as a way to win business at a particular location or market. In addition, our products compete with other forms of advertising, such as television, print media, digital and mobile, and fixed display signs. To remain competitive, we
must anticipate and respond quickly to provide products and services that meet our customers’ needs, enhance our existing products, introduce new products and features, and continue to price our products competitively.
Our results of operations can be substantially affected by whether we are awarded large contracts and the size and timing of large contracts.
Our revenues and earnings have varied in the past and are likely to vary in the future. When awarded large contracts, primarily in the college and professional sports facilities market, the OOH niche, and the large spectacular niche, the timing and amount could cause material fluctuations in our net sales and earnings. Awards of large contracts and their timing and amount are difficult to predict, may not be repeatable, and are outside of our control. Operating results in one quarter or fiscal year may not be indicative of future operating results. Some factors that may cause our operating results to vary include:
new product introductions;
variations in product and product mix; and
delays or cancellations of orders.
Unanticipated warranty and other costs for defective products could adversely affect our financial condition and results of operations and reputation.
We provide warranties on our products with terms varying from one to 10 years. In addition, we offer extended warranties. These warranties require us to repair or replace faulty products and meet certain performance standards, among other customary warranty provisions. Although we continually monitor our warranty claims and accrue a liability for estimated warranty costs, unanticipated claims could have a material adverse impact on our financial results. During fiscal 2016, we discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH application built prior to fiscal 2013. We increase our accrued warranty obligations by $9.2 million during fiscal 2016 and $1.2 million during fiscal 2015 for probable and reasonably estimable costs to remediate this issue. See "Note 17. Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in the Form 10-K for more information regarding our warranty accrual. In some cases, we 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. In addition, the need to repair or replace products with design and manufacturing defects could adversely affect our reputation. The time required to remediate the claim may take time and could result in lost or deferred revenue, lead to costly warranty expenses, and could have a material adverse impact on our financial condition and operating results.
We enter into fixed-priced contracts on a regular basis, which could reduce our profits.
As part of our strategy, we enter into capped or fixed-price contracts. Because of the complexity of many of our client contracts, accurately estimating the cost, scope and duration of a particular contract can be a difficult task. If our actual costs exceed original estimates on fixed-price contracts, our profits will be reduced. Because of the large scale, customer timelines, seasonality of our business or long duration of some contracts, unanticipated cost increases may occur as a result of several factors including, but not limited to: increases in the cost or shortages of materials or labor; unanticipated technical problems; required project modifications not initiated by the customer; suppliers’ or subcontractors’ failure to perform or delay in performing their obligations; and capacity constraints. In addition to increased costs, these factors could delay delivery of products which may result in the assessment of liquidated damages or other contractual damages. Unanticipated costs that we are unable to pass on to our customers or our payment of delay damages under fixed contracts would negatively impact our profits.
Backlog may not be indicative of future revenue or profitability.
Many of our products have long sales, delivery and acceptance cycles. In addition, our backlog is subject to order cancellations and delays. Orders normally contain cancellation provisions to permit our recovery of costs expended and a pro-rata portion of the profit. If projects are delayed, revenue recognition can occur over longer periods of time, and projects may remain in the backlog for extended periods of time. If we receive relatively large orders in any given quarter, fluctuations in the levels of the quarterly backlog can result because the backlog may reach levels which may not be sustained in subsequent quarters.
Unanticipated events resulting in credit losses could have a material adverse impact on our financial results.
Significant portions of our sales are to customers who place large orders for custom products. We closely monitor the credit worthiness of our customers and have not, to date, experienced significant credit losses. We mitigate our exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments and letters of credit. However, because some of our exposure to credit losses is outside of our control, unanticipated events resulting in credit losses could have a material adverse impact on our operating results.
We depend on a single-source or a limited number of suppliers for our raw materials and components, and the loss of any of these suppliers or an increase in cost of raw materials could harm our business.
We obtain some of our raw materials from one or limited number of suppliers. If we cannot obtain key raw materials from our suppliers, the raw materials may not be readily available from other suppliers, other suppliers may not agree to supply the materials to us on terms as favorable as the terms we currently receive, or the raw materials from any other suppliers may not be of adequate and consistent quality. Although we believe our supply of raw materials is adequate for the needs of our business, we cannot assure that new sources of supply will be available when needed. Any interruption in our supply of raw materials could affect our ability to manufacture our products until a new source of supply is located and, therefore, could have a material adverse effect on our business, financial condition or results of operations.
In addition, we purchase various raw materials and components in order to manufacture our products. Historically, fluctuations in the prices of these raw materials and components have not had a material impact on our business. In the future, however, if we experience increases in the price of raw materials and components and are unable to pass on those increases to our customers, it could negatively affect our business, financial condition or results of operations.
Our international operations are exposed to additional risks and uncertainties, including unfavorable political developments, weak foreign economies, and compliance with foreign governmental requirements, which may impact our results of operations.
For the 2016, 2015, and 2014 fiscal years, revenue outside the United States represented approximately 18%, 20%, and 18% of our consolidated net sales, respectively. Our operations and earnings throughout the world have been and may in the future be adversely affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of United States and foreign governments, agencies, and similar organizations. These conditions include, but are not limited to, changes in a country's or region's economic or political conditions; trade regulations affecting production, pricing and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights in some countries; changes in the regulatory or legal environment; restrictions and foreign exchange rate fluctuations; and burdensome taxes and tariffs and other trade barriers. International risks and uncertainties also include changing social and economic conditions, terrorism, political hostilities and war, difficultly in enforcing agreements or collecting receivables and increased transportation and other shipping costs. The likelihood of such occurrences and their overall effect on us 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 our ability to expand our business outside of the United States.
Our future results may be affected by legal compliance risks related to the United States Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws for the countries in which we operate.
We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits United States companies from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and other similar regulations in other areas of the world. It also requires us to maintain specific record-keeping standards and adequate internal accounting controls. In addition, we are subject to similar requirements in other countries. Bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis. Although we have internal policies and procedures with the intention of assuring compliance with these laws and regulations, our employees, contractors, agents and licensees involved in our international sales may take actions in violations of such policies. If our internal controls and compliance program do not adequately prevent or deter our employees, agents, distributors, suppliers and other third parties with whom we do business from violating anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage.
We may fail to continue to attract, develop and retain key management personnel, which could negatively impact our operating results.
We depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel. The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy. Our future success will also depend upon our ability to attract, train, motivate and retain qualified personnel.
We may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results.
We increase our production capacity and the overhead supporting production based on anticipated market demand. Market demand, however, has not always developed as expected or remained at a consistent level. This underutilization risk can potentially decrease our profitability and result in the impairment of certain assets.
The following factors are among those that could complicate capacity planning for market demand:
changes in the demand for and mix of products that our customers buy;
our ability to add and train our manufacturing staff in advance of demand;
the market’s pace of technological change;
variability in our manufacturing productivity; and
long lead times for our plant and equipment expenditures.
We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict minerals,” which has imposed and may impose additional costs on us and could raise reputational challenges and other risks.
The SEC has promulgated final rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding disclosure of the use of certain minerals, known as conflict minerals, mined from the Democratic Republic of the Congo and adjoining countries. As required annually, we filed Forms SD in May 2015 and May 2016 reporting our work performed to gain information on the source of conflict minerals we use. We incurred costs associated with complying with these disclosure requirements. As we continue our due diligence, we may face reputational challenges if we continue to be unable to verify the origins for all conflict minerals used in our products. We may also encounter challenges in our efforts to satisfy customers that may require all of the components of products purchased to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.
Our actual results could differ from the estimates and assumptions used to prepare our financial statements, which could have a material impact on our financial condition and results of operations.
Our management is required under U.S. GAAP to make estimates and assumptions as of the dates of our financial statements. These estimates and assumptions affect the recognition of contract revenue, costs, profits or losses in applying the principles of percentage of completion; estimated amounts for warranty costs; the collectability of billed and unbilled accounts receivable and the amount of any allowance for doubtful accounts; the continuing utility of our property and equipment; the amount of estimated liabilities; the valuation of assets acquired plus liabilities, goodwill, and intangible assets assumed in acquisitions; and the valuation of stock-based compensation. If management's estimates and assumptions are not accurate, our financial results or results of operation could be adversely affected.
If our internal control over financial reporting is found to be ineffective, our financial statements may not be fairly stated, raising concerns for investors and potentially adversely affecting our stock price.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal controls over financial reporting. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. We may encounter problems or delays in completing the review and evaluation, implementing improvements, or receiving a positive attestation from our independent registered public accounting firm. In addition, our assessment of internal controls may identify deficiencies in our internal controls over financial reporting or other matters which may raise concerns for investors and therefore adversely affect our stock price.
If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.
We have pursued and will continue to seek potential acquisitions to complement and expand our existing businesses, increase our revenues and profitability, and expand our markets. As a result of prior acquisitions, we have goodwill and intangible assets recorded on our consolidated balance sheet as described in "Note 6. Long-Lived Assets" of the Notes to our Consolidated Financial Statements included in this Form 10-K. Under current accounting guidelines, we must assess, at least annually, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods.
Acquisitions and divestitures pose financial, management and other risks and challenges.
We routinely explore acquiring other businesses and assets. Periodically, we may also consider disposing of certain assets, subsidiaries, or lines of business. Acquisitions or divestitures present financial, managerial and operational challenges. These include, but are not limited to, the following:
diversion of management attention;
difficulty with integrating acquired businesses;
difficulty with the integration of different corporate cultures;
personnel issues;
increased expenses;
assumption of unknown liabilities and indemnification obligations;
potential disputes with the buyers or sellers;
the time involved in evaluating or modifying the financial systems of an acquired business; and
establishment of appropriate internal controls.
There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits.
The terms and conditions of our credit facility impose restrictions on our operations, and if we default on our credit facility, it could have a material adverse effect on our results of operations and financial condition and make us vulnerable to adverse economic or industry conditions.
The terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, merge, sell assets, make distributions (including cash dividends) and create or incur liens. The availability of credit facilities is also subject to certain covenants as explained in “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.” A breach of any of these covenants could result in an event of default under our credit facility. Upon the occurrence of an event of default, the lender could elect to declare any and all amounts outstanding under such facility to be immediately due and payable and terminate all commitments to extend further credit. For additional information on financing agreements, see, "Note 10. Financing Agreements" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
In addition, it is anticipated that borrowings from our existing credit facilities and cash provided by operating activities should provide sufficient funds to finance our capital expenditures, working capital and otherwise meet operating expenses and debt service requirements. However, if additional capital is required, there can be no assurance we will be able to obtain such capital when needed or on satisfactory terms. Also, market conditions can negatively impact our customers' ability to fund their projects and can impact our vendors, suppliers, and subcontractors and may not allow them to perform their obligations to us.
If we became unable to obtain adequate surety bonding or letters of credit, it could adversely affect our ability to bid on new work, which could have a material adverse effect on our future revenue and business prospects.
In line with industry practice, we are often required to provide performance and surety bonds to customers and may be required to provide letters of credit. These bonds and letters of credit provide credit support for the client if we fail to perform our obligations under the contract. If security is required for a particular project and we are unable to obtain a bond or letter of credit on terms acceptable to us, we may not be able to pursue that project. In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets.
We may be unable to protect our intellectual property rights effectively, or we may infringe upon the intellectual property rights of others, either of which may have a material adverse effect on our operating results and financial condition.
We rely on a variety of intellectual property rights we use in our products and services. We may not be able to successfully preserve our intellectual property rights in the future, and these rights could be invalidated, circumvented or challenged. In particular, the laws of certain countries in which our products are sold do not protect our products and intellectual property rights to the same extent as the laws of the United States. If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources.
resources even if we ultimately prevail.
In addition, intellectual property rights of others also hashave an impact on our ability to offer some of our products and services for specific uses or at competitive prices. Competitor'sCompetitors' patents or other intellectual property may limit our ability to offer products or services to our customers. Any infringement or claimed infringement by us of the intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, products and services.
If we fail to timely and effectively obtain shipments of raw materials and components from our suppliers or to send shipments of our manufactured product to our customers, our business and operating results could be adversely affected.
We cannot control all of the various factors that might affect our suppliers' timely and effective delivery of raw materials and components to our manufacturing facilities or the availability of freight capacity for us to deliver products to our customers.
Our utilization of a complex supply chain for raw material and component imports and the global distribution of our products makes us vulnerable to many risks, including, among other things, shortages or delays because of work restrictions for various reasons like COVID-19 restrictions, supply chain implications due to war or other geopolitical impacts on supply chains, risks of damage, destruction or confiscation of products while in transit to and from our manufacturing facilities; organized labor strikes and work stoppages, such as labor disputes or related employee worker unavailability, that could disrupt operations at ports-of-entry; transportation and other delays in shipments as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions; unexpected or significant port congestion; lack of freight availability; and freight cost increases. In addition, we may be required to arrange for products to be delivered through airfreight, which is significantly more expensive than standard shipping by sea. We may not be able to obtain sufficient freight capacity on a timely basis and, therefore, may not be able to timely receive shipments of raw materials and components or deliver products to customers.
COVID-19 created constraints on supply chain operations and resulted in component part shortages due to global capacity constraints, such as the current global capacity constraint we have been facing in the supply of component parts, particularly of semiconductor components. In addition, transportation availability has disrupted the timeliness of raw material and component shipments and customer shipments. Such a constraint could cause and has caused lead times for our products to increase.
Cost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs have had and may continue to have a significant impact on our price competitiveness and/or ability to produce our products, which have caused and could continue to cause harm to our sales, financial condition and results of operations.
Cost inflation and shortages of any raw materials and components used to manufacture our products have and may continue to occur due to various factors, such as worldwide demand, natural disasters, logistic disruptions, war and other conflicts, and trade regulations.
Electronic and other components and materials used in our products are sometimes in short supply, which may impact our ability to meet customer demand. Transportation costs and availability can fluctuate due to fluctuations in oil prices and other social, economic, and geopolitical factors.
If we experience shortages or increases in the prices we pay for raw materials and components and are unable to pass on those increases to our customers or are unable to manufacture our products at all or on a timely basis, it could negatively affect our business, financial condition or results of operations as such conditions have in the past. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits.
During late fiscal 2021, supply chain disruptions began to emerge because of COVID-19, shipping container shortages, winter weather, and changes in global demand. Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight. While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business.
Trade disruptions between countries could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program. We monitor for these types of situations and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments.
We depend on a single-source or a limited number of suppliers for our raw materials and components from countries around the world. The loss, an interruption, or a material change in our business relationships with our suppliers or in global supply chain conditions has had and could continue to cause a disruption in our supply chains and a substantial increase in the costs of such raw materials and components. Such changes have and could continue to result in extended lead times or supply changes, which could disrupt or delay our scheduled product deliveries to our end user customers and may result in the loss of sales and end user customers and cause harm to our sales, financial condition, and results of operations.
The performance and financial condition of a supplier may cause us to alter our business terms, cease doing business with a particular supplier, or change our sourcing practices. Our suppliers are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses. Our supply chain includes materials that are sourced or packaged directly or indirectly through Taiwan or China suppliers. Geopolitical tensions and shipping disruptions can impact our suppliers ability to deliver components and raw materials.
An interruption from our suppliers of raw materials or components could affect our ability to manufacture our products until a new source of supply is located and, therefore, could have a material adverse effect on our business, financial condition or results of operations. Our suppliers may need to allocate available supply, and we may not be able to obtain parts needed for production. Qualifying new suppliers to compensate for such shortages may be time-consuming and costly and may increase the likelihood of errors in design or production.
In order to reduce manufacturing lead times and plan for adequate component supply, from time to time we may issue purchase orders or prepay for components and products that are non-cancelable and non-returnable. In addition, we may purchase components and products that have extended lead teams to ensure adequate supply to support long-term customer demand and mitigate the impact of supply disruptions. If we are unable to use all of the components we have purchased, we may have excess inventory or obsolescence, or increased inventory or carrying costs, which could have an adverse impact on our results of operation or financial condition.
We may fail to continue to attract, develop and retain personnel throughout our business areas, which could negatively impact our operating results.
We depend on qualified employees, including experienced and skilled technical personnel, to design, market, fulfill, and serve our customers. Qualified employees can be in high demand and limited in availability. Our future success and operating results will also depend upon our ability to attract, train, motivate and retain qualified personnel to maintain and grow capacity. Although we intend to continue to provide competitive compensation packages to attract and retain qualified personnel, market conditions for pay levels and availability may negatively impact our operations.
We depend on third parties to complete some of our contracts.
Depending on a contract's scope of work, we may hire third-party subcontractors to perform on-site installation and service-related activities, hire manufacturers of structures or elements of structures related to on-site installations, hire contract manufacturers for certain product lines, or purchase specialty non-display related system elements from other companies. If we are unable to hire qualified subcontractors, find qualified manufacturers for on-site elements, find qualified contract manufacturers, or purchase specialty non-display system elements, our ability to successfully complete a project could be impaired. If we are not able to locate qualified third party subcontractors or manufacturers, the amount we are required to pay may exceed what we have estimated, and we may suffer losses on these contracts. If the subcontractor or manufacturer fails to perform, we may be required to source these services to other third parties on a delayed basis or on less favorable terms, which could impact contract profitability. There is a risk that we may have disputes with our subcontractors relating to, among other things, the quality and timeliness of work performed, customer concerns about the subcontractor, or faulty workmanship, resulting in claims against us for failure to meet required project specifications and negatively impacting our financial condition and results of operations.
These third parties are subject to fluctuations in global economic cycles and conditions and other business risk factors which may adversely impact their ability to operate their businesses. The performance and financial condition of the third parties may cause us to alter our business terms or to cease doing business with a particular third party or change our sourcing practices.
We may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results.
We increase and decrease our production and services capacity and the overhead supporting order fulfillment based on anticipated market demand. Market demand, however, has not always developed as expected or remained at a consistent level. These underutilization and overbooking capacity risks can potentially decrease our profitability and result in the impairment of certain assets.
The following factors are among those that could complicate capacity planning for market demand:
•changes in the demand for and mix of products that our customers buy;
•our ability scale down or to add and train our manufacturing and services staff in advance of demand changes;
•the market’s pace of technological change;
•variability in our manufacturing or services productivity;
•long lead times for and availability of raw materials and components used in production;
•our ability to engage qualified third parties;
•geography of the order and related shipping methods; and
•long lead times for our plant and equipment expenditures.
Our results of operations on a quarterly and annual basis have and are likely to continue to fluctuate and be substantially affected by the size and timing of large contract order awards.
Customer demand and the timing and size of large contracts create volatility in supply chain planning and capacity requirements to fulfill orders. Awards of large contracts and their timing and amounts are difficult to predict, may not be repeatable, and are outside of our control. Market demand has not always developed as expected or remained at a consistent level. Adjusting supply chain material planning and production and services capacity to meet this varied demand can increase costs. Large contracts or customer awards include projects for college and professional sports facilities
markets, the OOH niche, the transportation market, and the large spectacular niche. These projects can have short delivery time frames. Some factors that may cause our operating results to vary due to timing and size of the awards include:
•the timing of orders and related deliveries, including delays or cancellations of orders;
•our ability to obtain raw materials and components timely and at reasonable prices;
•our ability to adjust and utilize production and services capacity;
•our ability to engage third parties to support production and fulfillment;
•new product introductions;
•variations in product mix; and
•customer financial wherewithal and the related economic conditions impacting their business.
Operating results in one or more quarters of a fiscal year may not be indicative of future operating results.
We enter into fixed-price contracts, which could reduce our profits if actual costs exceed estimated costs.
Because of the complexity of many of our client contracts, accurately estimating the cost, scope and duration of a particular contract can be a difficult task. Unanticipated costs that exceed our original estimates may not be recoverable under fixed price contracts. Unanticipated cost increases may occur as a result of several factors including, but not limited to: increases in the cost, shortages or non-availability of materials or labor; unanticipated technical problems; required project modifications not initiated by the customer; suppliers’ or subcontractors’ failure to perform or delay in performing their obligations; logistics disruptions or delays; and capacity constraints. In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages which would negatively impact our profits. We evaluate changes in estimates on a contract-by-contract basis and disclose significant changes, if material, in the Notes to Consolidated Financial Statements. The cumulative catch-up method is used to account for revisions in estimates.
Backlog may not be indicative of future revenue or profitability.
Many of our products have long sales, delivery and acceptance cycles. In addition, our backlog is subject to order cancellations and delays. Orders normally contain cancellation provisions to permit our recovery of costs expended as well as a pro-rata portion of the profit. If projects are delayed, revenue recognition can occur over longer periods of time, and projects may remain in backlog for extended periods of time. If we receive relatively large orders in any given quarter, fluctuations in the levels of the quarterly backlog can result because the backlog may reach levels which may not be sustained in subsequent quarters.
Unanticipated events resulting in credit losses to us could have a material adverse impact on our financial results.
Significant portions of our sales are to customers who place large orders for custom products. We closely monitor the creditworthiness of our customers and have not, to date, experienced significant credit losses. We mitigate our exposure to credit risk, to some extent, by requiring deposits, payments prior to shipment, progress payments, payment bonds and letters of credit. However, because some of our exposure to credit losses is outside of our control, unanticipated events resulting in credit losses could have a material adverse impact on our operating results.
Our actual results could differ from the estimates and assumptions we make to prepare our financial statements, which could have a material impact on our financial condition and results of operations.
In connection with the preparation of our financial statements, including the Consolidated Financial Statements included in this Form 10-K, our management is required under GAAP to make estimates and assumptions based on historical experience and other factors. Our most critical accounting estimates are described in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K.
These estimates and assumptions affect the timing and amount of net sales, costs, and profits or losses in applying the principles to contracts with customers under over time method of recording revenue using the cost-to-cost input method; credit losses for accounts receivables and contract assets; the valuation of inventory; estimated amounts for warranty and product maintenance agreement costs; the calculation and valuation of our investments and deferred tax assets; the valuation of our investment in affiliates or unconsolidated subsidiaries; fair value estimates used in goodwill and long-term assets testing; estimating the impact of uncertainties in the application of complex tax laws; and calculating share-based compensation expense. Although we believe these estimates and assumptions are reasonable under the circumstances, they
are subject to significant uncertainties, some of which are beyond our control. If management's estimates and assumptions change or are not correct, our financial condition or results of operations could be adversely affected.
Unanticipated warranty and other costs for defective products could adversely affect our financial condition, results of operations and reputation.
We provide warranties on our products with terms varying from one to 10 years. In addition, we offer extended warranties. These warranties require us to repair or replace faulty products and meet certain performance standards, among other customary warranty provisions. Although we continually monitor our warranty claims and accrue a liability for estimated warranty costs, unanticipated claims could have a material adverse impact on our financial results. In some cases, we 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. In addition, the need to repair or replace products with design and manufacturing defects could adversely affect our reputation. Remediation of a claim may take time and could result in lost or deferred revenue, lead to costly warranty expenses, and have a material adverse impact on our financial condition and operating results.
The terms and conditions of our credit facilities impose restrictions on our operations, and if we default on our credit facilities, it could have a material adverse effect on our results of operations and financial condition and make us vulnerable to adverse economic or industry conditions and cause liquidity issues.
The terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, contingent liabilities, lease obligations or liens; to merge or consolidate with another company; to dispose substantially all our assets ; to acquire or purchase a business or its assets; or to sell our assets. Our credit facilities also impose certain financial covenants on us which restrict the level of cash dividends and capital expenditures. A breach of any of these covenants could result in an event of default under our credit facilities. Upon the occurrence of an event of default, the lender could elect to declare any and all amounts outstanding under such facilities to be immediately due and payable and terminate all commitments to extend further credit. For additional information on financing agreements, see "Note 7. Financing Agreements" and "Note 17. Subsequent Events" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
For the foreseeable future, it is anticipated that our cash on hand, marketable securities, cash provided by operating activities, and borrowings under our credit facilities should provide sufficient funds to finance our capital expenditures and working capital needs and otherwise meet operating expenses and debt service requirements. However, if additional capital is required or we are unable to renew our existing credit facilities at all or on a timely basis, there can be no assurance we will be able to obtain such capital when needed or on satisfactory terms.
If we became unable to obtain adequate surety bonding or letters of credit, it could adversely affect our ability to bid on new work, which could have a material adverse effect on our future revenue and business prospects.
In line with industry practice, we are often required to provide performance and surety bonds to customers and may be required to provide letters of credit. These bonds and letters of credit provide credit support for the client if we fail to perform our obligations under the contract. If security is required for a project and we are unable to obtain a bond or letter of credit on terms acceptable to us and our client, we may not be able to pursue that project. In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets.
Volatility in our business driven by global economic conditions and supply chain disruptions can have a negative effect on our liquidity and could cause us to express substantial doubt about our ability to continue as a going concern.
Global economic conditions and supply chain disruptions have and will continue to cause volatility in our cash flow, pricing, order volumes lead times, competitiveness, revenue cycles, and production costs. Our ability to fund inventory levels, operations and capital expenditures in the future will be dependent on our ability to generate cash flow from operations in these conditions, to maintain or improve margins, and to use funds from our credit facility. Also, market conditions can negatively impact our customers' ability to fund their projects and can impact our vendors, suppliers, and subcontractors and may not allow them to meet their obligations to us and impact our liquidity.
A determination that there is a substantial doubt about our ability to continue as a going concern can cause our existing and prospective suppliers, customers, and financing sources to not do business with us.
We previously disclosed that liquidity constraints conditions raised substantial doubt about the Company’s ability to continue in our second and third quarter of fiscal 2023 financial statements. On May 11, 2023, we secured long-term financing. During fiscal 2023, we recognized operating income of $21.4 million and generated $15.0 million in cash flows provided by operating activities, and we project we will have sufficient cash on hand and availability under the financing agreements to fund future operations. Therefore, the events and conditions that gave rise to substantial doubt about our ability to continue as a going concern were resolved.
Acquisitions, investments, and divestitures pose financial, management and other risks and challenges.
We routinely invest in and explore investing in or acquiring other businesses and related assets to complement or enhance our business strategies. These investments are often made to increase customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio. Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.
The financial, management and other risks and challenges associated with these activities include, but are not limited to, the following:
•diversion of management attention;
•difficulty with integrating acquired businesses;
•adverse impact on overall profitability if the expanded operations or investments in affiliates do not achieve the strategic benefits forecasted;
•potential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business;
•inability to effectively manage our expanded operations;
•difficulty with the integration of different corporate cultures;
•personnel issues;
•increased expenses;
•assumption of unknown liabilities and indemnification obligations;
•potential disputes with the buyers or sellers;
•the time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls;
•incorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities; and
•incorrect assumptions and estimates made in accounting for the value of such asset.
There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits.
We have $20.7 million, net invested in affiliates as of April 29, 2023. Our financial results are impacted negatively or positively from our proportionate share of our affiliates' financial performance. Any reduction or impairment of the value of an investment and related acquired assets, goodwill, or investments in affiliates would result in charges against earnings, which would adversely affect our results of operations in future periods. We recorded an impairment to the value of one of these investments by $4.5 million during fiscal year 2023.
If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.
We have pursued and will continue to seek potential acquisitions to complement and expand our existing businesses, increase our revenues and profitability, and expand our markets. As a result of prior acquisitions, we have goodwill and intangible assets recorded in our consolidated balance sheets as described in "Note 4. Goodwill and Intangible Assets" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is not amortized and remains in our consolidated balance sheets indefinitely unless there is an impairment or a sale of a portion of the business. Under current accounting guidelines, we must assess, at least annually, whether the value of goodwill and other intangible assets has been impaired. Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods.
We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded a $4.6 million impairment charge. We determined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows. Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts. The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our liquidity caused by disrupted supply chains and geopolitical conditions. As a result, the present value of our future cash flows was lower, which caused the impairment charge. Based on our annual impairment test, we concluded that the fair value of the Commercial and Transportation reporting units exceeded their respective carrying values and concluded no goodwill impairment existed for those reporting units. The annual impairment test for fiscal years 2022 and 2021 concluded no goodwill impairment existed.
We may fail to continue to attract, develop and retain key management personnel, which could negatively impact our operating results.
We depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel. The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy. Our future success will also depend upon our ability to attract, train, motivate and retain qualified personnel.
Although we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel. If we cannot attract and retain sufficiently qualified technical employees for our research and development and manufacturing operations, we may be unable to achieve the synergies expected from mergers and acquisitions or to develop and commercialize new products or new applications for existing products. Furthermore, possible shortages of key personnel, including engineers, could require us to pay more to hire and retain key personnel, thereby increasing our costs.
The outcome of pending and future claims, investigations or litigation can have a material adverse impact on our business, financial condition, and results of operations.
We can beare involved from time to time in a party tovariety of litigation, investigations, inquires or similar matters arising in the normal course ofour business. Litigation, investigations and regulatory proceedings are subject to inherent uncertainties, and unfavorable rulings and outcomes can and do occur. Pending or future claims against us could result in professional liability, product liability, criminal liability, warranty obligations, indemnity claims, or other liabilities to the extent we are not insured against a loss or our insurance fails to provide adequate coverage. Also, a well-publicized actual or perceived threat of litigation could adversely affect our reputation and reduce the demand for our products. See "Note 16. Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on litigation obligations.
Information Systems, Legal, and Regulatory Risks
Our business depends on numerous complex information systems. Any failure to maintain these systems, a network disruption, or breaches in data systemssecurity that could fail or their security could be compromised, causingcause a material adverse effect on our business.
We rely heavily on digital technologiescomplex information systems for the successful operation of our business, for the support of our controller offerings, and for the collection and retention of business data. Any failure of our digital systems, or any breach of our systems’ security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated. Despite the security measures we have in place, our facilities and systems and those of our third-party service providers may be vulnerable to cybersecurity breaches, acts of vandalism, computer viruses, misplaced or lost data, ransomware attacks, programming issues, and/or human errors or other similar events. Any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information, whether by us or by our third-party service providers, could adversely affect our business and operations. We could face significant fines and penalties under various global laws revolving around data loss, lack of adequate data protection or lack of required reporting. Any disruption in our digital technologies could affect our business and operations, including our manufacturing processes,causing potentially significant expenses to recover and modify the data systems, to reimburse customers' losses, and to investigate and remediate any vulnerabilities, which could severely damagingdamage our reputation with customers, suppliers, employees and investors and expose us to risk of litigation and liability.
Our global operations expose us to global regulatory, geopolitical, economic and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition.
Our domestic and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with global regulations and governmental orders. Global conditions include political developments; economic changes; unfavorable trading policies; difficulties in staffing and managing global operations; changes in foreign and domestic governmental regulations or requirements, treaty and trade relationships; the imposition of government orders that differ among jurisdictions, including mandatory closures, work-from-home and lock-down orders and social distancing protocols; changes in monetary and fiscal policies; changes in laws and regulations; or other activities of the United States and other foreign governments, agencies, and similar organizations. These conditions include, but are not limited to, changes in a country's or region's economic or political conditions; pricing and marketing of products; local labor conditions and regulations; reduced protection of intellectual property rights; changes in the regulatory or legal environment; lack of well-developed legal systems; restrictions and foreign exchange rate fluctuations; and burdensome taxes and tariffs and other trade regulations or barriers. Other exposures and uncertainties that exist include changing social conditions and attitudes, terrorism, or political hostilities and war. Other difficulties of global operations include staffing and managing our various locations, including logistical and communication challenges. The likelihood of such occurrences and their overall effect on us vary greatly from country to country and are not predictable.
Our business involves the use of hazardous materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive and restrict how we do business.
Our business involves the blending, controlled storage, use and disposal of hazardous materials. We and our suppliers are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. Although we believe the safety procedures we utilize for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident, local, state, federal or foreign authorities may curtail the use of these materials and interrupt our business operations. If we are subject to any liability as a result of activities involving hazardous materials, our business, financial condition and results of operations may be adversely affected, and our reputation may be harmed.
Our future results may be affected by compliance risks related to United States and other countries' anti-bribery and anti-corruption laws, trade controls, economic sanctions, and similar laws and regulations. Our failure to comply with these laws and regulations could subject us to civil, criminal and administrative proceedings or penalties and harm our reputation.
Doing business on a worldwide basis requires us to comply with the laws and regulations of the United States government and various foreign jurisdictions. These laws and regulations place restrictions on our operations, trade practices, partners, customers, and investments.
In particular, we and our operations are subject to United States and foreign anti-corruption and trade control laws and regulations, such as the United States Foreign Corrupt Practices Act (the “FCPA”); the United Kingdom Bribery Act (the “Bribery Act”); and export controls and economic sanctions programs, including those administered by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”), the State Department’s Directorate of Defense Trade Controls (the “DDTC”), and the Bureau of Industry and Security of the United States Department of Commerce.
As part of our business, we deal with state-owned business enterprises, the employees of which are considered to be foreign officials for purposes of the FCPA's prohibition on United States companies from engaging in bribery, providing anything of value, or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business, and other similar regulations in other areas of the world. In addition, the provisions of the Bribery Act apply to the bribery of foreign officials and to transactions with individuals that a government does not employ. The FCPA also requires us to maintain specific record-keeping standards and adequate internal accounting controls. In addition, we are subject to similar requirements in other countries. Some of the international locations in which we do business lack a developed legal system and have higher than normal levels of corruption. Our expansion outside of the United States, and our development of new partnerships and joint venture relations worldwide, could increase the risk of violation of the FCPA, OFAC, the Bribery Act or similar laws and regulations.
As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the United States and other countries having jurisdiction over our operations and trade sanctions against embargoed
countries and destinations administered by OFAC. Before shipping certain items, we must obtain an export license or verify that license exemptions are available. Any failures to comply with these laws and regulations could result in fines, adverse publicity, and restrictions on our ability to export our products. Repeat failures could carry more significant penalties.
Anti-bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis. Violations of anti-corruption, anti-bribery and trade control laws and sanctions regulations are punishable by civil penalties, including fines; the denial of export privileges; injunctions; asset seizures; debarment from government contracts and revocations or restrictions of license; as well as criminal fines and imprisonment, and could harm our reputation, create negative shareholder sentiment and affect our share value. We have established policies and procedures with the intention of providing reasonable assurance of compliance with these laws and regulations and trained our employees to comply with these laws and regulations. However, our employees, contractors, agents and licensees involved in our international operations may take actions in violations of such policies. If our employees, agents, distributors, suppliers and other third parties with whom we do business violate anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage. Additionally, there can be no assurance that our policies and procedures will effectively prevent us from violating these regulations in every transaction in which we may engage or provide a defense to any alleged violation. In particular, we may be held liable for the actions that our partners take inside or outside of the United States even though we are not aware of such actions or our partners may not be subject to these laws. Such a violation, even if our policies prohibit it, could have an adverse effect on our reputation, business, financial condition and results of operations. In addition, various state and municipal governments, universities and other investors maintain prohibitions or restrictions on investments in companies that do business with sanctioned countries, persons and entities, which could adversely affect our reputation, business, financial condition and results of operations.
Regulation in the areas of privacy, data protection and information security could increase our costs and affect or limit our business opportunities and how we collect or use personal information.
As privacy, data protection and information security laws, including data localization laws, are interpreted and applied, compliance costs may increase, particularly in the context of ensuring that adequate data protection and data transfer mechanisms are in place. In recent years, there have been increasing regulatory enforcement and litigation activities in the areas of privacy, data protection and information security in the United States and in various countries in which we operate.
In addition, state and federal legislators and/or regulators in the United States and other countries in which we operate are increasingly adopting or revising privacy, data protection and information security laws that potentially could have a significant impact on our current and planned privacy, data protection and information security-related practices; our collection, use, sharing, retention and safeguarding of consumer and/or employee information; and some of our current or planned business activities. New legislation or regulation could increase our costs of compliance and business operations and could reduce revenues from certain business initiatives. Moreover, the application of existing or new laws to existing technology and practices can be uncertain and may lead to additional compliance risk and cost.
Compliance with current or future privacy, data protection and information security laws relating to consumer and/or employee data, including the General Data Protection Regulation in the European Union and similar laws in other regions of the world, including the United States, could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could materially and adversely affect our results of operations. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, ongoing regulatory monitoring, customer attrition, customer indemnity claims, decreases in the use or acceptance of our products and services, and damage to our reputation and our brand.
Global tax law changes may adversely affect our business, financial condition and results of operations.
We are subject to the income tax laws of the United States and its various state and local governments as well as several foreign tax jurisdictions. Our future income taxes could be materially adversely affected by changes in the amount or mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or the interpretation of tax rules and regulations in jurisdictions in which we do business, changes in tax laws, or the outcome of income tax audits and any related litigation. The United States Tax Cuts and Jobs Act of 2017 is one such example of legislation that has impacted our effective tax rate.
Further changes in the tax laws of the United States and foreign jurisdictions could arise, including additional tax reform in the United States and the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (“OECD”). Both the United States tax reform and the OECD proposed recommendations which, in some cases, would make substantial changes to numerous long-standing tax positions and principles. These contemplated changes could increase tax uncertainty and may adversely affect our business, financial condition and results of operations.
Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely impact our stock price.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we are required to evaluate and determine the effectiveness of our internal controls over financial reporting. Ineffective internal control over financial reporting could result in errors in our financial statements, reduce investor confidence, and adversely affect our stock price. As discussed in Part II, Item 9A “Controls and Procedures” in this Form 10-K, during the year-end closing processes for fiscal 2023, we identified a material weakness in our internal control related to the ineffective operation of certain transactional level controls over revenue recognition, specifically related to revenue contracts recognized over time, which resulted from insufficient precision of processes and insufficient training of the relevant control operators. These internal controls are important to accurately reflect our financial position and results of operations in our financial reports. We performed additional procedures over contracts for which revenue is recognized over time, including leveraging the expertise of a third-party specialist, and we did not identify any material errors in our reported revenue balance. However, due to the material weakness described above, there is a reasonable possibility that our existing controls would not have detected a material misstatement in a timely manner if it were to be material. We are in the process of remediating the material weakness, but our efforts may not be successful. If we are unable to remediate the material weakness in an appropriate and timely manner, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Our failure to maintain effective internal control over financial reporting could result in violations of applicable securities laws and stock exchange listing requirements; subject us to litigation and investigations; negatively affect investor confidence in our financial statements; and adversely impact our stock price and ability to access capital markets.
Insurance coverage can be difficult or expensive to obtain, and our failure to obtain adequate insurance coverage could adversely affect our financial condition or results of operations.
We maintain insurance both as a corporate risk management strategy and to satisfy the requirements of many of our contracts with customers. As the costs and availability of insurance change, we may decide not to be covered against certain losses where, in the judgment of management, the insurance is not warranted due to the cost or availability of coverage or the remoteness of the perceived risk. We cannot provide assurance that all necessary or appropriate insurances will be available, cover every type of loss incurred, or be able to be economically secured. For example, some insurers limit or refuse coverages, increase premium costs or increase deductibles when global catastrophic events occur. As part of our corporate risk management strategy, we monitor and place our coverages with financially strong insurers, layer our risk with multiple insurers, and seek advice on the amount, breadth and type of insurance coverages to protect our interests. We also contractually require subcontractors and others working on our behalf to carry common insurance coverages for the types of work they perform to mitigate any risk of our loss. Our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations.
We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict minerals”, which has imposed and may impose additional costs on us and could raise reputational challenges and other risks.
The SEC has promulgated rules in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding disclosure of the use of certain minerals, known as conflict minerals, mined from the Democratic Republic of the Congo and adjoining countries. As required, we have filed annual Forms SD with the SEC since 2014 reporting our work performed to gain information on the source of conflict minerals we use. We incur costs associated with complying with these disclosure requirements. As we continue our due diligence, we may face reputational challenges if we continue to be unable to verify the origins of all conflict minerals used in our products. We may also encounter challenges in our efforts to satisfy customers that may require all of the components of products purchased to be certified as conflict free. If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier.
Risks Related to an Investment in Our Common Stock
The protections we have adopted and to which we are subject may discourage takeover offers favored by our shareholders.
Our articles of incorporation, by-laws and other corporate governance documents and the South Dakota Business Corporation Act (SD Act)("SD Act") contain provisions that could have an anti-takeover effect and discourage, delay or prevent a change in control or an acquisition that many shareholders may find attractive. These provisions make it more difficult for our shareholders to take some corporate actions. Theseactions and include provisions relaterelating to:
•the ability of our Board of Directors, to issue undesignated shares on terms and with the rights, preferences and designations determined by the Board without shareholder action;approval, to authorize and issue shares of stock with voting, liquidation, dividend and other rights and preferences that are superior to our common stock;
•the classification of our Board of Directors, which effectively prevents shareholders from electing a majority of the directors at any one meeting of shareholders;
•the adoption of a shareholder rights planagreement providing for the exercise of commonjunior participating preferred stock purchase rights when a person becomes the beneficial owner of 1520 percent or more of our outstanding common stock and upon the occurrence of certain similar events (subject to certain exceptions);
•under the SD Act, limitations on the voting rights of shares acquired in specified types of acquisitions and restrictions on specified types of business combinations; and
•under the SD Act, prohibitions against engaging in a “business combination” with an “interested shareholder” 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.
These provisions 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 our common stock.
Our common stock has at times been thinly traded, which may result in low liquidity and price volatility.
The daily trading volume of our common stock has at times been relatively low. If this were to occur in the future, the liquidity and appreciation of our common stock may not meet our shareholders’ expectations, and the pricesprice at which our stock trades may be volatile. The market price of our 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 such sales could cause.
Significant changes in the market price of our common stock could result in securities litigation claims against us.
The market price of our common stock has fluctuated and will likely continue to fluctuate, and influctuate. In the past, companies that have experienced significant changes in the market price of their stock have been subject to securities litigation claims. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
Additionally, if we fail to meet or exceed the expectations of securities analysts and investors, or if one or more of the securities analysts who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline. Moreover, our stock price may be based on expectations, estimates and forecasts of our future performance that may be unrealistic or that may not be met. Further, our stock price may fluctuate based on reporting by the financial media, including television, radio, press reports and blogs.
There can be no assurance that we will pay dividends on our common stock.
Our Board of Directors approved regular dividends from fiscal 2006 until March 2020. The declaration, amount and timing of such dividends are determined by our Board of Directors at its discretion. Such determinations are subject to capital availability, compliance with all respective laws and agreements applicable to the declaration and payment of cash dividends, our strategic investment cash needs, our business outlook, and other factors the board uses to balance long-term business needs, credit availability, and the interests of our shareholders.
Our ability to pay dividends will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions, including acquisitions, results of operations, financial condition and other factors
that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments and/or our dividend program could have a material negative effect on our stock price.
Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities.
Responding to actions by activist shareholders can be costly and time-consuming, and impact our brand, disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the election of directors would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.
Our executive officers, directors and principal shareholders have the ability to significantly influence all matters submitted to our shareholders for approval.
Co-founder Dr. Aelred Kurtenbach served as our Chairman of the Board until September 3, 2014, when he retired.2014. Dr. Aelred Kurtenbach's family members currently serve as executive officers of the Company. His son, Mr. Reece Kurtenbach, Dr. Aelred Kurtenbach's son, serves as our Chairman of the Board and Chief Executive Officer. In addition, Dr. Aelred Kurtenbach hasOfficer, and two other children who serve as our Vice President of Human Resources and as our Vice President of Manufacturing. Together, these individuals, in the aggregate, beneficially owned 9.5%10.2 percent of our outstanding common stock as of June 13, 2016,30, 2023, assuming the exercise by them of all of their options that were currently exercisable or that vest within 60 days of June 13, 2016. In addition, our30, 2023. Our other executive officers and directors, in the aggregate, beneficially owned an additional 4.8%4.2 percent of our outstanding common stock as of June 13, 2016,30, 2023, assuming the exercise by them of all of their options currently exercisable or that vest within 60 days of June 13, 2016. While30, 2023. Although this does not represent a majority of our outstanding common stock, if these shareholders were to choose to act together, they would be able to significantly influence all matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, could significantly influence the election of directors and the approval of any merger, consolidation, sale of all or substantially all of our assets or other business combination or reorganization.reorganization requiring shareholder approval. This concentration of voting power could delay or prevent an acquisition of us on terms that other shareholders may desire. The interests of this group of shareholders may not always coincide with the interests of other shareholders, and they may act in a manner that advances their best interests and not necessarily those of other shareholders, including seeking a premium value for their common stock, andthat might affect the prevailing market price for our common stock.
Unexpected events, including natural disasters, may increase our cost of doing business or disrupt our operations.
The occurrence of one or more unexpected events, including war, terrorist acts, fires, tornadoes, floods and severe weather in the United States or in other countries in which we operate may disrupt our operations as well as the operations of our customers. Such acts could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects. These events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Our principal real estateproperties include space for manufacturing products, designing and testing new developments or processes, and employee collaboration space. Our properties are located in areasgenerally aligned with our business segments; however, we deem necessarymanufacture the same products across our manufacturing facilities to meet sales, serviceefficiently utilize capacity and operating requirements.reduce costs. We consider all of our properties to be both suitable and adequate to meet our requirements for the foreseeable future. A description
Our principal properties consist of our principal facilities is set forth below:
|
| | | | | | | | | | | | | | | | | | | |
| Facilities | | Owned or Leased | | Square Footage | | Facility Activities |
| Brookings, SD, USA | Owned | 773,000Owned | | 771,000 | | Corporate Office, Manufacturing, Sales, Service |
| Redwood Falls, MN, USA | Owned | 120,000Owned | | 151,000 | | Manufacturing, Sales, Service, Office |
Rupelmonde, BelgiumEnnistymon, Ireland | Owned | 40,000Owned | | 62,000 | | Manufacturing, Sales, Service, Office |
Ennistymon, IrelandSioux Falls, SD, USA | Owned | 44,000Leased | | 296,000 | | Manufacturing, Sales, Service, Office |
Sioux Falls, SD, USAShanghai, China | Leased | 177,000Leased | | 152,000 | | Manufacturing, Sales, Service, Office |
Shanghai, China | Leased | 90,500 | Manufacturing, Sales, Service, Office |
Burlington, Canada | Leased | 15,500 | Sales, Service, Office |
The remainingWe also utilize sales and service offices located throughout the United States, Canada, Europe, South America, and the Asia-Pacific regionsregion. These spaces are generally small leased offices generally consisting of less than 10,000 square feet leased under operating leases. These lease obligations expire on various dates, with the longest commitment extending to fiscal 2022. We believe all of our leases will be renewable at market terms, at our discretion, or that suitable alternative space would be available to lease under similar terms and conditions.used for sales related activities. See "Note 17. Commitments and Contingencies"9. Leases" of the Notes to our Consolidated Financial Statements included in thethis Form 10-K for further information on lease obligations.
Item 3. LEGAL PROCEEDINGS
We are involved in a variety of legal actions relating to various matters during the normal course of business. Although we are unable to predict the ultimate outcome of these legal actions, it is the opinion of management that the disposition of these matters, taken as a whole, will not have a material adverse effect on our financial condition or results of operations. See "Note 17.16. Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in thethis Form 10-K for further information on any legal proceedings and claims.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Performance
Our common stock is quoted on The NASDAQNasdaq Global Select Market under the ticker symbol “DAKT.” As of June 13, 2016, we had 1,135 shareholders of record. FollowingDAKT. Daily market activity, along with quoted prices and other trading information, are the high and low sales pricesreadily available for our common stock for each quarter within the last two fiscal years.on numerous websites including www.nasdaq.com. As of June 30, 2023, we had 930 shareholders of record.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Year 2016 | | Fiscal Year 2015 |
| | Sales Price | | Cash Dividends Declared | | Sales Price | | Cash Dividends Declared |
| | High | | Low | | | High | | Low | |
1st Quarter | $ | 12.23 |
| | $ | 10.13 |
| | $ | 0.10 |
| | $ | 14.47 |
| | $ | 11.05 |
| | $ | 0.10 |
|
2nd Quarter | 12.24 |
| | 8.20 |
| | 0.10 |
| | 13.68 |
| | 11.02 |
| | 0.10 |
|
3rd Quarter | 10.25 |
| | 7.37 |
| | 0.10 |
| | 13.87 |
| | 11.48 |
| | 0.10 |
|
4th Quarter | 8.72 |
| | 6.90 |
| | 0.10 |
| | 13.05 |
| | 10.03 |
| | 0.10 |
|
Share Repurchases
On June 16,17, 2016, our Board of Directors declaredapproved a regular quarterly dividend paymentstock repurchase program under which Daktronics may purchase up to $40.0 million of $0.06 per shareits outstanding shares of common stock. Under this program, we may repurchase shares from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The repurchase program does not require the repurchase of a special dividendspecific number of $0.04 per share payable on July 8, 2016shares and may be terminated at any time. In April 2020, the Board suspended the program. On December 2, 2021, the Board of Directors of Daktronics voted to holdersreauthorize the stock repurchase program. During fiscal 2023 and 2021, we had no repurchases of recordshares of our outstanding common stock. During fiscal 2022, we repurchased 0.6 million shares of common stock on June 27, 2016.at a total cost of $3.2 million. As of April 29, 2023, we had $29.4 million of remaining capacity under our current share repurchase program.
Although we expectRepurchases of shares are treated as dividends under the South Dakota Business Corporation Act (which is codified as Chapter 47-1A to continue to pay dividends for the foreseeable future, any and all subsequent dividends willSouth Dakota statutes), so our repurchases of shares could be reviewed regularly and declaredaffected by the Board at its discretion. In addition,limitations imposed on dividends in our credit facility, imposes limitations on our ability to pay dividends as further described in “Item 7 – Management’s Discussion and Analysis"Note 7. Financing Agreements" of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
Performance Graph
The following graph shows changes during the period from April 30, 2011 to April 30, 2016 in the value of $100 invested in: (1) our common stock; (2) The NASDAQ Composite; and (3) the Standard and Poor's 600 Index for Electronic Equipment Manufacturers. The values of each investment as of the dates indicated are based on share prices plus any cash dividends, with the dividends reinvested on the date they were paid. The calculations exclude trading commissions and taxes.
Item 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
The table below provides selected historical financial data, which should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the Notes to theour Consolidated Financial Statements which are included in Items 7 and 8 of this Annual Report on Form 10-K. The statement of operations data for the fiscal years ended April 30, 2016, May 2, 2015 and April 26, 2014 and the balance sheet data at April 30, 2016 and May 2, 2015 are derived from, and are qualified by reference to, the audited Consolidated Financial Statements included elsewhere in this Form 10-K. The statement of operations data for the fiscal years ended April 27, 2013 and April 28, 2012 and the balance sheet data at April 26, 2014, April 27, 2013 and April 28, 2012 are derived from audited financial statements that are not included in this Form 10-K.
Item 6. [Reserved]
|
| | | | | | | | | | | | | | | | | | | |
| | 2016 | | 2015 | | 2014 | | 2013 | | 2012 |
| Statement of Operations Data: | | | | | | | | | |
| Net sales | $ | 570,168 |
| | $ | 615,942 |
| | $ | 551,970 |
| | $ | 518,322 |
| | $ | 489,526 |
|
| Gross profit | 121,019 |
| | 144,579 |
| | 141,710 |
| | 133,894 |
| | 113,437 |
|
| Gross profit margin | 21.2 | % | | 23.5 | % | | 25.7 | % | | 25.8 | % | | 23.2 | % |
| Operating income | 2,495 |
| | 31,285 |
| | 36,557 |
| | 30,600 |
| | 10,275 |
|
| Operating margin | 0.4 | % | | 5.1 | % | | 6.6 | % | | 5.9 | % | | 2.1 | % |
| Net income | 2,061 |
| | 20,882 |
| | 22,206 |
| | 22,779 |
| | 8,489 |
|
| Diluted earnings per share | 0.05 |
| | 0.47 |
| | 0.51 |
| | 0.53 |
| | 0.20 |
|
| Weighted average diluted shares outstanding | 44,456 |
| | 44,443 |
| | 43,762 |
| | 42,621 |
| | 42,304 |
|
| Balance Sheet Data: | |
| | |
| | |
| | |
| | |
|
| Working capital | $ | 123,714 |
| | $ | 149,075 |
| | $ | 140,532 |
| | $ | 125,456 |
| | $ | 119,833 |
|
| Total assets | 349,948 |
| | 379,479 |
| | 357,451 |
| | 319,418 |
| | 315,967 |
|
| Total long-term liabilities | 27,364 |
| | 25,420 |
| | 20,624 |
| | 16,480 |
| | 15,989 |
|
| Total shareholders' equity | 201,067 |
| | 212,039 |
| | 203,119 |
| | 188,246 |
| | 190,805 |
|
| Cash dividends per share | 0.40 |
| | 0.40 |
| | 0.39 |
| | 0.73 |
| | 0.62 |
|
Daktronics, Inc. operates on a 52 or 53 week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13 week periods following the beginning of each fiscal year. In each 53 week year, an additional week is added to the first quarter and each of the last three quarters is comprised of a 13 week period. The fiscal years ended April 30, 2016, April 26, 2014, April 27, 2013, and April 28, 2012 contained operating results for 52 weeks while the fiscal year ended May 2, 2015 contained operating results for 53 weeks.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations. The most significant risks and uncertainties are discussed in "Item 1A. Risk Factors."
This discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K.
Management's Discussion and Analysis - Fiscal 2022 compared to Fiscal 2021
The comparison of fiscal 2022 with fiscal 2021, including the results of operations and liquidity, can be found in the "Management's Discussion and Analysis" section of our Annual Report on Form 10-K for fiscal 2022 filed with the SEC on June 16, 2022, which comparison is incorporated by reference herein. EXECUTIVE OVERVIEW
Our mission is to be thea world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We measure our success through estimated market share basedorganize into business units to focus on estimated market demand for digital displayscustomer loyalty over time and generating profits over the long-term. Our success is contingent on the depthearn new and quality of our products, including related control systems, the depth of our service offerings and our technology serving these market demands. These qualities are important for our long-term success becausereplacement business, as our products have a finite lifetimes and we strive to win replacement business from existing customers.
Increases in user adoption; the acceptance of a variety of digital solutions; and the decline of digital solution pricing over the years has increased the size of the global market. With this positive demand, strong competition exists across all of our business units, which causes margin constraints. Projects with multi-million revenue potential also attract competition, which generally reduces profitability.
We organize around customer segments and geographic regions as further described inlifetime. See "Note 2.3. Segment Reporting" of the Notes to our Consolidated Financial Statements included in this Form 10-K. 10-K for further information. Our strategies include the creation of a comprehensive line of innovative solutions and systems and our ability to create and leverage platform designs and technologies. These strategies align us to effectively deliver value to our varied customers and their market needs, while serving our stakeholders over the long-term. We focus on creating local capabilities for sales, service, and manufacturing in geographies with expected digital market opportunities. We believe consistently generating profitable growth will provide value to our stakeholders (customers, employees, shareholders, suppliers, and communities).
We measure our success using a variety of measures including:
•our percentage of market share by comparing our estimated revenue to the total estimated global digital display revenue;
•our order growth compared to the overall digital market order change;
•financial metrics such as annual order volume and profit change as compared to our previous financial results;
•customer retention and expansion rates; and
•our ability to generate profits over the long-term to provide a shareholder return.
Certain factors impact our ability to succeed in these strategies and impact our business units to varying degrees. For example, due to volatility in our supply chain and labor conditions through the last two years, our lead times and manufacturing and fulfillment costs increased. We deployed various pricing strategies and redesigned products to utilize available raw materials and components. However, not all of our competitors were impacted to the same degree in accessibility to parts and components or reacted similarly with pricing. As a result, in some instances, competitors were awarded more business.
The cost to produce digital solutions has declined, which has caused a decline of digital solution pricing over the years. We must sell more products to generate the same or a greater level of net sales as in previous fiscal years. However, the increased user adoption and number of applications available have increased the size of the global market.
Competitors' offerings, actions and reactions also can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attract competition, and competitors can use marketing or other tactics to win business.
Each business segmentunit's long-term performance can be impacted by economic conditions in different ways and to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns with social changes causing decreases in sporting event revenues, the sports business can also hasbe seriously impacted.
Outlook:
Daktronics endured a dynamic operating environment through the pandemic years. At the beginning of the pandemic, orders pulled back swiftly and abruptly, and we lowered capacity. Then order volumes recovered sharply while supply chain disruptions coupled with a tight labor market constrained our ability to deliver efficiently at traditional lead times and service levels. Inflation in parts, components, and labor increased our operating costs and decreased gross margins. To adapt to these conditions, our teams came together to take decisive and deliberate actions to improve our customers' experience while implementing strategies to improve our profitability and working capital levels.
Supply chains have gradually been stabilizing, which should allow reduced inventory levels in the coming months as our production levels continue to increase and we are able to purchase less safety stock. Although the post-pandemic
geopolitical situation and global trade patterns continue to evolve, we believe that the levels of uncertainty and volatility will not be as great in the coming months and will continue to stabilize in the coming fiscal year.
We believe the audiovisual industry fundamentals and the development of new technologies and services will drive long-term growth for our business; however, our customers may reduce their spend on audiovisual systems and related services because of the impacts of global economic conditions, war and geopolitical situations, or other factors outside of our control.
The outlook and unique key growth drivers and challenges.challenges by our business units include the following:
Commercial Business Unit: Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including:
•Standard display product market growth due to market adoption and lower product costs, which drive marketplace expansion. Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit. We utilize a reseller network to distribute our standard products.
•National accounts standard display market opportunities due to theircustomers' desire to communicate their message, advertising and content consistently across the country. Increased demand is possible from national retailers, quick servequick-serve restaurants, petroleum businesses,retailers, and other nationwide organizations.
•Additional standard display offerings using micro-LED designs.
•Increasing use of LED technologies replacing signage previously using LCD technology by existing and new customers.
•Development and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products.
•Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, amusement parksshopping centers, cruise ships and Times Square type locations.
•New market adoption and expansion for use of LED in government and military and corporate campuses.
•Dynamic messaging systems demand growth due to market adoption and marketplace expansion.expanded use of this technology.
•The introductionuse of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building.
•The continued deployment of digital billboards as OOH advertising companies continue developing new sites and start to replacereplacing digital billboards which are reaching end of life. This is dependent on there being no adverse changes occurring in the digital billboard regulatory environment which could restrictrestricting future billboard deployments, of billboards, as well as maintaining our current market share of thein a business that is concentrated in a few large OOH companies.
•Replacement cycles within each of these areas.
Live Events Business Unit: Over the long-term, we We believe growth in the Live Events business unit will result from a number of factors, including:
•Facilities spending more on larger display systems to enhance the game-day and event experience for attendees.
•Lower product costs, driving an expansion of the marketplace.
•Our product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry.
•The competitive nature of sports teams, which strive to out-perform their competitors with display systems.
•The desire for high-definition video displays, which typically drivesdrive larger displays or higher resolution displays, both of which increase the average transaction size.
•Dynamic messaging system needs throughout a sports facility.
•Increasing use of LED technologies replacing signage previously using LCD technology in and surrounding live events facilities.
•Replacement cycles within each of these areas.
High School Park and Recreation Business Unit: Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including:
•Increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays versuscompared to traditional scoreboards.scoreboards and these systems' ability to provide or enhance academic curriculum offerings for students.
•Increased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community.
The•Lower system costs driving the use of more sophisticated displays in school athletic facilities, such as aquatic venues in schools.large integrated video systems.
•Expanding control system options tailored for the markets' needs.
•Certain display requirements for sporting events.
Transportation Business Unit: Daktronics has experienced governmental agencies placing orders as a way to spend their allocated budgets for their fiscal years. In addition, the Infrastructure Investment and Jobs Act signed into law in November 2021 is expected to have a positive impact on all segments of United States transportation terminals and public transit facilities.
Over the long-term, we believe growth in the Transportation business unit will result from increasinga number of factors, including:
•Increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications.
•Development and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products.
•Effective use of the United States transportation infrastructure requires intelligent transportation systems. This growth is highly dependent on government spending, primarily by thestate and federal government,governments, along with the continuing acceptance of private/public partnerships as an alternative funding source.
•Expanded use of dynamic messaging systems for advertising and wayfinding use in public transport and airport terminals due to expanded market usage and displays, with LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.
International Business Unit:Over the long-term, we believe growth in the International business unit will result from achievinga number of factors, including:
•Achieving greater penetration in various geographies and building products more suited to individual markets. We are broadeningcontinue to broaden our product offerings into the transportation segment in Europe and the Middle East. We currently
•Continued focus on third-partysports facility, spectacular-type, OOH advertising products, and architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada.
•Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and city-center locations.
Each•New market adoption and expansion of use of LED in government and military and corporate campuses.
•Additional opportunities exist with expanded market usage of LED technology due to price considerations, usage of LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.
•Development and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products.
•Our product and service offerings, including additional micro-LED offerings, which remain the most integrated and comprehensive offerings in the industry.
•Growing our business units is impacted by adverse economic conditions in different ways andreseller channels to different degrees. The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns, the sports business also can be severely impacted. Our Commercial and International business units are highly dependent on economic conditions in general.
The cost and selling prices ofpromote our products have decreased over time and are expected to continue to decrease in the future. As a result, each year we must sell more product to generate the same or greater level of net sales as in previous fiscal years. This price decline has been significant as a result of increased competition across all business units.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussionManagement's Discussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operationsOperations ("MD&A") are based upon, and should be read in conjunction with, our consolidated financial statements,Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with U.S.accounting principles generally accepted accounting principlesin the United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments affecting the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. OnAlthough our significant accounting policies are described in "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included in this Form 10-K, the following discussion is intended to highlight and describe those accounting policies that are especially critical to the preparation of our consolidated financial statements.
A critical accounting policy is defined as a regular basis, wepolicy that is both very important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments. We regularly review our
critical accounting policies and evaluate them based on these factors. We believe the estimation process for uniquely configured contracts and warranties are most material and critical. These areas contain estimates with a reasonable likelihood to change, and those changes could have a material impact on our estimates, including those related to total costs on long-term construction-type contracts, costs to be incurredfinancial condition and reported results of operations. The estimation processes for product warrantiesthese areas are also difficult, subjective and extended maintenance contracts, bad debts, excess and obsolete inventory, income taxes, share-based compensation, goodwill impairment and contingencies.use complex judgments. Our critical accounting estimates are based on historical experienceexperience; on our interpretation of GAAP, current laws and regulations; and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates.
We believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements:
Revenue recognition on long-term construction-typeuniquely configured contracts. Earnings on construction-type contracts are Revenue for uniquely configured (custom) or integrated systems is recognized onover time using the percentage-of-completioncost-to-cost input method measured by the percentage ofcomparing cumulative costs incurred to the total estimated costs and applying that percentage of completion to the transaction price to recognize revenue. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed, including a reasonable profit margin. The cost-to-cost input method measures cost incurred to date compared to estimated total costs for each contract. ContractThis method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform the contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include all direct material and labor costscomponents; manufacturing, project management and those indirect costs related to contract performance.engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as facilities engineering and project management.equipment depreciation and general overhead. Provisions forof estimated losses on uncompleted contracts are made in the period when such losses are capable of being estimated. Generally, construction-type contracts we enter
We may have multiple performance obligations in these types of contracts; however, a majority are treated as a combined single performance obligation. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to our customer is to provide significant integration services and incorporate individual goods and services into have fixed prices established, anda combined output or system. Often times the system is customized or significantly modified to the extentcustomer's desired configurations and location, and the actual costsinterrelated goods and services provide utility to complete construction-type contracts are higher than the amounts estimatedcustomer as a package. See "Note 1. Nature of Business and Summary of Significant Accounting Policies" of the date of the financial statements, the resulting gross margin would be negatively affectedNotes to our Consolidated Financial Statements included in future quarters when we revisethis Form 10-K for further information on our estimates. Our practice is to revise estimates as soon as such changes in estimates are known. We do not believe there is a reasonable likelihood there will be a material change in future estimates or assumptions we use to determine these estimates. We combine contracts for accounting purposes when they are negotiated as a package with an overall profit margin objective, essentially represent an agreement to do a single project for a customer, involve interrelated construction activities, and are performed concurrently or sequentially. When a group of contracts is combined, revenue and profit are recognized uniformly over the performance of the combined projects. We segment revenues in accordance with the contract segmenting criteria in Accounting Standards Codification (“ASC”) 650-35, Construction-Type and Production-Type Contracts.recognition policies.
Allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. To identify impairment in customers’ ability to pay, we review aging reports, contact customers in connection with collection efforts and review other available information. Although we consider our allowance for doubtful accounts adequate, if the financial condition of our customers were to deteriorate and impair their ability to make payments to us, additional allowances may be required in future periods. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine the allowance for doubtful accounts. As of April 30, 2016 and May 2, 2015, we had an allowance for doubtful accounts balance of approximately $2.8 million and $2.3 million, respectively.
Warranties. We have recognized an accrued liability for warranty obligations equal to our estimate of the actual costs to be incurred in connection with our performance under contractual warranties. Warranty estimates include the warranties.cost of direct material and labor estimates to repair products over their warranty coverage period. Generally, estimates are based on historical experience taking into accountconsidering known or expected changes. If we would become aware of an increase in our estimated warranty costs, additional accruals may become necessary, resulting in an increase in cost of sales. Although prior estimates have been materially correct, estimates for warranty liabilities can change based on actual versus estimated defect rates over the lifetime of the warranty coverage, a difference in actual to estimated costs of goods sold. to conduct repairs for the components and related labor needed, and other site related actual to estimated cost changes.
As of April 29, 2023 and April 30, 2016 and May 2, 2015,2022, we had approximately $30.5$32.5 million and $26.5$28.9 million accrued for these costs,warranty obligations, respectively. Due to the difficulty in estimating probable costs related to certain warranty obligations, there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities. See "Note 17.16. Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in thethis Form 10-K for further information on warranties.
Extended warranty and product maintenance. We recognize deferred revenue related to separately priced extended warranty and product maintenance agreements. The deferred revenue is recognized ratably over the contractual term. If we would become aware of an increase in our estimated costs under these agreements in excess of our deferred revenue, additional charges may be necessary, resulting in an increase in costs of goods sold. In determining if additional charges are necessary, we examine cost trends on the contracts and other information and compare them to the deferred revenue. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine estimated costs under these agreements. As of April 30, 2016 and May 2, 2015, we had $15.1 million and $13.1 million of deferred revenue related to separately priced extended warranty and product maintenance agreements, respectively.
Inventory. Inventories are stated at the lower of cost or market. Market refers to the current replacement cost, except market may not exceed the net realizable value (that is, the estimated selling price in the ordinary course of business less reasonably 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, we estimate market value where it is believed to be the lower of cost or market, and any necessary changes are charged to costs of goods sold in the period in which they occur. In determining market value, we review various factors such as current inventory levels, forecasted demand and technological obsolescence. We do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate the estimated market value of inventory. However, if market conditions change, including changes in technology, product components used in our products or expected sales, we may be exposed to unforeseen losses which could be material.
Income taxes. We operate in multiple income tax jurisdictions both within the United States and internationally. Our annual tax rate is determined based on our income, statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes in each tax jurisdiction. Tax laws require that certain items be included in the tax returns at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary and reverse over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities and reflect the enacted income tax rates in effect for the years in which the differences are expected to reverse. We consider a valuation allowance for deferred tax assets if it is "more likely than not" that some or all of the benefits will not be realized.
Because we operate in multiple income tax jurisdictions both within the United States and internationally, management must determine the appropriate allocation of income and expenses to each of these jurisdictions based on current interpretations of complex income tax regulations.
Income tax authorities in all jurisdictions regularly perform audits of our income tax filings. Income tax audits associated with the allocation of income, expenses and other complex issues, including transfer pricing methodologies, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.
We have no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. If circumstances change and it becomes apparent that some or all of the undistributed untaxed earnings of a subsidiary will be remitted to the United States, we will accrue a tax expense at that time. We have approximately $9.1 million of untaxed earnings which have been indefinitely reinvested.
Asset Impairment. Carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with ASC 350, Intangibles -Goodwill and Other. Our impairment review involves estimating the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income (discounted cash flow) approach at the reporting unit level, requiring significant management judgment with respect to revenue and expense growth rates, changes in working capital, and the selection and use of an appropriate discount rate. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment. The use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease any impairment charge. We use our judgment in assessing whether assets may have become impaired between annual impairment tests. Indicators such as adverse business conditions, economic factors and technological change or competitive activities may signal an asset has become impaired.
Carrying values for long-lived tangible assets and definite-lived intangible assets, excluding goodwill and indefinite-lived intangible assets, are reviewed for possible impairment as circumstances warrant in connection with ASC 360-10-05-4, Impairment or Disposal of Long-Lived Assets. Impairment reviews are conducted when we believe a change in circumstances in the business or external factors warrants a review. Circumstances such as the discontinuation of a product or product line, a sudden or consistent decline in the forecast for a product, changes in technology or in the way an asset is being used, a history of negative operating cash flow, or an adverse change in legal factors or in the business climate, among others, may be indicators that trigger an impairment review. Our initial impairment review to determine if a potential impairment charge is required is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist. The analysis requires judgment with respect to changes in technology, the continued success of product lines, future volume, revenue and expense growth rates, and discount rates.
Share-based compensation. We use the Black-Scholes standard option pricing model (“Black-Scholes model”) to determine the fair value of stock options and stock purchase rights. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by our stock price as well as by assumptions regarding other variables, including projected employee stock option exercise behaviors, risk-free interest rate, expected volatility of our stock price in future periods, and expected dividend yield.
We analyze historical employee exercise and termination data to estimate the expected life assumption of a new employee stock option. We believe historical data currently represents the best estimate of the expected life of a new employee stock option. The risk-free interest rate we use is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected life of the options. We estimate the expected volatility of our stock price in future periods by using the historical volatility. We use an expected dividend yield consistent with our dividend yield over the period of time we have paid dividends in the Black-Scholes option valuation
model. The amount of share-based compensation expense we recognize during a period is based on the portion of the awards ultimately expected to vest. We estimate pre-vesting option forfeitures at the time of grant by analyzing historical data, and we revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we decide to use a different valuation model, the expense in future periods may differ significantly from what we have recorded in the current period and could materially affect our net earnings and net earnings per share in a future period.
RECENT ACCOUNTING PRONOUNCEMENTS
For a summary of recently issued accounting pronouncements and the effects those pronouncements have on our financial results, refer to "Note 1. Nature of Business and Summary of CriticalSignificant Accounting Policies" of the Notes to our Consolidated Financial Statements included elsewhere in this Report.Form 10-K.
RESULTS OF OPERATIONS
Daktronics, Inc. operates on a 5252- or 53 week53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13 week13-week periods following the beginning of each fiscal year. In each 53 week53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13 week13-week period. The years ended April 30, 2016, May 2, 2015, and April 26, 2014 contained operating results for 52, 53, and 52 weeks, respectively.
Net Sales
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | April 30, 2016 | | May 2, 2015 | | 2016 vs 2015 | | April 26, 2014 | | 2015 vs 2014 |
| (dollars in thousands) | Amount | | Amount | | Dollar Change | Percent Change | | Amount | | Dollar Change | Percent Change |
| Net Sales: | | | | | | | | | | | |
| Commercial | $ | 148,261 |
| | $ | 165,793 |
| | $ | (17,532 | ) | (10.6 | )% | | $ | 154,754 |
| | $ | 11,039 |
| 7.1 | % |
| Live Events | 205,151 |
| | 231,877 |
| | (26,726 | ) | (11.5 | )% | | 197,246 |
| | 34,631 |
| 17.6 | % |
| High School Park and Recreation | 70,035 |
| | 67,657 |
| | 2,378 |
| 3.5 | % | | 59,531 |
| | 8,126 |
| 13.7 | % |
| Transportation | 52,249 |
| | 48,333 |
| | 3,916 |
| 8.1 | % | | 54,861 |
| | (6,528 | ) | (11.9 | )% |
| International | 94,472 |
| | 102,282 |
| | (7,810 | ) | (7.6 | )% | | 85,578 |
| | 16,704 |
| 19.5 | % |
| | $ | 570,168 |
| | $ | 615,942 |
| | $ | (45,774 | ) | (7.4 | )% | | $ | 551,970 |
| | $ | 63,972 |
| 11.6 | % |
| Orders: | |
| | |
| |
|
| | | | |
|
|
|
|
| Commercial | $ | 135,824 |
| | $ | 170,209 |
| | $ | (34,385 | ) | (20.2 | )% | | $ | 155,840 |
| | $ | 14,369 |
| 9.2 | % |
| Live Events | 220,377 |
| | 226,354 |
| | (5,977 | ) | (2.6 | )% | | 225,331 |
| | 1,023 |
| 0.5 | % |
| High School Park and Recreation | 76,485 |
| | 69,188 |
| | 7,297 |
| 10.5 | % | | 59,812 |
| | 9,376 |
| 15.7 | % |
| Transportation | 56,834 |
| | 50,845 |
| | 5,989 |
| 11.8 | % | | 49,057 |
| | 1,788 |
| 3.6 | % |
| International | 71,266 |
| | 114,977 |
| | (43,711 | ) | (38.0 | )% | | 87,094 |
| | 27,883 |
| 32.0 | % |
| | $ | 560,786 |
| | $ | 631,573 |
| | $ | (70,787 | ) | (11.2 | )% | | $ | 577,134 |
| | $ | 54,439 |
| 9.4 | % |
Sales and orders were impacted as a result ofThe following table shows information regarding net sales for the 53-week fiscal year ended May 2, 2015 compared to the more common 52 week 2016 fiscal year. The fiscal years ended April 30, 201629, 2023 and April 26, 2014 contained 52 weeks. The additional week of sales constituted approximately 2% of the decrease in the sales for 2016 fiscal year compared to fiscal 2015 and 2% of the increase in sales for the 2015 fiscal year compared to the 2014 fiscal year.30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended |
| (in thousands) | April 29, 2023 | | April 30, 2022 | | Dollar Change | | Percent Change |
| Net Sales: | | | | | | | |
| Commercial | $ | 170,590 | | | $ | 154,211 | | | $ | 16,379 | | | 10.6 | % |
| Live Events | 284,900 | | | 199,106 | | | 85,794 | | | 43.1 | |
| High School Park and Recreation | 141,748 | | | 111,816 | | | 29,932 | | | 26.8 | |
| Transportation | 72,306 | | | 62,707 | | | 9,599 | | | 15.3 | |
| International | 84,652 | | | 83,130 | | | 1,522 | | | 1.8 | |
| $ | 754,196 | | | $ | 610,970 | | | $ | 143,226 | | | 23.4 | % |
| Orders: | | | | | | | |
| Commercial | $ | 158,028 | | | $ | 192,917 | | | $ | (34,889) | | | (18.1) | % |
| Live Events | 259,653 | | | 313,940 | | | (54,287) | | | (17.3) | |
| High School Park and Recreation | 144,919 | | | 156,305 | | | (11,386) | | | (7.3) | |
| Transportation | 66,751 | | | 77,993 | | | (11,242) | | | (14.4) | |
| International | 51,603 | | | 104,916 | | | (53,313) | | | (50.8) | |
| $ | 680,954 | | | $ | 846,071 | | | $ | (165,117) | | | (19.5) | % |
Fiscal Year 20162023 as compared to Fiscal Year 20152022
Commercial: The decrease inFor fiscal year 2023, net sales forwere $754.2 million, an increase of $143.2 million from fiscal 2016 compared to fiscal 2015year 2022. The year-over-year growth was the net resultdriven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of a decrease of sales in our billboard niche due to volatility of order timing and general market delay in placing orders as compared to prior periods due to customer capital allocation decisions and overall satisfaction with our product lifetime, leading to longer product replacement cycles. There were higher than usual fiscal 2015 first quarter billboard sales caused by construction site delaysprice increases implemented beginning in late fiscal 2014 that movedyear 2022. We have seen stabilizing and improving supply chain conditions and have invested in automated machinery and equipment and in labor capacity to increase the rate of conversion of orders into sales, creating more work into fiscal 2015. Salesthroughput in our spectacular niche were also down compared to lastfactories.
Order volume decreased in fiscal year due to the timing2023 from fiscal year 2022. Fiscal 2022 saw a record number of projects, which was offset by an increase in the sales of our on-premise niche.
The decrease inorders from pent-up demand after COVID, though orders for fiscal 2016 compared2023 continued to fiscal 2015 was primarily due tobe strong. Macroeconomic and geopolitical conditions caused the softeningdecline in customer demandorders in the digital billboard niche and delayed customer commitments on large custom video project orders in our spectacular niche. Orders increased in our national account niche because of increased demand from a national company using petroleum displays. Orders were up slightly in our on-premise business.International business unit.
We continue to see adoption of video solutions in our Commercial business unit marketplace. We see opportunity for orders and sales in our billboard, on-premise, and national account niches due to replacement cycles. A number of large custom video contract opportunities are available in the marketplace. Due to a number of factors, such as the discretionary nature of customers committing to a system, long replacement cycles, the limited number of large custom projects and competitive factors, advertising revenues during macroeconomic changes, economic dependencies, regulatory environments, and competitive factors, it is difficult to predict orders and net sales for fiscal 2017.2024.
Commercial: The increase in net sales for fiscal 2023 compared to fiscal 2022 was driven by fulfilling orders in backlog and continued order bookings.
We continued to see increased adoption of video solutions in our Commercial business unit marketplace. Depending on the duration of the current economic conditions, we see opportunities for orders and sales over the coming years in our OOH, on-premise, and spectacular focused niches due to replacement cycles, expansion of dynamic messaging systems usage, releases of new solutions, additional distribution methods, and increased market size due to the decline of digital pricing over the years as well as the desire for higher resolution technology. We expect growth in thisthe Commercial business unit over the long-term, assuming favorable economic conditions.conditions and our success in counteracting competitive pressures.
Live Events: Events: The decreaseincrease in net sales for fiscal 20162023 compared to fiscal 20152022 was primarily due to the timingdriven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of orders converting to sales based on customer delivery expectations and due to the slight declineprice increases implemented beginning in late fiscal year 2022.
The decrease in orders for fiscal 2016 compared to fiscal 2015 was primarily the result of the order timing variability on large projects. In addition, we had a large National Football League ("NFL") order in fiscal 2015, and no order of similar size occurred during fiscal 2016.
We continue to see ongoing interest from venues at all levels to increasein increasing the size and capabilitycapabilities of their display systemsystems and in the usage of dynamic messaging systems throughout their facilities in our Live Events business unit marketplace. A number of factors, such as the discretionary nature of customers committing to upgrade systems, long replacement cycles, and competitive factors make forecasting fiscal 2017 orders and net sales difficult.
We expect growth in this business unitunit's size to remain stable over the long-term, assuming favorable economic conditions, and success ofin maintaining market share by counteracting competitive pressures.
High School Park and Recreation: Recreation: The increase in net sales for fiscal 20162023 compared to fiscal 20152022 was primarily due todriven by fulfilling orders in backlog and strong market demand, increased demand for large display systems.
The increasecapacity, and realization of price increases implemented beginning in orders forlate fiscal 2016 compared to fiscal 2015 was primarily due to larger average order sizes due to increased video projects during fiscal 2016 and increased win rates across the market.
year 2022.
We expect sales to continue to see opportunities to sell larger video systems and our classic scoring and message centersgrow in fiscal 2017, primarilyyear 2024 because of the adoption of video displays for sporting and educational use. Trends towards deploying professional grade technology, especially in high schoolschools, has expanded the market size. These facilities which benefit from our sports marketing services that generate advertising revenue to fund the display systems, from our curriculum program designed to increase educational use, and because of schools' desiresdesire to communicate with students and parents. Forparents using these systems. Some growth is also expected because of regulatory requirements for certain display types for sports events. We expect growth in this business unit over the long term, we believe this market presents growth opportunities as the economy continues to improve and larger video systems are adopted.long-term, assuming favorable economic conditions.
Transportation: Transportation: Theincrease in net sales for fiscal 20162023 compared to fiscal 20152022 was primarily the result of increased availability of federal funding for intelligent transportationdriven by fulfilling orders in backlog and mass transit projects.
The increase in orders for fiscal 2016 compared to fiscal 2015continued order bookings. Sales growth was primarily due todriven by strong market demand, for intelligent transportation systems due toincreased capacity, and realization of price increases implemented in late fiscal year 2022 and the availabilitybeginning of federal funding from a number of departments of transportation across the United States and success in winning mass transit projects.fiscal year 2023.
A number ofSeveral factors, such as transportation funding, the competitive environment, and customer delivery changes, and various other factors, make forecasting orders and net sales difficult for fiscal 2017.2024. However, the stability of long-term federal transportation funding and the number of capital projects for highways and public transit that include dynamic message signs show signs ofand for advertising and wayfinding use in public transport and airport terminals continue to rise. We expect continued growth in this business unit over the long-term, assuming favorable economic conditions and continued transportation funding.
International: Net sales were relatively flat for fiscal 2023 compared to fiscal 2022.
We expect demand for larger video systems for commercial and sports applications, indoor and outdoor OOH applications, and transportation applications to remain strong over the long-term. Without transportation funding, paymentsMacroeconomic factors, the discretionary nature of customers committing to states could be reduced and could have a negative impact on our sales and financial results in the Transportation business unit.
International: The decrease in net sales for fiscal 2016 compared to fiscal 2015 was the net result of a lower volume of orders.
The decrease in orders for fiscal 2016 compared to fiscal 2015 was primarily due to global macroeconomic conditions, a strong U.S. dollar, competition,new systems or replacements, and the timing and volatilitypace of large orders
For fiscal 2017, while our pipeline for large commercial and sports and transportation remains strong, macroeconomic headwinds which may impactmarket growth, have impacted order bookings and timing, making it difficult to predict order and sales levels for fiscal 2017.2024. For the long-term, we believe the International business unit has the potential for sales growth as we penetrate markets with our established sales networks to increase our International market share, continue to enhance our tailored portfolio of product and due tocontrol solution offerings, invest in additional distribution methods, and expect the trend of increased use and adoption of our technology globally.globally to continue.
Gross Profit and Contribution Margin
Backlog: The product order backlog as of April 30, 2016 was $181.2 million as compared to $190.5 million as of May 2, 2015. Historically, our backlog varies due to the seasonality of our business, the timing of large projects, and customer delivery schedules for these orders. The backlog decreased from one year ago in our Commercial and International business units and increased in our other business units.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 |
| (in thousands) | Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales |
| Gross Profit: | | | | | | | |
| Commercial | $ | 31,155 | | | 18.3 | % | | $ | 31,851 | | | 20.7 | % |
| Live Events | 49,255 | | | 17.3 | | | 21,787 | | | 10.9 | |
| High School Park and Recreation | 41,145 | | | 29.0 | | | 35,477 | | | 31.7 | |
| Transportation | 19,825 | | | 27.4 | | | 18,172 | | | 29.0 | |
| International | 9,975 | | | 11.8 | | | 9,410 | | | 11.3 | |
| $ | 151,355 | | | 20.1 | % | | $ | 116,697 | | | 19.1 | % |
| | | | | | | |
| | | | | | | |
Fiscal Year 20152023 as compared to Fiscal Year 2014
Commercial: The increase in net sales for fiscal 2015 compared to fiscal 2014 was the net result of an increase in sales in the billboard niche due to the timing of orders and shipments. Weather related issues at our customers' billboard construction sites caused delayed shipments and moved sales from fiscal 2014 into early fiscal 2015. Sales in our spectacular niche increased due to increased market activity, which was offset by decreases in our on-premise and national account niches caused by the soft economic market.
2022
The increase in orders forgross profit percentage in fiscal 2015 compared to fiscal 2014 was primarily the net result of an increase in orders in our large custom video contract niche due to increased market activity in this area. There was a slight increase in orders in our billboard niche, which was offset by decreases in our on-premise and national account niches due to the soft economic market.
Live Events: The increase in net sales for fiscal 2015 compared to fiscal 20142023 was primarily due to an increasestrategic pricing actions implemented in late fiscal year 2022 and the beginning of fiscal year 2023 and increased productivity starting late in the numbersecond quarter of multi-million dollar projectsfiscal
2023 because of fewer supply chain and operational disruptions and investments in professional sports stadiums and arenas used by Major League Baseball, the National Basketball Association, the NFL, and the National Hockey League, which wascapacity. These improvements were offset by decreaseshigher material, component, freight and labor costs throughout fiscal 2023. Factors impacting gross profit in multi-sport arenasfiscal 2022 included ongoing supply chain disruptions and salesinflationary challenges in materials, freight and personnel related to college and university venues.
Orders for fiscal 2015 compared to fiscal 2014 were relatively flat.
High School Park and Recreation: The increase in net sales for fiscal 2015 compared to fiscal 2014 was primarilycosts, the result of a difference in order timing. We experienced many orders that were pushed out from our fourth quarter of fiscal 2014 into the first six months of fiscal 2015. The increase in sales also is due to productionmix between periods, and delivery on a higher volume of orders and an increase in service agreements. Order transaction size also increased due to larger display sizes, which increased sales prices.
The increase in orders for fiscal 2015 compared to fiscal 2014 was primarily due to higher orders of video and sound systems as some orders pushed into the first six months of fiscal 2015 from the fourth quarter of fiscal 2014 due to customer timing, increased opportunities in the market place, and an increase in the size of the display systems.
Transportation: The decrease in net sales for fiscal 2015 compared to fiscal 2014 was primarily the result of sales recognized during fiscal 2014 for three significant state transportation authorities and a significant transit project with no sales from recurring projects of a similar size recognized during fiscal 2015. We believe some of the sales decline is due to the uncertainty in this market because of the lack of clarity on the approval, timing and funding levels of the federal Highway and Transportation Funding Act of 2014.
The increase in orders for fiscal 2015 compared to fiscal 2014 was primarily due to the timing of orders received from state transportation authorities.
International: The increase in net sales for fiscal 2015 compared to fiscal 2014 was the net result of sales recognized for sports projects in Europe and Australia, retail spectaculars, and OOH billboard and street furniture products. We believe the increased sales is a result of our ongoing strategy to grow our international presence. In addition, Data Display's sales in the International business unit were approximately $5.0 million for fiscal 2015; Data Display was not part of the International business unit in fiscal 2014.
The increase in orders for fiscal 2015 compared to fiscal 2014 was primarily due to the increased amount of orders booked during the fourth quarter of fiscal 2015. These orders are related to all of our international markets; however, a major portion was due to an order in the transportation market for over $12.0 million.
Gross Profit
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended |
| | | April 30, 2016 | | May 2, 2015 | | April 26, 2014 |
| | (dollars in thousands) | Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales | | Amount | | As a Percent of Net Sales |
| |
| | Commercial | $ | 29,147 |
| | 19.7 | % | | $ | 44,344 |
| | 26.7 | % | | $ | 44,974 |
| | 29.1 | % |
| | Live Events | 36,568 |
| | 17.8 |
| | 40,945 |
| | 17.7 |
| | 43,019 |
| | 21.8 |
|
| | High School Park and Recreation | 20,624 |
| | 29.4 |
| | 21,561 |
| | 31.9 |
| | 16,202 |
| | 27.2 |
|
| | Transportation | 16,572 |
| | 31.7 |
| | 14,647 |
| | 30.3 |
| | 16,126 |
| | 29.4 |
|
| | International | 18,108 |
| | 19.2 |
| | 23,082 |
| | 22.6 |
| | 21,389 |
| | 25.0 |
|
| | | $ | 121,019 |
| | 21.2 | % | | $ | 144,579 |
| | 23.5 | % | | $ | 141,710 |
| | 25.7 | % |
Fiscal Year 2016 as compared to Fiscal Year 2015
The gross profit percentage decreased for fiscal 2016 compared to fiscal 2015. This decline was primarily due to additional warranty charges in fiscal 2016, decreased volume levels through manufacturing areas, increased personnel costs, a change in the mix of business, and the increased competitive environment. The following describes the overall impact by business unit:
Commercial: The gross profit percent decrease in the Commercial business unit for fiscal 2016 compared to fiscal 2015 was primarily the result of a $9.2 million warranty charge in our OOH product application, which decreased the Commercial gross profit percentage by 6.1% for the 2016 fiscal year. This warranty charge relates to the costs of upgrading firmware to improve display performance and refurbishing displays. Gross profit also declined due to low manufacturing utilization as a result of decreases in billboard demand, the product mix of sales, and overall competitiveness of large custom contracts. See "Note 17. Commitments and Contingencies" of the Notes to our Consolidated Financial Statements included in the Form 10-K for more information regarding our warranty accrual.
Live Events: The slight gross profit percent increase in the Live Events business unit for fiscal 2016 compared to fiscal 2015 was the result of decreased expenditures incurred for overtime, expediting, and shipping costs to meet critical event dates incurred for our customers in fiscal 2015 that were not incurred in fiscal 2016 and improved manufacturing utilization, offset by an increaseincreases in warranty costsreserves for inflation. Total warranty expense as a percent of sales and increases in personnel related expenses.
High School Park and Recreation: The gross profitincreased to 2.1 percent decrease in the High School Park and Recreation business unit for fiscal 20162023 as compared to fiscal 2015 primarily was due to recognizing a $1.3 million gain on the sale of our theatre rigging manufacturing division during the fiscal 2015, but no comparable transaction occurred1.9 percent during fiscal 2016. Gross profit also declined due to increases in personnel related expenses.
Transportation: The gross profit percent increase in the Transportation business unit for fiscal 2016 compared to fiscal 2015 was primarily due to the product mix of sales and improved manufacturing utilization.
International: The gross profit percent decrease in the International business unit for fiscal 2016 compared to fiscal 2015 was primarily the result of low utilization of our international manufacturing facilities due to lower sales volume and increases in warranty costs as a percent of sales.
2022.
It is difficult to project gross profit levels for fiscal 20172024 because of the uncertainty regarding the level of sales, the sales mix, price strategy and timing of sales generation, potential inflation, the availability of materials, labor, and freight, and the competitive factors in our business. We are focused on improving our gross profit margins as we execute our strategies for improved profitability, which include enhanced capacity planning,selectively increasing pricing, releasing new product designs to lower overall costs of the product,product; improving reliability to reduce warranty expenses,expenses; expanding our global capacity and planning; meeting customer solution expectations,expectations; and improvingcontinued improvements in operational effectiveness in themanufacturing, installation, and servicesservice delivery areas. We continue to experience wage and benefit pressures through our manufacturing and services areas.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 |
| (in thousands) | Amount | | As a Percent of Net Sales | | Dollar Change | | Percent Change | | Amount | | As a Percent of Net Sales |
| Contribution Margin: | | | | | | | | | | | |
| Commercial | $ | 14,025 | | | 8.2 | % | | $ | (2,048) | | | (12.7) | % | | $ | 16,073 | | | 10.4 | % |
| Live Events | 39,015 | | | 13.7 | | | 27,112 | | | 227.8 | | | 11,903 | | | 6.0 | |
| High School Park and Recreation | 27,621 | | | 19.5 | | | 4,034 | | | 17.1 | | | 23,587 | | | 21.1 | |
| Transportation | 15,901 | | | 22.0 | | | 1,348 | | | 9.3 | | | 14,553 | | | 23.2 | |
| International | (1,862) | | | (2.2) | | | (1,368) | | | 276.6 | | | (494) | | | (0.6) | |
| $ | 94,700 | | | 12.6 | % | | $ | 29,078 | | | 44.3 | % | | $ | 65,622 | | | 10.7 | % |
Fiscal Year 20152023 as compared to Fiscal Year 20142022
TheContribution margin is a non-GAAP measure and consists of gross profit percentage decreased for fiscal 2015 compared to fiscal 2014. This decline was due to the mix of business; a number of multi-million dollar projects that generally are more competitive and have lower profit margins and include a higher level of subcontracted installations; additional spending due to capacity constraints in our second quarter; an increase in expenses for our acquisition of Data Display in fiscal 2015; and competitive pressures in the marketplace.
Commercial: The gross profit percent decrease in the Commercial business unit for fiscal 2015 compared to fiscal 2014 was the result of the product mix of sales and manufacturing utilization, partially offset by lower warranty costs as a percent of sales.
Live Events: The gross profit percent decrease in the Live Events business unit for fiscal 2015 compared to fiscal 2014 was due to the effects of an increased mix of large custom contracts, the related increased mix of subcontracted installation activity, and the higher volume of business during the second quarter which stretched our capacity. In order to meet critical event dates for our sports customers, we had additional costs related to overtime, expediting, and shipping. The installation activity generally lowers margins as we outsource subcontracted on-site work at general contracting rates which have lower margins than in-house video equipment production.
High School Park and Recreation: The gross profit percent increase in the High School Park and Recreation business unit for fiscal 2015 compared to fiscal 2014 primarily was the result of overall gross margin improvement on contracts due to higher percentages of Daktronics Sports Marketing ("DSM") projects and improved manufacturing utilization. In addition, in the first quarter of fiscal 2015, we recognized a $1.3 million gain on the sale of our theatre rigging division.
Transportation: The gross profit percent increase in the Transportation business unit for fiscal 2015 compared to fiscal 2014 was primarily the result of improved gross margins on contracts and standard orders and lower warranty costs as a percent of sales, partially offset by a decline in our manufacturing utilization.
International: The gross profit percent decrease in the International business unit for fiscal 2015 compared to fiscal 2014 was the net result of an overall gross margin decline on our large custom contracts, which generally have lower margins due to their competitive nature and low utilization of our international manufacturing facilities, including the factory and related costs acquired with the Data Display acquisition.
Selling Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | April 30, 2016 | | May 2, 2015 | | April 26, 2014 |
| (dollars in thousands) | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
| Commercial | $ | 15,938 |
| | 10.7 | % | | 0.9 | % | | $ | 15,802 |
| | 9.5 | % | | 7.8 | % | | $ | 14,662 |
| | 9.5 | % |
| Live Events | 13,390 |
| | 6.5 |
| | (1.6 | ) | | 13,611 |
| | 5.9 |
| | 8.8 |
| | 12,515 |
| | 6.3 |
|
| High School Park and Recreation | 10,310 |
| | 14.7 |
| | (1.2 | ) | | 10,436 |
| | 15.4 |
| | (2.7 | ) | | 10,727 |
| | 18.0 |
|
| Transportation | 4,106 |
| | 7.9 |
| | (3.3 | ) | | 4,244 |
| | 8.8 |
| | 28.0 |
| | 3,316 |
| | 6.0 |
|
| International | 15,068 |
| | 15.9 |
| | 8.6 |
| | 13,870 |
| | 13.6 |
| | 10.3 |
| | 12,574 |
| | 14.7 |
|
| | $ | 58,812 |
| | 10.3 | % | | 1.5 | % | | $ | 57,963 |
| | 9.4 | % | | 7.7 | % | | $ | 53,794 |
| | 9.7 | % |
All areas ofless selling expenses were impacted as a result of the 53-week fiscal year ended May 2, 2015 compared to the more common 52 week fiscal year. The fiscal years ended April 30, 2016 and April 26, 2014 contained 52 weeks.
Fiscal Year 2016 as compared to Fiscal Year 2015
expenses. Selling expenses consist primarily of salaries, other employee-relatedpersonnel related costs, travel and entertainment expenses, facilities-related costs for salesmarketing related expenses (show rooms, product demonstration, depreciation and service offices,maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and expenditures for marketing efforts, including the costs of collateral materials, conventions and trade shows, product demos, and supplies.other expenses.
Selling expense in our Transportation, Live Events, and High School Park and Recreation business units decreased for fiscal 2016 compared to fiscal 2015 primarily due to the additional week of selling expenses in the first quarter of fiscal year 2015 and decreases in our travel and entertainment expenses, marketing expenses, and third party commissions.
Selling expense in our International business unit increasedContribution margin in fiscal 2016 compared2023 was positively impacted by the previously discussed sales levels and impacts on gross profit. We have adjusted our sales and marketing activities and staffing levels to fiscal 2015 primarily dueachieve current and expected future sales levels.
Reconciliation from non-GAAP contribution margin to increases in personnel expenses, bad debt expense, and third-party commissions.operating income GAAP measure is as follows:
Selling expense in our Commercial business unit remained relatively flat.
For fiscal 2017, we are focused on constraining cost growth throughout the company because of the short-term order uncertainty and to allocate additional resources to product design and development. In addition, we expect a reduction in bad debt expense, which will contribute to flat to decreased selling expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 |
| (in thousands) | Amount | | As a Percent of Net Sales | | Dollar Change | | Percent Change | | Amount | | As a Percent of Net Sales |
| Contribution margin | $ | 94,700 | | | 12.6 | % | | $ | 29,078 | | | 44.3 | % | | $ | 65,622 | | | 10.7 | % |
| General and administrative | 38,747 | | | 5.1 | | | 6,184 | | | 19.0 | | | 32,563 | | | 5.3 | |
| Product design and development | 29,989 | | | 4.0 | | | 976 | | | 3.4 | | | 29,013 | | | 4.7 | |
| Goodwill Impairment | 4,576 | | | 0.6 | | | 4,576 | | | — | | | — | | | — | |
| Operating income | $ | 21,388 | | | 2.8 | % | | $ | 17,342 | | | 428.6 | % | | $ | 4,046 | | | 0.7 | % |
Fiscal Year 20152023 as compared to Fiscal Year 2014
Selling expense in our Commercial, Live Events, Transportation, and International business units increased for fiscal 2015 compared to fiscal 2014 primarily due to increases in personnel expenses, travel and entertainment expense, marketing expense, the implementation of a sales opportunity management tool, the additional costs associated with the Data Display sales teams, and various other expenses, with a reduction of bad debt and commission expenses.
Selling expense in our High School Park and Recreation business unit remained relatively flat for fiscal 2015 compared to fiscal 2014.
Other Operating Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | April 30, 2016 | | May 2, 2015 | | April 26, 2014 |
| (dollars in thousands) | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
| General and administrative | $ | 32,801 |
| | 5.8 | % | | 6.9 | % | | $ | 30,679 |
| | 5.0 | % | | 9.6 | % | | $ | 27,984 |
| | 5.1 | % |
| Product design and development | $ | 26,911 |
| | 4.7 | % | | 9.2 | % | | $ | 24,652 |
| | 4.0 | % | | 5.5 | % | | $ | 23,375 |
| | 4.2 | % |
All areas of operating expenses were impacted as a result of the 53-week fiscal year ended May 2, 2015 compared to the more common 52 week fiscal year. The fiscal years ended April 30, 2016 and April 26, 2014 contained 52 weeks.
Fiscal Year 2016 as compared to Fiscal Year 2015
General and administrative expenses consist primarily of salaries, other employee-related costs, professional fees, shareholder relations costs, facilities and equipment-related costs for administrative departments, training costs, amortization of intangibles, and the cost of supplies.
2022
General and administrative expenses infor fiscal 20162023 increased as compared to fiscal 2015 primarilythe same period one year ago due to increases in information technologycompensation and personnelstaffing, marketing expenses, partially offset by decreases inother expense growth, and approximately $4.5 million of discrete professional fees related to the going concern and internal control consultation and shareholder engagement fees.
We expect general and administrative expenses to remain flat or only increase slightly for fiscal 2017 as compared to fiscal 2016 because we want to constrain cost growth throughout the Company because of the short-term order uncertainty and to additional allocate resources to product design and development. We continue to project increases in information technology related costs.
Product design and development expenses consist primarily of salaries, other employee-related costs, facilities cost and equipment-related costs and supplies. Product development investments in the near term are focused on video technology with a range of pixel pitches for outdoor applications using LED surface mount technology, which offers improved performance at a lower cost point as compared to our current offerings. In addition, we continue to focus on various other products to standardize display components and control systems for both single site and network displays.
Our costs for product design and development represent an allocated amount of costs based on time charges, materialsprofessional services, material costs and the overhead of our engineering departments. Generally, a significant portion of our engineering time is spent on product design and development, while the rest is allocated to large contract work and is included in cost of goods sold. sales.
Product design and development expenses in fiscal 20162023 increased as compared to fiscal 20152022 primarily due to an increase in time spent on the development of new or enhanced solutions development in order to meet market demand for these solutions. The increase is primarily a function of the increased activity and includes personnel materials, and professional services expenditures.
related expenses.
We plan to accelerate activities in our design groups to complete development for a number of solution areas during fiscal 2017. This acceleration is expected to causeexpect general and administrative and product design and development expenses to increase for fiscal 2024 as compared to fiscal 2023 due to continued increases in fiscal 2017.labor costs and for planned investments in digital transformation initiatives and to enhance and develop existing and new product technologies.
Other Income and Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 |
| (in thousands) | Amount | | As a Percent of Net Sales | | Dollar Change | | Percent Change | | Amount | | As a Percent of Net Sales |
| Interest income (expense), net | $ | (920) | | | (0.1) | % | | $ | (1,091) | | | (638.0) | % | | $ | 171 | | | — | % |
| Other expense, net | $ | (7,211) | | | (1.0) | % | | $ | (4,102) | | | 131.9 | % | | $ | (3,109) | | | (0.5) | % |
Fiscal Year 20152023 as compared to Fiscal Year 20142022
General and administrative expenses in fiscal 2015 increased as compared to fiscal 2014 primarily due to an increase in professional services costs, personnel expenses, IT maintenance, and various other expenses. These expenses included one-time costs incurred in the second quarter of fiscal 2015 for professional services to support the expansion of our International business and other on-going costs to support our anticipated business growth. We incurred $0.4 million in general and administration expense for professional fees related to the Data Display acquisition.
Product development expenses in fiscal 2015increased compared to fiscal 2014primarily due to an increase in materials used in the development of new products and labor costs assigned to product development projects.
Other Income and Expenses
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | April 30, 2016 | | May 2, 2015 | | April 26, 2014 |
| (dollars in thousands) | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales | | Percent Change | | Amount | | As a Percent of Net Sales |
| Interest income, net | $ | 759 |
| | 0.1 | % | | (15.3 | )% | | $ | 896 |
| | 0.1 | % | | (13.8 | )% | | $ | 1,039 |
| | 0.2 | % |
| Other (expense) income, net | $ | (128 | ) | | — | % | | (74.3 | )% | | $ | (498 | ) | | (0.1 | )% | | 40.3 | % | | $ | (355 | ) | | (0.1 | )% |
Fiscal Year 2016 as compared to Fiscal Year 2015
Interest income, net: We generate interest income through short-term cash investments, marketable securities, product sales on an installment basis, or in exchange for the rights to sell and retain advertising revenues from displays, which result in long-term receivables. Interest expense is comprised primarily of interest costs on long-term marketing obligations.
Interest income, net decreased in fiscal 2016 as compared to fiscal 2015 as a result of interest expenses related to a tax audit assessment. As a result of the volatility of working capital needs and changes in investing and financing activities, along with changes in the interest rate environment, it is difficult to project changes in interest income.
Other (expense) income, net: The change in otherinterest income and expense, net for fiscal 20162023 as compared to fiscal 20152022 was primarily due to adjustmentutilizing our previous bank line of contingent considerationcredit during fiscal 2023 for a past acquisition offset by foreign currency gains.our strategic investments in inventory.
Fiscal Year 2015 as compared to Fiscal Year 2014
Interest income,Other expense, net: Interest income decreased slightlyThe change in other expense, net for fiscal 20152023 as compared to fiscal 2014 due to lower installment receivables.
Other (expense) income, net: The change in other income and expense, net for fiscal 2015 as compared to fiscal 2014 is2022 was primarily due to unrealizedlosses and impairments recorded for equity method affiliates and foreign currency gains from the volatility of the Euro, Australian dollar, and Canadian dollar.
Income Taxes
TheOur effective tax rate was approximately 34.1 percent, 34.1 percent and 40.4 percent for fiscal 2016, fiscal 2015, and fiscal 2014, respectively.
2023 was 48.7 percent. The effective income tax rate for fiscal 2016 includes the impact of The Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) signed by the President in December 2015. Under prior law, a taxpayer2023 was not entitled to a research tax credit for qualifying amounts paid or incurred after December 31, 2014. However, under the PATH Act, a taxpayer is now entitled to a research tax credit for qualifying amounts paid or incurred after December 31, 2014 with no expiration. As a result of the retroactive reinstatement and permanent extension, we recognized approximately $2.0 million in tax benefits during fiscal 2016. The benefit is largely offset by pre-tax losses with no tax benefitimpacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the currenttax rate is higher than the United States, as well as prior year establishment of valuation allowancesprovision to return adjustments reduced in certain jurisdictions of $1.2 million that were recognized during fiscal 2016.part by tax benefits from permanent tax credits.
TheOur effective income tax rate for fiscal 2015 includes2022 was 46.6 percent resulting from the impacttax benefit of The Tax Increase Prevention Act of 2014 signed by the President in December 2014, which extended the researchpermanent tax credits for onereduced by valuation allowances, various permanent tax adjustments and state taxes and prior year provision to December 31, 2014. Under prior law, a taxpayer was entitled to a research tax credit for qualifying amounts paid or incurred on or before December 31, 2013. The extension of the research credit is retroactive and includes amounts paid or incurred after December 31, 2013. As a result of the retroactive extension, we recognized approximately $1.3 million in tax benefits during fiscal 2015.return adjustments.
TheOur consolidated effective income tax rate for fiscal 2014 includes the impact of a $2.3 million valuation allowance against a deferred tax asset related to losses on an equity investment when it became more likely than not we would not realize the benefit. The rate was alsois impacted by the research credit being effective for only a portionstatutory income tax rates applicable to each of the year. For a more detailed description of the valuation allowance, please seejurisdictions in which we operate. Due to various factors, and because we operate in multiple state and foreign jurisdictions, our effective tax rate is subject to fluctuation. See "Note 13.12. Income Taxes" of the Notes to our Consolidated Financial Statements included in this Form 10-K.10-K for further information.
Fiscal Year 2016 Fourth Quarter Summary
During the fourth quarter of fiscal 2016, net sales decreased approximately 12.4 percent to $138.5 million as compared to $158.1 million in the fourth quarter of fiscal 2015. Net sales decreased in the International, Commercial billboard and spectacular niches, and Live Events business units. Net sales increased in the High School Park and Recreation business unit. Transportation business unit net sales remained relatively flat. Commercial business unit net sales decreased due to decreased customer demand in billboard and spectacular niches due to lower demand in the billboard segment from our national billboard customers and due to the volatility of order timing of large projects cause by various macroeconomic and customer decision delays. Live Events business unit net sales decreased due to the timing of customer deliveries extending beyond the fiscal year. High School Park and Recreation business unit net sales increased due to an increase in sales and service orders for increased project sizes. International business unit net sales decreased due to lower orders during the last half of the year.
Gross margin percentage decreased to approximately 20.2 percent in the fourth quarter of fiscal 2016 from approximately 22.3 percent in the fourth quarter of fiscal 2015. The decrease in gross profit percentage was the net result of the additional warranty charge in fiscal 2016 and the product mix of sales.
Selling expenses increased to $15.9 million in the fourth quarter of fiscal 2016 compared to $14.6 million in the fourth quarter of fiscal 2015. The increase was primarily due to increased personnel expenses, including taxes and benefits, third party commissions, and bad debt expense, which were partially offset by decreases in travel and entertainment expenses and other expenses.
General and administrative costs increased by approximately 10.5 percent in the fourth quarter of fiscal 2016 to $8.6 million as compared to $7.8 million in the fourth quarter of fiscal 2015. The increase was primarily due to increased personnel expenses, including taxes and benefits, information technology, including software and hardware expenses, and professional fees.
Product development costs increased by approximately 20.5 percent in the fourth quarter of fiscal 2016 to $7.1 million as compared to $5.9 million in the fourth quarter of fiscal 2015. The increase was the result of increased development activities including personnel costs and cost of materials to produce and test prototypes.
The effective tax rate was 0.6 percent in the fourth quarter of fiscal 2016 compared to 45.0 percent in the fourth quarter of fiscal 2015. The effective income tax rate for fiscal 2016 includes the impact of a tax benefit of a book loss for the fourth quarter offset by the impact of $1.0 million in valuation allowances against deferred tax assets related to foreign net operating losses recognized in the fourth quarter when it became more likely than not we would not realize the benefit of the losses.
LIQUIDITY AND CAPITAL RESOURCES | | | | | | | | | | | | | Year Ended |
| | Year Ended | |
| | April 30,
2016 | | May 2,
2015 | | Percent Change | |
| (dollars in thousands) | |
| Net cash provided by (used in): | | | | | | |
| (in thousands) | | (in thousands) | April 29, 2023 | | April 30, 2022 | | Dollar Change |
| Net cash (used in) provided by: | | Net cash (used in) provided by: | | | | | |
| Operating activities | $ | 13,275 |
| | $ | 53,168 |
| | (75.0 | )% | Operating activities | $ | 15,024 | | | $ | (27,035) | | | $ | 42,059 | |
| Investing activities | (23,818 | ) | | (24,227 | ) | | (1.7 | ) | Investing activities | (25,388) | | | (31,384) | | | 5,996 | |
| Financing activities | (17,448 | ) | | (16,070 | ) | | 8.6 |
| Financing activities | 17,568 | | | (3,576) | | | 21,144 | |
| Effect of exchange rate changes on cash | (965 | ) | | (641 | ) | | 50.5 |
| Effect of exchange rate changes on cash | (522) | | | (399) | | | (123) | |
| Net increase in cash and cash equivalents | $ | (28,956 | ) | | $ | 12,230 |
| | 336.8 | % | |
| Net (decrease) increase in cash, cash equivalents and restricted cash | | Net (decrease) increase in cash, cash equivalents and restricted cash | $ | 6,682 | | | $ | (62,394) | | | $ | 69,076 | |
Cash flows fromNet cash (used in) provided by operating activities: OperatingNet cash flows result primarily from cash received from customers, which is offset by cash payments for inventories, income taxes, market and warranty obligations, and employee compensation.
Cash provided by operating activities was $13.3$15.0 million for fiscal 20162023 compared to $53.2$27.0 million net cash used in operating activities in fiscal 2015.2022. The decrease$42.0 million increase in cash fromprovided by operating activities of $39.9 million was primarily the net result of a decrease for changes in net operating assets and liabilities and an increase of $23.3 million, a decrease of $18.8$6.2 million in net income, a decrease of $1.2 million in our deferred income taxes, net, adjusted by a $1.8 million increase in depreciation and amortization, a $1.1 million gain on the sale of property and equipment in fiscal 2015, and a $0.5 million increase in other non-cash items.
Overall, changes in operating assets and liabilities can be impacted by the timing of cash flow on large orders, which can cause significant fluctuations in the short term in inventory, accounts receivables, accounts payable, customer deposits, costs and earnings in excess of billings and various other operating assets and liabilities. Variability in costs and earnings in excess of billings and billings in excess of costs relates to the timing of billings on construction-type contracts and revenue recognition, which can vary significantly depending on contractual payment terms and build and installation schedules. Balances are also impacted by the seasonality of the sports markets.income. For information regardingspecific quantitative changes in operating assets and liabilities, see "Note 14.13. Cash Flow Information" of the Notes to our Consolidated Financial Statements included in thethis Form 10-K.
Cash flows fromNet cash used in investing activities: Cash Net cash used in investing activities totaled $23.8$25.4 million for fiscal 20162023 compared to $24.2$31.4 million in fiscal 2015.2022. Purchases of property and equipment totaled $17.1$25.4 million in fiscal 20162023 compared to $21.8$20.4 million in fiscal 2015.
A net cash inflow2022. Proceeds from the sales of property and equipment totaled $0.8 million in fiscal 2023 compared to $0.9 million in fiscal 2022. Purchases of marketable securities totaled $4.0 million was recognized during fiscal 2015 from the disposition of our automated rigging systems division for theatre applications. No comparable transaction occurred in fiscal 2016.
A net cash outlay of $7.9 million was recognized during fiscal 20162022 compared to $6.3the sale of $3.5 million recognizedof marketable securities in fiscal 2015 for acquisitions, investments in affiliates and equity investments.2023.
Cash flows fromNet cash (used in) provided by financing activities: Cash used in Net cash provided by financing activities was $17.4$17.6 million for fiscal 20162023 due to draws on our previous bank line of credit compared to $16.1$3.6 million of net cash used by financing activities for other investing activities in fiscal 2015. Dividends of $17.6 million, or $0.40 per share, were paid to Daktronics shareholders during fiscal 2016 compared to $17.4 million, or $0.40 per share, paid to Daktronics shareholders during fiscal 2015.2022.
Other Liquidity and Capital Resources Discussion: Although
As of April 29, 2023, we had $17.8 million borrowed under a previous bank line of credit. Subsequent to the end of the 2023 fiscal year, we paid off and terminated that credit line on May 11, 2023 after closing on a $75.0 million senior credit facility (the "Credit Facility") and the sale of a $25.0 million senior secured convertible note (the "Convertible Note"). The Credit Facility consists of a $60.0 million asset-based revolving credit facility (the "ABL") maturing on May 11. 2026, secured by first priority lien on the Company's assets and which is subject to certain factors which can impact our borrowing capacity, and a $15.0 million delayed draw loan (the "Mortgage") secured by our Brookings, South Dakota real estate. The ABL and Mortgage are evidenced by a Credit Agreement dated as of May 11, 2023 (the "Credit Agreement") between the Company and JPMorgan Chase Bank, N.A., as the lender.
Under the ABL, certain factors can impact our borrowing capacity. As of May 11, 2023, our borrowing capacity was $47.5 million and there were no borrowings outstanding. The interest rate on the ABL is set on a sliding scale based on the trailing twelve month fixed charge coverage and ranges from 2.5 percent to 3.5 percent over the standard overnight financing rate (SOFR). The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the Pledge and Security Agreement dated as of May 11, 2023 by and among the Company, Daktronics Installation, Inc. and the JPMorgan Chase Bank, N.A.
The $15.0 million delayed draw on the Mortgage closed on July 7, 2023, is secured by a mortgage on the Company's Brookings, South Dakota real estate, amortizes over 10 years and is payable monthly. The Mortgage is subject to the terms of the Credit Agreement and matures on May 11, 2026. The Mortgage interest rate is set on a sliding scale based on the trailing twelve month fixed charge coverage ratio and ranges between 3.5 percent to 4.5 percent..
On May 11, 2023, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with Alta Fox Opportunities Fund, LP (the “Investor”) under which the Company agreed to sell and issue to the Investor its senior secured Convertible Note in exchange for the payment by the Investor to the Company of $25.0 million. The Convertible Note allows the Investor and any of the Investor’s permitted transferees, donees, pledgees, assignees or successors-in-interest (collectively, the “Selling Shareholders”) to convert all or any portion of the principal amount of the
Convertible Note, together with any accrued and unpaid interest and any other unpaid amounts, including late charges, if any (together, the “Conversion Amount”), into shares of the Company’s common stock at an initial conversion price of $6.31 per share, subject to adjustment in accordance with the terms of the Convertible Note (the “Conversion Price”).The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions set forth in the Convertible Note, pursuant to which it can cause all or any portion of the outstanding and unpaid Conversion Amount to be converted into shares of common stock at the Conversion Price. The Convertible Note incurs interest at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is capitalized. Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent. Under the Pledge and Security Agreement dated as of May 11, 2023 between the Company and the Investor, the Convertible Note is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank, N.A., and the Investor. The Convertible Note has a maturity date of May 11, 2027 (the “Maturity Date”). On the Maturity Date, the Company must pay to the Investor and any Selling Shareholders an amount in cash representing all outstanding principal, any accrued and unpaid interest, and any accrued and unpaid late charges on such principal and interest. We expect annual cash usage for interest of up to $2.3 million.
Effective on May 11, 2023, in connection with the Company’s entry into the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file with the SEC by the dates set forth in the Registration Rights Agreement a registration statement covering the resale of the shares of common stock issuable upon conversion of the Convertible Note. Pursuant to the Registration Rights Agreement, the Company is required to use reasonable best efforts to have $4.2 millionsuch registration statement declared effective by the SEC by the dates set forth in the Registration Rights Agreement. If the registration statement is not filed with the SEC or declared effective by the SEC on a timely basis, certain penalties would be applicable to the Company.
The Credit Agreement and the Convertible Note require a fixed charged coverage ratio of retainage on long-term contractsgreater than 1.1 and include other customary non-financial covenants. We expect to be in compliance with these covenants for the foreseeable future. Refer to "Note 17. Subsequent Events" of the Notes to our Consolidated Financial Statements included in receivablesthis Form 10-K.
Our cash and costs in excesscash equivalent balances consist of billingshigh-quality, short-term money market instruments.
Working capital was $132.5 million and $103.9 million as of April 30, 2016, we expect all of it to be collected within one year.
Working capital was $123.7 million at29, 2023 and April 30, 2016 and $149.1 million at May 2, 2015.2022, respectively. The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, accounts payable, inventory, costs in excess of billingscontract assets and billings in excess of cost, and the seasonality ofliabilities, are impacted by the sports market and construction seasonality. These changes can have a significant impact on the amount of net cash provided by or used in operating activities largely due to the timing of payments for inventory and receipts. Working capital changes were also attributable to the change in accounting for deferred tax assets. All deferred tax assets are classified in long-term assets starting in the fourth quarter of fiscal 2016. Historically, deferred tax assets were included in current assets. We have historically financed working capital needs through a combination of cash flowsubcontractors and receipts from operations and borrowings under bank credit agreements.
We have used and expect to continue to use cash reserves to meet our short-term working capital requirements.customers. On large productmultimillion-dollar orders, the time between order acceptance and project completion may extend up to andor exceed 2412 months depending on the amount of custom work and a customer’s delivery needs. We use cash to purchase inventory and services at the beginning of these orders and often receive down payments or progress payments on these orders to balance cash flows.
Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting total capital expenditures to be approximately $19.0 million for fiscal 2024. Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product orders. To the extent these payments are not sufficient to fund the costsproduction and other expenses associatedexpanded capacity and increased automation of processes; investments in quality and reliability equipment and demonstration and showroom assets; and continued information infrastructure investments. We also evaluated and may make strategic investments in new technologies or in our affiliates or acquire companies aligned with these orders, we use working capital and bank borrowings to finance these cash requirements. During the fourth quarterour business strategy.
We had $10.4 million of fiscal 2016, we violated one of our bank covenants, but received a waiver from our banking institution for the year ended April 30, 2016. Although we are not currently using our credit line,
which expiresretainage on November 15, 2016, any future covenant violations could impact our ability to obtain future financing. For additional information on financing agreements, see, "Note 10. Financing Agreements" of the Notes to our Consolidated Financial Statementslong-term contracts included in this Form 10-K.
We utilize cash to pay dividends toreceivables and contract assets as of April 29, 2023, which has an impact on our investors. The following table summarizes the regular quarterly dividend declared and paid since the fiscal year end of May 2, 2015:
|
| | | |
Date Declared | Record Date | Payment Date | Amount per Share |
May 29, 2015 | June 12, 2015 | June 23, 2015 | $0.10 |
September 3, 2015 | September 14, 2015 | September 25, 2015 | $0.10 |
December 9, 2015 | December 21, 2015 | December 30, 2015 | $0.10 |
February 29, 2016 | March 11, 2016 | March 22, 2016 | $0.10 |
June 16, 2016 | June 27, 2016 | July 8, 2016 | $0.06 |
The following table summarizes the special dividends declared and paid since the fiscal year end of May 2, 2015:
|
| | | |
Date Declared | Record Date | Payment Date | Amount per Share |
June 16, 2016 | June 27, 2016 | July 8, 2016 | $0.04 |
Although weliquidity. We expect to continue to pay dividends for the foreseeable future, any and all subsequent dividends will be reviewed regularly and declared by the Board of Directors at its discretion.
collect these amounts within one year.
We are sometimes required to obtain performance bonds for display installations, and we have a bonding linecapacity available through a surety companycompanies for an aggregate of $150.0$165.0 million in bonded work outstanding. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics. AtAs of April 30, 2016,29, 2023, we had $50.6$56.4 million of bonded work outstanding against this line.outstanding.
We repurchase our common stock and pay dividends pursuant to programs approved by our Board of Directors. Our business growthlong-term capital allocation strategy is to first fund operations and profitability improvement strategies depend on investments in growth, maintain reasonable liquidity, maintain a leverage ratio that reflects a prudent and compliant capital expenditures. We are projecting capital expendituresstructure in light of the cyclicality of business, and
then return excess cash over time to be approximately $20 million forshareholders through dividends and share repurchases. During fiscal 2017 for manufacturing equipment for new or enhanced product production, expanded capacity, investments in qualityyear 2023, we did not repurchase shares of common stock, and reliability equipment, and continued information infrastructure investments.
we did not pay a dividend.
We believe cash on hand, funds generated from operations, and the borrowing capacity available under our Credit Facility and other debt instruments will be sufficient to support our expected change in working capital, available from all sources will be adequate to meet the cash requirements of our operations incapital expenditures, strategic investments, and financing payments for the foreseeable future. If our growth extends beyond current expectations, profitability does not improve, or if we make any strategic investments, we may need to increase our credit facilities or seek other means of financing. We anticipate we will be able to obtain any needed funds under commercially reasonable terms from our current lenders or other sources, although there can be no guarantee of such.
OFF-BALANCE-SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We enter into various lease, purchase and marketing obligations that require payments in future periods. Operating lease obligations relate primarily to leased manufacturing space, office space, furniture, and vehicles. Long-term marketing obligations relate to amounts due in future periods for payments on net sales where we sold and installed our equipment in exchange for future advertising revenue. When certain advertising revenue thresholds are met, all or a portion of excess cash is owed back to the customer. Conditional and unconditional purchase obligations represent future payments for inventory, advertising rights and various other products and services purchase commitments.
We have entered into standby letters of credit and surety bonds with financial institutions relating to the guarantee of future performance on contracts, primarily construction type contracts. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms, which are generally one year.
As of April 30, 2016, our contractual obligations were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| Contractual Obligations | | Total | | Less than 1 year | | 1-3 Years | | 4-5 Years | | After 5 Years |
| Cash commitments: | | | | | | | | | | |
| Long-term obligations and accrued interest | | $ | 3,944 |
| | $ | 594 |
| | $ | 3,275 |
| | $ | 75 |
| | $ | — |
|
| Operating leases | | 7,785 |
| | 2,166 |
| | 2,948 |
| | 1,892 |
| | 779 |
|
| Unconditional purchase obligations | | 1,107 |
| | 1,012 |
| | 95 |
| | — |
| | — |
|
| Conditional purchase obligations | | 500 |
| | 200 |
| | 300 |
| | — |
| | — |
|
| Unrecognized tax benefits | | 3,016 |
| | 3,016 |
| | — |
| | — |
| | — |
|
| Total | | $ | 16,352 |
| | $ | 6,988 |
| | $ | 6,618 |
| | $ | 1,967 |
| | $ | 779 |
|
| Other commercial commitments: | | |
| | |
| | |
| | |
| | |
|
| Standby letters of credit | | $ | 7,354 |
| | $ | 5,765 |
| | $ | 1,031 |
| | $ | 558 |
| | $ | — |
|
| Surety bonds | | $ | 50,593 |
| | $ | 50,453 |
| | $ | 140 |
| | $ | — |
| | $ | — |
|
INFLATION
We believe inflation has not had a material effect on our operations or our financial condition, although it could in the future.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rates
Through April 30, 2016, most of our net sales were denominated in U.S. dollars, and our exposure to foreign currency exchange rate changes on net sales had not been significant. For the fiscal year 2016, net sales originating outside the United States were 18% of total net sales, of which a portion was denominated in Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, Brazilian reais or other currencies. We manufacture our products in the United States, China, Belgium, and Ireland. Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. We derive net sales in United States dollars and other currencies including Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, or other currencies. For fiscal 2023, 12.3 percent of net sales were derived in currencies other than United States dollars. We incur expenses in currencies other than United States dollars relating to specific contracts with customers and for our operations outside the United States
If we believedbelieve currency risk in any foreign location or with respect to specific sales or purchase transaction is significant, we would utilize foreign exchange hedging contracts to manage our exposure to the currency fluctuations.
Over the long term, net sales to international markets are expected to increase as a percentage of net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. In addition, we may fund our foreign subsidiaries’ operating cash needs in the form of loans denominated in U.S. dollars. As a result, operating results may become subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. To the extent we engage in international sales denominated in U.S. dollars, an increase in the valueThe notional amount of the U.S. dollar relativeforeign currency agreements as of April 29, 2023 was $7.8 million, and all contracts mature within six months. These contracts are marked to foreign currencies could makemarket each balance sheet date and are not designated as hedges. See "Note 15. Derivative Financial Instruments" of the Notes to our products less competitiveConsolidated Financial Statements included in international markets. This effect is also impacted by the sources of raw materials from international sources.this Form 10-K for further details. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $1.0$0.4 million. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.
Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies. As a result, operating results may become more subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the United States dollar. To the extent we engage in international sales denominated in United States dollars, an increase in the value of the United States dollar relative to foreign currencies could make our products less competitive in international markets. This effect is also impacted by sources of raw materials from international sources and costs of our sales, service, and manufacturing locations outside the United States
We will continue to monitor and minimize our exposure to currency fluctuations and, when appropriate, use financial hedging techniques including foreign currency forward contracts and options, to minimize the effect of these fluctuations. However, exchange rate fluctuations as well as differing economic conditions, changes in political climates, differing tax structures and other rules and regulations could adversely affect our ability to effectively hedge exchange rate fluctuations in the future.
We have foreign currency forward agreements in placecash accounts to offset changes in the value of intercompany receivables from certain foreign subsidiaries due tooperate our global business. These accounts are impacted by changes in foreign exchangecurrency rates. The notional amountOf our $24.0 million in cash balances as of these derivatives is $10.0April 29, 2023, $15.9 million and all contracts mature within 15 months. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 16. Derivative Financial Instruments" were denominated in United States dollars, of the Notes towhich $1.3 million were held by our Consolidated Financial Statements included in this Form 10-K for further details.
Interest Rate Risks
Our exposure to market rate risk for changes in interest rates relates primarily to our marketing obligations and long-term accounts receivable.foreign subsidiaries. As of April 30, 2016, our outstanding marketing obligations were $0.6 million, all of which were in fixed rate obligations.
In connection with the sale of certain display systems,29, 2023, we have entered into various types of financing with customers. The aggregate amounts due from customers includehad an imputed interest element. The majority of these financings carry fixed rates of interest. As of April 30, 2016, our outstanding long-term receivables were additional $7.08.1 million. Each 25 basis point increase in interest rates would have an associated annual opportunity benefit of $23 thousand.
The following table provides maturities and weighted average interest rates on our financial instruments sensitive to changes in interest rates.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fiscal Years (dollars in thousands) |
| | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter |
| Assets: | | | | | | | | | | | |
| Long-term receivables, including current maturities: | | | | | | | | | | | |
| Fixed-rate | $ | 3,172 |
| | $ | 1,637 |
| | $ | 1,026 |
| | $ | 542 |
| | $ | 322 |
| | $ | 339 |
|
| Average interest rate | 8.8 | % | | 9.0 | % | | 9.0 | % | | 9.0 | % | | 9.0 | % | | 9.0 | % |
| Liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
| Long- and short-term debt: | |
| | |
| | |
| | |
| | |
| | |
|
| Variable-rate | $ | 470 |
| | $ | 583 |
| | $ | 1,362 |
| | $ | 1,027 |
| | $ | — |
| | $ | — |
|
| Average interest rate | 3.9 | % | | 3.9 | % | | 3.9 | % | | 3.9 | % | | — | % | | — | % |
| Long-term marketing obligations, including current portion: | |
| | |
| | |
| | |
| | |
| | |
|
| Fixed-rate | $ | 210 |
| | $ | 161 |
| | $ | 142 |
| | $ | 65 |
| | $ | 10 |
| | $ | — |
|
| Average interest rate | 8.5 | % | | 8.8 | % | | 9.0 | % | | 9.0 | % | | 9.0 | % | | — | % |
Of our $28.3 million in cash balances at April 30, 2016, $21.0 million were denominated in U.S. dollars. Cash balances in foreign currencies, are operating balancesof which $7.7 million were maintained in accounts of our foreign subsidiaries. A portion of the
Interest Rate Risks
Our exposure to market risks relate primarily to changes in interest rates on our financing agreements, cash, held in foreign accounts is usedand marketable securities. We do not expect our income or cash flows to collateralize outstanding bank guarantees issuedbe significantly impacted by the foreign subsidiaries.
interest rates.
Commodity Risk
We are dependent on basic raw materials, sub-assemblies, components, and other supplies used in our production operations. Our financial results have been and could continue to be affected by changes in the availability, prices, and changes in pricesglobal tariff regulation of these materials. Some of these materials are sourced from one or a limited number of suppliers or only a single supplier. Thesein countries around the world. Some of these materials are also key source materials for our competitors. Therefore, if demandcompetitors and for other technology companies. Some of these materials rises,are sourced outside of the countries in which we manufacture our products and are subject to transportation delays. Any of these factors may experience increasedcause a sudden increase in costs and/or limited or
unavailable supplies. As a result, we may not be able to acquire key production materials on a timely basis, which could adversely impact our ability to produce products and satisfy incoming sales orders on a timely basis. In addition, the costs of these materials can rise suddenly and result in significantly higher costs of production. Our sourcing group worksand material groups work to implement strategies to monitor and mitigate these risks. Periodically, we enter into pricing agreements or purchasing contracts under which we agree to purchase a minimum amount of product in exchange for guaranteed price terms over the length of the contract, which generally does not exceed one year. We believe that we have adequate sources of supply for many of our key materials.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the shareholders and the Board of Directors and Shareholders of Daktronics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Daktronics, Inc. and subsidiaries (the Company)"Company") as of April 29, 2023 and April 30, 2016 and May 2, 2015, and2022, the related consolidated statements of operations, comprehensive income,income/ (loss), shareholders' equity, and cash flows, for each of the three years in the period ended April 30, 2016. Our audits also included29, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statement schedule listedstatements present fairly, in all material respects, the financial position of the Company as of April 29, 2023 and April 30, 2022, and the results of its operations and its cash flows for each of the three years in the Index at Item 15(a)(2). These financial statements and schedule areperiod ended April 29, 2023, in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
America.
We conducted our auditshave also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the Company's internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 12, 2023, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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 includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
In our opinion,The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements referredthat was communicated or required to above present fairly,be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in all material respects, the consolidated financial position of Daktronics, Inc. and subsidiaries at April 30, 2016 and May 2, 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2016, in conformity with U.S. generally accepted accounting principles. Also, inany way our opinion on the related financial statement schedule, when considered in relation to the basic financial statements, taken as a whole, presents fairlyand we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Uniquely Configured Contracts — Refer to Notes 1 and 2 to the financial statements
Critical Audit Matter Description
The Company recognizes revenue as its contractual performance obligations are satisfied, which may be at a point in all material respects,time or over time. Certain of the information set forth therein.Company’s contracts are for the delivery, installation, and integration of uniquely configured audio-visual communication systems. Revenue for these uniquely configured systems is recognized over time using the cost incurred input method. This input method requires management to make estimates of the costs that will ultimately be incurred at the completion of each contract. Revenue is recognized based on the transaction price and the percentage of cost incurred as of the balance sheet date in relation to the total estimated inputs at completion.
We alsoidentified revenue associated with uniquely configured contracts as a critical audit matter because of the significant judgments necessary for management to estimate total costs to be incurred to recognize revenue under these contracts. Changes in estimated costs could have audited,a significant impact on the timing and amount of revenue recognized. This required an increased level of auditor judgment due to the complexity of uniquely configured contracts and extent of effort when performing audit procedures to audit management’s estimate of total costs and evaluating the reasonableness of the underlying estimates.
How the Critical Audit Matter Was Addressed in accordancethe Audit
Our audit procedures related to estimates of total cost used to recognize revenue for uniquely configured contracts included the following, among others:
•We tested the effectiveness of controls over uniquely configured contracts, including management’s controls over the estimates of total costs.
•We selected a sample of uniquely configured contracts and performed the following:
•Compared costs incurred to date to the costs management estimated to be incurred to date.
•Evaluated management’s ability to achieve the estimates of total cost by performing corroborating inquiries with the standardsCompany’s project managers and engineers, and compared the estimates to management’s work plans, engineering specifications, and supplier contracts.
•Confirmed contractual terms with third parties.
•Tested the mathematical accuracy of the Public Company Accounting Oversight Board (United States), Daktronics, Inc.’s internal control over financial reporting asmanagement’s estimate of April 30, 2016, based on criteria established in Internal Control-Integrated Framework issuedtotal costs.
•We evaluated management’s ability to accurately estimate total costs by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated June 21, 2016, expressed an unqualified opinion thereon.comparing actual costs to management’s historical estimates for uniquely configured contracts that have been fulfilled.
/s/ ErnstDeloitte & YoungTouche LLP
Minneapolis, Minnesota
June 21, 2016July 12, 2023
We have served as the Company's auditor since 2017.
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
| | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| ASSETS | | | |
| CURRENT ASSETS: | | | |
| Cash and cash equivalents | $ | 23,982 | | | $ | 17,143 | |
| Restricted cash | 708 | | | 865 | |
| Marketable securities | 534 | | | 4,020 | |
| Accounts receivable, net | 109,979 | | | 101,099 | |
| Inventories | 149,448 | | | 134,392 | |
| Contract assets | 46,789 | | | 41,687 | |
| Current maturities of long-term receivables | 1,215 | | | 2,798 | |
| Prepaid expenses and other current assets | 9,676 | | | 14,963 | |
| Income tax receivables | 326 | | | 603 | |
| | | |
| Total current assets | 342,657 | | | 317,570 | |
| | | |
| Property and equipment, net | 72,147 | | | 66,765 | |
| Long-term receivables, less current maturities | 264 | | | 1,490 | |
| Goodwill | 3,239 | | | 7,927 | |
| Intangibles, net | 1,136 | | | 1,472 | |
| Debt issuance costs | 3,866 | | | — | |
| Investment in affiliates and other assets | 27,928 | | | 32,321 | |
| Deferred income taxes | 16,867 | | | 13,331 | |
| TOTAL ASSETS | $ | 468,104 | | | $ | 440,876 | |
| | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| CURRENT LIABILITIES: | | | |
| | | |
| Accounts payable | $ | 67,522 | | | $ | 76,313 | |
| Contract liabilities | 91,549 | | | 90,393 | |
| Accrued expenses | 36,005 | | | 34,959 | |
| Warranty obligations | 12,228 | | | 11,621 | |
| Income taxes payable | 2,859 | | | 408 | |
| Total current liabilities | 210,163 | | | 213,694 | |
| | | |
| Long-term warranty obligations | 20,313 | | | 17,257 | |
| Long-term contract liabilities | 13,096 | | | 10,998 | |
| Other long-term obligations | 5,709 | | | 7,076 | |
| Line of credit | 17,750 | | | — | |
| | | |
| Deferred income taxes | 195 | | | 287 | |
| Total long-term liabilities | 57,063 | | | 35,618 | |
| | | |
| SHAREHOLDERS' EQUITY: | | | |
| Preferred Shares, no par value, authorized 50,000 shares; no shares issued and outstanding | — | | | — | |
| Common stock, no par value, authorized 115,000,000 shares; 45,488,595 and 44,826,099 shares issued as of April 29, 2023 and April 30, 2022, respectively | 63,023 | | | 61,794 | |
| Additional paid-in capital | 50,259 | | | 48,372 | |
| Retained earnings | 103,410 | | | 96,608 | |
| Treasury stock, at cost, 1,907,445 shares as of April 29, 2023 and April 30, 2022, respectively | (10,285) | | | (10,285) | |
| Accumulated other comprehensive loss | (5,529) | | | (4,925) | |
| TOTAL SHAREHOLDERS' EQUITY | 200,878 | | | 191,564 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 468,104 | | | $ | 440,876 | |
See notes to consolidated financial statements.
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) |
| | | | | | | | |
| | | April 30,
2016 | | May 2,
2015 |
| ASSETS | | | | |
| CURRENT ASSETS: | | | | |
| Cash and cash equivalents | | $ | 28,328 |
| | $ | 57,284 |
|
| Restricted cash | | 198 |
| | 496 |
|
| Marketable securities | | 24,672 |
| | 25,346 |
|
| Accounts receivable, net | | 77,554 |
| | 80,857 |
|
| Inventories, net | | 69,827 |
| | 64,389 |
|
| Costs and estimated earnings in excess of billings | | 30,200 |
| | 35,068 |
|
| Current maturities of long-term receivables | | 3,172 |
| | 3,784 |
|
| Prepaid expenses and other assets | | 6,468 |
| | 6,663 |
|
| Deferred income taxes | | — |
| | 10,640 |
|
| Income tax receivables | | 4,812 |
| | 5,543 |
|
| Total current assets | | 245,231 |
| | 290,070 |
|
| | | | | |
| Property and equipment, net | | 73,163 |
| | 72,844 |
|
| Long-term receivables, less current maturities | | 3,866 |
| | 6,090 |
|
| Goodwill | | 8,116 |
| | 5,269 |
|
| Intangibles, net | | 7,721 |
| | 1,824 |
|
| Investment in affiliates and other assets | | 2,414 |
| | 2,680 |
|
| Deferred income taxes | | 9,437 |
| | 702 |
|
| TOTAL ASSETS | | $ | 349,948 |
| | $ | 379,479 |
|
| | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | |
| | |
|
| CURRENT LIABILITIES: | | | | |
| Accounts payable | | $ | 43,441 |
| | $ | 52,747 |
|
| Accrued expenses | | 23,532 |
| | 26,063 |
|
| Warranty obligations | | 16,564 |
| | 11,838 |
|
| Billings in excess of costs and estimated earnings | | 10,361 |
| | 23,797 |
|
| Customer deposits (billed or collected) | | 16,012 |
| | 16,828 |
|
| Deferred revenue (billed or collected) | | 10,712 |
| | 9,524 |
|
| Current portion of other long-term obligations | | 585 |
| | 587 |
|
| Income taxes payable | | 310 |
| | 636 |
|
| Total current liabilities | | 121,517 |
| | 142,020 |
|
| | | | | |
| Long-term warranty obligations | | 13,932 |
| | 14,643 |
|
| Long-term deferred revenue (billed or collected) | | 5,603 |
| | 3,914 |
|
| Other long-term obligations, less current maturities | | 4,059 |
| | 3,190 |
|
| Long-term income tax payable | | 3,016 |
| | 2,734 |
|
| Deferred income taxes | | 754 |
| | 939 |
|
| Total long-term liabilities | | 27,364 |
| | 25,420 |
|
| | | | | |
| SHAREHOLDERS' EQUITY: | | |
| | |
|
| Common Stock, no par value, authorized 120,000,000 shares; 43,998,635 and 43,643,801 shares issued at April 30, 2016 and May 2, 2015, respectively | | 51,347 |
| | 48,960 |
|
| Additional paid-in capital | | 35,351 |
| | 32,693 |
|
| Retained earnings | | 117,276 |
| | 132,771 |
|
| Treasury Stock, at cost, 19,680 shares | | (9 | ) | | (9 | ) |
| Accumulated other comprehensive loss | | (2,898 | ) | | (2,376 | ) |
| TOTAL SHAREHOLDERS' EQUITY | | 201,067 |
| | 212,039 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 349,948 |
| | $ | 379,479 |
|
| | | | | |
| See notes to consolidated financial statements. | | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Net sales | $ | 754,196 | | | $ | 610,970 | | | $ | 482,033 | |
| Cost of sales | 602,841 | | | 494,273 | | | 361,450 | |
| Gross profit | 151,355 | | | 116,697 | | | 120,583 | |
| | | | | |
| Operating expenses: | | | | | |
| Selling | 56,655 | | | 51,075 | | | 48,649 | |
| General and administrative | 38,747 | | | 32,563 | | | 27,980 | |
| Product design and development | 29,989 | | | 29,013 | | | 26,846 | |
| Goodwill impairment | 4,576 | | | — | | | — | |
| 129,967 | | | 112,651 | | | 103,475 | |
| Operating income | 21,388 | | | 4,046 | | | 17,108 | |
| | | | | |
| Nonoperating (expense) income: | | | | | |
| Interest (expense) income, net | (920) | | | 171 | | | (65) | |
| Other expense, net | (7,211) | | | (3,109) | | | (2,983) | |
| | | | | |
| Income before income taxes | 13,257 | | | 1,108 | | | 14,060 | |
| Income tax expense | 6,455 | | | 516 | | | 3,134 | |
| Net income | $ | 6,802 | | | $ | 592 | | | $ | 10,926 | |
| | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 45,404 | | | 45,188 | | | 44,989 | |
| Diluted | 45,521 | | | 45,326 | | | 45,202 | |
| | | | | |
| Earnings per share: | | | | | |
| Basic | $ | 0.15 | | | $ | 0.01 | | | $ | 0.24 | |
| Diluted | $ | 0.15 | | | $ | 0.01 | | | $ | 0.24 | |
See notes to consolidated financial statements.
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Net sales | $ | 570,168 |
| | $ | 615,942 |
| | $ | 551,970 |
|
| Cost of goods sold | 449,149 |
| | 471,363 |
| | 410,260 |
|
| Gross profit | 121,019 |
| | 144,579 |
| | 141,710 |
|
| | | | | | |
| Operating expenses: | |
| | |
| | |
|
| Selling expense | 58,812 |
| | 57,963 |
| | 53,794 |
|
| General and administrative | 32,801 |
| | 30,679 |
| | 27,984 |
|
| Product design and development | 26,911 |
| | 24,652 |
| | 23,375 |
|
| | 118,524 |
| | 113,294 |
| | 105,153 |
|
| Operating income | 2,495 |
| | 31,285 |
| | 36,557 |
|
| | | | | | |
| Nonoperating income (expense): | |
| | |
| | |
|
| Interest income | 987 |
| | 1,119 |
| | 1,294 |
|
| Interest expense | (228 | ) | | (223 | ) | | (255 | ) |
| Other (expense) income, net | (128 | ) | | (498 | ) | | (355 | ) |
| | | | | | |
| Income before income taxes | 3,126 |
| | 31,683 |
| | 37,241 |
|
| Income tax expense | 1,065 |
| | 10,801 |
| | 15,035 |
|
| Net income | $ | 2,061 |
| | $ | 20,882 |
| | $ | 22,206 |
|
| | | | | | |
| Weighted average shares outstanding: | |
| | |
| | |
|
| Basic | 43,990 |
| | 43,514 |
| | 42,886 |
|
| Diluted | 44,456 |
| | 44,443 |
| | 43,762 |
|
| | | | | | |
| Earnings per share: | |
| | |
| | |
|
| Basic | $ | 0.05 |
| | $ | 0.48 |
| | $ | 0.52 |
|
| Diluted | $ | 0.05 |
| | $ | 0.47 |
| | $ | 0.51 |
|
| | | | | | |
| Cash dividends declared per share | $ | 0.40 |
| | $ | 0.40 |
| | $ | 0.39 |
|
| | | | | | |
| See notes to consolidated financial statements. | | | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| | | | | |
| Net income | $ | 6,802 | | | $ | 592 | | | $ | 10,926 | |
| | | | | |
| Other comprehensive income (loss): | | | | | |
| Cumulative translation adjustments | (616) | | | (2,556) | | | 2,942 | |
| Unrealized gain (loss) on available-for-sale securities, net of tax | 12 | | | (34) | | | — | |
| Total other comprehensive (loss) income, net of tax | (604) | | | (2,590) | | | 2,942 | |
| Comprehensive income (loss) | $ | 6,198 | | | $ | (1,998) | | | $ | 13,868 | |
See notes to consolidated financial statements.
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| | | | | | | |
| Net income | | $ | 2,061 |
| | $ | 20,882 |
| | $ | 22,206 |
|
| | | | | | | |
| Other comprehensive (loss) income: | | | | | | |
| Cumulative translation adjustments | | (529 | ) | | (2,358 | ) | | 147 |
|
| Unrealized gain (loss) on available-for-sale securities, net of tax | | 7 |
| | (22 | ) | | (25 | ) |
| Total other comprehensive (loss) income, net of tax | | (522 | ) | | (2,380 | ) | | 122 |
|
| Comprehensive income | | $ | 1,539 |
| | $ | 18,502 |
| | $ | 22,328 |
|
| | | | | | | |
| See notes to consolidated financial statements. | | | | | | |
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total |
| Balance as of May 2, 2020: | $ | 60,010 | | | $ | 44,627 | | | $ | 85,090 | | | $ | (7,470) | | | $ | (5,277) | | | $ | 176,980 | |
| Net income | — | | | — | | | 10,926 | | | — | | | — | | | 10,926 | |
| Cumulative translation adjustments | — | | | — | | | — | | | — | | | 2,942 | | | 2,942 | |
| | | | | | | | | | | |
| Share-based compensation | — | | | 2,067 | | | — | | | — | | | — | | | 2,067 | |
| | | | | | | | | | | |
| Tax payments related to RSU issuances | — | | | (125) | | | — | | | — | | | — | | | (125) | |
| Employee savings plan activity | 565 | | | — | | | — | | | — | | | — | | | 565 | |
| | | | | | | | | | | |
| Treasury stock reissued | — | | | 26 | | | — | | | 173 | | | — | | | 199 | |
| | | | | | | | | | | |
| Balance as of May 1, 2021: | 60,575 | | | 46,595 | | | 96,016 | | | (7,297) | | | (2,335) | | | 193,554 | |
| Net income | — | | | — | | | 592 | | | — | | | — | | | 592 | |
| Cumulative translation adjustments | — | | | — | | | — | | | — | | | (2,556) | | | (2,556) | |
| Unrealized gain (loss) on available-for-sale securities, net of tax | — | | | — | | | — | | | — | | | (34) | | | (34) | |
| Share-based compensation | — | | | 1,973 | | | — | | | — | | | — | | | 1,973 | |
| Exercise of stock options | 8 | | | — | | | — | | | — | | | — | | | 8 | |
| Tax payments related to RSU issuances | — | | | (200) | | | — | | | — | | | — | | | (200) | |
| Employee savings plan activity | 1,211 | | | — | | | — | | | — | | | — | | | 1,211 | |
| | | | | | | | | | | |
| Treasury stock purchase | — | | | — | | | — | | | (3,184) | | | — | | | (3,184) | |
| Treasury stock reissued | — | | | 4 | | | — | | | 196 | | | — | | | 200 | |
| Balance as of April 30, 2022: | 61,794 | | | 48,372 | | | 96,608 | | | (10,285) | | | (4,925) | | | 191,564 | |
| Net income | — | | | — | | | 6,802 | | | — | | | — | | | 6,802 | |
| Cumulative translation adjustments | — | | | — | | | — | | | — | | | (616) | | | (616) | |
| Unrealized gain (loss) on available-for-sale securities, net of tax | — | | | — | | | — | | | — | | | 12 | | | 12 | |
| Share-based compensation | — | | | 2,027 | | | — | | | — | | | — | | | 2,027 | |
| Exercise of stock options | 21 | | | — | | | — | | | — | | | — | | | 21 | |
| Tax payments related to RSU issuances | — | | | (140) | | | — | | | — | | | — | | | (140) | |
| Employee savings plan activity | 1,208 | | | — | | | — | | | — | | | — | | | 1,208 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance as of April 29, 2023: | $ | 63,023 | | | $ | 50,259 | | | $ | 103,410 | | | $ | (10,285) | | | $ | (5,529) | | | $ | 200,878 | |
See notes to consolidated financial statements.
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total |
| Balance as of April 27, 2013: | $ | 37,429 |
| | $ | 27,194 |
| | $ | 123,750 |
| | $ | (9 | ) | | $ | (118 | ) | | $ | 188,246 |
|
| Net income | — |
| | — |
| | 22,206 |
| | — |
| | — |
| | 22,206 |
|
| Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | 147 |
| | 147 |
|
| Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) |
| Net tax benefit related to share-based compensation | — |
| | 119 |
| | — |
| | — |
| | — |
| | 119 |
|
| Share-based compensation | — |
| | 2,897 |
| | — |
| | — |
| | — |
| | 2,897 |
|
| Exercise of stock options | 4,954 |
| | (287 | ) | | — |
| | — |
| | — |
| | 4,667 |
|
| Employee savings plan activity | 1,552 |
| | — |
| | — |
| | — |
| | — |
| | 1,552 |
|
| Dividends paid | — |
| | — |
| | (16,690 | ) | | — |
| | — |
| | (16,690 | ) |
| Balance as of April 26, 2014: | 43,935 |
| | 29,923 |
| | 129,266 |
| | (9 | ) | | 4 |
| | 203,119 |
|
| Net income | — |
| | — |
| | 20,882 |
| | — |
| | — |
| | 20,882 |
|
| Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | (2,358 | ) | | (2,358 | ) |
| Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | (22 | ) | | (22 | ) |
| Net tax benefit related to share-based compensation | — |
| | 38 |
| | — |
| | — |
| | — |
| | 38 |
|
| Share-based compensation | — |
| | 3,038 |
| | — |
| | — |
| | — |
| | 3,038 |
|
| Exercise of stock options | 2,513 |
| | (306 | ) | | — |
| | — |
| | — |
| | 2,207 |
|
| Employee savings plan activity | 2,512 |
| | — |
| | — |
| | — |
| | — |
| | 2,512 |
|
| Dividends paid | — |
| | — |
| | (17,377 | ) | | — |
| | — |
| | (17,377 | ) |
| Balance as of May 2, 2015: | 48,960 |
| | 32,693 |
| | 132,771 |
| | (9 | ) | | (2,376 | ) | | 212,039 |
|
| Net income | — |
| | — |
| | 2,061 |
| | — |
| | — |
| | 2,061 |
|
| Cumulative translation adjustments | — |
| | — |
| | — |
| | — |
| | (529 | ) | | (529 | ) |
| Unrealized gain (loss) on available-for-sale securities, net of tax | — |
| | — |
| | — |
| | — |
| | 7 |
| | 7 |
|
| Net tax benefit related to share-based compensation | — |
| | 3 |
| | — |
| | — |
| | — |
| | 3 |
|
| Share-based compensation | — |
| | 2,958 |
| | — |
| | — |
| | — |
| | 2,958 |
|
| Exercise of stock options | 610 |
| | (303 | ) | | — |
| | — |
| | — |
| | 307 |
|
| Employee savings plan activity | 1,777 |
| | — |
| | — |
| | — |
| | — |
| | 1,777 |
|
| Dividends paid | — |
| | — |
| | (17,556 | ) | | — |
| | — |
| | (17,556 | ) |
| Balance as of April 30, 2016: | $ | 51,347 |
| | $ | 35,351 |
| | $ | 117,276 |
| | $ | (9 | ) | | $ | (2,898 | ) | | $ | 201,067 |
|
| | | | | | | | | | | | |
| See notes to consolidated financial statements | | |
| | |
| | |
| | |
| | |
|
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 6,802 | | | $ | 592 | | | $ | 10,926 | |
| Adjustments to reconcile net income to net cash provided (used) by operating activities: | | | | | |
| Depreciation and amortization | 16,993 | | | 15,394 | | | 17,077 | |
| Gain on sale of property, equipment and other assets | (691) | | | (743) | | | (572) | |
| Share-based compensation | 2,027 | | | 1,973 | | | 2,067 | |
| Equity in loss of affiliates | 3,332 | | | 2,970 | | | 2,370 | |
| Provision (recovery) for credit losses accounts, net | 1,009 | | | (286) | | | 1,299 | |
| Deferred income taxes, net | (3,633) | | | (1,555) | | | 1,314 | |
| Non-cash impairment changes | 9,049 | | | — | | | — | |
| Change in operating assets and liabilities | (19,864) | | | (45,380) | | | 31,731 | |
| Net cash provided by (used in) operating activities | 15,024 | | | (27,035) | | | 66,212 | |
| | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
| Purchases of property and equipment | (25,385) | | | (20,376) | | | (7,891) | |
| Proceeds from sales of property, equipment and other assets | 822 | | | 885 | | | 3,184 | |
| Purchases of marketable securities | — | | | (4,045) | | | — | |
| Proceeds from sales or maturities of marketable securities | 3,490 | | | — | | | 1,230 | |
| Purchases of equity and loans to equity investees | (4,315) | | | (7,848) | | | (6,744) | |
| Net cash used in investing activities | (25,388) | | | (31,384) | | | (10,221) | |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
| Borrowings on notes payable | 378,694 | | | 46,801 | | | — | |
| Payments on notes payable | (360,944) | | | (46,801) | | | (15,000) | |
| Debt issuance costs | (991) | | | — | | | — | |
| Borrowings on long-term obligations | 1,233 | | | — | | | — | |
| Principal payments on long-term obligations | (305) | | | (200) | | | (460) | |
| Payments for common shares repurchased | — | | | (3,184) | | | — | |
| Proceeds from exercise of stock options | 21 | | | 8 | | | — | |
| Tax payments related to RSU issuances | (140) | | | (200) | | | (125) | |
| Net cash provided by (used in) financing activities | 17,568 | | | (3,576) | | | (15,585) | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (522) | | | (399) | | | (416) | |
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 6,682 | | | (62,394) | | | 39,990 | |
| | | | | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | | | | | |
| Beginning of period | 18,008 | | | 80,402 | | | 40,412 | |
| End of period | $ | 24,690 | | | $ | 18,008 | | | $ | 80,402 | |
See notes to consolidated financial statements.
DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
| Net income | $ | 2,061 |
| | $ | 20,882 |
| | $ | 22,206 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
| | |
| Depreciation | 16,561 |
| | 14,764 |
| | 14,137 |
|
| Amortization | 295 |
| | 204 |
| | 364 |
|
| Amortization of premium/discount on marketable securities | 87 |
| | 168 |
| | 221 |
|
| Gain on sale of property and equipment | (71 | ) | | (1,207 | ) | | (72 | ) |
| Share-based compensation | 2,958 |
| | 3,038 |
| | 2,897 |
|
| Excess tax benefits from share-based compensation | (3 | ) | | (38 | ) | | (119 | ) |
| Gain on sale of equity investee | (119 | ) | | — |
| | — |
|
| Provision for doubtful accounts | 481 |
| | (222 | ) | | (190 | ) |
| Deferred income taxes, net | 911 |
| | 2,146 |
| | 1,543 |
|
| Change in operating assets and liabilities | (9,886 | ) | | 13,433 |
| | (4,788 | ) |
| Net cash provided by operating activities | 13,275 |
| | 53,168 |
| | 36,199 |
|
| | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | |
| | |
| Purchases of property and equipment | (17,056 | ) | | (21,837 | ) | | (13,519 | ) |
| Proceeds from sales of property, equipment and other assets | 152 |
| | 4,037 |
| | 238 |
|
| Purchases of marketable securities | (21,286 | ) | | (15,653 | ) | | (15,550 | ) |
| Proceeds from sales or maturities of marketable securities | 21,862 |
| | 15,532 |
| | 13,953 |
|
| Proceeds from sale of equity method investment | 377 |
| | — |
| | — |
|
| Acquisitions, net of cash acquired | (7,867 | ) | | (6,306 | ) | | (1,480 | ) |
| Net cash used in investing activities | (23,818 | ) | | (24,227 | ) | | (16,358 | ) |
| | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
| | |
| Payments on notes payable | (38 | ) | | (81 | ) | | — |
|
| Proceeds from exercise of stock options | 610 |
| | 2,513 |
| | 4,954 |
|
| Excess tax benefits from share-based compensation | 3 |
| | 38 |
| | 119 |
|
| Principal payments on long-term obligations | (467 | ) | | (1,163 | ) | | (3,704 | ) |
| Dividends paid | (17,556 | ) | | (17,377 | ) | | (16,690 | ) |
| Net cash used in financing activities | (17,448 | ) | | (16,070 | ) | | (15,321 | ) |
| | | | | | |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (965 | ) | | (641 | ) | | (94 | ) |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (28,956 | ) | | 12,230 |
| | 4,426 |
|
| | | | | | |
| CASH AND CASH EQUIVALENTS: | |
| | |
| | |
| Beginning of period | 57,284 |
| | 45,054 |
| | 40,628 |
|
| End of period | $ | 28,328 |
| | $ | 57,284 |
| | $ | 45,054 |
|
| | | | | | |
| | | | | | |
| See notes to consolidated financial statements. | |
| | |
| | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1. Nature of Business and Summary of CriticalSignificant Accounting Policies
Nature of business: Daktronics, Inc. and its subsidiaries are engaged principally in the design, manufacturemarket, and salemanufacture of a wide range of integrated electronic display systems and related products which are sold in a variety of markets throughout the world and the rendering of related maintenance and professional services. Our products are designed primarily to inform and entertain people through the communication of content.
Fiscal year: We operate on a 5252- or 53 week53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year. When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13 week13-week periods following the beginning of each fiscal year. In each 53 week53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13 week13-week period. The fiscal years ended April 29, 2023, April 30, 2016,2022 and May 2, 2015, and April 26, 20141, 2021 contained operating results for 52 53, and 52 weeks, respectively.weeks.
A reclassification to correct the immaterial presentation of long term prepaid expenses in the Consolidated Balance Sheets' categories of prepaid expenses and other assets and investment in affiliates and other assets have been made to conform fiscal 2015 to the fiscal 2016 classifications for comparative purposes.
Principles of consolidation: The consolidated financial statements include Daktronics, Inc. and its subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. We have a variable interest in a business where we have elected to follow the proportional consolidation method because certain criteria were met under Accounting Standards Codification ("ASC") 810, Consolidations.
We have an arrangement we concluded was a variable interest entity and accounted for it under the proportional consolidation method. This arrangement had an aggregate amount of contract assets and gross profit of $5,223 and $2,748 respectively, as of and for the year ended April 29, 2023.
Investments in affiliates over: We consolidate entities in which we do nothave a controlling financial interest by first considering if an entity meets the definition of a variable interest entity ("VIE") for which we are deemed to be the primary beneficiary, or if we have the power to control an entity through a majority of voting interest or through other arrangements.
Variable Interest Entities: A VIE is an entity (i) that lacks sufficient equity to finance its activities without additional subordinated financial support from other parties; (ii) whose equity holders lack the characteristics of a controlling financial interest; and/or (iii) that is established with non-substantive voting rights. A VIE is consolidated by its primary beneficiary, which is defined as the party who has a controlling financial interest in the VIE through (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the VIE. This assessment may involve subjectivity in the determination of which activities most significantly affect the VIE’s performance and making estimates about current and future fair value of the assets held by the VIE and financial performance of the VIE. In assessing the Company's interests in the VIE, we also consider interests held by its related parties, including de facto agents. Additionally, we assess whether it is a member of a related party group that collectively meets the power and benefits criteria and, if so, whether we are most closely associated with the VIE. In performing the related party analysis, we consider both qualitative and quantitative factors including, but not limited to: the characteristics and size of its investment relative to the related party; our and the related party's ability to exertcontrol or significantly influence key decisions of the VIE, including consideration of involvement by de facto agents; the obligation or likelihood for us or the related party to fund operating losses of the VIE; and the similarity and significance of the VIE’s business activities to those of us and the related party. The determination of whether an entity is a VIE and whether we are the primary beneficiary may involve significant influence overjudgment and depends upon facts and circumstances specific to an entity at the investee's operatingtime of the assessment.
At the end of each reporting period, we reassess whether changes in facts and financing activitiescircumstances cause a change in the status of an entity as a VIE or voting interest entity, and/or a change in our consolidation assessment. Changes in consolidation status are applied prospectively. An entity may be consolidated as a result of this reassessment, in which case the assets, liabilities and noncontrolling interest in the entity are recorded at fair value upon initial consolidation. Any existing equity interest held by us in the entity prior to us obtaining control will be remeasured at fair value, which may result in a gain or loss recognized upon initial consolidation. However, if the consolidation represents an asset acquisition of a voting interest entity, our existing interest in the acquired assets, if any, is not remeasured to fair value but continues to be carried at historical cost. We may also deconsolidate a subsidiary as a result of this reassessment, which may result in a gain or loss recognized upon deconsolidation depending on the carrying values of deconsolidated assets and liabilities compared to the fair value of any interests retained.
We evaluated the nature of our investment in affiliates of XdisplayTM company, which is developing micro-LED mass transfer expertise and technologies, and Miortech (dba Etulipa), which is developing low power outdoor electrowetting technology. We determined that Miortech is a VIE, and based on management's analysis, we determined that Daktronics is not the primary beneficiary; therefore, the investment in Miortech is accounted for under the costequity method.
The aggregate amount of our investments accounted for under the equity method was $11,934 and $16,916 as of accounting. We have evaluated our relationships with affiliatesApril 29, 2023 and have determined that these entities are not variable interest entities.April 30, 2022, respectively. Our proportional share of the respective affiliate’saffiliates' earnings or losses is included in otherthe "Other (expense) income, net" line item in our consolidated statements of operations. For the fiscal years 2023, 2022 and 2021, our share of the losses of our affiliates was $3,332, $2,970 and $2,370, respectively. In fiscal year 2023, we concluded there was an other-than-temporary impairment of our investment in Miortech and recorded an impairment loss of $4,473 to reflect the investment at fair market value (level 3). The impairment loss is included in the "Other (expense) income, net" line item in our consolidated statements of operations.
We purchased services for research and development activities from our equity method investees. The total of these related party transactions for fiscal years 2023, 2022 and 2021 was $672, $1,520, and $460, respectively, which is included in the "Product design and development" line item in our consolidated statement of operations, and for fiscal 2023, $52 remains unpaid and is included in the "Accounts payable " line item in our consolidated balance sheet. Fiscal 2022 had $296 unpaid and included in the "Accounts payable" line item in our consolidated balance sheet.
During fiscal 2023, we invested in $3,000 of convertible notes and in $1,315 of promissory notes (collectively, "Notes") in our affiliates, which is included in the “Investment in affiliates and other assets" line item in our consolidated balance sheets. During fiscal 2023, we converted $2,823 of Notes to stock ownership. After this conversion of Notes to stock ownership, our ownership increased to 55.9 percent in Miortech. Our ownership in XdisplayTM company is 16.4 percent as of April 29, 2023. The aggregatetotal amount of investments accounted for underNotes as of April 29, 2023 was $8,789 and is included in the cost method was $1,211"Investments in affiliates and $1,071 atother assets" line item in our consolidated balance sheets. The Notes balance combined with the investment in affiliates balance totaled $20,723 and $24,404 as of April 29, 2023 and April 30, 2016 and May 2, 2015,2022, respectively. There have not been any identified events or changes in circumstances that may have a significant adverse effect on their fair value and it is not practical to estimate their fair value.
Summarized financial information for equity method investments consist of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Balance sheet data: | | | | | |
| Current assets | $ | 5,504 | | | $ | 6,672 | | | $ | 7,534 | |
| Non-current assets | 3,312 | | | 4,491 | | | 4,637 | |
| Current liabilities | 25,298 | | | 13,938 | | | 2,807 | |
| Non-current liabilities | 721 | | | 1,738 | | | 1,793 | |
| Income statement data: | | | | | |
| Net loss | $ | (16,932) | | | $ | (11,928) | | | $ | (13,436) | |
| | | | | |
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires usmanagement to make estimates and assumptions that affectaffecting the reported amounts of assets and liabilities andliabilities; the disclosure of contingent assets and liabilities at the date of the financial statements andstatements; the reported amounts of revenues and expenses during the reporting period. Actualperiod; and our ability to continue as a going concern. Due to the inherent uncertainty involved in making estimates, actual results could in future periods maydiffer 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 construction-typeuniquely configured contracts and estimated costs to be incurred for product warranties and extended maintenance contracts, excessincome taxes. Estimation processes are also used in inventory valuation and obsolete inventory,determining, the allowance for doubtful accounts,credit losses, share-based compensation, goodwill impairment, investment in affiliates impairment, value of long-term assets, and income taxes. extended warranty and product maintenance agreements.
Changes in estimates are reflected in the periods in which they become known.
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 and consist primarily of government repurchase agreements, savings accounts and money
market accounts that are carried at cost, which approximates fair value. We maintain our cash in bank deposit accounts, the balances of which at times mayexceed federally insured limits. We have not experienced any losses in such accounts.
Restricted cash: Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the totals of the same amounts shown in the consolidated statements of cash flows. Restricted cash consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees.
| | | | | | | | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Cash and cash equivalents | $ | 23,982 | | | $ | 17,143 | | | $ | 77,590 | |
| Restricted cash | 708 | | | 865 | | | 2,812 | |
| Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows | $ | 24,690 | | | $ | 18,008 | | | $ | 80,402 | |
We have foreign currency cash accounts to operate our global business. These accounts are impacted by changes in foreign currency rates. Of our $23,982 in cash and cash equivalents balances as of April 29, 2023, $15,895 were denominated in United States dollars, of which $1,300 were held by our foreign subsidiaries. As of April 29, 2023, we had an additional $8,087 in cash balances denominated in foreign currencies, of which $7,651 were maintained in accounts of our foreign subsidiaries.
Inventories: Inventories In accordance with ASC 330,Inventory, our inventories are stated at the lower of cost (first-in, first-out method) and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Cost is measured as the price of the components and allocated expenses for production or market. Marketbetterment of the inventory item are applied to the purchase cost of the raw materials. When we estimate net realizable value to be lower than cost, any necessary adjustments are charged to cost of sales in that period. In determining net realizable value, we review various factors such as current inventory levels, forecasted demand, costs of completion, and technological obsolescence.
Allowance for credit losses: We make estimates regarding the collectability of our accounts receivable, long-term receivables, contract assets and other receivables. In evaluating the adequacy of our allowance for credit losses, we analyze specific balances, customer creditworthiness, changes in customer payment cycles, and current economic trends. If the financial condition of any customer were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required. In addition, in accordance with ASC 326, Financial Instruments - Credit Losses, an allowance is maintained for estimated forward-looking losses resulting from the possible inability of customers to make required payments (current expected losses). The amount of the allowance is determined principally on the basis of estimated net realizable values.past collection experience and known financial factors regarding specific customers. We charge off receivables at such time it is determined collection will not occur against the allowance for credit losses.
Revenue recognition: Our accounting policies and estimates are in accordance with ASC 606,Revenue from Contracts with Customers, and are as follows:
RevenueContracts are identified and follow the revenue recognition: Net sales policies when all of the following occur: we have evidence that all parties to the contract have approved the contract and are reported netcommitted to perform their respective obligations, we can identify each party’s rights regarding the goods or services to be transferred, we can identify the payment terms for the goods or services to be transferred, the contract has commercial substance, and it is probable we will collect substantially all of estimated sales returnsthe consideration to which we would be entitled in exchange for the goods or services.
Pre-contract costs are generally expensed as incurred, unless they are directly associated with an anticipated contract and recoverability from that contract is probable. Pre-contract costs directly associated with anticipated contracts expected to be recoverable include $860 and $117 as of April 29, 2023 and April 30, 2022, respectively. These are included in the "Inventories" line item in our consolidated balance sheets.
At contract inception, we identify performance obligations by reviewing the agreement for material distinct goods and services. Goods and services are distinct when the customer can benefit from them on its own and our promises to transfer
these items are identifiable from other promises within the contract. When we are contracted to provide a single promise (an integrated system), we often treat it as a single performance obligation if we are providing goods and services with the same pattern of transfer that are highly integrated or interdependent, that are modified or customized by other goods or services promised, or that provide a combined outcome for which the customer has contracted. When less interdependency or integration is necessary, or when the customer can benefit from distinct items, we separate the contract into multiple performance obligations. We account for extended warranties and other services ("service-type warranties") that represent a distinct service as a separate performance obligation.
Our contracts can contain multiple components of transaction price. We evaluate each contract for these components and include fixed consideration, variable consideration, financing components, and non-cash consideration and exclude consideration payable to a customer and sales taxes.taxes in the transaction price. When we are responsible for site installations which include subcontracted work, we maintain the contractual responsibilities and risks and include the consideration for these services in the transaction price. When our contract contains variable consideration, including return rights, discounts, claims, unpriced change orders, and liquidated damages, we estimate the transaction price using the expected value (i.e., the sum of the probability-weighted amount) or the most likely amount method, whichever is expected to better predict revenue for that contract situation. We estimate our sales returns reservealso constrain the revenue to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We consider the following factors in determining revenue associated with variable consideration: (a) the contract or other evidence providing the legal basis, (b) additional costs caused by unforeseen circumstances, (c) evidence supporting the claim, and (d) historical evidence and patterns of customers. We adjust the contract price for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer goods and services to a customer will exceed one year from the time the customer pays and represents financing. If the payment structures exceed a year but are structured to account for risks with a contract or correspond to payments on milestones or are scheduled for performance, we do not adjust the contract price for a financing component. See "Note 6. Receivables" for amounts recorded in long-term receivables.
When separate performance obligations are identified, we allocate the transaction price to the individual performance obligation based on historical return rates and analysisthe best method we judge as a faithful depiction of specific accounts. Our sales returns reserve was $93 and $15 at April 30, 2016 and May 2, 2015, respectively.
Long-term construction-type contracts: Earnings on construction-typethe value of the performance obligation. Many of our contracts are bundled, and we do not have separate selling prices for each performance obligation; therefore, for these contracts, we primarily use the cost plus a margin approach to allocate the relative transaction price to identified performance obligations, as it is the best representative of our pricing methods.
Revenue is recognized when we satisfy a performance obligation. We receive payments from customers based on a billing schedule as established in our contracts. Billing schedules include down payments and progress billings over time; set milestone payments that are specific to the percentage-of-completion method, measuredproject are scheduled for performance-based payments or are set time-based payment(s). Variability in contract assets and contract liabilities relates to the timing of billings and revenue recognition, which can vary significantly depending on contractual payment terms, build and installation schedules and the related timing differences in transfer of control. Balances are also impacted by the percentageseasonality in our business.
Significant judgments and estimates are used in our revenue policies. In order to assure appropriate and consistent revenue recognition, we regularly evaluate available project related information and update estimates accordingly. We maintain internal policies and procedures to provide guidance for those involved in recording revenue. We monitor for changes in our business sales practices and customer interactions to capture the appropriate types of performance obligations and adjust for any change in control terms and conditions.
Our material performance obligation types include:
Unique configuration contracts: audio-visual communication systems uniquely configured (custom) or integrated for a customer's particular location and system configurationmayinclude all or a combination of the following: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring and messaging equipment, training, other on-site services, spare parts, software licenses, and assurance-type warranties.
Wemayhave multiple performance obligations in these types of contracts; however, a majority are treated as a combined single performance obligation. In our judgment, this accounting treatment is most appropriate because the substantial part of our promise to customers is to provide significant integration services and incorporate individual goods and services into a combined output or system. Often times, the system is customized or
significantly modified to the customer's desired configurations and location, and the interrelated goods and services provide utility to the customer as a package.
Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost-to-cost input method. Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed. The cost-to-cost input method measures costs incurred to date compared to estimated total costs for each contract. ContractThis method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include all direct materialmaterials and labor costscomponents; manufacturing, project management and those indirect costs related to contract performance.engineering labor; and subcontracting expenses. Indirect costs include allocated charges for such items as labor overhead,facilities and equipment facilities, engineering,depreciation and project management.general overhead. Provisions forof estimated losses on uncompleted contracts are made in the
period in whichwhen such losses are probable and capable of being estimated. We combine
Contract modifications to existing contracts for accounting purposes when theywith customers are negotiated as a package with an overall profit margin objective, essentially represent an agreement to do a single project for a customer, involve interrelated construction activities, and are performed concurrently or sequentially. When a group of contracts is combined, revenue and profit are recognized uniformly over the performance of the combined projects. We segment revenuesevaluated in accordance with the five-step revenue model. We treat contract segmenting criteriamodifications as a separate contract and new performance obligations when the additional goods or services are distinct and do not add to the unique configuration or are outside the integrated system and when the consideration reflects standalone selling prices. If the additional goods or services offered under the modification enhance the uniquely configured or integrated systems, revenue is allocated to the existing contracts' performance obligation. Modifications may cause changes in Accounting Standards Codification (“ASC”) 650-35, Construction-Typethe timing of revenue recognition depending on the allocation to various performance obligations.
The time between contract order and Production-Type Contracts.project completion is typically less than 12 months but may extend longer depending on the amount of custom work and customers’ delivery needs.
Limited configuration (standard systems) and after-sale parts contracts: Limited configuration (standard systems) or after-sale parts contracts with limited or no configuration or limited integration are recognized as distinct individual performance obligations when material. When not distinct, we combine into one performance obligation the goods and/or services with each other until the bundle of goods or services is distinct. For standard display purchases made in large quantities, we account for each piece of equipment separately as a distinct performance obligation from which a customer derives benefit. Immaterial goods or services in the context of the contract are included with the display system performance obligation. Standard systems and equipment with limited configurations or integrations may include all or a combination (when immaterial) of the following performance obligations: engineering services, project management services, video display(s), control solution(s), installation and integration services, scoring, messaging and audio equipment, training, spare parts, software licenses, assurance-type warranties, and after-sale parts.
Equipment other than construction-type contracts: WeRevenue is recognized at a point in time when control passes, or over time as services are performed. When fulfilling limited configuration performance obligations, we are typically able to redirect the video displays or scoring, messaging, or audio equipment to another customer without incurring significant economic losses. Therefore, we have an alternative use for the performance obligation and recognize revenue on equipment sales, other than construction-type contracts, when title passes, whichupon our substantial completion and at the point in time we estimate control has transferred to the customer. When limited configured single performance obligations are more service-type (i.e., installation and integration services), we recognize revenue over time using the cost-to-cost input method, by comparing cumulative costs incurred to the total estimated costs and applying that percentage of completion to the transaction price to recognize revenue.We believe the cost-to-cost input method is usually upon shipment and then only if the termsmost faithful depiction of the arrangement are fixedcustomer obtaining control and determinablebenefits from the work performed.
Services and collectability is reasonably assured. We record estimated sales returns and discounts asother: Services sold on a reduction of net sales instand-alone basis or after the same period revenue is recognized.
Product maintenance: In connection with theinitial system sale of our products, we also occasionally sell separately priced extended warranties and product maintenance contracts. The revenue related to such contracts is deferred and recognized ratably as net sales over the terms of the contracts, which vary up to 10 years. We record unrealized revenue in deferred revenue (billed or collected) in the liability section of the balance sheet.
Services: Revenues generated by us for services,include performance obligations such as event support, control room design, on-site training, equipment service, andservice-type warranties, technical support, of our equipment,software sold as a service, and other immaterial revenue streams. These are contracted with a customer generally per service event or service type on a stand-alone basis. Services, service type warranties, and other are recognized as net sales when the services are performed. Net salesperformed, and control is transferred to the customer at a point in time when title or control passes or over time as services are performed and for time-based "stand ready to perform" type obligations. We use professional judgment to determine control transfer. If we have the right to consideration from services and product maintenance approximated 9.7 percenta customer that directly corresponds with the value of our performance (where we bill a fixed amount for each hour of service provided), 8.2 percent and 8.4 percentwe recognize revenue related to the work completed.
Software: We follow ASC 985-605, Software-Revenue Recognition. Revenues from software license fees on sales, other than construction-typeuniquely configured type contracts, are recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable.occurred. Subscription-based licenses include the right for a customer to use our licenses and receive related support for a specified term, and revenue is recognized ratablypro-rata over the term of the arrangement.engagement.
Multiple-element arrangements: We generate revenueShipping and handling costs: Shipping and handling costs collected from the sale of equipment and related services, including customization, installation and maintenance services. In these limited cases, we provide some or all of such equipment and services to our customers underin connection with our sales are recorded as revenue. We record shipping and handling costs as a component of cost of sales at the time the product is shipped.
Warranty: We offer a standard parts coverage warranty for periods varying from one to five years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of a single multiple-element sales arrangement. These arrangements typically involve the sale of equipment bundled withwarranties on some or allinstallations can vary from one to 10 years. The specific terms and conditions of these services, but theywarranties vary primarily depending on the type of product sold. We estimate the costs which may also involve instances in which we have contracted to deliver multiple pieces of equipment over time rather than atbe incurred under the contractual warranty obligations (assurance type warranty) and record a single point in time.
When a sales arrangement involves multiple elements, the items includedliability in the arrangement (deliverables) are evaluated pursuant to ASC 605-25, Revenue Arrangements with Multiple Deliverables, and ASC 605-35,Accounting for Performanceamount of Construction-Type and Certain Production-Type Contracts, to determine whether they represent separate units of accounting. We perform this evaluationsuch estimated costs at the inception of an arrangement and as we deliver each item intime the arrangement. We first consider the separation criteria of ASC 605-35. Deliverables not within the scope of ASC 605-35 are evaluated for separation under ASC 605-25. For those elements falling under the guidance of ASC 605-25, we generally account for a deliverable (or a group of deliverables) separately if the delivered item(s) has standalone value to the customer and if we have given the customer a general right of return relative to the delivered item(s) and delivery or performance of the undelivered item(s) or service(s)revenue is probable and substantially inrecognized. Factors affecting our control.
When items included in a multiple-element arrangement represent separate units of accounting, we allocate the arrangement consideration to the individual items based on their relative fair values. The amount of arrangement consideration allocated to the delivered item(s) is limited to the amount not contingent on us delivering additional products or services. Once we have determined the amount, if any, of arrangement consideration allocable to the delivered item(s), we apply the applicable revenue recognition policy to determine when and by which method such amount may be recognized as revenue.
We generally determine if objective and reliable evidence of fair value for the items included in a multiple-element arrangement exists based on whether we have vendor-specific objective evidence ("VSOE") of the price for which we sell an item on a standalone basis. If we do not have VSOE for the item, we will use the price charged by a competitor selling a comparable product or service on a standalone basis to similarly situated customers, if available. If neither VSOE nor third party evidence is available, we use our best estimate of the selling price for that deliverable.cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly. For service-type warranty contracts, we allocate revenue to this performance obligation, recognize the revenue over time, and recognize costs as incurred.
Long-term receivables and advertising rights: We occasionally sell and install our products at facilities in exchange for the rights to sell or to retain future advertising revenues. For these transactions, we recognize revenue for the amount of the present value of the future advertising payments if enough advertising is sold to obtain normal margins on the contract and we record the related receivable in long-term receivables. We recognize imputed interest as earned.
Property and equipment: In accordance with ASC 360, Property, Plant, and Equipment, property and equipment isare stated at cost and depreciated principally on the straight-line method over the following estimated useful lives:
| | | | | |
| Years |
| Buildings and improvements | Years |
Buildings | 75 - 40 |
| Machinery and equipment | 5 - 7 |
| Office furniture and equipment | 3 - 5 |
| Computer software and hardware | 3 - 5 |
| Equipment held for rental | 2 - 7 |
| Demonstration equipment | 3 - 5 |
| Transportation equipment | 5 - 7 |
Leasehold improvements are depreciated over the lesser of the useful life of the asset or the term of the lease. Our depreciation expense was $16,561, $14,764 and $14,137 for the fiscal years ended April 30, 2016, May 2, 2015 and April 26, 2014, respectively.
Impairment of Long-Lived Assets: Long-livedIn accordance with ASC 360, Property, Plant, and Equipment, we assess long-lived tangible assets other than goodwill and indefinite-liveddefinite-lived intangible assets described in "Note 6. Long-Lived Assets" which are separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value. We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset.
Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.
Software costs for internal useGoodwill and Other Intangible Assets: We capitalize certain costs incurredaccount for goodwill and other intangible assets with indefinite lives in connectionaccordance with developingASC 350,Goodwill and Other. Under these provisions, goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or obtaining internal-use software. Capitalized software costscircumstance indicates an impairment or a decline in value may have occurred.
A qualitative assessment may be used to first determine whether it is "more likely than not" that the fair value of a reporting unit is less its carrying value. Based on this assessment, if it is determined that is more likely than not that impairment has occurred, a quantitative analysis will be performed. The quantitative assessment uses an income approach to estimate the fair value of each reporting unit. The income approach is based on the projected cash flows, which are included in propertydiscounted to their present value using discount rates which consider the timing and equipment on our consolidated balance sheets. Software costsrisk of the forecasted cash flows. Fair value is estimated using internally developed forecasts and assumptions and takes into account management plans, business trends, and market and economic conditions. If the quantitative assessment of goodwill impairment fails, an impairment loss equal to the amount that do not meet capitalization criteria are expensed when incurred.a reporting unit's carrying value exceeds its fair value will be recognized.
Software costs to be sold, leased, or marketed:Foreign currency translation: We follow the provisions of ASC 985, Software, which states software development costs are expensed as incurred until technological feasibility has been established. At such time, such costs are capitalized until the product is made available for release to customers. Additionally, costs incurred after release to customers are expensed as research and development. We had $3,000 of capitalized software to be sold, leased, or otherwise marketed, which was valued in connection with the acquisition of ADFLOW Networks, Inc. as of April 30, 2016 and is included in intangible assets in our consolidated balance sheet.
Insurance: We are self-insured for certain losses related to health and liability claims and workers’ compensation. We obtain third-party insurance to limit our exposure to these claims. We estimate our self-insured liabilities using a number of factors, including historical claims experience. Our self-insurance liability was $2,314 and $1,783 at April 30, 2016 and May 2, 2015, respectively, and is included in accrued expenses in our consolidated balance sheets.
830, Foreign currency translation: Currency Matters. Our foreign subsidiaries use the local currency of their respective countries as their functional currency. The assets and liabilities of foreign operations are generally translated at the exchange rates in effect at the balance sheet date. The operating results of foreign operations are translated at weighted average exchange rates. The related translation gains or losses are reported as a separate component of shareholders’ equity in accumulated other comprehensive loss.
Income taxes: We operateaccount for income taxes in multiple incomeaccordance with ASC 740,Income Taxes. We record a tax jurisdictions both withinprovision for anticipated tax consequences of the United States and internationally. Our annual tax rate is determined based on our income, statutory tax rates and the tax impactsreported results of items treated differently for tax purposes than for financial reporting purposes in each tax jurisdiction. Tax laws require certain items be included in the tax return at different times than are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible in our tax return, and some differences are temporary and reverse over time, such as depreciation expense. These temporary differences create deferredoperations. Deferred tax assets and liabilities and reflect theare measured using currently enacted income tax rates in effect forand statutory tax rates applicable to the years in which we expect these temporary differences will affect taxable income. These assets and liabilities are analyzed regularly, and we assess the differences are expected to reverse. We considerlikelihood that deferred tax assets will be recoverable from future taxable income. When necessary, a valuation allowance for deferred tax assetsis established if it is "moremore likely than not" some or all ofnot the benefitsdeferred tax asset will not be realized. We report the net deferred tax asset and liability as a long-term asset or liability. Net deferred assets or liabilities are calculated by combining them based on their jurisdiction.
BecauseIn addition, because we operate in multiple income tax jurisdictions both within the United States and internationally, management must determine the appropriate allocationcalculation of income and expenses to eachtax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these jurisdictions baseduncertainties in a manner inconsistent with our expectations could have a material impact on current interpretations of complexour financial condition and operating results. See "Note 12. Income Taxes" for further information.
Comprehensive income tax regulations.
Income tax authorities in these jurisdictions regularly perform audits of our income tax filings. Income tax audits associated with the allocation of income, expenses and other complex issues, including transfer pricing methodologies, may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates.
Comprehensive income(loss): We follow the provisions of ASC 220,Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components.components, and disclose these components in the consolidated statements of comprehensive income. Comprehensive income (loss) reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For us, comprehensive lossincome represents net income adjusted for cumulative foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. The foreign currency translation adjustment included in the comprehensive lossincome (loss) calculation has not been tax affected, as the investments in foreign affiliates are deemed to be permanent. In accordance with ASC 220 and Accounting Standards Update ("ASU") 2011-05, we disclose comprehensive loss on a separate consolidated statement of comprehensive income.
Product design and development: AllWe follow the provisions of ASC 730, Research and Development, which states all expenses related to product design and development are charged to operations as incurred. Our product design and development activities include the enhancement of existing products and technologies and the development of new products.products and technologies.
Advertising costs: We expense advertising costs as incurred. Advertising expenses were $2,209, $2,318 and $1,694 for fiscal years 2016, 2015 and 2014, respectively.
Shipping and handling costs: Shipping and handling costs collected from our customers in connection with our sales are recorded as revenue. We record shipping and handling costs as a component of cost of sales at the time the product is shipped.
Earnings per share (“EPS”): BasicWe follow the provisions of ASC 260,Earnings Per Share, where basic EPS is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution which may occur if securities or other obligations to issue common stock were exercised or converted into shares of common stock or resulted in the issuance of shares of common stock which share in our earnings.
The following is a reconciliation of the net income and common stock share amounts used in the calculation of basic and diluted EPS for the fiscal years ended April 29, 2023, April 30, 2016,2022 and May 2, 2015 and April 26, 2014:1, 2021:
| | | | | | | | | | | | | | | | | |
| Net income | | Shares | | Per share income |
| For the year ended April 29, 2023: | | | | | |
| Basic earnings per share | $ | 6,802 | | | 45,404 | | | $ | 0.15 | |
| Dilution associated with stock compensation plans | — | | | 117 | | | — | |
| Diluted earnings per share | $ | 6,802 | | | 45,521 | | | $ | 0.15 | |
| For the year ended April 30, 2022: | | | | | |
| Basic earnings per share | $ | 592 | | | 45,188 | | | $ | 0.01 | |
| Dilution associated with stock compensation plans | — | | | 138 | | | — | |
| Diluted earnings per share | $ | 592 | | | 45,326 | | | $ | 0.01 | |
| For the year ended May 1, 2021: | | | | | |
| Basic earnings per share | $ | 10,926 | | | 44,989 | | | $ | 0.24 | |
| Dilution associated with stock compensation plans | — | | | 213 | | | — | |
| Diluted earnings per share | $ | 10,926 | | | 45,202 | | | $ | 0.24 | |
|
| | | | | | | | | | |
| | Net income | | Shares | | Per share income (loss) |
| For the year ended April 30, 2016: | | | | | |
| Basic earnings per share | $ | 2,061 |
| | 43,990 |
| | $ | 0.05 |
|
| Dilution associated with stock compensation plans | — |
| | 466 |
| | — |
|
| Diluted earnings per share | $ | 2,061 |
| | 44,456 |
| | $ | 0.05 |
|
| For the year ended May 2, 2015: | |
| | | | |
|
| Basic earnings per share | $ | 20,882 |
| | 43,514 |
| | $ | 0.48 |
|
| Dilution associated with stock compensation plans | — |
| | 929 |
| | (0.01 | ) |
| Diluted earnings per share | $ | 20,882 |
| | 44,443 |
| | $ | 0.47 |
|
| For the year ended April 26, 2014: | |
| | | | |
|
| Basic earnings per share | $ | 22,206 |
| | 42,886 |
| | $ | 0.52 |
|
| Dilution associated with stock compensation plans | — |
| | 876 |
| | (0.01 | ) |
| Diluted earnings per share | $ | 22,206 |
| | 43,762 |
| | $ | 0.51 |
|
Options outstanding to purchase 2,122, 1,4622,084, 1,846 and 1,5642,262 shares of common stock with a weighted average exercise price of $15.04, $18.42$7.47, $9.15 and $18.64 per share during$9.11 for the fiscal years ended April 29, 2023, April 30, 2016,2022 and May 2, 2015 and April 26, 2014,1, 2021, respectively, were not included in the computation of diluted earnings per share because the weighted average exercise price of those instruments exceeded the average market price of the common shares during the year.effects would be anti-dilutive.
Share-based compensation: We account for share-based compensation in accordance with ASC 718,Compensation-Stock Compensation. Under the fair value recognition provisions of ASC 718, we measure share-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the vesting period. See "Note 11. Shareholders’10. Shareholders' Equity and Share-Based Compensation" for additional information and the assumptions we use to calculate the fair value of share-based employee compensation.
We previously disclosed in our second and third quarter fiscal 2023 Form 10-Q Quarterly Reports that we had experienced volatility in our business driven by global economic conditions and supply chain disruptions. Although supply chain disruptions had started to ease, we could not be certain at that time we wouldn't experience future disruptions or need additional liquidity to fund operations. We also reported our financing plans were not deemed probable. Those conditions raised substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of issuance of the second and third quarter fiscal 2023 Form 10-Q Quarterly Reports.
We adapted to the business environment by raising prices, increased inventory levels and added capacity to improve stability of operations, and instituted a liquidity enhancement program to focus our teams on improving cash flows. On May 11, 2023, we secured long-term financing to enhance our liquidity. During fiscal 2023, we recognized operating income of $21,388 and generated $15,024 in cash flows provided by operating activities. We project we will have sufficient cash on hand and available under these financing agreements to fund future operations.
Therefore, the events and conditions that gave rise to substantial doubt about our ability to continue as a going concern were resolved.
Refer to "Note 17. Subsequent Events" for additional considerations related to our financing agreements.
Recent Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB")Adopted
There were no standards adopted since our last Annual Report on Form 10-K.
Accounting Standards Not Yet Adopted
There are no significant new Accounting Standards Updates issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), Improvementsthat the Company had not yet adopted as of April 29, 2023.
Note 2. Revenue Recognition
Disaggregation of revenue
In accordance with ASC 606-10-50, we disaggregate revenue from contracts with customers by the type of performance obligation and the timing of revenue recognition. We determine that disaggregating revenue in these categories achieves the disclosure objective to Employee Share-Based Payment Accounting, depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors and to enable users of financial statements to understand the relationship to each reportable segment.
The following table presents our disaggregation of revenue by segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year 2023 |
| Commercial | | Live Events | | High School Park and
Recreation | | Transportation | | International | | Total |
| Type of performance obligation | | | | | | | | | | | |
| Unique configuration | $ | 25,821 | | | $ | 223,560 | | | $ | 22,730 | | | $ | 45,286 | | | $ | 33,623 | | | $ | 351,020 | |
| Limited configuration | 128,346 | | | 36,259 | | | 114,951 | | | 23,946 | | | 43,007 | | | 346,509 | |
| Service and other | 16,423 | | | 25,081 | | | 4,067 | | | 3,074 | | | 8,022 | | | 56,667 | |
| $ | 170,590 | | | $ | 284,900 | | | $ | 141,748 | | | $ | 72,306 | | | $ | 84,652 | | | $ | 754,196 | |
| Timing of revenue recognition | | | | | | | | | | | |
| Goods/services transferred at a point in time | $ | 132,728 | | | $ | 43,761 | | | $ | 109,323 | | | $ | 24,950 | | | $ | 45,687 | | | $ | 356,449 | |
| Goods/services transferred over time | 37,862 | | | 241,139 | | | 32,425 | | | 47,356 | | | 38,965 | | | 397,747 | |
| $ | 170,590 | | | $ | 284,900 | | | $ | 141,748 | | | $ | 72,306 | | | $ | 84,652 | | | $ | 754,196 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year 2022 |
| Commercial | | Live Events | | High School Park and
Recreation | | Transportation | | International | | Total |
| Type of performance obligation | | | | | | | | | | | |
| Unique configuration | $ | 20,849 | | | $ | 144,095 | | | $ | 20,175 | | | $ | 38,843 | | | $ | 32,658 | | | $ | 256,620 | |
| Limited configuration | 118,308 | | | 30,181 | | | 88,162 | | | 21,370 | | | 43,029 | | | 301,050 | |
| Service and other | 15,054 | | | 24,830 | | | 3,479 | | | 2,494 | | | 7,443 | | | 53,300 | |
| $ | 154,211 | | | $ | 199,106 | | | $ | 111,816 | | | $ | 62,707 | | | $ | 83,130 | | | $ | 610,970 | |
| Timing of revenue recognition | | | | | | | | | | | |
| Goods/services transferred at a point in time | $ | 120,776 | | | $ | 37,229 | | | $ | 82,678 | | | $ | 22,088 | | | $ | 45,036 | | | $ | 307,807 | |
| Goods/services transferred over time | 33,435 | | | 161,877 | | | 29,138 | | | 40,619 | | | 38,094 | | | 303,163 | |
| $ | 154,211 | | | $ | 199,106 | | | $ | 111,816 | | | $ | 62,707 | | | $ | 83,130 | | | $ | 610,970 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal Year 2021 |
| Commercial | | Live Events | | High School Park and
Recreation | | Transportation | | International | | Total |
| Type of performance obligation | | | | | | | | | | | |
| Unique configuration | $ | 16,535 | | | $ | 104,682 | | | $ | 22,258 | | | $ | 36,398 | | | $ | 22,266 | | | $ | 202,139 | |
| Limited configuration | 96,420 | | | 18,679 | | | 66,697 | | | 19,690 | | | 32,583 | | | 234,069 | |
| Service and other | 14,345 | | | 19,688 | | | 2,602 | | | 2,196 | | | 6,994 | | | 45,825 | |
| $ | 127,300 | | | $ | 143,049 | | | $ | 91,557 | | | $ | 58,284 | | | $ | 61,843 | | | $ | 482,033 | |
| Timing of revenue recognition | | | | | | | | | | | |
| Goods/services transferred at a point in time | $ | 98,243 | | | $ | 23,906 | | | $ | 60,859 | | | $ | 20,180 | | | $ | 34,388 | | | $ | 237,576 | |
| Goods/services transferred over time | 29,057 | | | 119,143 | | | 30,698 | | | 38,104 | | | 27,455 | | | 244,457 | |
| $ | 127,300 | | | $ | 143,049 | | | $ | 91,557 | | | $ | 58,284 | | | $ | 61,843 | | | $ | 482,033 | |
See "Note 3. Segment Reporting" for a disaggregation of revenue by geography.
Contract balances
Contract assets represent revenue recognized in excess of amounts billed and include unbilled receivables. Unbilled receivables, which is intendedrepresent an unconditional right to simplify certain aspectspayment subject only to the passage of time, are reclassified to accounts receivable when they are billed according to the contract terms. Contract liabilities represent amounts billed to the clients in excess of revenue recognized to date.
The following table reflects the changes in our contract assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 | | Dollar Change | | Percent Change |
| Contract assets | $ | 46,789 | | | $ | 41,687 | | | $ | 5,102 | | | 12.2 | % |
| Contract liabilities - current | 91,549 | | | 90,393 | | | 1,156 | | | 1.3 | |
| Contract liabilities - non-current | 13,096 | | | 10,998 | | | 2,098 | | | 19.1 | |
The changes in our contract assets and contract liabilities from April 30, 2022 to April 29, 2023 were due to the timing of billing schedules and revenue recognition, which can vary significantly depending on the contractual payment terms and the seasonality of the accountingsports markets. We had no impairments of contract assets for share-based payment award transactions, including income tax effects when awards vest or settle, repurchase of employees’ sharesfiscal 2023 and 2022.
For service-type warranty contracts, we allocate revenue to satisfy statutory tax withholding obligations, an option to accountthis performance obligation, recognize the revenue over time, and recognize costs as incurred. Earned and unearned revenues for forfeitures as they occur, and classification of certain amounts on the statement of cash flows. This standard is effective for usthese contracts are included in the first quarter"Contract assets" and "Contract liabilities". Changes in unearned service-type warranty contracts, net were as follows:
| | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| Balance at beginning of year | $ | 26,346 | | | $ | 24,590 | |
| New contracts sold | 44,216 | | | 42,619 | |
| Less: reductions for revenue recognized | (42,132) | | | (40,614) | |
| Foreign currency translation and other | (92) | | | (249) | |
| Balance at end of year | $ | 28,338 | | | $ | 26,346 | |
Contracts in process identified as loss contracts as of fiscal 2018, with early adoption permitted. WeApril 29, 2023 and April 30, 2022 were immaterial. Loss provisions are currently evaluating the effect that adopting this new accounting guidance will have onrecorded in "Accrued expenses" line item in our consolidated resultsbalance sheets.
During fiscal 2023, we recognized revenue of operations, cash flows, and financial position.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties$84,972 related to aour contract (that is, lessees and lessors). This update requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The new guidance is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows, and financial position.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which affects accounting for equity investments and financial liabilities where the fair value option has been elected. The new guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows, and financial position.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740) Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. Under the new accounting standard, deferred tax assets and liabilities are required to be classified as noncurrent, eliminating the prior requirement to separate deferred tax assets and liabilities into current and noncurrent. The new guidance is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We adopted the ASU prospectively and have presented both deferred tax assets and deferred tax liabilities as noncurrent in our Consolidated Balance Sheet as of April 30, 2016. Prior balance sheets have not been retrospectively adjusted. For significant components2022.
Remaining performance obligations and revenue recognized from past performance obligations
As of April 29, 2023, the aggregate amount of the transaction price allocated to the remaining performance obligations was $462,035. Remaining performance obligations related to product and service agreements as of April 29, 2023 are $400,737 and $61,298, respectively. We expect approximately $385,359 of our deferred tax accounts, see "Note 13. Income Taxes."remaining performance obligations to be recognized over the next 12 months, with the remainder recognized thereafter. Although remaining performance obligations reflect business that is considered to be legally binding, cancellations, deferrals or scope adjustments may occur. Any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals are reflected or excluded in the remaining performance obligation balance, as appropriate. The amount of revenue recognized associated with performance obligations satisfied in prior years during the years ended April 29, 2023 and April 30, 2022 was immaterial.
In July 2015,Note 3. Segment Reporting
We organize and manage our business by the FASB issued ASU 2015-11, Simplifyingfollowing five segments which meet the Measurementdefinition of Inventoryreportable segments under ASC 280-10,Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the customer type or geography and are the same as our business units. Separate financial information is available and regularly evaluated by our chief operating decision-maker (CODM), which changes the measurement principle of inventory from the lower of cost or marketwho is our president and chief executive officer, in making resource allocation decisions for our segments. Our CODM evaluates segment performance according to the lowerGAAP measure of cost and net realizable value. The guidance will require prospective application at the beginninggross profit.
Our Commercial business unit primarily consists of sales of our first quarterintegrated video display systems, digital billboards, Galaxy® and Fuelight™ product lines, and dynamic messaging systems to resellers (primarily sign companies), out-of-home ("OOH") companies, national retailers, quick-serve restaurants, casinos, shopping centers, cruise ships, commercial building owners, and petroleum retailers. Our Live Events business unit primarily consists of fiscal 2018, but it permits adoptionsales of integrated scoring and video display systems to college and professional sports facilities and convention centers and sales of our mobile
display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy® displays and video display systems to primary and secondary education facilities and resellers (primarily sign companies). Our Transportation business unit primarily consists of sales of intelligent transportation systems dynamic messaging signs for road management, mass transit, and aviation applications and other electronic signage for advertising and way-finding needs, which includes our Vanguard® and Galaxy® product lines and other intelligent transportation systems dynamic message signs, to governmental transportation departments, transportation industry contractors, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. In our International business unit, we focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, architectural lighting, and transportation related products for sale outside of the United States and Canada to the related type of company, including sports and commercial business facilities, OOH companies, and governmental transportation agencies.
Assets are not allocated to the segments. Depreciation and amortization are allocated to each segment based on various financial measures; however, some depreciation and amortization are corporate in an earlier period. We have evaluatednature and remain unallocated. Our segments follow the effectsame accounting policies as those described in "Note 1. Nature of adopting ASU 2015-11Business and will adoptSummary of Significant Accounting Policies." Some expenses or services are not directly allocable to a sale or segment or the standard atresources and related expenses are shared across business segment areas. These expenses are allocated using estimates and allocation methodologies based on financial measures and professional judgment. Shared or unabsorbed manufacturing costs are allocated to the beginningbusiness unit benefiting most from that manufacturing location's production capabilities. Shared or unabsorbed costs of fiscal 2017. domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures in the segment analysis.
We do not expect this adoption willmaintain information on sales by products; therefore, disclosure of such information is not practical.
The following table sets forth certain financial information for each of our five reporting segments for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Net sales: | | | | | |
| Commercial | $ | 170,590 | | | $ | 154,211 | | | $ | 127,300 | |
| Live Events | 284,900 | | | 199,106 | | | 143,049 | |
| High School Park and Recreation | 141,748 | | | 111,816 | | | 91,557 | |
| Transportation | 72,306 | | | 62,707 | | | 58,284 | |
| International | 84,652 | | | 83,130 | | | 61,843 | |
| 754,196 | | | 610,970 | | | 482,033 | |
| | | | | |
| Gross profit: | | | | | |
| Commercial | 31,155 | | | 31,851 | | | 33,072 | |
| Live Events | 49,255 | | | 21,787 | | | 24,397 | |
| High School Park and Recreation | 41,145 | | | 35,477 | | | 31,472 | |
| Transportation | 19,825 | | | 18,172 | | | 20,329 | |
| International | 9,975 | | | 9,410 | | | 11,313 | |
| 151,355 | | | 116,697 | | | 120,583 | |
| | | | | |
| Operating expenses | | | | | |
| Selling | 56,655 | | | 51,075 | | | 48,649 | |
| General and administrative | 38,747 | | | 32,563 | | | 27,980 | |
| Product design and development | 29,989 | | | 29,013 | | | 26,846 | |
| Goodwill impairment | 4,576 | | | — | | | — | |
| 129,967 | | | 112,651 | | | 103,475 | |
| Operating income | 21,388 | | | 4,046 | | | 17,108 | |
| | | | | |
| Nonoperating income (expense): | | | | | |
| Interest income (expense), net | (920) | | | 171 | | | (65) | |
| | | | | |
| Other expense, net | (7,211) | | — | | (3,109) | | — | | (2,983) | |
| Income before income taxes | $ | 13,257 | | | $ | 1,108 | | | $ | 14,060 | |
| | | | | |
| Depreciation and amortization: | | | | | |
| Commercial | $ | 3,468 | | | $ | 2,677 | | | $ | 3,037 | |
| Live Events | 6,430 | | | 5,238 | | | 5,798 | |
| High School Park and Recreation | 1,632 | | | 1,420 | | | 1,942 | |
| Transportation | 584 | | | 551 | | | 979 | |
| International | 2,307 | | | 2,796 | | | 2,887 | |
| Unallocated corporate depreciation | 2,572 | | | 2,712 | | | 2,434 | |
| $ | 16,993 | | | $ | 15,394 | | | $ | 17,077 | |
No single geographic area comprises a material amount of our net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Net sales: | | | | | |
| United States | $ | 661,312 | | | $ | 513,740 | | | $ | 413,211 | |
| Outside United States | 92,884 | | | 97,230 | | | 68,822 | |
| $ | 754,196 | | | $ | 610,970 | | | $ | 482,033 | |
| Property and equipment, net of accumulated depreciation: | | | | | |
| United States | $ | 63,786 | | | $ | 58,643 | | | $ | 50,130 | |
| Outside United States | 8,361 | | | 8,122 | | | 8,552 | |
| $ | 72,147 | | | $ | 66,765 | | | $ | 58,682 | |
We have numerous customers worldwide for sales of our products and services, and no customer accounted for 10 percent or more of net sales; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services.
We have numerous raw material and component suppliers, and no supplier accounts for 10% or more of our cost of sales; however, we have a material impactcomplex global supply chain subject to geopolitical and transportation risks and a number of single-source suppliers that could limit our supply or cause delays in obtaining raw materials and components needed in manufacturing.
Note 4. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill related to each reportable segment for the fiscal year ended April 29, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Live Events | | Commercial | | Transportation | | International | | Total |
| Balance as of April 30, 2022: | $ | 2,296 | | | $ | 3,349 | | | $ | 68 | | | $ | 2,214 | | | $ | 7,927 | |
| Foreign currency translation | (15) | | | (151) | | | (27) | | | 81 | | | (112) | |
| Goodwill impairment | (2,281) | | | — | | | — | | | (2,295) | | | (4,576) | |
| Balance as of April 29, 2023: | $ | — | | | $ | 3,198 | | | $ | 41 | | | $ | — | | | $ | 3,239 | |
We perform an analysis of goodwill on an annual basis and test for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. Our annual analysis is performed during our third quarter of each fiscal year based on the goodwill amount as of the first business day of our third fiscal quarter.
We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded an impairment charge as noted in the above table. We determined the fair value of the reporting units based on an income approach, using the present value of future discounted cash flows. Significant estimates used to determine fair value include the weighted average cost of capital and financial forecasts. The recognized impairment was primarily a result of our weighted average cost of capital being notably higher, which was driven by strains on our consolidated resultsliquidity caused by disrupted supply chains and geopolitical conditions. As a result, the present value of operations,our future cash flows and financial position.
In May 2014,was lower, which caused the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU is a comprehensive revenue recognition model that requires a company to recognize revenue from the transfer of goods or services to customers in an amount that reflects the consideration$4,576 impairment charge. Based on our annual impairment test, we concluded that the entity expects to receive in exchangefair value of the Commercial and Transportation reporting units exceeded their respective carrying values and concluded no goodwill impairment existed for those goods or services.reporting units. The FASB has also issued ASUs 2016-08, 2016-10, and 2016-12 to clarify guidance with respect to principal versus agent considerations, the identification of performance obligations and licensing, and guidance on certain narrow areas and adds practical expedients. ASU 2014-09 is effectiveannual impairment test for fiscal years 2022 and interim2021 concluded no goodwill impairment existed.
Intangible Assets
The following table summarizes intangible assets, net, as of April 29, 2023 and April 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| April 29, 2023 |
| Weighted Average Life (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Registered trademarks | 20.0 | | $ | 650 | | | $ | 270 | | | $ | 380 | |
| | | | | | | |
| Customer relationships | 10.3 | | 2,563 | | | 1,807 | | | 756 | |
| | | | | | | |
| Total | 12.2 | | $ | 3,213 | | | $ | 2,077 | | | $ | 1,136 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| April 30, 2022 |
| Weighted Average Life (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Registered trademarks | 20.0 | | $ | 639 | | | $ | 233 | | | $ | 406 | |
| | | | | | | |
| Customer relationships | 10.0 | | 2,853 | | | 1,787 | | | 1,066 | |
| | | | | | | |
| Total | 11.8 | | $ | 3,492 | | | $ | 2,020 | | | $ | 1,472 | |
In the fiscal years 2023, 2022, and 2021, amortization expense was $290, $504, and $1,502, respectively. Amortization expenses are included primarily in product design and development and selling expense in the consolidated statements of operations. Intangible assets are written off when fully amortized.
As of April 29, 2023, amortization expenses for future periods beginning after December 15, 2017 (as stated in ASU 2015-14, which was issued in August 2015 and defers the effective date) and is now effective for the Company's fiscal 2019. We are evaluating the effect that adopting this new accounting guidance will have on our consolidated results of operations, cash flows, financial position, and related disclosures.were estimated to be as follows:
| | | | | | | | |
| Fiscal years ending | | Amount |
| 2024 | | $ | 285 | |
| 2025 | | 285 | |
| 2026 | | 254 | |
| 2027 | | 37 | |
| 2028 | | 37 | |
| Thereafter | | 238 | |
| Total expected amortization expense | | $ | 1,136 | |
Note 2. Segment Reporting
We have organized our business into five segments which meet the definition of reportable segments under ASC 280-10, Segment Reporting: Commercial, Live Events, High School Park and Recreation, Transportation, and International. These segments are based on the type of customer or geography and are the same as our business units.
Our Commercial business unit primarily consists of sales of our video display systems, digital billboards, Galaxy® and Fuelight™ product lines to resellers (primarily sign companies), Out-of-Home ("OOH") companies, national retailers, quick-serve restaurants, casinos and petroleum retailers. Our Live Events business unit primarily consists of sales of integrated scoring and video display systems to college
and professional sports facilities and convention centers and sales of our mobile display technology to video rental organizations and other live events type venues. Our High School Park and Recreation business unit primarily consists of sales of scoring systems, Galaxy® displays and video display systems to primary and secondary education facilities. Our Transportation business unit primarily consists of sales of our Vanguard® and Galaxy® product lines to governmental transportation departments, airlines and other transportation related customers. Our International business unit consists of sales of all product lines outside the United States and Canada. We focus on product lines related to integrated scoring and video display systems for sports and commercial applications, OOH advertising products, and European transportation related products.
Segment reports present results through contribution margin, which is comprised of gross profit less selling costs. Segment profit excludes general and administration expense, product development expense, interest income and expense, non-operating income and income tax expense. Assets are not allocated to the segments. Depreciation and amortization are allocated to each segment based on various financial measures; however, some depreciation and amortization are corporate in nature and remain unallocated. In general, our segments follow the same accounting policies as those described in "Note 1. Nature of Business and Summary of Critical Accounting Policies"5. Unabsorbed costs of domestic field sales and services infrastructure, including most field administrative staff, are allocated to the Commercial, Live Events, High School Park and Recreation, and Transportation business units based on cost of sales. Shared manufacturing, buildings and utilities, and procurement costs are allocated based on payroll dollars, square footage and various other financial measures.
We do not maintain information on sales by products; therefore, disclosure of such information is not practical.
The following table sets forth certain financial information for each of our five operating segments for the periods indicated:
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Net sales: | | | | | |
| Commercial | $ | 148,261 |
| | $ | 165,793 |
| | $ | 154,754 |
|
| Live Events | 205,151 |
| | 231,877 |
| | 197,246 |
|
| High School Park and Recreation | 70,035 |
| | 67,657 |
| | 59,531 |
|
| Transportation | 52,249 |
| | 48,333 |
| | 54,861 |
|
| International | 94,472 |
| | 102,282 |
| | 85,578 |
|
| | 570,168 |
| | 615,942 |
| | 551,970 |
|
| | | | | | |
| Contribution margin: | | | | | |
| Commercial | 13,210 |
| | 28,541 |
| | 30,313 |
|
| Live Events | 23,178 |
| | 27,334 |
| | 30,503 |
|
| High School Park and Recreation | 10,314 |
| | 11,125 |
| | 5,474 |
|
| Transportation | 12,466 |
| | 10,404 |
| | 12,810 |
|
| International | 3,039 |
| | 9,212 |
| | 8,816 |
|
| | 62,207 |
| | 86,616 |
| | 87,916 |
|
| | | | | | |
| Non-allocated operating expenses: | | | | | |
| General and administrative | 32,801 |
| | 30,679 |
| | 27,984 |
|
| Product design and development | 26,911 |
| | 24,652 |
| | 23,375 |
|
| Operating income | 2,495 |
| | 31,285 |
| | 36,557 |
|
| | | | | | |
| Nonoperating income (expense): | | | | | |
| Interest income | 987 |
| | 1,119 |
| | 1,294 |
|
| Interest expense | (228 | ) | | (223 | ) | | (255 | ) |
| Other (expense) income, net | (128 | ) | | (498 | ) | | (355 | ) |
| | | | | | |
| Income before income taxes | 3,126 |
| | 31,683 |
| | 37,241 |
|
| Income tax expense | 1,065 |
| | 10,801 |
| | 15,035 |
|
| Net income | $ | 2,061 |
| | $ | 20,882 |
| | $ | 22,206 |
|
| | | | | | |
| Depreciation and amortization: | | | | | |
| Commercial | $ | 4,925 |
| | $ | 4,846 |
| | $ | 4,243 |
|
| Live Events | 4,970 |
| | 4,610 |
| | 4,461 |
|
| High School Park and Recreation | 1,722 |
| | 1,836 |
| | 2,053 |
|
| Transportation | 1,364 |
| | 1,148 |
| | 1,132 |
|
| International | 1,227 |
| | 1,053 |
| | 873 |
|
| Unallocated corporate depreciation | 2,648 |
| | 1,475 |
| | 1,739 |
|
| | $ | 16,856 |
| | $ | 14,968 |
| | $ | 14,501 |
|
No single geographic area comprises a material amount of net sales or property and equipment, net of accumulated depreciation, other than the United States. The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere:
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Net sales: | | | | | |
| United States | $ | 465,598 |
| | $ | 494,860 |
| | $ | 453,468 |
|
| Outside U.S. | 104,570 |
| | 121,082 |
| | 98,502 |
|
| | $ | 570,168 |
| | $ | 615,942 |
| | $ | 551,970 |
|
| Property and equipment, net of accumulated depreciation: | | | | | |
| United States | $ | 68,233 |
| | $ | 67,882 |
| | $ | 60,846 |
|
| Outside U.S. | 4,930 |
| | 4,962 |
| | 4,424 |
|
| | $ | 73,163 |
| | $ | 72,844 |
| | $ | 65,270 |
|
We have numerous customers worldwide for sales of our products and services; therefore, we are not economically dependent on a limited number of customers for the sale of our products and services except with respect to our dependence on two major digital billboard customers in our Commercial business unit.
Note 3. Marketable Securities
We have a cash management program which provides for the investment of cash balances not used in current operations. We classify our investments in marketable securities as available-for-sale in accordance with the provisions of ASC 320, Investments – Debt and Equity Securities. Marketable securities classified as available-for-sale are reported at fair value with unrealized gains or losses, net of tax, reported in accumulated other comprehensive loss. As it relates to fixed income marketable securities, it is not likely we will be required to sell any of these investments before recovery of the entire amortized cost basis. In addition, as of April 30, 2016, we anticipate we will recover the entire amortized cost basis of such fixed income securities, and we have determined no other-than-temporary impairments associated with credit losses were required to be recognized. The cost of securities sold is based on the specific identification method. Where quoted market prices are not available, we use the market price of similar types of securities traded in the market to estimate fair value.
As of April 30, 2016 and May 2, 2015, our available-for-sale securities consisted of the following:
|
| | | | | | | | | | | | | | | |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| Balance as of April 30, 2016: | | | | | | | |
| Certificates of deposit | $ | 14,927 |
| | $ | — |
| | $ | — |
| | $ | 14,927 |
|
| U.S. Government sponsored entities | 8,523 |
| | — |
| | (1 | ) | | 8,522 |
|
| Municipal bonds | 1,221 |
| | 2 |
| | — |
| | 1,223 |
|
| | $ | 24,671 |
| | $ | 2 |
| | $ | (1 | ) | | $ | 24,672 |
|
| Balance as of May 2, 2015: | |
| | |
| | |
| | |
|
| Certificates of deposit | $ | 11,409 |
| | $ | — |
| | $ | — |
| | $ | 11,409 |
|
| U.S. Government securities | 1,000 |
| | 1 |
| | — |
| | 1,001 |
|
| U.S. Government sponsored entities | 7,951 |
| | — |
| | (9 | ) | | 7,942 |
|
| Municipal bonds | 4,989 |
| | 5 |
| | — |
| | 4,994 |
|
| | $ | 25,349 |
| | $ | 6 |
| | $ | (9 | ) | | $ | 25,346 |
|
Realized gains or losses on investments are recorded in our consolidated statements of operations as other (expense) income, net. Upon the sale of a security classified as available-for-sale, the security’s specific unrealized gain (loss) is reclassified out of accumulated other comprehensive loss into earnings based on the specific identification method. In the fiscal years ended April 30, 2016 and May 2, 2015, the reclassifications from accumulated other comprehensive loss to net assets were immaterial.
All available-for-sale securities are classified as current assets, as they are readily available to support our current operating needs. The contractual maturities of available-for-sale debt securities as of April 30, 2016 were as follows:
|
| | | | | | | | | | | |
| | Less than 12 months | | 1-5 Years | | Total |
| Certificates of deposit | $ | 7,650 |
| | $ | 7,277 |
| | $ | 14,927 |
|
| U.S. Government sponsored entities | — |
| | 8,522 |
| | 8,522 |
|
| Municipal obligations | — |
| | 1,223 |
| | 1,223 |
|
| | $ | 7,650 |
| | $ | 17,022 |
| | $ | 24,672 |
|
Note 4. Business Combinations
OPEN Acquisition
We acquired 100 percent ownership in OPEN Out-of-Home Solutions ("OPEN"), a Belgian company, on May 8, 2013 for an undisclosed amount. The results of its operations have been included in our consolidated financial statements since the date of acquisition.
OPEN is a European manufacturer of cabinets and street furniture for the third-party advertising market. This acquisition expanded our product offerings to third-party advertisers as they increasingly adopt digital technology and included a manufacturing plant in Belgium to manufacture digital advertising displays. This acquisition was funded with cash on hand and a five-year promissory note that matures in May 2018.
During the third quarter of fiscal 2014, the purchase price allocation for the OPEN acquisition was completed. The excess of the purchase price over the net tangible and intangible assets was recorded as goodwill of $1,249 which primarily related to the value of an assembled workforce and is not deductible for tax purposes. Included in the purchase price allocation were acquired identifiable intangibles valued at $1,160 representing trade names with a useful life of 20 years and a customer list valued at $582 with a useful life of nine years. Also included in the purchase was $2,658 of property and equipment, $2,038 of inventory, $833 of other current assets offset by current operating liabilities of $1,230 and long and short term debt of $4,155. There have been no material adjustments to the original purchase price allocation.
The purchase price includes deferred payments of $2,375 to be made over five years unless certain conditions in the business are not met. We have included the payment obligation in other long-term obligations in our consolidated balance sheet.
OPEN's sales were included in the International business unit results and contributed $4,218 of net sales during fiscal 2014. General and administrative expenses included $44 for the year ended April 26, 2014 for professional fees relating to the acquisition.
Data Display Acquisition
We acquired 100 percent ownership in Data Display, a European transportation display company, on August 11, 2014 for an undisclosed amount. The results of its operations have been included in our consolidated financial statements since the date of acquisition. We have not made pro forma disclosures because the results of its operations are not material to our consolidated financial statements.
Data Display is a European based company focused on the design and manufacture of transportation displays. This acquisition allows our organization to better service transportation customers world-wide and broadens our leadership position on a global scale. This acquisition included a manufacturing plant in Ireland to manufacture transportation displays. This acquisition was funded with cash on hand.
During the second quarter of fiscal 2015, we prepared the preliminary fair value measurements of assets acquired and liabilities assumed as of the acquisition date using independent appraisals and other analysis. A final measurement was completed during the first quarter of fiscal 2016, and the fair values of the consideration paid and contingent consideration were finalized.
The following table summarizes the adjustments that were made to the original purchase price allocation:
|
| | | | | | | | | |
| | Purchase price allocation as originally reported | Adjustments | Reconciliation of assets and liabilities transferred |
| Goodwill | $ | 1,099 |
| $ | 364 |
| $ | 1,463 |
|
| Trademarks and technology | 480 |
| — |
| 480 |
|
| Customer relationships | 84 |
| — |
| 84 |
|
| Property and equipment | 1,433 |
| — |
| 1,433 |
|
| Investment for affiliates | 437 |
| — |
| 437 |
|
| Inventory | 2,773 |
| (149 | ) | 2,624 |
|
| Accounts receivable | 3,380 |
| (317 | ) | 3,063 |
|
| Other current assets | 1,869 |
| 23 |
| 1,892 |
|
| Current liabilities | 3,616 |
| 79 |
| 3,695 |
|
| Long-term obligations | 950 |
| — |
| 950 |
|
ADFLOW Acquisition
We acquired 100 percent ownership in ADFLOW Networks, Inc. ("ADFLOW"), a Canadian company, on March 15, 2016 for an undisclosed amount. The results of its operations have been included in our consolidated financial statements since the date of acquisition. We have not made pro forma disclosures because the results of its operations are not material to our consolidated financial statements.
ADFLOW is a Canadian based company focused on digital media solutions. This acquisition will allow our organization to grow and strengthen our solution offering in Digital Media Networks (DMN). We believe this will broaden our value proposition for our customers and deliver new offerings to the market. This acquisition was funded with cash on hand.
During the fourth quarter of fiscal 2016, we prepared the preliminary fair value measurements of assets acquired and liabilities assumed as of the acquisition date using independent appraisals and other analysis. We are in the process of determining final working capital adjustments. The excess of purchase price over the estimated net tangible and intangible assets was recorded as goodwill of $2,502 which primarily related to the value of an assembled workforce and is not deductible for tax purposes. Included in the preliminary purchase price allocation were acquired identifiable intangibles valued at $3,176 representing software and trademarks and customer relationships valued at $2,692. Based on the preliminary fair value measurements, also included in the purchase price was $58 of property and equipment, $230 of inventory, $1,283 of accounts receivable, and $513 of other current assets, which was offset by current operating liabilities of $935 and long term obligations of $1,545. The purchase price allocation is expected to be completed in the first quarter of fiscal 2017.
The purchase price includes deferred payments of $1,833 to be made over three years unless certain conditions in the business are not met. We have included the payment obligation in other long-term obligations in our consolidated balance sheet.
ADFLOW contributed net sales of $542 during fiscal 2016. General and administrative expenses included $295 during fiscal 2016 for professional fees relating to the acquisition.
Note 5. Sale of Theatre Rigging Division
In July 2014, we sold our automated rigging systems business for theatre applications. Related to the sale, we recorded a $1,261 gain, which is included in cost of goods sold in the High School Park and Recreation business unit.
As part of the transaction, we sold assets of $2,817 that primarily consisted of accounts receivable, patents, inventory, and manufacturing equipment, net of $355 of accounts payable.
Note 6. Long-Lived Assets
Goodwill and other intangible assets: We account for goodwill and intangible assets in accordance with ASC 350, Goodwill and Other Intangible Assets. Under these provisions, goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates an impairment or a decline in value may have occurred. Such circumstances could include, but are not limited to, a worsening trend of orders and sales without a corresponding way to preserve future cash flows or a significant decline in our stock price. In conducting our impairment testing, we compare the fair value of each of our business units (reporting unit) to the related carrying value. If the fair value of a reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.
We utilize an income approach to estimate the fair value of each reporting unit. We selected this method because we believe it most appropriately measures our income producing assets. We considered using the market approach and cost approach, but concluded they were not appropriate in valuing our reporting units given the lack of relevant and available market comparisons. The income approach is based on the projected cash flows, which are discounted to their present value using discount rates which consider the timing and risk of the forecasted cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting units’ expected long-term operating cash performance. This approach also mitigates the impact of the cyclical trends occurring in the industry. Fair value is estimated using internally-developed forecasts and assumptions. The discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. Other significant assumptions include terminal value margin rates, future capital expenditures, and changes in future working capital requirements. We also compare and reconcile our overall fair value to our market capitalization. Although there are inherent uncertainties related to the assumptions used and to our application of these assumptions to this analysis, we believe the income approach provides a reasonable estimate of the fair value of our reporting units. The foregoing assumptions to a large degree were consistent with our long-term performance, with limited exceptions. We believe our future investments for capital expenditures as a percent of revenue will remain similar to the historical rates as a percentage of sales in future years. Our investments are expected to relate to equipment replacements and new product line manufacturing equipment needs, and to keep our information technology infrastructure robust. These assumptions could deviate materially from actual results.
We perform an analysis of goodwill on an annual basis, and is tested for impairment more frequently if events or changes in circumstances indicate that an asset might be impaired. We complete this annual analysis during our third quarter of each fiscal year, based on the goodwill amount as of the first business day of our third quarter in fiscal 2016, 2015, and 2014. The result of our analysis indicated no goodwill impairment existed for fiscal years 2016, 2015, and 2014.
During the fourth quarter of fiscal 2016, we performed an interim goodwill impairment analysis due to economic conditions causing slowing orders. The results of our analysis indicated no goodwill impairment was necessary.
The changes in the carrying amount of goodwill related to each reportable segment for the fiscal year ended April 30, 2016 were as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | Live Events | | Commercial | | Transportation | | International | | Total |
| Balance as of May 2, 2015: | $ | 2,321 |
| | $ | 721 |
| | $ | 91 |
| | $ | 2,136 |
| | $ | 5,269 |
|
| Acquisition, net of cash acquired | — |
| | 2,502 |
| | — |
| | 213 |
| | 2,715 |
|
| Foreign currency translation | (17 | ) | | 127 |
| | (16 | ) | | 38 |
| | 132 |
|
| Balance as of April 30, 2016: | $ | 2,304 |
| | $ | 3,350 |
| | $ | 75 |
| | $ | 2,387 |
| | $ | 8,116 |
|
As required by ASC 350, intangibles with finite lives are amortized. We evaluate indefinite lived assets for impairment annually and whenever events or changes in circumstances indicate their carrying value may not be recoverable. The net value of intangible assets is shown on our consolidated balance sheets. Estimated amortization expense based on intangibles as of April 30, 2016 is $1,591 for fiscal 2017, $1,492 for fiscal 2018, $1,393 for fiscal 2019, $473 for fiscal 2020, $440 for fiscal 2021, and $2,332 thereafter.
The following table sets forth the gross carrying amount and accumulated amortization of intangible assets by major intangible class as of April 30, 2016 and May 2, 2015:
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | April 30, 2016 | | May 2, 2015 |
| | Weighted Average Life (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Value |
| Definite-lived: | | | | | | | | | | | | | |
| Registered trademarks | 18.3 | | $ | 1,676 |
| | $ | 194 |
| | $ | 1,482 |
| | $ | 1,461 |
| | $ | 116 |
| | $ | 1,345 |
|
| Software | 3.0 | | 3,046 |
| | 46 |
| | 3,000 |
| | — |
| | — |
| | — |
|
| Customer relationships | 9.7 | | 3,449 |
| | 300 |
| | 3,149 |
| | — |
| | — |
| | — |
|
| Other | 1.0 | | 103 |
| | 13 |
| | 90 |
| | 608 |
| | 129 |
| | 479 |
|
| Total | 8.8 | | $ | 8,274 |
| | $ | 553 |
| | $ | 7,721 |
| | $ | 2,069 |
| | $ | 245 |
| | $ | 1,824 |
|
Impairment of long-lived assets: In the fiscal years ended April 30, 2016, May 2, 2015, and April 26, 2014, the pretax impairment charges for other long-lived assets, including property and equipment, were immaterial. The impairment charges related to technology or equipment obsoleted due to technology improvements or to custom demo equipment with no resale value. Impairment charges during fiscal 2016, 2015, and 2014 were included primarily in product development and selling expense.
Note 7. Selected Financial Statement Data
Inventories consisted of the following:
| | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| Raw materials | $ | 81,627 | | | $ | 71,410 | |
| Work-in-process | 14,155 | | | 14,238 | |
| Finished goods | 53,666 | | | 48,744 | |
| $ | 149,448 | | | $ | 134,392 | |
|
| | | | | | | |
| | April 30,
2016 | | May 2,
2015 |
| Raw materials | $ | 28,184 |
| | $ | 28,325 |
|
| Work-in-process | 6,158 |
| | 7,512 |
|
| Finished goods | 35,485 |
| | 28,552 |
|
| | $ | 69,827 |
| | $ | 64,389 |
|
Property and equipment, net consisted of the following:
Table of contents | | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| Land | $ | 1,996 | | | $ | 1,899 | |
| Buildings | 71,222 | | | 69,170 | |
| Machinery and equipment | 126,164 | | | 110,079 | |
| Office furniture and equipment | 4,112 | | | 4,098 | |
| Computer software and hardware | 44,700 | | | 46,922 | |
| Construction in Process | 2,805 | | | 5,792 | |
| | | |
| Demonstration equipment | 7,432 | | | 7,260 | |
| Transportation equipment | 7,057 | | | 7,065 | |
| 265,488 | | | 252,285 | |
| Less accumulated depreciation | 193,341 | | | 185,520 | |
| $ | 72,147 | | | $ | 66,765 | |
|
| | | | | | | |
| | April 30,
2016 | | May 2,
2015 |
| Land | $ | 2,155 |
| | $ | 2,147 |
|
| Buildings | 65,247 |
| | 64,186 |
|
| Machinery and equipment | 82,973 |
| | 80,664 |
|
| Office furniture and equipment | 14,746 |
| | 15,823 |
|
| Computer software and hardware | 48,917 |
| | 51,083 |
|
| Equipment held for rental | 374 |
| | 803 |
|
| Demonstration equipment | 8,026 |
| | 7,299 |
|
| Transportation equipment | 6,596 |
| | 6,012 |
|
| | 229,034 |
| | 228,017 |
|
| Less accumulated depreciation | 155,871 |
| | 155,173 |
|
| | $ | 73,163 |
| | $ | 72,844 |
|
Our depreciation expense was $16,703, $14,890, and $15,575 for the fiscal years 2023, 2022, and 2021, respectively.
Accrued expenses consisted of the following:
| | | | April 30,
2016 | | May 2,
2015 | | April 29, 2023 | | April 30, 2022 |
| Compensation | $ | 12,065 |
| | $ | 12,137 |
| Compensation | $ | 17,466 | | | $ | 15,944 | |
| Taxes, other than income taxes | 3,969 |
| | 4,223 |
| Taxes, other than income taxes | 3,390 | | | 6,741 | |
| Other | 7,498 |
| | 9,703 |
| |
| Accrued employee benefits | | Accrued employee benefits | 3,953 | | | 3,227 | |
| Operating lease liabilities | | Operating lease liabilities | 2,253 | | | 2,309 | |
| Short-term accrued expenses | | Short-term accrued expenses | 8,943 | | | 6,738 | |
| | $ | 23,532 |
| | $ | 26,063 |
| |
| | | $ | 36,005 | | | $ | 34,959 | |
Other (expense) income, net consisted of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Foreign currency transaction gains (losses) | $ | 479 | | | $ | (227) | | | $ | (675) | |
| Equity in losses of affiliates | (3,332) | | | (2,970) | | | (2,370) | |
| Impairment of equity method investee | (4,473) | | | — | | | — | |
| Other | 115 | | | 88 | | | 62 | |
| $ | (7,211) | | | $ | (3,109) | | | $ | (2,983) | |
extent the present value is in excess of cost. We generally retain a security interest in the equipment or in the cash flow generated by the equipment until the contract is paid. The present value of long-term contracts, and lease receivables, including accrued interest and current maturities, was $7,038$1,473 and $9,874$4,288 as of April 29, 2023 and April 30, 2016 and May 2, 2015,2022, respectively. Contract and lease receivables bearing annual interest rates of 4.84.5 to 10.09.0 percent are due in varying annual installments through August 2024.November 2026. The face amountvalue of long-term receivables was $7,236$1,512 and $4,364 as of April 29, 2023 and April 30, 2022, respectively.
We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We recognize the fair value of the stock options on a straight-line basis as compensation expense. All options are recognized over the requisite service periods of the awards, which are generally the vesting periods.
The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. ASC 718 requires us to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards expected to vest. The following factors are the significant assumptions used in the computation of the fair value of options:
The following table provides the weighted-average fair value of options granted and the related assumptions used in the Black-Scholes model:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Fair value of options granted | $ | 1.34 | | | $ | 2.43 | | | $ | 1.71 | |
| Risk-free interest rate | 3.37 | % | | 1.07 | % | | 0.43 | % |
| | | | | |
| Expected volatility | 41.10 | % | | 40.60 | % | | 40.53 | % |
| Expected life of option (in years) | 6.93 | | 6.94 | | 6.94 |
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Fair value of options granted | $ | 2.92 |
| | $ | 5.44 |
| | $ | 4.91 |
|
| Risk-free interest rate | 1.70 - 1.90% |
| | 1.93 - 2.14% |
| | 2.03 - 2.34% |
|
| Expected dividend rate | 2.78 | % | | 2.60% |
| | 2.32% |
|
| Expected volatility | 42.71 - 48.32% |
| | 48.01 - 51.89% |
| | 54.09 - 54.37% |
|
| Expected life of option | 5.78 - 6.98 years |
| | 5.84 - 6.95 years |
| | 5.9 - 6.9 years |
|
Employee stock purchase plan: We have an employee stock purchase plan (“ESPP”), which enables employees after six months of continuous employment to elect, in advance and semi-annually, to contribute up to 15 percent of their compensation, subject to certain limitations, toward the purchase of our common stock at a purchase price equal to 85 percent of the lower of the fair market value of the common stock on the first or last day of the participation period. The ESPP requires participants to hold any shares purchased under the ESPP for a minimum period of one year after the date of purchase. Compensation expense recognized on shares issued under our ESPP is based on the value of a traded option to purchase shares of our stock at a 15 percent discount to the stock price. The total number of shares reserved under the ESPP is 2,500.5,500. The number of shares of common stock issued under the ESPP totaled 227, 248,424, 310, and 195170 shares in fiscal 2016, 2015,2023, 2022, and 2014,2021, respectively. The number of shares of common stock reserved for future employee purchases under the ESPP totaled 5141,575 shares atas of April 30, 2016.29, 2023. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code of 1986 (the "Code").
Total share-based compensation expense: As of April 30, 2016,29, 2023, there was $4,450$2,746 of total unrecognized compensation cost related to nonvestednon-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize the cost over a weighted-average period of 2.72.94 years.
The following table presents a summary of the share-based compensation expense by equity type as follows:
| | | | Year Ended | | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 | | April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Stock options | $ | 1,179 |
| | $ | 1,311 |
| | $ | 1,451 |
| Stock options | $ | 453 | | | $ | 458 | | | $ | 450 | |
| Restricted stock and stock units | 1,237 |
| | 1,234 |
| | 1,000 |
| Restricted stock and stock units | 1,153 | | | 1,159 | | | 1,203 | |
| Employee stock purchase plans | 542 |
| | 493 |
| | 446 |
| Employee stock purchase plans | 421 | | | 356 | | | 414 | |
| | $ | 2,958 |
| | $ | 3,038 |
| | $ | 2,897 |
| | $ | 2,027 | | | $ | 1,973 | | | $ | 2,067 | |
A summary of the share-based compensation expensesexpense for stock options, restricted stock, restricted stock units and shares issued under the ESPP for the fiscal years ended April 30, 2016, May 2, 20152023, 2022, and April 26, 20142021 is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Cost of sales | $ | 441 | | | $ | 434 | | | $ | 472 | |
| Selling | 424 | | | 472 | | | 484 | |
| General and administrative | 735 | | | 656 | | | 678 | |
| Product design and development | 427 | | | 411 | | | 433 | |
| $ | 2,027 | | | $ | 1,973 | | | $ | 2,067 | |
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Cost of goods sold | $ | 751 |
| | $ | 737 |
| | $ | 657 |
|
| Selling | 780 |
| | 825 |
| | 810 |
|
| General and administrative | 839 |
| | 908 |
| | 859 |
|
| Product design and development | 588 |
| | 568 |
| | 571 |
|
| | $ | 2,958 |
| | $ | 3,038 |
| | $ | 2,897 |
|
We received $610$21 in cash from option exercises under all share-based payment arrangements for the fiscal year ended April 30, 2016.29, 2023. The tax (expense) benefitexpense related to non-qualified options and restricted stock units under all share-based payment arrangements totaled $(69)totaled $23, $3,$47, and $(126)$70 for fiscal years 2016, 2015,2023, 2022, and 2014,2021, respectively.
Note 12. Employee Benefit Plans11. Retirement Benefits
We sponsor a 401(k) savings plan under which eligible U.S.providing benefits for substantially all United States-based employees may choose to make voluntary contributions of such employees' compensation on a pretax basis,Daktronics, Inc. and its subsidiaries, subject to certain Internal Revenue Service ("IRS") limits. We makemade matching cash contributions equal to 50 percent of the employee's qualifying contribution up to six percent of such employee's compensation plus other discretionary contributionscompensation; however, we eliminated our matching contribution as authorized byone of our Board of Directors.cost savings initiatives for fiscal 2021. These benefits were reinstated for fiscal 2022. Employees are eligible to participate uponin the 401(k) savings plan the first day of the calendar month following completion of one year30 days of continuous service if they have attained the age of 21 and have worked more than 1000 hours during such plan year.21. We contributed $2,323, $2,115$2,969, $2,573 and $1,859$0 for matches to the plan for fiscal years 2016, 2015,2023, 2022, and 2014,2021, respectively.
Note 13.12. Income Taxes
our income tax provision. The pretax income attributable to domestic and foreign operations was as follows:
| | | | Year Ended | | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 | | April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Domestic | $ | 3,264 |
| | $ | 29,194 |
| | $ | 35,699 |
| Domestic | $ | 10,125 | | | $ | (2,696) | | | $ | 10,413 | |
| Foreign | (138 | ) | | 2,489 |
| | 1,542 |
| Foreign | 3,132 | | | 3,804 | | | 3,647 | |
| Income before income taxes | $ | 3,126 |
| | $ | 31,683 |
| | $ | 37,241 |
| Income before income taxes | $ | 13,257 | | | $ | 1,108 | | | $ | 14,060 | |
Income tax expense (benefit) consisted of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Current: | | | | | |
| Federal | $ | 6,321 | | | $ | 644 | | | $ | 507 | |
| State | 1,381 | | | 452 | | | 422 | |
| Foreign | 2,273 | | | 975 | | | 891 | |
| Deferred: | | | | | |
| Federal | (3,025) | | | (1,020) | | | 1,216 | |
| State | (456) | | | (476) | | | 59 | |
| Foreign | (39) | | | (59) | | | 39 | |
| $ | 6,455 | | | $ | 516 | | | $ | 3,134 | |
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Current: | | | | | |
| Federal | $ | (467 | ) | | $ | 6,657 |
| | $ | 11,342 |
|
| State | 123 |
| | 1,150 |
| | 1,454 |
|
| Foreign | 557 |
| | 848 |
| | 696 |
|
| Deferred: | | | | | |
| Federal | 463 |
| | 1,906 |
| | 1,241 |
|
| State | (89 | ) | | 307 |
| | 667 |
|
| Foreign | 478 |
| | (67 | ) | | (365 | ) |
| | $ | 1,065 |
| | $ | 10,801 |
| | $ | 15,035 |
|
AThe reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory rate to income before income taxes is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Computed income tax expense at federal statutory rates | $ | 2,784 | | | $ | 233 | | | $ | 2,953 | |
| Change in uncertain tax positions | (86) | | | (71) | | | (34) | |
| Research and development tax credit | (684) | | | (382) | | | (1,047) | |
| Other, net | 288 | | | (179) | | | 579 | |
| Change in valuation allowances | 2,078 | | | 609 | | | 402 | |
| GILTI | 6 | | | (14) | | | (156) | |
| Base Erosion Anti-Abuse Tax (BEAT) | 87 | | | 12 | | | (285) | |
| Foreign-Derived Intangible Income (FDII) | (128) | | | (5) | | | (84) | |
| Stock compensation | 262 | | | 150 | | | 355 | |
| Meals and entertainment | 149 | | | 67 | | | 49 | |
| Goodwill Impairment | 551 | | | — | | | — | |
| | | | | |
| State taxes, net of federal benefit | 731 | | | 139 | | | 494 | |
| Effect of Foreign Tax Rates different than Statutory | 417 | | | (43) | | | (92) | |
| $ | 6,455 | | | $ | 516 | | | $ | 3,134 | |
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Computed income tax expense at federal, state and local jurisdiction statutory rates | | $ | 1,063 |
| | $ | 11,089 |
| | $ | 13,035 |
|
| State taxes, net of federal benefit | | 40 |
| | 1,016 |
| | 1,433 |
|
| Research and development tax credit | | (2,015 | ) | | (1,292 | ) | | (750 | ) |
| Meals and entertainment | | 334 |
| | 369 |
| | 344 |
|
| Stock compensation | | 525 |
| | 566 |
| | 586 |
|
| Dividends paid to retirement plan | | (323 | ) | | (352 | ) | | (328 | ) |
| Domestic production activities deduction | | (91 | ) | | (529 | ) | | (1,012 | ) |
| Change in valuation allowances | | 1,265 |
| | (2,295 | ) | | 2,301 |
|
| Change in uncertain tax positions | | 125 |
| | 2,357 |
| | 111 |
|
| Other, net | | 142 |
| | (128 | ) | | (685 | ) |
| | | $ | 1,065 |
| | $ | 10,801 |
| | $ | 15,035 |
|
The effective income tax rate for fiscal 2023 was impacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the tax rate is higher than the United States, as well as prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits.
During fiscal 2022, our effective income tax rate was impacted by tax benefits from permanent tax credits offset by valuation allowances as well as other various permanent tax adjustments and state taxes with additional expense for prior year provision to return adjustments.
During fiscal 2021, our effective income tax rate was impacted due to tax benefits from permanent tax credits and prior year provision to return adjustments offset by valuation allowances as well as other various permanent tax adjustments and state taxes.
The components of the net deferred tax assetassets were as follows:
| | | | April 30,
2016 | | May 2,
2015 | | April 29, 2023 | | April 30, 2022 |
| Deferred tax assets: | | | | Deferred tax assets: | | | |
| Accrued warranty obligations | $ | 11,407 |
| | $ | 10,038 |
| Accrued warranty obligations | $ | 8,088 | | | $ | 7,117 | |
| Vacation accrual | 1,963 |
| | 1,808 |
| Vacation accrual | 1,732 | | | 1,618 | |
| Net losses on investments | 336 |
| | — |
| |
| Deferred maintenance revenue | 341 |
| | 745 |
| Deferred maintenance revenue | 484 | | | 272 | |
| Allowance for excess and obsolete inventory | 1,314 |
| | 939 |
| Allowance for excess and obsolete inventory | 2,779 | | | 2,316 | |
| | Equity compensation | 745 |
| | 828 |
| Equity compensation | 255 | | | 276 | |
| Allowance for doubtful accounts | 703 |
| | 613 |
| |
| Allowance for credit losses accounts | | Allowance for credit losses accounts | 928 | | | 528 | |
| Inventory capitalization | 595 |
| | 531 |
| Inventory capitalization | 1,339 | | | 1,278 | |
| Accrued compensation and benefits | 1,015 |
| | 1,124 |
| Accrued compensation and benefits | 395 | | | 1,019 | |
| | Unrealized loss on foreign currency exchange | — |
| | 554 |
| Unrealized loss on foreign currency exchange | 206 | | | — | |
| Net operating loss carry forwards | 1,404 |
| | 791 |
| Net operating loss carry forwards | 1,024 | | | 729 | |
| Outside basis difference in equity method investments | | Outside basis difference in equity method investments | 3,819 | | | 1,861 | |
| Section 174 Capitalization | | Section 174 Capitalization | 5,225 | | | — | |
| Research and development tax credit carry forwards | 1,005 |
| | — |
| Research and development tax credit carry forwards | 210 | | | 396 | |
| Lease accounting - lease liability | | Lease accounting - lease liability | 1,426 | | | 1,918 | |
| Other | 617 |
| | 344 |
| Other | 929 | | | 435 | |
| | 21,445 |
| | 18,315 |
| |
| Total deferred tax assets | | Total deferred tax assets | 28,839 | | | 19,763 | |
| Valuation allowance | (1,673 | ) | | (52 | ) | Valuation allowance | (4,900) | | | (2,452) | |
| | 19,772 |
| | 18,263 |
| |
| Net deferred tax assets | | Net deferred tax assets | 23,939 | | | 17,311 | |
| | | | | | | | |
| Deferred tax liabilities: | |
| | |
| Deferred tax liabilities: | |
| Property and equipment | (7,988 | ) | | (7,249 | ) | Property and equipment | (5,292) | | | (1,693) | |
| Lease accounting - right of use asset | | Lease accounting - right of use asset | (1,411) | | | (1,907) | |
| Prepaid expenses | (631 | ) | | (577 | ) | Prepaid expenses | (471) | | | (428) | |
| Intangible assets | (1,479 | ) | | — |
| |
| | Unrealized gain on foreign currency exchange | (931 | ) | | — |
| Unrealized gain on foreign currency exchange | — | | | (180) | |
| Other | (60 | ) | | (34 | ) | Other | (93) | | | (59) | |
| | (11,089 | ) | | (7,860 | ) | |
| | $ | 8,683 |
| | $ | 10,403 |
| |
| Total deferred tax liabilities | | Total deferred tax liabilities | (7,267) | | | (4,267) | |
| Net deferred tax asset | | Net deferred tax asset | $ | 16,672 | | | $ | 13,044 | |
The classification of the net deferred tax assets in the accompanying consolidated balance sheets is:
| | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| Non-current assets | $ | 16,867 | | | $ | 13,331 | |
| Non-current liabilities | (195) | | | (287) | |
| $ | 16,672 | | | $ | 13,044 | |
|
| | | | | | | |
| | April 30,
2016 | | May 2,
2015 |
| Current assets | $ | — |
| | $ | 10,640 |
|
| Current liabilities | — |
| | — |
|
| Non-current assets | 9,437 |
| | 702 |
|
| Non-current liabilities | (754 | ) | | (939 | ) |
| | $ | 8,683 |
| | $ | 10,403 |
|
The summary of changes in the amounts recorded forrelated to unrecognized uncertain tax positionsbenefits are:
| | | | April 30, 2016 | May 2, 2015 | April 26, 2014 | | April 29, 2023 | | April 30, 2022 |
| Balance at beginning of year | $ | 2,891 |
| $ | 494 |
| $ | 379 |
| Balance at beginning of year | $ | 477 | | | $ | 548 | |
| Gross increases related to prior period tax positions | 137 |
| 6 |
| 16 |
| Gross increases related to prior period tax positions | 12 | | | 17 | |
| Gross decreases related to prior period tax positions | — |
| — |
| — |
| Gross decreases related to prior period tax positions | (56) | | | (54) | |
| Gross increases related to current period tax positions | 8 |
| 2,496 |
| 99 |
| Gross increases related to current period tax positions | 124 | | | 116 | |
| Lapse of statute of limitations | (20 | ) | (105 | ) | — |
| Lapse of statute of limitations | (165) | | | (150) | |
| Balance at end of year | $ | 3,016 |
| $ | 2,891 |
| $ | 494 |
| Balance at end of year | $ | 392 | | | $ | 477 | |
All of our unrecognized tax benefits would have an impact on the effective tax rate if recognized. It is reasonably possible that the amount of unrecognized tax benefits could change due to one or more of the following events occurring in the next 12 months: expiring statutes, audit activity, tax payments, or competent authority proceedings. We are not ableA statute of limitations relating to reasonably estimate$171 of the amount orunrecognized tax benefits (including interest) expires in the future periods in which changesnext 12 months. The benefit will be recognized if the statute lapses with no further action taken by regulators. Additionally, we recognized the release of $165 in unrecognized tax benefits may be resolved; however, we do not anticipate any significant changes withinrelated to the next 12 months. lapse of a statute of limitations in fiscal 2023.
Interest and penalties incurred associated with uncertain tax positions are included in incomethe "Income tax expense.
Our fiscal 2014 financial results included a deferred asset tax valuation allowance of $2,297. The corresponding deferred tax asset was related to potential capital losses from an investment in an affiliate ("affiliate") that is a United States entity. During the fourth quarter of fiscal 2014, we were notified that the affiliate had sold off a significant portion of its operations for a substantial loss. This loss puts us in doubt of any financial recovery of our investment in affiliate. Although the full capital loss of the affiliate has not yet been triggered under the Code, we have concluded that it would be more likely than not a capital loss if the affiliate goes out of business or we abandon the partnership. A tax court case solidified capital loss treatment versus ordinary gain treatment in abandonments. The Tax Court's decision in Pilgrim's Pride Corporation v. Commissioner and Code Sections 165 and 1234A state that loss deductions related to worthless security abandonments would be treated as a capital loss versus an ordinary loss.
In fiscal 2015, the Tax Court's decision in Pilgrim's Pride Corporation v. Commissioner was overturned by the federal Fifth Circuit Court of Appeals. Hence, we abandoned our partnershipoperations. Accrued interest and recorded an ordinary loss onpenalties are included in the related tax liability line item in our 2015 federal tax return, thereby moving the assetconsolidated balance sheets of $28 and valuation allowance into our current tax provision$38 as of April 29, 2023 and recording a current deduction. Because our position has a chance of being disallowed, we believe we cannot reach the more-likely-than not conclusion that this ordinary loss will be realized. Therefore, we have maintained an uncertain tax accrual. We will continue to evaluate the facts and circumstances of this case and adjust our accrual accordingly.
April 30, 2022, respectively.
As of April 30, 2016,29, 2023, we havehad foreign net operating loss (“NOL”) carryforwards of approximately $6,428$5,727 primarily related to our operations in Belgium and Ireland, which have indefinite lives. A portion of the total NOL amounting to $219 is related to operations in Canada and expires in 2036. A deferred tax asset has been recorded for all NOL carryforwards totaling approximately $1,404.$1,018. However, due to uncertainty in future taxable income, in Ireland and Belgium, a full valuation allowance totaling approximately $1,337 has been recorded.recorded for the full amount of the asset. If sufficient evidence of our ability to generate future taxable income in the jurisdictions in which we currently maintain a valuation allowance causes us to determine that our deferred tax assets are more likely than not realizable, we would release our valuation allowance, which would result in an income tax benefit being recorded in our consolidated statementstatements of operations.
Additional tax information:
In the normal course of business,We are subject to United States federal income tax authorities in variousas well as income taxes of multiple state and foreign jurisdictions. Fiscal years 2020, 2021 and 2022 remain open to federal tax examinations, and fiscal years 2019, 2020, 2021 and 2022 remain open for state income tax jurisdictions both within the United States and internationally conduct routine audits of ourexaminations. Certain subsidiaries are also subject to income tax returns filed in prior years. Income tax years are open for the United States jurisdiction for fiscal years 2013 through 2015. Internationalseveral foreign jurisdictions which have open tax years varying by locationjurisdiction beginning in fiscal 2006.2012. In the event of any future tax assessments, we have elected to record the income taxes and any related interest and penalties as income tax expense in our consolidated statement of operations.
We haveAs of April 29, 2023, we had no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested. If circumstances changeThe Tax Act of 2017 generally eliminates United States federal income taxes on dividends from foreign subsidiaries, and, as a result, the accumulated undistributed earnings would be subject only to other taxes, such as withholding taxes and state income taxes, on the distribution of such earnings. No additional withholding or income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time deemed repatriation tax, as it becomes apparent that some oris our intention for these amounts to continue to be indefinitely reinvested in foreign operations in all of the undistributed untaxed earningsour non-United States jurisdictions.
Note 13. Cash Flow Information
The changes in operating assets and liabilities consisted of the amountfollowing:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| (Increase) decrease: | | | | | |
| Account receivable | $ | (10,422) | | | $ | (33,876) | | | $ | 4,864 | |
| Long-term receivables | 1,950 | | | (440) | | | 1,737 | |
| Inventories | (15,064) | | | (61,159) | | | 13,900 | |
| Contract assets | (4,879) | | | (9,545) | | | 3,080 | |
| Prepaid expenses and other current assets | 5,267 | | | (7,661) | | | 2,450 | |
| Income taxes receivables | 268 | | | 121 | | | (148) | |
| | | | | |
| Investment in affiliates and other assets | (261) | | | (357) | | | 744 | |
| Increase (decrease): | | | | | |
| Accounts payable | (5,344) | | | 33,002 | | | (7,081) | |
| Contract liabilities | 3,468 | | | 27,398 | | | 12,628 | |
| Accrued expenses | (967) | | | 6,354 | | | (2,936) | |
| Warranty obligations | 607 | | | 1,160 | | | 696 | |
| Long-term warranty obligations | 3,055 | | | 1,764 | | | (367) | |
| Income taxes payable | 2,354 | | | (379) | | | (173) | |
| Long-term marketing obligations and other payables | 104 | | | (1,762) | | | 2,337 | |
| $ | (19,864) | | | $ | (45,380) | | | $ | 31,731 | |
Supplemental disclosures of any unrecognized deferred income tax liability on these earnings is not practicable.cash flow information consisted of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Cash payments for: | | | | | |
| Interest | $ | 1,075 | | | $ | 16 | | | $ | 264 | |
| Income taxes, net of refunds | 7,489 | | | 1,951 | | | 2,557 | |
We recognized an expenseSupplemental schedule of $232, $14non-cash investing and $20 in net interest and penalties duringfinancing activities consisted of the years ended April 30, 2016, May 2, 2015 and April 26, 2014, respectively. Interest and penalties recognized are recorded in income taxes in our consolidated statements of operations. We had accrued $94 and $16 in net interest or penalties as of April 30, 2016 and May 2, 2015, respectively.following:
Table of contents | | | | | | | | | | | | | | | | | |
| Year Ended |
| April 29, 2023 | | April 30, 2022 | | May 1, 2021 |
| Demonstration equipment transferred to inventory | $ | — | | | $ | 53 | | | $ | 56 | |
| Purchases of property and equipment included in accounts payable | 1,057 | | | 4,177 | | | 667 | |
| Contributions of common stock under the ESPP | 1,207 | | | 1,211 | | | 565 | |
| Debt Issuance costs | 2,875 | | | — | | | — | |
Note 14. Cash Flow Information
The changes in operating assets and liabilities consisted of the following:
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| (Increase) decrease: | | | | | |
| Restricted cash | $ | 298 |
| | $ | 18 |
| | $ | (466 | ) |
| Account receivable | 3,789 |
| | 6,412 |
| | (18,293 | ) |
| Long-term receivables | 2,851 |
| | 3,234 |
| | 3,027 |
|
| Inventories | (5,100 | ) | | (1,907 | ) | | (12,771 | ) |
| Costs and estimated earnings in excess of billings | 4,867 |
| | (1,667 | ) | | 5,955 |
|
| Prepaid expenses and other current assets | 1,290 |
| | (575 | ) | | (536 | ) |
| Income taxes receivables | 1,061 |
| | (3,084 | ) | | (2,414 | ) |
| Advertising rights and other assets | (776 | ) | | 912 |
| | 64 |
|
| Increase (decrease): | |
| | |
| | |
|
| Current marketing obligations and other payables | 21 |
| | (146 | ) | | 372 |
|
| Accounts payable | (9,926 | ) | | 5,594 |
| | 6,701 |
|
| Customer deposits (billed or collected) | (941 | ) | | (1,315 | ) | | 4,931 |
|
| Accrued expenses | 476 |
| | 2,860 |
| | 165 |
|
| Warranty obligations | 4,726 |
| | (2,638 | ) | | 543 |
|
| Billings in excess of costs and estimated earnings | (13,436 | ) | | 1,314 |
| | 8,238 |
|
| Long-term warranty obligations | (710 | ) | | 1,869 |
| | 1,560 |
|
| Income taxes payable | (40 | ) | | (666 | ) | | (527 | ) |
| Deferred revenue (billed or collected) | 2,120 |
| | (250 | ) | | (836 | ) |
| Long-term marketing obligations and other payables | (456 | ) | | 3,468 |
| | (501 | ) |
| | $ | (9,886 | ) | | $ | 13,433 |
| | $ | (4,788 | ) |
Supplemental disclosures of cash flow information consisted of the following:
|
| | | | | | | | | | | |
| | Year Ended |
| | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Cash payments for: | | | | | |
| Interest | $ | 303 |
| | $ | 289 |
| | $ | 198 |
|
| Income taxes, net of refunds | (824 | ) | | 8,690 |
| | 16,521 |
|
Supplemental schedule of non-cash investing and financing activities consisted of the following:
|
| | | | | | | | | | | | |
| | | Year Ended |
| | | April 30,
2016 | | May 2,
2015 | | April 26,
2014 |
| Demonstration equipment transferred to inventory | | $ | 227 |
| | $ | 34 |
| | $ | 255 |
|
| Purchases of property and equipment included in accounts payable | | 142 |
| | 1,510 |
| | 2,099 |
|
| Contributions of common stock under the ESPP | | 1,777 |
| | 2,512 |
| | 1,552 |
|
| Contingent consideration related to acquisition of ADFLOW | | 1,955 |
| | — |
| | — |
|
Note 15.14. Fair Value Measurement
ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three levels of inputs which may be utilized when measuring fair value.value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included within Levellevel 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).
Level 3 - Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.
The fair values for fixed-rate contracts receivablelong-term receivables are estimated using a discounted cash flow analysis based on interest rates currently being offered for contracts with similar terms to customers with similar credit quality. The carrying amounts reported onin our consolidated balance sheets for contracts receivablelong-term receivables approximate fair value and have been categorized as a Levellevel 2 fair value measurement.
Fair values for fixed-rate long-term marketing obligations are estimated using a discounted cash flow calculation applying interest rates currently being offered for debt with similar terms and underlying collateral. The total carrying value of long-term marketing obligations as reported onin our consolidated balance sheets within other long-term obligations approximates fair value and has been categorized as a Levellevel 2 fair value measurement.
The following table sets forth by Levellevel within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis atas of April 29, 2023 and April 30, 2016 and May 2, 20152022 according to the valuation techniques we used to determine their fair values. There have been no transfers of assets or liabilities among the fair value hierarchies presented.
|
| | | | | | | | | | | |
| | Fair Value Measurements |
| | Level 1 | | Level 2 | | Total |
| Balance as of April 30, 2016: | | | | | |
| Cash and cash equivalents | $ | 28,328 |
| | $ | — |
| | $ | 28,328 |
|
| Restricted cash | 198 |
| | — |
| | 198 |
|
| Available-for-sale securities: | |
| | |
| | |
| Certificates of deposit | — |
| | 14,927 |
| | 14,927 |
|
| U.S. Government sponsored entities | — |
| | 8,522 |
| | 8,522 |
|
| Municipal obligations | — |
| | 1,223 |
| | 1,223 |
|
| Derivatives - currency forward contracts | — |
| | (453 | ) | | (453 | ) |
| | $ | 28,526 |
| | $ | 24,219 |
| | $ | 52,745 |
|
| Balance as of May 2, 2015: | |
| | |
| | |
|
| Cash and cash equivalents | $ | 57,284 |
| | $ | — |
| | $ | 57,284 |
|
| Restricted cash | 496 |
| | — |
| | 496 |
|
| Available-for-sale securities: | |
| | |
| | |
| Certificates of deposit | — |
| | 11,409 |
| | 11,409 |
|
| U.S. Government securities | 1,001 |
| | — |
| | 1,001 |
|
| U.S. Government sponsored entities | — |
| | 7,942 |
| | 7,942 |
|
| Municipal obligations | — |
| | 4,994 |
| | 4,994 |
|
| Derivatives - currency forward contracts | — |
| | (283 | ) | | (283 | ) |
| | $ | 58,781 |
| | $ | 24,062 |
| | $ | 82,843 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Balance as of April 29, 2023: | | | | | | | |
| Cash and cash equivalents | $ | 23,982 | | | $ | — | | | $ | — | | | $ | 23,982 | |
| Restricted cash | 708 | | | — | | | — | | | 708 | |
| Available-for-sale securities: | | | | | | | |
| | | | | | | |
| US Government Sponsored entities | — | | | 534 | | | — | | | 534 | |
| | | | | | | |
| Derivatives - liability position | — | | | (579) | | | — | | | (579) | |
| | | | | | | |
| $ | 24,690 | | | $ | (45) | | | $ | — | | | $ | 24,645 | |
| Balance as of April 30, 2022: | | | | | | | |
| Cash and cash equivalents | $ | 17,143 | | | $ | — | | | $ | — | | | $ | 17,143 | |
| Restricted cash | 865 | | | — | | | — | | | 865 | |
| Available-for-sale securities: | | | | | | | |
| | | | | | | |
| US Government Securities | 3,486 | | | — | | | — | | | 3,486 | |
| US Government Sponsored entities | — | | | 534 | | | — | | | 534 | |
| Derivatives - asset position | — | | | 934 | | | — | | | 934 | |
| Derivatives - liability position | — | | | (311) | | | — | | | (311) | |
| | | | | | | |
| $ | 21,494 | | | $ | 1,157 | | | $ | — | | | $ | 22,651 | |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument. There have been no changes in the valuation techniques used by us to value our financial instruments.instruments during fiscal year 2023.
Cash and cash equivalents: Consists of cash on hand in bank deposits and highly liquid investments, primarily money market accounts. The fair value was measured using quoted market prices in active markets. The carrying amount approximates fair value.
Restricted cash: Consists of cash and cash equivalents held in bank deposit accounts to secure issuances of foreign bank guarantees. The fair value of restricted cash was measured using quoted market prices in active markets. The carrying amount approximates fair value.
Certificates of deposit: Consists of time deposit accounts with original maturities of less than three years and various yields. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments from a third-party financial institution. The carrying amount approximates fair value.
U.S. Government securities:Consists of U.S. Government treasury bills, notes, and bonds with original maturities of less than three years and various yields. The fair value of these securities was measured using quoted market prices in active markets.
U.S. Government sponsored entities: Consist of Fannie Mae and Federal Home Loan Bank investment grade debt securities trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on valuations observed in less active markets than Level 1 investments. The contractual maturities of these investments vary from one month to three years.
Municipal obligations: Consist of investment grade municipal bonds trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The contractual maturities of these investments vary from two to three years. The fair value of these bonds was measured based on valuations observed in less active markets than Level 1 investments.
Derivatives – currency forward contracts: Consists of currency forward contracts trading with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. The fair value of these securities was measured based on a valuation from a third-party bank. See "Note 16.15. Derivative Financial Instruments" for more information regarding our derivatives.
Non-recurring measurements:The fair value measurement standard also applies to certain non-financial assets and liabilities measured at fair value on a nonrecurring basis. For example, certainCertain long-lived assets such as goodwill, intangible assets and property plant and equipment are measured at fair value in connection with business combinations or when an impairment is recognizedon a nonrecurring basis and the related assets are written downsubject to fair value. value adjustments in certain circumstances, such as when there is evidence of impairment.
See "Note 1. Nature of Business and Summary of Significant Accounting Policies" for further details of impairment loss of $4,473 for our investment in Miortech.
Other measurements using fair value: Some of our financial instruments, such as accounts receivable, long-term receivables, prepaid expense and other assets, contract assets and liabilities, accounts payable, warranty obligations, and other long-term obligations are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to their short-term nature.
Note 15. Derivative Financial Instruments
We utilizedutilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the United States dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives in the consolidated balance sheets within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of April 29, 2023 and April 30, 2022, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in the "Other (expense) income, net" line item in the consolidated statements of operations.
The foreign currency exchange contracts in aggregated notional amounts in place to exchange United States dollars as of April 29, 2023 and April 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| United States Dollars | | Foreign Currency | | United States Dollars | | Foreign Currency |
| Foreign Currency Exchange Forward Contracts: | | | | | | | |
| | | | | | | |
| United States Dollars/Canadian Dollars | — | | | — | | | 942 | | | 1,189 | |
| United States Dollars/British Pounds | — | | | — | | | 1,774 | | | 1,345 | |
| United States Dollars/Euros | 7,758 | | | 7,513 | | | 8,575 | | | 7,513 | |
As of April 29, 2023, there was an asset and liability of $0 and $579, respectively, and, as of April 30, 2022, there was an asset and liability of $934 and $311, respectively, representing the fair value measurement standard,of foreign currency exchange forward contracts, which were determined using primarily Level 3level 2 inputs to value the assets and liabilities for the business combinations and the determinationfrom a third-party bank. As of goodwill associated with the sale of our automated rigging systems business for theatre applications. See "Note 4. Business Combinations" and "Note 5. Sale of Theatre Rigging Division" for more information. We did not make any material business combinations or recognize significant impairment losses during fiscal 2016 or fiscal 2015.April 29, 2023, all contracts mature within six months.
Note 16. Derivative Financial Instruments
We utilize derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on those transactions denominated in currencies other than our functional currency, which is the U.S. dollar. We enter into currency forward contracts to manage these economic risks. We account for all derivatives on the balance sheet within accounts receivable or accounts payable measured at fair value, and changes in fair values are recognized in earnings unless specific hedge accounting criteria are met for cash flow or net investment hedges. As of April 30, 2016 and May 2, 2015, we had not designated any of our derivative instruments as accounting hedges, and thus we recorded the changes in fair value in other (expense) income, net.
The foreign currency exchange contracts in aggregated notional amounts in place to exchange U.S. dollars at April 30, 2016 and May 2, 2015 were as follows: |
| | | | | | | | | | | |
| | April 30, 2016 | | May 2, 2015 |
| | U.S. Dollars | | Foreign Currency | | U.S. Dollars | | Foreign Currency |
| Foreign Currency Exchange Forward Contracts: | | | | | | | |
| U.S. Dollars/Australian Dollars | 7,216 |
| | 10,027 |
| | 1,487 |
| | 1,918 |
|
| U.S. Dollars/Canadian Dollars | 563 |
| | 771 |
| | 4,129 |
| | 4,923 |
|
| U.S. Dollars/British Pounds | 1,795 |
| | 1,263 |
| | 1,679 |
| | 1,123 |
|
| U.S. Dollars/Singapore Dollars | 261 |
| | 356 |
| | 1,176 |
| | 1,601 |
|
| U.S. Dollars/Euros | 147 |
| | 132 |
| | (229 | ) | | 174 |
|
| U.S. Dollars/Swiss Franc | — |
| | — |
| | 5,662 |
| | 5,500 |
|
| U.S. Dollars/Japanese Yen | — |
| | — |
| | 764 |
| | 91,282 |
|
As of April 30, 2016 and May 2, 2015, there was a net liability of $453 and $283, respectively, representing the fair value of foreign currency exchange forward contracts, which was determined using Level 2 inputs from a third-party bank.
Note 17.16. Commitments and Contingencies
Litigation: We are a party to legal proceedings and claims which arise during the ordinary course of business. We review our legal proceedings and claims, regulatory reviews and inspections, and other legal matters on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. We establish accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated, and we disclose the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for our financial statements to not be misleading. We do not record an accrual
when the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is believed to be only reasonably possible or
remote, although disclosures will be made for material matters as required by ASC 450-20, Contingencies - Loss Contingencies. Our assessment of whether a loss is reasonably possible or probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter following all appeals.
As of April 30, 2016 and May 2, 2015,For other unresolved legal proceedings or claims, we diddo not believe there wasis a reasonable probability that any material loss for these various claims or legal actions, including reviews, inspections or other legal proceedings, if any, would be incurred. Accordingly, no material accrual or disclosure of a potential range of loss has been made related to these matters. In the opinion of management,We do not expect the ultimate liability of allthese unresolved legal proceedings is not expectedor claims to have a material effect on our financial position, liquidity or capital resources.
Warranties: We offer a standard parts coverage warrantySee "Note 1. Nature of Business and Summary of Significant Accounting Policies" for periods varying from one to five years for most of our products. We also offer additional types of warranties to include on-site labor, routine maintenance and event support. In addition, the terms of warranties on some installations can vary from one to 10 years. The specific terms and conditions of these warranties vary primarily depending on the type of the product sold. We estimate the costs which may be incurred under the warranty obligations and record a liability in the amount of such estimated costs at the time the revenue is recognized. Factors affecting our estimate of the cost of our warranty obligations include historical experience and expectations of future conditions. We continually assess the adequacy of our recorded warranty accruals and, to the extent we experience any changes in warranty claim activity or costs associated with servicing those claims, our accrued warranty obligation is adjusted accordingly.
We discovered a warranty issue caused by a mechanical device failure within a module for displays primarily in our OOH applications built prior to fiscal 2013. The device failure causes a visual defect in the display. We are deploying preventative maintenance to sites impacted and can repair the device in our repair center. When certain site locations have exceeded an acceptable failure rate, we have refurbished the display to meet customers’ expectations under contractual obligations. We have increased our accrued warranty obligations by $9.2 million during fiscal 2016 and $1.2 million during fiscal 2015 for probable and reasonably estimable costs to remediate this issue. As of April 30, 2016, we had $5.5 million remaining in accrued warranty obligations for the estimate of probable future claims related to this issue. Because failure rates are unpredictable, the final outcome of this matter is dependent on many factors that are difficult to predict. Accordingly, it is possible that the ultimate cost to resolve this matter may increase and may be materially different from the amount of the current estimate and accrual.
more information regarding warranties.
Changes in our warranty obligation for the fiscal years ended April 29, 2023 and April 30, 2016 and May 2, 20152022 consisted of the following:
| | | | | | | | | | | |
| April 29, 2023 | | April 30, 2022 |
| Beginning accrued warranty obligations | $ | 28,878 | | | $ | 25,960 | |
| Warranties issued during the period | 13,429 | | | 9,748 | |
| Settlements made during the period | (11,044) | | | (7,503) | |
| Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations | 1,278 | | | 673 | |
| Ending accrued warranty obligations | $ | 32,541 | | | $ | 28,878 | |
|
| | | | | | | |
| | April 30, 2016 | | May 2, 2015 |
| Beginning accrued warranty obligations | $ | 26,481 |
| | $ | 27,250 |
|
| Warranties issued during the period | 10,528 |
| | 14,113 |
|
| Settlements made during the period | (18,377 | ) | | (13,829 | ) |
| Changes in accrued warranty obligations for pre-existing warranties during the period, including expirations | 11,864 |
| | (1,053 | ) |
| Ending accrued warranty obligations | $ | 30,496 |
| | $ | 26,481 |
|
Performance guarantees: We have entered into standby letters of credit, bank guarantees and surety bonds with financial institutions relating to the guarantee of our future performance on contracts, primarily construction typeconstruction-type contracts. As of April 30, 2016,29, 2023, we had outstanding letters of credit, bank guarantees and surety bonds in the amount of $7,354$7,783, $616 and $50,593,$56,374, respectively. Performance guarantees are issued to certain customers to guarantee the operation and installation of the equipment and our ability to complete a contract. These performance guarantees have various terms whichbut are generally one year. We enter into written agreements with our customers, and those agreements often contain indemnification provisions that require us to make the customer whole if certain acts or omissions by us cause the customer financial loss. We make efforts to negotiate reasonable caps and limitations on the recovery of such damages. As of April 29, 2023, we were not aware of any indemnification claim from a customer.
Leases: We lease vehicles, office space and various equipment for various global sales and service locations, including manufacturing space in the United States and China. Some of these leases, including the lease for manufacturing facilities in Sioux Falls, South Dakota, include provisions for extensions or purchase. During fiscal 2016, we signed a letter of intent to lease the entire building upon the departure of the other tenant. The lease for the facilities in Sioux Falls, South Dakota can be extended for an additional five years past its current term, which ends approximately March 31, 2022, and it contains an option to purchase the property subject to the lease from March 31, 2017 to March 31, 2022 for $9,000, which approximates fair value. If the lease is extended, the purchase option increases to $9,090 for the year ending March 31, 2023 and $9,180 for the year ending March 31, 2024. Rental expense for operating leases was $2,725, $2,714 and $2,742 for the fiscal years ended April 30, 2016, May 2, 2015 and April 26, 2014, respectively.
Future minimum payments under noncancelable operating leases, excluding executory costs such as management and maintenance fees, with initial or remaining terms of one year or more consisted of the following at April 30, 2016:
|
| | | | |
| Fiscal years ending | | Amount |
| 2017 | | $ | 2,166 |
|
| 2018 | | 1,715 |
|
| 2019 | | 1,233 |
|
| 2020 | | 1,040 |
|
| 2021 | | 852 |
|
| Thereafter | | 779 |
|
| | | $ | 7,785 |
|
Purchase commitments: From time to time, we commit to purchase inventory, advertising, cloud-based information systems, information technology maintenance and support services, and various other products and services over periods that extend beyond one year. As of April 30, 2016,29, 2023, we were obligated under the following conditional and unconditional purchase commitments,commitments:
| | | | | | | | |
| Fiscal years ending | | Amount |
| 2024 | | $ | 4,908 | |
| 2025 | | 2,374 | |
| 2026 | | 194 | |
| 2027 | | 50 | |
| 2028 | | 38 | |
| | $ | 7,564 | |
Note 17. Subsequent Events
On May 11, 2023, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A.. The Credit Agreement provides for a $60,000 senior secured asset-based revolving credit facility ("ABL") maturing on May 11, 2026 and a delayed draw loan (the "Mortgage") term loan commitment.
Under the ABL, certain factors can impact our borrowing capacity. As of May 11, 2023, our borrowing capacity was $47,459, and there were no borrowings outstanding. The interest rate on the senior credit facility is set on a sliding scale
based on the trailing twelve-month fixed charge coverage and ranges from 2.5 percent to 3.5 percent over the standard overnight financing rate (SOFR). The ABL is secured by a first priority lien on the Company's assets described in the Credit Agreement and the JPMorgan Pledge and Security Agreement dated as of May 11, 2023 by and between the Company and JPMorgan Chase Bank, N.A. (the “JPMorgan Security Agreement”).
The $15,000 delayed draw on the Mortgage closed on July 7, 2023, is secured by a mortgage on the Company's Brookings, South Dakota real estate, amortizes over 10 years and is payable monthly. The Mortgage is subject to the terms of the Credit Agreement and matures on May 11, 2026. The Mortgage interest rate is set on a sliding scale based on the trailing twelve month fixed charge coverage ratio and ranges between 3.5 percent to 4.5 percent.
On May 11, 2023, the Company entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with Alta Fox Opportunities Fund, LP (the “Investor”) under which the Company agreed to sell and issue to the Investor its senior secured convertible note (the “Convertible Note”) in exchange for the payment by the Investor to the Company of $25,000. The Convertible Notes allow the Investor to convert shares of the Company’s common stock, subject to certain conditions and limitations, at the initial conversion price of $6.31 per share, subject to adjustments in accordance with the terms of the Convertible Note. The Company also has a forced conversion right, which is exercisable on the occurrence of certain conditions. The Convertible Note incurs interest at an annual rate of 9.0 percent when interest is paid in cash or an annual rate of 10.0 percent if interest is capitalized. Upon an event of default under the Convertible Note, the annual interest rate will increase to 12.0 percent. Under the Pledge and Security Agreement dated as of May 11, 2023 between the Company and the Investor (the “Alta Fox Security Agreement”), the Convertible Note is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank, N.A., and the Investor (the “Intercreditor Agreement”). The Convertible Note has a maturity date of May 11, 2027 (the “Maturity Date”). On the Maturity Date, the Company must pay to the Investor an amount in cash representing all outstanding principal, any accrued and unpaid interest, and any accrued and unpaid late charges on such principal and interest.
Effective on May 11, 2023, in connection with the Company’s entry into the Securities Purchase Agreement, the Company also entered into a Registration Rights Agreement with the Investor (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file with the SEC by the dates set forth in the Registration Rights Agreement a registration statement covering the resale of the shares of common stock issuable upon conversion of the Convertible Note. Pursuant to the Registration Rights Agreement, the Company is required to use reasonable best efforts to have such registration statement declared effective by the SEC by the dates set forth in the Registration Rights Agreement. If the registration statement is not filed with the SEC or declared effective by the SEC on a timely basis, certain penalties would be applicable to the Company.
The Credit Agreement and the Convertible Note require a fixed charged coverage ratio of greater than 1.1 and include other customary non-financial covenants.
In fiscal year 2023, we incurred $3,866 in debt issuance costs, which is included $500in conditional purchase commitments:the "Debt issuance costs" line item in our consolidated balance sheet.
|
| | | | |
| Fiscal years ending | | Amount |
| 2017 | | $ | 1,212 |
|
| 2018 | | 295 |
|
| 2019 | | 100 |
|
| 2020 | | — |
|
| 2021 | | — |
|
| Thereafter | | — |
|
| | | $ | 1,607 |
|
Other long-term obligations: We are obligated to pay the following payments for acquisitions and for other various obligations.
|
| | | | | | | | |
| | | April 30, 2016 | | May 2, 2015 |
| Advertising | | $ | 589 |
| | $ | 700 |
|
| Deferred purchase price | | 3,228 |
| | 1,476 |
|
| Total Outstanding | | 3,817 |
| | 2,176 |
|
| Less: current liability | | 552 |
| | 555 |
|
| Other long-term obligations | | $ | 3,265 |
| | $ | 1,621 |
|
Note 18. Subsequent EventsItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
On June 16, 2016, our Board of Directors declared a regular quarterly dividend of $0.06 per share and a special dividend of $0.04 per share on our common stock for the fiscal year ended April 30, 2016, payable on July 8, 2016 to holders of record of our common stock on June 27, 2016.
On June 16, 2016, our Board of Directors authorized at stock buyback program under which it may repurchase up to $40,000 of its outstanding common stock.
Note 19. Quarterly Financial Data (Unaudited)
The following table presents summarized quarterly financial data:
|
| | | | | | | | | | | | | | | |
| | Fiscal 2016 Quarter Ended |
| | August 1,
2015 | | October 31,
2015 | | January 30,
2016 | | April 30,
2016 |
| Net sales | $ | 150,221 |
| | $ | 157,668 |
| | $ | 123,816 |
| | $ | 138,463 |
|
| Gross profit | 35,501 |
| | 35,513 |
| | 22,029 |
| | 27,976 |
|
| Net income (loss) | 3,776 |
| | 3,168 |
| | (1,953 | ) | | (2,930 | ) |
| Basic earnings (loss) per share | 0.09 |
| | 0.07 |
| | (0.04 | ) | | (0.07 | ) |
| Diluted earnings (loss) per share | 0.09 |
| | 0.07 |
| | (0.04 | ) | | (0.07 | ) |
| | | | | | | | |
| | Fiscal 2015 Quarter Ended |
| | August 2,
2014 | | November 1,
2014 | | January 31,
2015 | | May 2,
2015 |
| Net sales | $ | 166,618 |
| | $ | 173,115 |
| | $ | 118,123 |
| | $ | 158,086 |
|
| Gross profit | 43,403 |
| | 40,877 |
| | 25,062 |
| | 35,237 |
|
| Net income | 8,745 |
| | 7,737 |
| | 561 |
| | 3,839 |
|
| Basic earnings per share | 0.20 |
| | 0.18 |
| | 0.01 |
| | 0.09 |
|
| Diluted earnings per share | 0.20 |
| | 0.18 |
| | 0.01 |
| | 0.09 |
|
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management of our Company is responsible for establishing and maintaining effective disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. As of April 30, 2016,29, 2023, an evaluation was performed, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, theour Chief Executive Officer and Chief Financial Officer concluded that as of April 30, 2016,29, 2023, our disclosure controls and procedures were not effective atdue to the reasonable assurance level to ensure information required to bematerial weakness in internal control over financial reporting described below.
Notwithstanding the identified material weakness disclosed in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time period required by the SEC’s rules and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.believe the consolidated financial statements included in this Annual Report on Form 10-K fairly represent, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. GAAP.
ChangesPrior Material Weaknesses in Internal Control Overover Financial Reporting
DuringAs previously reported in our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2016 and thereafter, there have been no changesOctober 29, 2022, material weaknesses in our internal control over financial reporting were reported because management had not appropriately designed a going concern policy control to contemplate evaluating the income tax implications when reaching a substantial doubt going concern assessment and because of a failure to timely communicate the result of our going concern assessment to all appropriate internal parties necessary, which led us to not consider the impact of the going concern assessment on the valuation of our deferred tax assets. The Company has made the following enhancements to internal controls to address the material weaknesses:
1.Implemented a policy and practice that our going concern analysis is communicated and provided to appropriate members of the organization, including employees in our tax department, so they can consider the impacts of our going concern conclusion.
2.Implemented a control activity that considers the results of our going concern analysis when determining the valuation of deferred taxes and other reporting and disclosure requirements when preparing our financial statements.
Management has determined, through its testing, that the Company's implemented policy and new control activities were designed and operated effectively for a sufficient period of time during fiscal 2023 to conclude that the previously identified material weaknesses have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
been remediated as of April 29, 2023.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in RuleRules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our system of internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of publishedour financial statements.statements for external purposes in accordance with accounting principles generally accepted in the United States. All systems of internal control, systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the frameworkcriteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)Framework). Based on our evaluation under the frameworkcriteria in Internal Control—Integratedthe 2013 Framework, our management concluded our internal control over financial reporting was not effective as of April 30, 2016.
Our29, 2023 due to the material weakness in internal control over financial reporting described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.
Management identified a material weakness related to the ineffective operation of certain transactional level controls related to revenue contracts recognized over time. These controls operated ineffectively due to insufficient training of the
control operators as to the level of April 30, 2016 has been audited by Ernst & Young LLP, ourprecision expected when executing the revenue controls in accordance with the Company's policy.
The Company’s independent registered public accounting firm, as statedDeloitte & Touche LLP, who audited the consolidated financial statements included in theirthis Annual Report on Form 10-K, issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. Deloitte & Touche LLP’s report is included herein.
Remediation Plan
Our remediation plan includes providing training to the revenue control operators relating to the level of precision expected when executing these controls in accordance with the Company's policy.
Changes in Internal Control Over Financial Reporting
Except for the identification of the material weakness and remediation of prior material weaknesses noted above, during the quarter ended April 29, 2023, there have been no changes in our internal control over financial reporting that follows.
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
| | | | |
| By /s/ Reece A. Kurtenbach | By /s/ Sheila M. Anderson |
| Reece A. Kurtenbach | Sheila M. Anderson |
| Chief Executive Officer | Chief Financial Officer |
June 21, 2016July 12, 2023 | June 21, 2016July 12, 2023 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the shareholders and the Board of Directors and Shareholders of Daktronics, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Daktronics, Inc. and subsidiaries’ (the Company)the internal control over financial reporting of Daktronics, Inc. and subsidiaries (the “Company”) as of April 30, 2016,29, 2023, based on criteria established in Internal Control-IntegratedControl — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)(COSO). In our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of April 29, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended April 29, 2023 of the Company and our report dated July 12, 2023 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Daktronics, Inc. and subsidiaries maintained,Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in all material respects, effective internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment: Management identified a material weakness related to the ineffective operation of certain transactional level controls related to revenue contracts recognized over time. These controls operated ineffectively due to insufficient training of the control operators as to the level of April 30, 2016, based onprecision expected when executing the COSO criteria.
We also have audited,revenue controls in accordance with the standardsCompany's policy. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Daktronics, Inc. and subsidiariesfinancial statements as of and for the year ended April 30, 2016 and May 2, 2015, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each29, 2023, of the three years in the period ended April 30, 2016 of Daktronics, Inc.Company, and subsidiaries andthis report does not affect our report dated June 21, 2016 expressed an unqualified opinion thereon.on such financial statements.
/s/ ErnstDeloitte & YoungTouche LLP
Minneapolis, Minnesota
June 21, 2016July 12, 2023
Item 9B. OTHER INFORMATION
None.
None
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III.
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below is information regarding our directors and executive officers as of June 30, 2023.
| | | | | | | | | | | | | | |
| Name | | Age | | Position |
| Sheila M. Anderson | | 50 | | Chief Financial Officer |
| Howard I. Atkins | | 72 | | Director |
| Lance D. Bultena | | 60 | | Director |
| John P. Friel | | 69 | | Director |
| Carla S. Gatzke | | 62 | | Vice President of Human Resources and Secretary |
| Dr. José-Marie Griffiths | | 71 | | Director |
| Matthew J. Kurtenbach | | 54 | | Vice President of Manufacturing |
| Reece A. Kurtenbach | | 58 | | Chief Executive Officer and Director |
| Kevin P. McDermott | | 69 | | Director |
| Andrew D. Siegel | | 57 | | Director |
| Bradley T. Wiemann | | 62 | | Executive Vice President |
| Shereta D. Williams | | 49 | | Director |
Sheila M. Anderson joined the Company in 2002 as a senior accountant after spending a number of years working as a certified public accountant in public accounting and auditing firms and as a senior accountant at a private company. In 2006, Ms. Anderson was named Corporate Controller and, in 2012, she was named Chief Financial Officer and Treasurer. Ms. Anderson holds a Master of Business Administration degree from the University of South Dakota and a Bachelor of Science degree in Accounting from Southwest Minnesota State University.
Howard I. Atkins has been a Director of the Company since December 7, 2022. Mr. Atkins was appointed to the Board pursuant to the Cooperation Agreement dated as of July 23, 2022 (the "Cooperation Agreement") between the Company and Prairieland Holdco, LLC and its affiliates, including Andrew D. Siegel, who also is a member of the Company's Board of Directors. Mr. Atkins currently owns and manages HIA Capital, a business consulting and investment firm. In 2011, Mr. Atkins retired as the Senior Executive Vice President and Chief Financial Officer of Wells Fargo & Company, a banking and financial services company, where he was responsible for Wells Fargo’s financial management functions, investment portfolios, investor relations, capital management and corporate properties functions from 2001 to 2011. A 37-year veteran of the financial services industry, Mr. Atkins previously served as Executive Vice President and Chief Financial Officer of New York Life Insurance Company; Chief Financial Officer of Midlantic Corporation, and Corporate Treasurer of Chase Manhattan Bank. In addition, Mr. Atkins served as a Director for Occidental Petroleum Corporation from 2010 to 2019 and for Ingram Micro from 2004 to 2017. Mr. Atkins brings to the Board world-class financial management acumen and experience, especially in the areas of strategic development, margin improvement, and financing, which further enhances the Board's mix of perspectives.
Lance D. Bultena has been a Director of the Company since September 2021 and has served on the Nominating and Corporate Governance Committee and the Audit Committee since September 2021. Mr. Bultena is the Global Director of Thought Leadership for Mobility and Transportation at Hogan Lovells, a global law firm, where he is currently a senior counsel after serving as a partner for many years. He has been at the firm (and its predecessor Hogan & Hartson) since 1999. He was Counsel to the United States Senate Committee on Commerce, Science, and Transportation from 1995 to 1999. He received a doctorate (D. Phil) in Politics and a masters (M. Phil) in Economics from Oxford University which he attended as a Rhodes Scholar. He received a law degree (J.D.) from Harvard Law School and did his undergraduate study at the University of South Dakota. Dr. Bultena brings to the Board significant experience in helping businesses evaluate and address the challenges of technological change and public policy developments.
John P. Friel has been a Director of the Company since September 2015 and has served on the Audit Committee since September 2015 and on the Compensation Committee of the Board since October 2016. Mr. Friel was named Compensation Committee Chair on September 1, 2020. Mr. Friel served for 30 years in various capacities at MEDRAD, Inc., a global company that designs, develops, manufactures, sells, and supports medical devices. MEDRAD is an affiliate
of Bayer, AG. He joined MEDRAD in the accounting area and earned a promotion to Treasurer and Vice President of Corporate Planning in 1986 and Vice President of Business Development in 1987. He served as Executive Vice President of Sales and Marketing from 1989 to 1995, Senior Vice President and General Manager from 1995 to 1998, and President and Chief Executive Officer from 1998 to 2010. MEDRAD received the Malcolm Baldrige National Quality Award twice during his tenure, once in 2004 and again in 2010. Mr. Friel retired as Chief Executive Officer of Vascor, Inc. in December 2019, and he has served as a member of its Board of Directors since June 2016. Vascor is a pre-clinical medical device development company. He also is currently a Director at Preservation Technologies L.P. and a Director at American Productivity and Quality Center ("APQC"). Mr. Friel is the Principal and Founder of Five Radicals, which focuses on Baldrige Performance Excellence, strategic planning, general business consulting to entrepreneurial medical device companies, and private equity business development opportunity search efforts. Mr. Friel is a director and Chief Strategy Officer of Magvation, LLC, a medical device development company. Mr. Friel is a Senior Partner of the Mikan Group, a general management consulting company. He holds a Master of Arts in Law and Diplomacy from Tufts University and a Bachelor of Arts in Political Science and Bachelor of Science in Accounting from Pennsylvania State University. Mr. Friel brings to the Board extensive global general management knowledge and practice. He has strong experience in building and growing businesses, especially in technical product development and global expansions, which align with many of the Company's initiatives and strategies.
Carla S. Gatzke joined the Company in 1984 in Systems Sales Engineering where she was responsible for sales and project management for legislative voting systems. In 1988, Ms. Gatzke took an 18-month leave of absence to attend and teach at Drake University. In 1990, Ms. Gatzke returned to Daktronics and managed the Star Circuits division, which manufactured printed circuit boards. In 1992, she became responsible for Human Resources and, in 1996, she added the responsibility of Information and Technology and Systems. In 2006, the responsibility of the Company's Human Resources and Information and Technology and Systems departments separated, and Ms. Gatzke was appointed Vice President of Human Resources. Ms. Gatzke has also served as Corporate Secretary since 1994. Ms. Gatzke holds a Master of Business Administration degree from Drake University and a Bachelor of Science degree in Electrical Engineering with minors in Mathematics and Computer Science from South Dakota State University. Ms. Gatzke is the daughter of Aelred J. Kurtenbach and the sister of Reece A. Kurtenbach and Matthew J. Kurtenbach.
Dr. José-Marie Griffiths has been a Director of the Company since September 2020. She has served on the Board's Compensation Committee and on the Nominating and Corporate Governance Committee since September 2020. Ms. Griffithsis president of Dakota State University, a public university, in Madison, South Dakota and has served in such capacity since July 2015. President Griffiths has spent her career in research, teaching, public service, corporate leadership, economic development, and higher education administration. She has served in presidential appointments to the National Science Board, the United States President’s Information Technology Advisory Committee, and the United States National Commission on Libraries and Information Science. In 2018, she was appointed as a member of the National Security Commission on Artificial Intelligence, part of the John S. McCain National Defense Authorization Act for 2019. She has led projects for over 28 United States federal agencies, such as the National Science Foundation, NASA, the Department of Energy, and various intelligence and military agencies, and over 20 major corporations, such as AT&T Bell Laboratories and IBM, in over 35 countries, and she has worked with seven major international organizations, including NATO and the United Nations. Dr. Griffiths has received over 20 significant awards in science, technology, teaching and the advancement of women in these fields. She holds a Bachelor of Science degree and a Doctor of Philosophy in Physics and Information Science from the University College London ("UCL"). She was a Post-Doctoral Fellow in Computer Science and Statistics and was recently awarded a Doctor of Science honoris causa from UCL. Dr. Griffiths brings to the Board expertise in a variety of new and emerging technologies including cybersecurity and artificial intelligence, along with significant experience with both military and civilian federal agencies.
Matthew J. Kurtenbach joined the Company in 1992 as a manager in manufacturing, and he subsequently served as a project manager for sports projects and as a project manager for the Company's process improvements and facility expansions. In 2001, he was named Manufacturing Manager and, in 2006, he was appointed Vice President of Manufacturing. Also in 2006, he was charged with leading the Company's transformation to lean manufacturing and, in 2013, he gained responsibility for repair center operations associated with after-sales services. Mr. Kurtenbach holds a Master of Science degree in Industrial Management and a Bachelor of Science degree in Electrical Engineering from South Dakota State University. Mr. Kurtenbach is the son of Aelred J. Kurtenbach and the brother of Reece A. Kurtenbach and Carla S. Gatzke.
Reece A. Kurtenbach was appointed as President and Chief Executive Officer ("CEO") and a Director of the Company effective on September 1, 2013 and has served as Chairman of the Board since September 2014. He served as Executive Vice President from 2012 until September 2013, Vice President for Live Events and International from 2007 to 2012, Vice
President for Video Systems from 2004 until 2007, and manager for video products engineering from 1994 until 2004. Mr. Kurtenbach joined the Company in 1991 as an applications engineer focusing on large display projects. Mr. Kurtenbach also worked at the Company as a student employee with various responsibilities from 1983 to 1987. Mr. Kurtenbach holds a Bachelor of Science degree from South Dakota State University in Electrical Engineering, with minors in Mathematics and Computer Science. Mr. Kurtenbach is the son of Dr. Aelred Kurtenbach and brother of Matthew J. Kurtenbach and Carla S. Gatzke. The information requiredBoard believes that Mr. Kurtenbach is an appropriate representative of management on the Board, given his position as a senior executive officer and his over 30 years of experience with the Company. In addition, Mr. Kurtenbach brings a wealth of industry experience to the Board.
Kevin P. McDermott has been a Director of the Company since June 2015 and has served on the Audit Committee of the Board as a member from August 2015 through September 2016 and as Chairperson of the Audit Committee since October 2016. On June 1, 2020, Mr. McDermott was named by thisthe Board as the Lead Independent Director. Mr. McDermott retired from an international accounting firm, KPMG LLP, in the fall of 2013 after being with the firm for 33 years in various capacities, including audit engagement partner, SEC reviewing partner, professional practice partner, and in the firm’s Office of General Counsel. In addition to fulfilling professional obligations related to audits of financial statements and internal control over financial reporting, he assisted clients with financial and operational issues, acquisition due diligence, personnel performance, and corporate governance. In his capacity as SEC reviewing partner, Mr. McDermott performed concurring partner reviews of audits of financial statements and internal control over financial reporting for publicly-held audit clients. While in the Office of General Counsel, he provided assistance on a privileged basis to the firm and outside counsel in various SEC and Public Company Accounting Oversight Board investigations and third-party litigation matters. He holds a Bachelor of Science in Economics from South Dakota State University. Mr. McDermott was appointed to the board of directors of Genesco Inc. (NYSE-GCO) effective February 1, 2016 and served on its Audit Committee. He completed his tenure as Genesco board member in June 2023. Genesco is a publicly-traded retailer and wholesaler of branded footwear, apparel and accessories. From March 2019 through March 2020, Mr. McDermott served as Chief Audit Executive for Pinnacle Financial Partners, Inc., a publicly-held bank holding company located in Nashville, Tennessee. Mr. McDermott brings significant expertise in the area of financial and internal control over financial reporting by publicly-traded companies. This expertise aligns with our responsibility and commitment to provide oversight for our shareholders relating to the integrity of our financial statements and related filings.
Andrew D. Siegel currently manages Prairieland Holdco, LLC ("PLH"), whose sole member is TLI Bedrock, LLC ("TLI"), a private multi-strategy investment firm of which he is chief investment officer. In 2019, he co-founded and served as Executive Chairman of FourQ Systems, Inc. an enterprise financial technology company which was sold to Blackline, Inc. (NASDAQ:BL) in January 2022. Mr. Siegel was founding partner of Advance Venture Partners, the investment fund of global media company Advance Publications, Inc. He joined Advance in 2010 and, as Executive Vice President, Strategy and Corporate Development, was responsible for growth initiatives at the holding company and its operating units including Condé Nast. He oversaw The Sports Business Journal/SBD until December 2019. Mr. Siegel joined Advance from Yahoo! Inc., where he led the digital media company’s corporate development team from September 2009 until December 2010. He previously was an executive with General Electric Company ("GE") and its financial arm, GE Capital from 2004 until 2009. He joined GE upon its acquisition of InVision Technologies, Inc. (NASDAQ: INVN) in December 2004, where he had served as an executive officer since 2001. He began his career as a corporate lawyer at Skadden, Arps, Slate, Meagher & Flom, LLP in New York City. Andrew received a Bachelor of Arts from the Newhouse School of Public Communications at Syracuse University, a Master of Science degree from the Jewish Theological Seminary, and a juris doctor degree (JD) from New York University School of Law. He serves on the boards of the Park Avenue Synagogue and the Ashley Hope Foundation as well as those of several private companies. Mr. Siegel brings to the Board his experience in strategy, corporate development, law and finance.
Bradley T. Wiemann joined the Company in 1993 as a lead design engineer after spending a number of years with Rockwell International Corporation, where he was involved in flight control systems. In 1994, he became manager of the Company's engineering groups focused on commercial and transportation product design. In 2001, his responsibilities expanded to include sales and service for commercial and transportation. In 2004, he was appointed Vice President, Commercial and Transportation and, in 2012, he was named Executive Vice President. In 2013, his responsibilities expanded to include sales and service for the High School Park and Recreation business unit. Mr. Wiemann holds a Master of Science degree in Electrical and Computer Engineering from the University of Iowa and a Bachelor of Science degree in Electrical Engineering from South Dakota State University.
Shereta D. Williams has been a Director of the Company since September 2021 and has since served on the Audit Committee and the Compensation Committee since September 2021. Ms. Williams is Senior Vice President Growth Operations of Cox Enterprises, Inc., a global communications, automotive, and media company, based in Atlanta, Georgia
and has served in such capacity since 2021. She has held a variety of strategy, corporate development and business development roles within the Cox Enterprise, Inc. subsidiaries and groups, including Vice President Business Development from 2020 to 2021; President of Videa, LLC from 2014 through 2020; Vice President of Development for Cox Media Group from 2010 to 2013; and Director of Development and Digital Services for Cox Television from 2001 through 2006. In between the roles at Cox Enterprise, Inc., from 2006 through 2009, she was the managing director of the currency division for Maven Funds, a startup hedge fund in Atlanta, Georgia where she was responsible for managing traders, implementing automated trading systems, risk management and operations. She began her career working in investment banking as an analyst for mergers and acquisitions for Lazard Freres & Co, LLC from 1996 through 1998. She holds a Bachelor of Science degree in Electrical Engineering, with a concentration in Economics, from the Massachusetts Institute of Technology. Ms. Williams brings to the Board extensive knowledge in corporate development, strategy, and mergers and acquisitions, as well as operational leadership in the digital communications industry.
Involvement in Certain Legal Proceedings
None of our directors, executive officers or control persons has been involved in any of the following events described in Item 10 will be included401(f) of Regulation S-K during the past ten years:
1.a petition under the captions “Proposal One - ElectionFederal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of Directors”such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;
2.a conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and “Corporate Governance”other minor offenses);
3.being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:
a.acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in our Proxy Statementsecurities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
b.engaging in any type of business practice; or
c.engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
4.being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for our 2016 annual meetingmore than 60 days the right of shareholders (“Proxy Statement”)such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be filed within 120 days after our most recent fiscal year-end. Information concerningassociated with persons engaged in any such activity;
5.being found by a court of competent jurisdiction in a civil action or by the complianceSEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
6.being found by a court of our officers, directorscompetent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and 10 percent shareholdersthe judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated;
7.being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended, or vacated, relating to an alleged violation of:
a.any Federal or State securities or commodities law or regulation; or
b.any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
c.any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8.being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934 is incorporatedrequires that our Directors, executive officers, and persons who own more than 10 percent of a registered class of our equity securities ("10% Shareholders") file with the SEC initial reports of ownership on Form 3 and reports of change in ownership on Form 4 or Form 5. Such Directors, executive officers and 10% Shareholders are also required by reference to the information to be contained in the Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” The information regarding Audit Committee members and “Audit Committee Financial Experts” is incorporated by reference to the information to be contained in the Proxy Statement under the caption “Corporate Governance–Committeesrules of the BoardSEC to furnish us with copies of Directors.” The informationall Section 16(a) forms that they file. To our knowledge, based solely on a review of copies of such forms submitted to us and on written representations from our reporting persons, we believe all required reports were filed on a timely basis during fiscal 2023, except that Brad T. Wiemann inadvertently filed one late report on Form 4 regarding our one purchase of 25,000 shares on October 12, 2022; Andrew D. Siegel inadvertently filed one late report on Form 3 regarding his initial ownership of common stock as a new director and three Forms 4 regarding his purchase of 8,042 shares on September 14, 2022, 1,958 shares on September 15, 2022, and 13,217 shares on September 20, 2022; and Howard I. Atkins has not filed his Form 3 regarding his initial ownership of common stock as a new director or his Form 4 for the grant of an option to him to purchase 17,667 shares of common stock April 18, 2023 due to difficulties obtaining his credentials from the SEC.
Code of Conduct is incorporated by reference to the information to be contained in the Proxy Statement under the heading “Corporate Governance – Code of Conduct.”
Item 11. EXECUTIVE COMPENSATION
Information regarding the compensation ofThe Board has adopted our directors and officers for the fiscal year ended April 30, 2016 will be in the Proxy Statement under the heading “Proposal One - Election of Directors” and “Executive Compensation” and is incorporated herein by reference.
We maintain a Code of Conduct, which applies to all of our employees, officers and directors.Directors. Included in the Code of Conduct are ethics provisions that apply to our Chief Executive Officer,CEO, Chief Financial Officer, and all other financial and accounting management employees. A copyCopies of the Code of Conduct are available on our website at www.daktronics.com. The Nominating and Corporate Governance Committee reviews the Code of Conduct annually and oversees its implementation.
Material Changes to the Procedures by which Security Holders May Recommend Nominees to the Board of Directors
On January 29, 2023, the Board of Directors of Daktronics approved the Company’s Amended and Restated Bylaws (as so amended, the “Bylaws”), effective as of such date. The amendments to the Bylaws modernize and clarify the Company’s Bylaws by adding conventional provisions to ensure orderly shareholder meetings. The amendments, among other things:
•Provide detailed procedures consistent with market practice for the calling and holding of special meetings of shareholders; and
•Update the procedures and disclosure requirements, in line with market practice, for the nomination of director nominees for election at meetings of shareholders, including to require additional information in a notice of intent to submit a nomination by a shareholder and to address the adoption of rules and regulations of the SEC regarding universal proxy cards set forth in Rule 14a-19 under the Securities Exchange Act of 1934 (the “Universal Proxy Card Rules”), including requiring that nominating shareholders comply with the Universal Proxy Card Rules.
The Bylaws apply to all meetings of shareholders to be held after January 29, 2023. The Company intends to ask its shareholders, on an advisory basis, to approve the Bylaws at the next annual meeting of shareholders.
Committees of the Board
The Board currently has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee.
Audit Committee. During fiscal 2023, the Audit Committee consisted of Kevin P. McDermott (Chairperson), John P. Friel, Shereta Williams, and Lance D. Bultena. The Board has determined that each Audit Committee member is independent as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934. The Board has determined that Mr. McDermott, Mr. Friel, Ms. Williams, and Mr. Bultena are qualified as "audit committee financial experts," as that term is defined in Item 407(d)(5)(ii) of Regulation S-K. The Audit Committee assists the Board in fulfilling its oversight responsibilities concerning the quality and integrity of our financial reports and related filings with the SEC. In fulfilling this role, the Audit Committee, among other things, oversees the accounting and financial reporting process and audits of the financial statements and related SEC filings, appoints and determines the compensation of Deloitte & Touche, LLP, which is our independent registered public accounting firm; reviews the scope and findings of the audit; reviews the adequacy and effectiveness of our accounting policies and system of internal control over financial reporting; and oversees our policy and procedures with respect to related party transactions described under "Item 13. Certain Relationships and Related Party Transactions, and Director Independence." The Audit Committee’s written Charter is available on our website at www.daktronics.com.
Compensation Committee. During fiscal 2023, the Compensation Committee consisted of John P. Friel (Chairperson), Dr. José-Marie Griffiths, Shereta Williams, and Howard Atkins (appointed December 6, 2022). The Board has determined that all of the Compensation Committee members are independent directors, as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules. The Compensation Committee annually reviews and approves the compensation of the CEO and other executives' compensation packages and acts upon management’s recommendations for executives concerning employee equity incentives, bonuses, and other compensation and benefit plans. The Compensation Committee’s Charter is available on our website at www.daktronics.com.
Nominating and Corporate Governance Committee. During fiscal 2023, the Nominating and Corporate Governance Committee consisted of prior Director James B. Morgan (Chairperson until July 20, 2022), Dr. José-Marie Griffiths, Lance Bultena (appointed on September 2, 2021 and named Chairperson on July 20, 2022), Kevin P. McDermott, and Andrew Siegel (appointed on September 7, 2022). The Board has determined that all of the Nominating and Corporate Governance Committee members are independent directors as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules. Our Nominating and Corporate Governance Committee advises and makes recommendations to the Board on all matters concerning the selection of candidates as nominees for election as Directors, develops and recommends to the Board of Directors corporate governance guidelines, oversees our Code of Conduct, can be obtained fromand provides oversight with respect to corporate governance and ethical conduct. It also facilitates the annual review of the performance of the Board. The Nominating and Corporate Governance Committee’s Charter and our Corporate Governance Guidelines are available on our website at www.daktronics.com onwww.daktronics.com.
Strategy and Financing Review Committee. In December 2022, the Investor Relations pageBoard formed a Strategy and will be made available freeFinancing Review Committee (the “Strategy and Financing Review Committee”) to address the Company’s near-term credit needs and to examine alternatives for strengthening the Company’s longer-term financial structure and liquidity profile. The members of chargethe Strategy and Financing Review Committee consist of Howard I. Atkins (who is Chair of the Strategy and Financing Review Committee), Lance D. Bultena, John P. Friel, Dr. José-Marie Griffiths, Kevin P. McDermott, Andrew D. Siegel and Shereta D. Williams, all of whom are independent directors of the Company.
Board Leadership Structure
The Board is committed to any shareholder upon request. Information on or available throughachieving the long-term mutual prosperity of all stakeholders while maintaining the highest standard of responsibility and integrity. The Board has adopted these corporate governance principles to provide an effective framework that reflects a set of core values and provides a foundation for Daktronics governance and management systems. Specific Board of Director responsibilities to achieve this commitment include:
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| • | Strategic and operational planning: reviewing the overall operating, financial and strategic plans and performance of Daktronics; |
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| • | Management oversight: selecting and evaluating the Company’s CEO and approving and monitoring the selection and evaluation process of other executive officers; |
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| • | Governance, compliance and risk management: overseeing appropriate policies of corporate conduct and compliance with laws; and |
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| • | Financial reporting: reviewing the process by which financial and related non-financial information about the Company is provided to management, the Board and the Company’s shareholders. |
The Board believes that it must stay well-informed about the issues, challenges and opportunities facing Daktronics so that the Board members can properly exercise their fiduciary responsibilities to our website is notshareholders. As part of this process, the Board is kept informed of our business, strategies, and major corporate actions through discussions with the named executive officers identified in the Summary of Compensation Table included in this Form 10-K, by reviewing material provided to them and by participating in meetings of the Board and its committees.
The Board currently combines the roles of CEO and Chairman of the Board ("Chair"). Periodically, our Board assesses these roles and the Board leadership structure to assure that the interests of the Company and its shareholders are best served.
The Board has determined that its current structure, with a combined Chair and CEO role, is in the best interests of the Company and its shareholders at this time. Kevin P. McDermott has served as Lead Independent Director since June 1, 2020.
The Chair conducts the Board meetings. The Chair, after consulting with the Lead Independent Director, sets the agenda for Board meetings, sets schedules, and distributes information to the Board. This collaborative process assures that the agenda takes into account issues and concerns of all Directors and is forward-looking and focuses on strategic matters.
The Lead Independent Director calls and presides over Independent Director meetings and provides timely feedback from each meeting to the Chair. The Lead Independent Director is responsible for promoting effective relationships and open communication among Directors and the CEO, building consensus among Board members, building an effective and complementary Board, promoting the highest standards of corporate governance, participating actively in the selection of new Directors, and promoting the orientation of new Directors to provide coaching and support for their development.
Our governance practices are compliant with the Nasdaq Listing Rules and the corporate governance regulations of the Sarbanes-Oxley Act of 2002. Among other things, these practices include the following:
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| • | The Nominating and Corporate Governance Committee reviews with the Board annually the composition of the Board as a whole, including the Directors’ independence, skills, experience, age, diversity, and availability of service to the Company. |
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| • | The Nominating and Corporate Governance Committee recommends Director candidates for approval by the Board and election by the shareholders, taking into account the Company’s need for diverse skills, professional experiences, backgrounds, and other qualities to ensure a variety of viewpoints. |
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| • | The Board conducts periodic self-evaluations facilitated by the Nominating and Corporate Governance Committee. |
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| • | The members of the Board of Directors other than the CEO (the "Independent Directors") meet in conjunction with regularly scheduled quarterly Board meetings and at other appropriate times. |
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| • | The Board and all Board committees are authorized to hire their own advisors as they deem to be necessary or advisable to fulfill their obligations, and the Company will pay the costs of such advisors. |
Board’s Role in Risk Oversight
The Board takes an active role in risk oversight both as a full Board and through its committees. The Company's management team attends a portion of each regular Board meeting, and the Board engages management in a review of the business with respect to our strategies and risks. Such risks include those inherent in our businesses as well as the risks from external sources such as competitors, cybersecurity, the economy, credit markets, and regulatory and legislative developments. The Board has also been actively engaged with management in preparing for, responding to, and monitoring the impacts of the COVID-19 novel coronavirus pandemic and related recovery along with supply chain disruptions. Management is in regular communication with the Board about the assessment, management, and strategic response to the significant risks to Daktronics.
Meetings of the Board and Committees
During fiscal 2023, the Board held four regularly scheduled meetings and four special meeting, the Audit Committee met five times, the Compensation Committee met four times, the Nominating and Corporate Governance Committee met four times, and the Strategy and Financing Review Committee met 10 times. All of the Directors attended at least 75 percent of all meetings of the Board and Board committees upon which they served, and all of the Directors attended the annual meeting of shareholders held in September 2022.
Executive Sessions of the Board
The Board has adopted a practice of meeting in executive session, and with Independent Directors only, in conjunction with each regularly scheduled Board meeting. The Independent Directors met four times in fiscal 2023.
Item 11. EXECUTIVE COMPENSATION
For the fiscal years ended April 29, 2023, April 30, 2022 and May 1, 2021, the following table sets forth information about compensation awarded to, earned by or paid to our principal executive officer and principal financial officer and our next three most highly compensated executive officers whose total compensation was greater than $100,000 for the fiscal year ended April 29, 2023, all of whom constitute our "Named Executive Officers."
SUMMARY COMPENSATION TABLE – FISCAL 2023
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| Name and Principal Position | | Year | | Salary($) | | Stock Awards ($) (1) | | Option Awards ($) (2) | | Non-Equity Incentive Plan Compensation($) (3) | | All Other Compensation($)(4) | | Total($) |
| Reece A. Kurtenbach | | 2023 | | $ | 491,400 | | | $ | 16,308 | | | $ | 35,039 | | | $ | 11,286 | | | $ | 9,150 | | | $ | 563,183 | |
| CEO and President | | 2022 | | 470,308 | | | 28,296 | | | 30,375 | | | — | | | 9,694 | | | 538,673 | |
| | 2021 | | 386,658 | | | 20,520 | | | 42,660 | | | — | | | — | | | 449,838 | |
| Sheila M. Anderson | | 2023 | | $ | 314,985 | | | $ | 7,550 | | | $ | 16,313 | | | $ | 5,272 | | | $ | 6,536 | | | $ | 350,656 | |
| Chief Financial Officer | | 2022 | | 300,192 | | | 13,100 | | | 14,063 | | | — | | | 7,883 | | | 335,238 | |
| | 2021 | | 244,963 | | | 9,500 | | | 19,750 | | | — | | | — | | | 274,213 | |
| Bradley T. Wiemann | | 2023 | | $ | 297,515 | | | $ | 7,550 | | | $ | 16,313 | | | $ | 4,930 | | | $ | 8,442 | | | $ | 334,750 | |
| Executive Vice President | | 2022 | | 287,339 | | | 13,100 | | | 14,063 | | | — | | | 8,186 | | | 322,688 | |
| | 2021 | | 255,240 | | | 9,500 | | | 19,750 | | | — | | | — | | | 284,490 | |
| Matthew J. Kurtenbach | | 2023 | | $ | 287,115 | | | $ | 7,550 | | | $ | 16,313 | | | $ | 4,761 | | | $ | 8,613 | | | $ | 324,352 | |
| Vice President | | 2022 | | 276,546 | | | 13,100 | | | 14,063 | | | — | | | 8,296 | | | 312,005 | |
| | 2021 | | 245,340 | | | 9,500 | | | 19,750 | | | — | | | — | | | 274,590 | |
| Carla S. Gatzke | | 2023 | | $ | 244,292 | | | $ | 7,550 | | | $ | 16,313 | | | $ | 3,113 | | | $ | 7,329 | | | $ | 278,597 | |
| Vice President and | | 2022 | | 235,523 | | | 13,100 | | | 14,063 | | | — | | | 7,066 | | | 269,752 | |
| Secretary | | 2021 | | 208,980 | | | 9,500 | | | 19,750 | | | — | | | — | | | 238,230 | |
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| (1) | Consists of restricted stock units granted under the Daktronics, Inc.2020 Stock Incentive Plan (the "2020 Plan") for fiscal 2021, 2022 and 2023. In accordance with Accounting Standards Codification ("ASC") 718, the amount is calculated based on the grant date fair value of the award. Refer to "Note 10. Shareholders' Equity and Share-Based Compensation" of the Notes to our Consolidated Financial Statements included in this Form 10-K for a discussion of the assumptions used in calculating the amount under ASC 718. |
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| (2) | Consists of stock options granted under the 2020 Plan for fiscal 2021, fiscal 2022, and fiscal 2023. The value of the option awards is calculated based on the grant date fair value of the award in accordance with ASC 718. Refer to "Note 10. Shareholders' Equity and Share-Based Compensation" of the Notes to our Consolidated Financial Statements included in this Form 10-K for a discussion of the assumptions used in calculating the amount under ASC 718. |
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| (3) | The amounts in this column reflect the total variable cash compensation paid to the Named Executive Officers under the non-equity-based incentive compensation plan. As explained below, non-equity-based incentive compensation payments are based upon the achievement of certain operating margin targets for fiscal 2021, 2022, and 2023. |
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| (4) | Consists of matching contributions made by us under the 401(k) Plan, which is intended to qualify under Section 401(k) of the Internal Revenue Code (the "Code"). |
Elements of Compensation
For fiscal 2023, the principal components of our executive compensation program consisted of the following, each of which is addressed below in greater detail:
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| • | non-equity-based incentive compensation plan, |
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| • | equity-based compensation plan, and |
Base Salary. The base salary reflects each executive's responsibility, capability and performance. Base salary is determined based on the benchmarking data for the executive's responsibilities, the executive's experience, and the executive's performance and the impact of such performance on our business results.
The Compensation Committee also takes into account the Company's financial performance, and it has in the past limited executive pay changes based on business or economic conditions. The Compensation Committee also considers the recommendations of the CEO for other Named Executive Officers.
In April 2020, in response to the potential impacts of the COVID-19 pandemic on the Company's business, Mr. Reece A. Kurtenbach and Ms. Sheila M. Anderson reduced their base salaries by 15%, and the other Named Executive Officers elected to reduce their base salaries by 10%. Executive pay was reinstated beginning in fiscal 2022.
Non-Equity-Based Incentive Compensation Plan. The purpose of our non-equity-based incentive compensation plan is to focus the executive team on the Company-wide goals and objectives of growth in revenue and reductions in costs in order to achieve and sustain a target operating margin. The non-equity-based incentive compensation plan is a formula-based variable cash compensation plan, with no payouts if operating margin is less than 2.5 percent, targeted payouts at a 10 percent operating margin, and maximum payouts at a 12.5 percent operating margin. The targeted level of variable cash compensation varies from an amount equal to five months of base salary to eight months of base salary for each executive officer. The maximum level of the variable cash compensation is 120 percent of the targeted level of variable cash compensation.
This level of non-equity compensation takes into account other non-equity incentive compensation plans at comparable companies, as well as the Compensation Committee's preference for a material level of executive compensation that varies with the Company's performance. The Compensation Committee selected the operating margin measure for the formula because they believe it is the most appropriate indicator of performance that will drive long-term shareholder value, and it is consistent with our corporate strategies.
The various payout percentages based on operating margins are as follows:
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| Operating Margin | | | Percentage of Targeted Non-equity Incentive Compensation | |
| Less than 2.5 | % | | — | |
| 2.5 to 5.0 | % | | 0.0 to 25.0 | % |
| 5.0 to 7.5 | % | | 25.0 to 60.0 | % |
| 7.5 to 10.0 | % | | 60.0 to 100.0 | % |
| 10.0 to 12.5 | % | | 100.0 to 120.0 | % |
We follow applicable laws and regulations regarding the recovery of any non-equity-based compensation, other incentive-based or equity-based compensation, and profits realized from the sale of securities resulting from any misconduct on the part of an executive officer.
During fiscal 2023, the Named Executive Officers were eligible for non-equity-based incentive compensation if the maximum payout of 120 percent of target was achieved as follows: CEO - 90 percent of his base salary; Chief Financial Officer - 65 percent of her base salary; Vice President and Secretary - 50 percent of her base salary; and all other Named Executives Officers - 65 percent of his or her base salary. For fiscal 2023, there was a total of $29,362of non-equity-based incentive compensation for Named Executive Officers and none in fiscal 2022 and fiscal 2021.
Equity-Based Compensation Program. Grants of equity awards offer long-term incentives to our executives and align the interests of employees more closely with those of our shareholders.
Each year, the Board, based on recommendations of the Compensation Committee, determines the number of shares that may be subject to equity awards for all employees, including the Named Executive Officers. The total number of shares subject to equity awards is constrained by the Board’s desire to limit dilution to shareholders to a level consistent with our historical levels, which generally approximate a dilution of one percent, and to limit the total grant date fair value of the equity awards to a targeted level. The one percent dilution is based on an assessment of a conservative amount relative to high-tech growth companies. The grant date fair value is based on a comparison to the prior fiscal year's expense and the current year’s estimate of a percentage of total payroll expense. The Compensation Committee and the Board generally follow a practice of calculating the equity grant valuation limit based on the share price on the date of the Compensation Committee meeting at which the equity grants are determined by the Compensation Committee for recommendation to the Board to assure that the valuation limit is consistent with the approximate dilution limit of one percent. The Compensation Committee then allocates these equity grants to the Named Executive Officers, and the CEO allocates equity grants to selected employees. To facilitate the grant of stock options to employees and other executive officers, the Board authorized the CEO to grant individual stock options and restricted stock units during fiscal 2023, subject to the guidelines and limitations imposed by the Compensation Committee.
The Compensation Committee also considers trends in equity-based compensation, the mix of the type of equity grants, and the number of our shares that are available for equity grants. The Compensation Committee and the Board also generally follow a practice of allocating similar equity grants to each of the Named Executive Officers, with some variation based on responsibilities and experience. The allocation to the Named Executive Officers is based on historical grants, the value of past grants, and the Company’s performance, all of which are subject to the objectives listed under the section of this Form 10-K entitled "Compensation Discussion and Analysis - Role of Compensation Committee, Philosophy and Objectives."
For fiscal 2023, the Compensation Committee determined that each Named Executive Officer would be allocated equity grants for approximately 13,750 shares of common stock, with a ratio of 4.5-to-1 of incentive stock options to restricted stock units. The Compensation Committee determined that Mr. Reece A. Kurtenbach should receive a grant of approximately twice the amount of the other Named Executive Officers to facilitate his ownership of additional stock of the Company as the CEO and to reflect a ratio of grants to the CEO compared to the grant to Named Executive Officers that is more similar to the ratio in the benchmarking data. The Compensation Committee determined that the valuation of the equity grants, based on the grant date fair value as determined under ASC 718, would be limited to approximately $1.3 million for all employees, including the Named Executive Officers. The value of the restricted stock units was equal to 46.5 percent of the value of the stock options for executives, as determined under the fair value provisions of ASC 718. For fiscal 2023, all equity grants to employees were made under the 2020 Plan.
The Board and the Compensation Committee approve equity grants for Named Executive Officers and other employees annually in their summer meetings to coincide with the director equity grants and the annual meeting of shareholders. Equity awards are not typically granted at other times of the year for employees, including new employees. The exercise price of all stock options granted is equal to the fair market value of the common stock as reported on The Nasdaq Global Select Market on the date of grant, which is defined in the 2020 Plan as the closing price of the common stock as reported on The Nasdaq Global Select Market on the date of grant. All options also contain five-year vesting provisions, with 20 percent of the shares underlying the stock option vesting each year following the date of grant. The restricted stock units also contain a five-year vesting provision, with 20 percent of the restricted stock units vesting each year following the date of grant.
Benefits. Our Named Executive Officers are eligible for all benefits generally available to our full-time employees. We do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executives or employees.
All employees, including the Named Executive Officers, are entitled to participate in the 401(k) Plan, which is qualified under Section 401(k) of the Code. At the discretion of the Board, we may make matching contributions equal to a percentage of the salary deduction contributions or other discretionary amounts. For fiscal year 2021, the matching contribution program was suspended because of the COVID-19 pandemic. Effective for fiscal year 2022, the matching contribution program was reinstated. We paid $3.0 million in fiscal 2023 and $2.6 million in fiscal 2022 in matching contributions. Contributions to the 401(k) Plan on behalf of the Named Executive Officers are described in the table entitled "Summary Compensation Table – Fiscal 2023."
All employees, including the Named Executive Officers, are entitled to participate in the Daktronics, Inc. Employee Stock Purchase Plan ("ESPP"), which is intended to qualify under Section 423 of the Code. The ESPP allows employees to purchase shares of common stock, subject to annual limitations, at a price equal to 85 percent of the lower of the fair market value of the common stock at the beginning or the end of each six-month offering period.
Accounting and Tax Treatment
We account for equity-based compensation paid to employees under ASC 718, Compensation-Stock Compensation, promulgated by the Financial Accounting Standards Board, which requires us to estimate and record an expense over the service period of the award. Thus, we may record an expense in one year for awards granted in earlier years. Accounting rules also require us to record cash compensation as an expense at the time the obligation is accrued.
With respect to option awards, we generally can deduct the gain recognized by employees and directors from the exercise of non-qualified options. However, to the extent that an option is an incentive stock option, we cannot deduct the gain recognized by the optionee upon exercise of the option if there is no disqualifying disposition by the optionee.
With respect to restricted stock awards, we generally can deduct the fair market value of the shares vested on the vesting date. Alternatively, if the recipient were to make an election under Section 83(b) of the Code, we would be entitled to a deduction on the date of grant equal to the value of the restricted stock on the date of grant.
Section 162(m) of the Code generally disallows a tax deduction to a public company for compensation in excess of $1 million paid to a company's chief executive officer and the four other most highly paid executive officers. Qualifying performance-based compensation will not be subject to the deduction limitation if certain requirements are met. Because the potential amount of base salary and non-equity-based incentive compensation that each of our executive officers can earn is less than $1 million, Section 162(m) of the Code has not been material to our compensation decisions.
The following table sets forth information regarding grants of plan-based awards to the Named Executive Officers during fiscal 2023:
GRANTS OF PLAN-BASED AWARDS — FISCAL 2023
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| | Estimated future payouts under non-equity incentive plan awards(1) | | | | All other stock awards: number of shares of stock or units | | All other option awards: number of securities underlying options | | Exercise or base price of option awards | | Grant date fair value of stock and option |
| Name | | Threshold ($) | | Target ($) | | Maximum ($) | | Grant Date | | (#)(2) | | (#) (3) | | ($/share)(4) | | awards ($) (5) |
| Reece A. Kurtenbach | | 83,600 | | | 334,400 | | | 401,280 | | | 9/8/2022 | | 5,400 | | 24,165 | | 3.02 | | | 51,347 | |
| Sheila M. Anderson | | 37,171 | | | 148,683 | | | 178,420 | | | 9/8/2022 | | 2,500 | | 11,250 | | 3.02 | | | 23,863 | |
| Bradley T. Wiemann | | 41,085 | | | 164,342 | | | 197,210 | | | 9/8/2022 | | 2,500 | | 11,250 | | 3.02 | | | 23,863 | |
| Matthew J. Kurtenbach | | 39,677 | | | 158,708 | | | 190,450 | | | 9/8/2022 | | 2,500 | | 11,250 | | 3.02 | | | 23,863 | |
| Carla S. Gatzke | | 25,938 | | | 103,750 | | | 124,500 | | | 9/8/2022 | | 2,500 | | 11,250 | | 3.02 | | | 23,863 | |
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| (1) | Consists of variable cash compensation under our annual non-equity-based incentive compensation plan. The amounts reflect the minimum payment level, if an award is achieved, the target payment level, and the maximum payment level under the plan. For additional information concerning our annual non-equity-based compensation plan, see the section of this Form 10-K entitled "Compensation Discussion and Analysis - Elements of Compensation." |
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| (2) | Consists of restricted stock units granted to the Named Executive Officers in fiscal 2023 under the 2020 Plan. The units vest as to 20 percent of the shares one year after the date of grant and as to an additional 20 percent in each succeeding year, but only if the Named Executive Officer is then an employee of the Company. |
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| (3) | Consists of options granted to the Named Executive Officers in fiscal 2023 under the 2020 Plan. The options vest and become exercisable as to 20 percent of the shares one year after the date of grant and as to an additional 20 percent in each succeeding year, but only if the Named Executive Officer is then an employee of the Company. |
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| (4) | The exercise price of all options was equal to the closing price of the common stock as quoted on The Nasdaq Global Select Market on the date of grant as provided in the 2020 Plan. |
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| (5) | Represents the full grant date fair value determined pursuant to ASC 718 as reflected in our financial statements, based on the number of shares subject to the options and restricted stock unit awards granted and the closing price of the common stock as quoted on The Nasdaq Global Select Market on the date of grant, which was $3.02 per share on September 8, 2022. |
The following table sets forth information about unexercised options and restricted stock units that have not vested that were held as of April 29, 2023 by the Named Executive Officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END — FISCAL 2023
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| Option Awards(1) | | Stock Awards |
| Name | Grant Date | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | Option Exercise Price ($) | | Option Expiration Date | | Number of Shares or Units of Stock that Have Not Vested (#)(2) | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
| Reece A. Kurtenbach | 8/22/2013 | | 8,750 | | | — | | 11.05 | | | 08/22/23 | | — | | | — | |
| 9/1/2013 | | 25,000 | | | — | | | 10.93 | | | 08/22/23 | | — | | | — | |
| 9/4/2014 | | 15,000 | | | — | | 13.31 | | | 09/04/24 | | — | | | — | |
| 9/3/2015 | | 15,000 | | | — | | 8.51 | | | 09/03/25 | | — | | | — | |
| 9/1/2016 | | 15,000 | | | — | | 9.57 | | | 09/01/26 | | — | | | — | |
| 8/31/2017 | | 15,000 | | | — | | | 9.63 | | | 08/31/27 | | — | | | — | |
| 9/6/2018 | | 10,800 | | | 2,700 | | | 7.83 | | | 09/06/28 | | — | | | — | |
| 9/5/2019 | | 8,100 | | | 5,400 | | | 7.47 | | | 09/05/29 | | — | | | — | |
| 9/3/2020 | | 10,800 | | | 16,200 | | | 4.11 | | | 09/03/30 | | — | | | — | |
| 9/2/2021 | | 2,700 | | | 10,800 | | | 5.66 | | | 09/02/31 | | — | | | — | |
| 9/8/2022 | | — | | | 24,165 | | | 3.02 | | | 09/08/32 | | — | | | — | |
| | | — | | — | | — | | | — | | | 16,200 | | | 77,922 | |
| Sheila M. Anderson | 8/22/2013 | | 6,870 | | | — | | 11.05 | | 08/22/23 | | — | | | — | |
| 9/4/2014 | | 7,500 | | | — | | 13.31 | | 09/04/24 | | — | | | — | |
| 9/3/2015 | | 7,500 | | | — | | 8.51 | | 09/03/25 | | — | | | — | |
| 9/1/2016 | | 7,500 | | | — | | 9.57 | | 09/01/26 | | — | | | — | |
| 8/31/2017 | | 7,500 | | | — | | 9.63 | | 08/31/27 | | — | | | — | |
| 9/6/2018 | | 5,000 | | | 1,250 | | | 7.83 | | 09/06/28 | | — | | | — | |
| 9/5/2019 | | 3,750 | | | 2,500 | | | 7.47 | | 09/05/29 | | — | | | — | |
| 9/3/2020 | | 5,000 | | | 7,500 | | | 4.11 | | 09/03/30 | | — | | | — | |
| 9/2/2021 | | 1,250 | | | 5,000 | | | 5.66 | | 09/02/31 | | — | | | — | |
| 9/8/2022 | | — | | | 11,250 | | | 3.02 | | 09/08/32 | | — | | | — | |
| | | — | | — | | — | | — | | 7,500 | | | 36,075 | |
| Bradley T. Wiemann | 8/22/2013 | | 10,800 | | | — | | 11.05 | | 08/22/23 | | — | | | — | |
| 9/4/2014 | | 7,500 | | | — | | 13.31 | | 09/04/24 | | — | | | — | |
| 9/3/2015 | | 7,500 | | | — | | 8.51 | | 09/03/25 | | — | | | — | |
| 9/1/2016 | | 7,500 | | | — | | 9.57 | | 09/01/26 | | — | | | — | |
| 8/31/2017 | | 7,500 | | | — | | | 9.63 | | 08/31/27 | | — | | | — | |
| 9/6/2018 | | 5,000 | | | 1,250 | | | 7.83 | | 09/06/28 | | — | | | — | |
| 9/5/2019 | | 3,750 | | | 2,500 | | | 7.47 | | 09/05/29 | | — | | — | |
| 9/3/2020 | | 5,000 | | | 7,500 | | | 4.11 | | 09/03/30 | | — | | — | |
| 9/2/2021 | | 1,250 | | | 5,000 | | | 5.66 | | 09/02/31 | | — | | | — | |
| 9/8/2022 | | — | | | 11,250 | | | 3.02 | | | 09/08/32 | | — | | | — | |
| | | — | | | — | | | — | | — | | 7,500 | | | 36,075 | |
| Matthew J. Kurtenbach | 8/22/2013 | | 10,500 | | | — | | | 11.05 | | 08/22/23 | | — | | | — | |
| 9/4/2014 | | 7,500 | | | — | | | 13.31 | | 09/04/24 | | — | | | — | |
| 9/3/2015 | | 7,500 | | | — | | | 8.51 | | 09/03/25 | | — | | | — | |
| 9/1/2016 | | 7,500 | | | — | | | 9.57 | | 09/01/26 | | — | | | — | |
| 8/31/2017 | | 7,500 | | | — | | | 9.63 | | 08/31/27 | | — | | | — | |
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| 9/6/2018 | | 5,000 | | | 1,250 | | | 7.83 | | 09/06/28 | | — | | | — | |
| 9/5/2019 | | 3,750 | | | 2,500 | | | 7.47 | | 09/05/29 | | — | | | — | |
| 9/3/2020 | | 5,000 | | | 7,500 | | | 4.11 | | 09/03/30 | | — | | | — | |
| 9/2/2021 | | 1,250 | | | 5,000 | | | 5.66 | | 09/02/31 | | — | | | — | |
| 9/8/2022 | | — | | | 11,250 | | | 3.02 | | | 09/08/32 | | — | | | — | |
| | | — | | | — | | | — | | | — | | 7,500 | | | 36,075 | |
| Carla S. Gatzke | 8/22/2013 | | 6,870 | | | — | | | 11.05 | | 08/22/23 | | — | | | — | |
| 9/4/2014 | | 6,870 | | | — | | | 13.31 | | 09/04/24 | | — | | | — | |
| 9/3/2015 | | 6,870 | | | — | | | 8.51 | | 09/03/25 | | — | | | — | |
| 9/1/2016 | | 6,870 | | | — | | | 9.57 | | 09/01/26 | | — | | | — | |
| 8/31/2017 | | 6,870 | | | — | | | 9.63 | | 08/31/27 | | — | | | — | |
| 9/6/2018 | | 5,000 | | | 1,250 | | | 7.83 | | 09/06/28 | | — | | | — | |
| 9/5/2019 | | 3,750 | | | 2,500 | | | 7.47 | | 09/05/29 | | — | | | — | |
| 9/3/2020 | | 5,000 | | | 7,500 | | | 4.11 | | 09/03/30 | | — | | | — | |
| 9/2/2021 | | 1,250 | | | 5,000 | | | 5.66 | | 09/02/31 | | — | | | — | |
| 9/8/2022 | | — | | | 6,250 | | | 3.02 | | | 09/08/32 | | — | | | — | |
| | | — | | | — | | | — | | — | | 7,500 | | | 36,075 | |
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| (1) | All options vest in equal installments over five years beginning one year after the grant date, but only if the Named Executive Officer is then an employee of the Company, and expire after 10 years. |
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| (2) | Restricted stock units vest as to 20 percent of the shares one year after date of grant and as to an additional 20 percent in each succeeding year, but only if the Named Executive Officer is then an employee of the Company. |
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| (3) | Determined by multiplying the Company's $4.81 per share closing stock price as reported on The Nasdaq Global Select Market on April 29, 2023, which was the last business day of fiscal 2023, by the number of shares subject to the award. |
The following table sets forth information regarding the exercise of stock options by and the vesting of restricted stock awards during fiscal 2023 for the Named Executive Officers:
OPTION EXERCISES AND STOCK VESTED – FISCAL 2023
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| | Option Awards | | Stock Awards |
| Name | | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise($)(1) | | Number of Shares Acquired on Vesting(#) | | Value Realized on Vesting($)(2) |
| Reece A. Kurtenbach | | — | | | — | | | 5,520 | | | 23,239 | |
| Sheila M. Anderson | | — | | | — | | | 2,600 | | | 10,946 | |
| Bradley T. Wiemann | | — | | | — | | | 2,600 | | | 10,946 | |
| Matthew J. Kurtenbach | | — | | | — | | | 2,600 | | | 10,946 | |
| Carla S. Gatzke | | — | | | — | | | 2,550 | | | 10,736 | |
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| (1) | Consists of the difference between the closing price of the common stock on the date of exercise and the per share exercise price of the option multiplied by the number of shares acquired upon exercise. |
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| (2) | Consists of the number of shares vested multiplied by the market value of the stock as of the vesting date. |
Post-Employment Compensation
Potential Payments upon Termination of Employment or Change in Control
The table below reflects the compensation that would be paid to each of our Named Executive Officers in the event of termination of such executive’s employment. The amounts shown assume that such termination was effective as of April 29, 2023, include estimated amounts earned through such date, and are estimates of the amounts which would be paid out to the Named Executive Officers upon the termination of their employment. The actual amounts to be paid can be determined only at the time of such Named Executive Officer's actual separation from the Company. In addition, there may be re-negotiation of the payments upon any termination of employment or change in control.
Under the 2020 Plan, all options and restricted stock units immediately vest upon a "change in control", as that term is defined in the 2020 Plan. The 2007 Plan and 2015 Plan have expired, but there are awards outstanding under the 2007 Plan and 2015 Plan that are governed by their terms. Upon a termination of employment for any reason, and consistent with our employment policies which apply to all employees, we are obligated to pay for accrued and unused vacation time, which would then be payable in a lump sum.
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| Name | | Benefit | | Termination due to change in control | | Termination without cause or for good reason | | Termination for cause or for good reason | | Death |
| Reece A. Kurtenbach | | Stock option vesting acceleration(1) | | $ | 7,560 | | | $ | — | | | $ | — | | | $ | — | |
| | Restricted stock unit vesting acceleration | | 77,922 | | | — | | | — | | | — | |
| | Vacation pay | | 20,305 | | | 20,305 | | | 20,305 | | | 20,305 | |
| | | | $ | 105,787 | | | $ | 20,305 | | | $ | 20,305 | | | $ | 20,305 | |
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| Sheila M. Anderson | | Stock option vesting acceleration(1) | | $ | 3,500 | | | $ | — | | | $ | — | | | $ | — | |
| | Restricted stock unit vesting acceleration | | 36,075 | | | — | | | — | | | — | |
| | Vacation pay | | 33,683 | | | 33,683 | | | 33,683 | | | 33,683 | |
| | | | $ | 73,258 | | | $ | 33,683 | | | $ | 33,683 | | | $ | 33,683 | |
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| Bradley T. Wiemann | | Stock option vesting acceleration(1) | | $ | 3,500 | | | $ | — | | | $ | — | | | $ | — | |
| | Restricted stock unit vesting acceleration | | 36,075 | | | — | | | — | | | — | |
| | Vacation pay | | 18,525 | | | 18,525 | | | 18,525 | | | 18,525 | |
| | | | $ | 58,100 | | | $ | 18,525 | | | $ | 18,525 | | | $ | 18,525 | |
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| Matthew J. Kurtenbach | | Stock option vesting acceleration(1) | | $ | 3,500 | | | $ | — | | | $ | — | | | $ | — | |
| | Restricted stock unit vesting acceleration | | 36,075 | | | — | | — | | — |
| | Vacation pay | | 44,373 | | | 44,373 | | | 44,373 | | | 44,373 | |
| | | | $ | 83,948 | | | $ | 44,373 | | | $ | 44,373 | | | $ | 44,373 | |
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| Carla S. Gatzke | | Stock option vesting acceleration(1) | | $ | 3,500 | | | $ | — | | | $ | — | | | $ | — | |
| | Restricted stock unit vesting acceleration | | 36,075 | | | — | | | — | | | — | |
| | Vacation pay | | 42,976 | | | 42,976 | | | 42,976 | | | 42,976 | |
| | | | $ | 82,551 | | | $ | 42,976 | | | $ | 42,976 | | | $ | 42,976 | |
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| (1) | For option awards, consists of the difference between the $4.81 per share closing price of the common stock as reported on The Nasdaq Global Select Market as of April 29, 2023, which was the last business day of fiscal 2023, and the exercise price of the option multiplied by the number of shares subject to the option. |
Other Post-Employment Payments
We do not provide pension arrangements, post-retirement health coverage or non-qualified defined contribution plans to any of our employees.
Compensation Risk Analysis
The Compensation Committee has established the non-equity incentive program to be based on the same Company-wide measure for each executive. As previously described, the Compensation Committee has selected operating margin as the Company-wide measure. Basing the program on the same Company-wide measure for all the executives minimizes the risks associated with individual formulas based on individual actions. The non-equity incentive program is the only formula-based incentive-compensation program in the Company.
Director Compensation
The following table sets forth information about the compensation paid to and earned by our Directors for the fiscal year ended April 29, 2023:
FISCAL YEAR 2023 DIRECTOR COMPENSATION
| | | | | | | | | | | | | | | | | | | | |
| Name(1) | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) (2) | | Total Compensation ($) |
| John P. Friel | | $ | 63,000 | | | $ | 60,000 | | | $ | 123,000 | |
| Kevin P. McDermott | | 67,625 | | | 60,000 | | | 127,625 | |
| Dr. José-Marie Griffiths | | 59,875 | | | 60,000 | | | 119,875 | |
| Shereta D. Williams | | 60,375 | | | 60,000 | | | 120,375 | |
| Lance D. Bultena | | 61,625 | | | 60,000 | | | 121,625 | |
| Howard I. Atkins (3) | | 14,125 | | | 100,000 | | | 114,125 | |
| Andrew D. Siegel (4) | | 28,250 | | | 60,000 | | | 88,250 | |
| James B. Morgan (5) | | 28,875 | | | — | | | 28,875 | |
| | | | | | | | |
| (1) | As an employee of the Company, Reece A. Kurtenbach, the President and CEO since September 1, 2013, was a Named Executive Officer during fiscal 2023 and therefore his compensation is reported in the appropriate tables within the section of this Form 10-K entitled "Executive Compensation." |
| | | | | | | | |
| (2) | The $60,000 represents September 8, 2022 grants of 19,867 restricted shares of our common stock to each of the Directors named in the table, excluding Howard L. Atkins, with a grant date fair value of $3.02, which vest on August 23, 2023 if they are then Directors of the Company. The $100,000 represents April 18, 2023 grant of 17,667 restricted shares of our common stock to Howard I. Atkins with a grant date fair value of $5.66, which vest on August 23, 2023 if he is then a Director of the Company. The dollar amounts in this column of the table were computed in accordance with ASC 718, Compensation - Stock Compensation. |
| (3) | Joined as Director on December 7, 2022. |
| (4) | Joined as Director on September 7, 2022. |
| (5) | Retired as Director on September 7, 2022. |
Independent Director Fees. For fiscal 2023, each Independent Director received an annual retainer of $41,625. In addition, each Independent Director received $2,500 per meeting for each Board meeting attended. The following table describes the annual retainers paid for fiscal 2023 to each Independent Director for Board Committee membership participation:
| | | | | | | | | | | |
| Chair | | Other Members |
| Audit Committee | $ | 7,250 | | | $ | 4,625 | |
| Compensation Committee | 6,750 | | | 4,125 | |
| Nominating and Corporate Governance Committee | 6,750 | | | 4,125 | |
| Lead Independent Director | 8,750 | | | |
The retainers for Board and Committee service are included in the table above entitled "Fiscal Year 2023 Director Compensation".
Stock Ownership and Retention Guidelines. The Board of Directors has implemented stock ownership guidelines for Directors. Under these guidelines, each Director is expected to achieve a target of 5,000 shares owned, excluding shares subject to options. Directors have five years from the date they first become a member of the Board to achieve this level of ownership. As of June 30, 2023, all Directors were in compliance with these guidelines.
Compensation Committee Interlocks and Insider Participation
During fiscal 2023, none of our executive officers served on the board of directors or compensation committee of another company that had an executive officer who served on our Board of Directors or our Compensation Committee.
Compensation Discussion and Analysis
Introduction. The following discussion should be read in conjunction with the various tables and accompanying narrative disclosure appearing in this Form 10-K. We intendThose tables and narrative disclosure provide more detailed information regarding the compensation and benefits awarded to, disclose any waivers from,earned by, or amendmentspaid to our Named Executive Officers, as well as the plans in which they are eligible to participate. At last year’s annual meeting, our shareholders provided an advisory "say-on-pay" vote indicating their overwhelming support of the Company’s compensation program for our Named Executive Officers. Our shareholders had previously voted that such say-on-pay votes be held annually. As a result, a proposal presented to the CodeCompany’s shareholders at the 2023 annual meeting of Conduct by posting a description of such waiver or amendmentshareholders will seek our shareholders’ input on our Internet website. However,executive compensation program.
Executive Summary. Our executive compensation program, developed by management and approved by the Compensation Committee, is intended to date,be simple (easily understood) and team-based, focused on a few key performance metrics, and balanced among:
| | | | | | | | |
| • | employees, managers and executives; |
| | | | | | | | |
| • | long-term and short-term objectives; |
| | | | | | | | |
| • | financial and stock performance; and |
| | | | | | | | |
| • | cash and equity compensation. |
The compensation program is designed to align the interests of the executive team with the interests of our shareholders. It uses salary, benefits, and non-equity-based and equity-based incentive plans to achieve these goals, with a focus on tying compensation to corporate performance. The retention of top talent and the achievement of corporate objectives measure the effectiveness of our compensation program.
The Company's financial performance for the fiscal year ended April 29, 2023 included a decrease in orders of 19.5 percent to $681 million. Fiscal 2022 saw a record number of orders from pent-up demand after COVID, and orders for fiscal 2023 continue to be strong. In addition, macroeconomic and geopolitical conditions caused the decline in orders in the International business unit. The year-over-year growth in net sales was driven by fulfilling orders in backlog and continued order bookings. Sales growth was driven by strong market demand, increased capacity, and realization of price increases implemented beginning in late fiscal year 2022. We have seen stabilizing and improving supply chain conditions and have invested in automated machinery and equipment and in labor capacity to increase the rate of conversion of orders into sales, creating more throughput in our factories. Financial metrics for fiscal 2023 included a 1.5 percent return on
assets and a 3.6 percent return on beginning shareholders' equity. Operating margin was 2.8 percent as a percent of sales for fiscal 2023 as compared to 0.7 percent as a percent of sales for fiscal 2022 due to part supply disruptions during fiscal 2022.
Changes to executive compensation during the last fiscal year were mainly due to maintaining the competitiveness of our compensation program. In addition, executive pay was reinstated beginning in fiscal 2022, after an April 1, 2020 reduction in executive compensation in response to the uncertainty, longevity, and severity of the effects of the COVID-19 pandemic would have had on Daktronics' business.
Role of Compensation Committee, Philosophy and Objectives. The Compensation Committee has the responsibility for guiding our executive compensation philosophy and overseeing the design of our executive compensation programs. In arriving at the appropriate levels of pay and incentive opportunities, the Compensation Committee reviews our compensation philosophy and trends in our peer group to assure that our executive compensation program is competitive to effectively recruit and retain talented management, focus our executives to achieve short- and long-range corporate objectives, and align the interests of the executives with the interests of our shareholders.
The Compensation Committee bases its executive compensation decisions on the following philosophies:
| | | | | | | | |
| • | Executive compensation should be appropriate to recruit and retain high-performing executives successfully, taking into account executive pay at comparable companies and our pay practices for non-executive employees. |
| | | | | | | | |
| • | An individual executive's compensation should be based on the executive's responsibility level, capability and performance. |
| | | | | | | | |
| • | The executive team's compensation should include a significant component that is based on the Company's overall financial performance to encourage the executive team to focus on the overall success of the Company. |
| | | | | | | | |
| • | Our executives should receive few perquisites, if any, other than those provided to all employees. |
The Compensation Committee annually reviews each executive's compensation. The Compensation Committee has determined that our executives' compensation will include base salary, non-equity-based incentive compensation, and equity-based incentive pay in the form of options and restricted stock units. We view the various components of compensation as related but distinct.
We determine the appropriate level for each executive compensation component based in part, but not exclusively, on the following factors:
| | | | | | | | |
| • | internal equity and consistency; |
| | | | | | | | |
| • | the executive compensation paid by other companies with which we compete for executive talent; and |
The base salary reflects the pay the Compensation Committee believes is appropriate for each executive's responsibility, capability and performance. The non-equity-based incentive compensation is designed to focus the executive team on the Company-wide goals and objectives, which focus on growth in revenue and reductions in costs in order to achieve and sustain a target operating margin. The Compensation Committee has not adopted any formal policies or guidelines for allocating compensation between long-term and currently paid-out compensation, between cash and non-cash compensation, or among different forms of non-cash compensation, although it has a preference for a material amount of "at risk" compensation, the amount of which is based on our financial results. The equity-based compensation plan is designed to encourage executives to also own shares of common stock in the Company and thereby align executives' interests with our shareholders' interests.
The Compensation Committee considers both internal equity and market competitiveness. We compare executive pay to the compensation of other key managers and employees at the Company. As described below, we also compare overall
executive compensation to comparison companies and to salary database information. The Compensation Committee believes that equitable and competitive compensation, as well as leader development and promotion-from-within, are essential to retain high-performing executives. Our currently employed Named Executive Officers have an average of 31.6 years of experience with Daktronics.
For fiscal 2023, our Named Executive Officers were Reece A. Kurtenbach, Chair, President and CEO; Sheila M. Anderson, Chief Financial Officer and Treasurer; Bradley T. Wiemann, Executive Vice President; Matthew J. Kurtenbach, Vice President of Manufacturing; and Carla S. Gatzke, Vice President of Human Resources and Secretary.
Role of Executive Officers in Compensation Decisions. Our CEO and Vice President of Human Resources present to the Compensation Committee their recommendations for the salary, non-equity-based incentive compensation, and equity-based compensation grants for the Named Executive Officers. The Compensation Committee considers these recommendations and accepts or adjusts them, in whole or in part. The CEO and Vice President of Human Resources are not grantedpresent for the discussions or determinations about their own compensation, but they generally participate in the discussions regarding other executive officers’ compensation. The Chair of the Compensation Committee presents the Compensation Committee’s findings regarding compensation for executive officers to the Board. Based on such input, the Board reviews and generally approves and adopts the Committee's recommendations regarding the executives' compensation plan.
Benchmarking. In making decisions regarding elements and amounts of compensation, the Compensation Committee considers the compensation paid to executive officers at similar levels and responsibilities. These are public companies in our geographical area with revenues of between $250 million and $1 billion and with a waiverfocus on manufacturing or technology.
The following list sets forth the companies comprising our peer group list:
| | | | | | | | |
| Apogee Enterprises, Inc. | Hawkins, Inc. | Johnson Outdoors Inc |
| Badger Meter, Inc. | iMedia Brands, Inc. | Manitowoc Co Inc. |
| Bio-Techne Corporation | Tennant Company | Proto Labs Inc. |
| Douglas Dynamics Inc | Lindsay Corporation | Strattec Security Corp. |
| Raven Industries, Inc. | Enerpac Tool Group Corp. | Mayville Engineering Co Inc. |
| Graco, Inc. | Flexsteel Industries Inc. | MTS Systems Corp |
The Compensation Committee also considers compensation data from the CodeEconomic Research Institute, which takes into consideration company size, geography, base salary and variable cash compensation but excludes equity incentive compensation information.
The Compensation Committee believes that its executive compensation is sufficiently conservative, as well as appropriately competitive, so as not to require an external consultant opinion.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the section of Conduct.this Form 10-K entitled "Compensation Discussion and Analysis" with management. Based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Form 10-K.
By the Compensation Committee,
John P. Friel, Chair
Dr. José-Marie Griffiths
Shereta D. Williams
Howard I. Atkins
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securityfollowing table sets forth information regarding the beneficial ownership of certain beneficial owners and management will be containedcommon stock as of June 30, 2023 by each of our Directors; by each Named Executive Officer named in the Proxy Statement under the heading “Security OwnershipSummary Compensation Table; by all Named Executive Officers, and all Directors as a group; and by each shareholder who is known by us to own beneficially more than five percent of Certain Beneficial Owners and Management” and “Executive Compensation - our outstanding common stock.
| | | | | | | | | | | | | | | | | | | | |
| Name and Address of Beneficial Owners | | Note | | Amount and Nature of Beneficial Ownership(1) | | Percentage of Outstanding Shares(2) |
| 5% Beneficial Owners: | | (15) | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Dimensional Fund Advisors LP | | (16) | | 2,472,089 | | | 5.4 | % |
| Building One, 6300 Bee Cave Road | | | | | | |
| Austin, TX 78746 | | | | | | |
| Alta Fox Opportunities Fund, LP | | (17) | | | 2,292,736 | | | 5.0 | % |
| 640 Taylor Street, Ste 2522 | | | | | | |
| Fort Worth, TX 76102 | | | | | | |
| Dr. Aelred J. Kurtenbach | | (18) | | | 2,781,499 | | | 6.1 | % |
| Daktronics, Inc. 401(k) Plan | | (19) | | 2,465,803 | | | 5.4 | % |
| Named Executive Officers, Directors, and Director Nominee: | | | | | | |
| Reece A. Kurtenbach | | (3) | | 721,036 | | | 1.6 | % |
| | | | | | |
| Howard I. Atkins | | (4) | | 17,667 | | | * |
| | | | | | |
| | | | | | |
| Kevin P. McDermott | | (5) | | 98,482 | | | * |
| John P. Friel | | (6) | | 93,834 | | | * |
| Dr. José-Marie Griffiths | | (7) | | 44,016 | | | * |
| Shereta D. Williams | | (8) | | 30,026 | | | * |
| Lance D. Bultena | | (9) | | 30,026 | | | * |
| Sheila M. Anderson | | (10) | | 101,782 | | | * |
| Bradley T. Wiemann | | (11) | | 203,131 | | | * |
| Matthew J. Kurtenbach | | (12) | | 332,311 | | | * |
| Carla S. Gatzke | | (13) | | 830,898 | | | 1.8 | % |
| Andrew D. Siegel | | (14) | | 1,295,659 | | | 2.8 | % |
| All Directors and all Named Executive Officers as a group (12 persons, consisting of those named above) | | | | 3,798,868 | | | 8.3 | % |
* Less than one percent
| | | | | | | | |
| (1) | Each person has sole voting and sole dispositive power with respect to all outstanding shares, except as noted. |
| | | | | | | | |
| (2) | Applicable percentage ownership is based on 45,703,283 shares of common stock outstanding as of June 30, 2023. In computing the number of shares of common stock beneficially owned by a person or group and the percentage ownership of that person or group, we deemed outstanding shares of common stock subject to options held by that person or group that are currently exercisable, options held by that person or group that are exercisable within 60 days of June 30, 2023, and restricted stock units that are scheduled to vest within 60 days of June 30, 2023. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. |
| | | | | | | | |
| (3) | Includes 144,483 shares subject to options, 33,538 shares held through the 401(k) Plan, 17,400 shares held by his spouse, 44,800 shares held by his children, and 5,400 shares of restricted stock which vest within 60 days from June 30, 2023. |
| | | | | | | | |
| (4) | Includes 17,667 shares of restricted stock which vest on August 23, 2023. |
| | | | | | | | |
| (5) | Includes 17,496 shares subject to exercisable options and 19,867 shares of restricted stock which vest on August 23, 2023. |
| | | | | | | | |
| (6) | Includes 17,496 shares subject to exercisable options and 19,867 shares of restricted stock which vest on August 23, 2023. |
| | | | | | | | |
| (7) | Includes 19,867 shares of restricted stock which vest on August 23, 2023. |
| | | | | | | | |
| (8) | Includes 19,867 shares of restricted stock which vest on August 23, 2023. |
| | | | | | | | |
| (9) | Includes 19,867 shares of restricted stock which vest on August 23, 2023. |
| | | | | | | | |
| (10) | Includes 59,120 shares subject to options, 8,532 shares held through the 401(k) Plan and 2,500 shares of restricted stock which vest within 60 days from June 30, 2023. |
| | | | | | | | |
| (11) | Includes 59,750 shares subject to options, 597 shares held by his spouse and 2,500 shares of restricted stock which vest within 60 days from June 30, 2023. |
| | | | | | | | |
| (12) | Includes 59,750 shares subject to options, 16,098 shares held through 401(k) Plan, 39,100 shares held by his children and 2,500 shares of restricted stock which vest within 60 days from June 30, 2023. |
| | | | | | | | |
| (13) | Includes 56,600 shares subject to options, 176,604 shares held through the 401(k) Plan, 90,000 shares held by her spouse, 15,005 shares held by her child and 2,500 shares of restricted stock with which vest within 60 days from June 30, 2023. |
| | |
| (14) | Consists of 1,275,392 shares owned by Prairieland Holdco, LLC ("PLH"). Mr. Siegel is the sole member and president of Prairieland MM, LLC. which is the manager of PLH. |
| | | | | | | | |
| (15) | To the Company's knowledge, except as noted in the table above, no person or entity is the beneficial owner of more than five percent of the outstanding shares of the Company's common stock. |
| | | | | | | | |
| (16) | Data based on an Amendment to Schedule 13G/A filed by the shareholder with the Securities and Exchange Commission (the "SEC") on February 10, 2023. As set forth in the Schedule 13G/A, Dimensional Fund Advisors LP has sole voting power as to 2,402,791 of these shares and sole dispositive power as to all 2,472,089 shares. |
| | | | | | | | |
| (17) | Data based on Amendment No. 3 (“Amendment No. 3”) to the Schedule 13D filed by Alta Fox Opportunities Fund, LP and its affiliates named therein with the SEC on June 9, 2023. As set forth in Amendment No. 3, the number of shares of common stock set forth in the table includes 246,653 shares currently issuable upon the conversion of the Convertible Note. Also as set forth in Amendment No. 3, Alta Fox Opportunities Fund, LP has sole voting power and sole dispositive power as to none of the shares set forth in the table. In addition, as set forth in Amendment No. 3, and based on other information provided by the shareholder, the following persons may be deemed to be beneficial owners of the shares of the Company’s common stock owned by the Investor, and the Investor shares voting and dispositive powers with such persons as to such shares: Alta Fox GenPar, LP, as the general partner of Alta Fox Opportunities Fund, LP; Alta Fox Equity, LLC, as the general partner of Alta Fox GenPar, LP; Alta Fox Capital Management, LLC, as the investment manager of Alta Fox Opportunities Fund, LP; and P. Connor Haley, as the sole owner, member and manager of each of Alta Fox Capital Management, LLC and Alta Fox Equity LLC. |
| | | | | | | | |
| (18) | Includes 848,488 shares held by his spouse, Irene Kurtenbach, and 721,675 shares held in Medary Creek LLLP. Medary Creek LLLP is a limited liability limited partnership of which Aelred and Irene Kurtenbach are the general partners. The address for Aelred and Irene Kurtenbach and Medary Creek LLLP is 47209 220th Street, Brookings, SD 57006. Aelred J. Kurtenbach is a founder of the Company and its former Chairperson, President and Chief Executive Officer. |
| (19) | The common stock held by the 401(k) Plan and allocated to the 401(k) Plan participants are voted by the trustee of the 401(k) Plan according to the instructions of the 401(k) Plan participants. The address of the 401(k) Plan is 201 Daktronics Drive, Brookings, South Dakota 57006. |
Securities Authorized for Issuance Under Equity Compensation Plans” and is incorporated herein by reference.Plans
The following table sets forth certain information as of April 29, 2023 with respect to our equity compensation plans:
EQUITY COMPENSATION PLAN INFORMATION
| | | | | | | | | | | | | | | | | | | | |
| Plan category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| | (a) | | (b) | | (c) |
| Equity compensation plans approved by security holders: | | | | | | |
| 2007 Stock Incentive Plan | | 314,632 | | | $ | 12.11 | | | — |
| 2015 Stock Incentive Plan | | 815,318 | | | 8.61 | | | — | |
| 2020 Stock Incentive Plan | | 915,400 | | | 4.07 | | | 1,801,857 | |
| Employee Stock Purchase Plan(1) | | Not Applicable | | Not Applicable | | 1,574,555 | |
| Total | | 2,045,350 | | | $ | 7.11 | | | 3,376,412 | |
| | | | | | | | |
| (1) | Under the ESPP, shares are acquired at the time of investment by the participating employees at the applicable discount. |
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Policy and Procedures with Respect to Related Party Transactions
Information requiredThe Board has adopted a written policy and procedures with respect to related party transactions, which the Audit Committee oversees. Under the policy, a "related party transaction" is generally defined as a transaction, arrangement or relationship in which the Company was, is or will be a participant; the amount involved exceeds $120,000; and in which any "related person" had, has or will have a direct or indirect material interest. The policy generally defines a "related person" as a Director, executive officer or beneficial owner of more than five percent of any class of our voting securities and any immediate family member of any of the foregoing persons.
The Audit Committee reviews and, if appropriate, approves related party transactions, including certain transactions which are deemed to be pre-approved under the policy. On an annual basis, the Audit Committee reviews any previously approved related party transaction that is ongoing.
As reported in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” of this Form 10-K, effective on May 11, 2023, the Company entered into the Securities Purchase Agreement with Alta Fox Opportunities Fund, LP (the “Investor”). Under the Securities Purchase Agreement, the Company sold and issued to the Investor the Convertible Note in exchange for the
payment by this itemthe Investor to the Company of $25.0 million. As of May 11, 2023, and based on Amendment No. 3 to the Schedule 13D filed by the Investor and its affiliates named therein on May 15, 2023 with the SEC, the Investor and its affiliates beneficially owned 4,767,551 shares of common stock of the Company, representing 9.99 percent of the Company’s common stock, causing the Investor to be a “related party” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933. The Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Investor and the Company, and the Registration Rights Agreement were approved in advance of their execution by the Company’s Strategy and Financing Review Committee, the members of which include all members of the Company’s Audit Committee.
Since May 11, 2023 through June 30, 2023, the largest aggregate amount outstanding under the Convertible Note was $25.3 million, consisting of $25.0 million of principal and $0.3 million of interest; a total of $25.3 million was outstanding as of June 30, 2023; and, since May 11, 2023 through June 30, 2023; no payments of principal or interest had been made on the amounts due under the Convertible Note.
The description of the Securities Purchase Agreement, the Convertible Note, the Pledge and Security Agreement dated as of May 11, 2023 by and between the Investor and the Company, the Registration Rights Agreement, and their respective terms set forth in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the section entitled “Liquidity and Capital Resources” is hereby incorporated by reference into this Item 13. In addition, the Company is a party to the Standstill and Voting Agreement dated as of March 19, 2023 with Alta Fox Management, LLC and Connor Haley (the “Standstill Agreement”). The Standstill Agreement is filed as Exhibit 10.13 to this Form 10-K.
As described in Amendment No. 3 (“Amendment No. 3”) to the Schedule 13D filed by the Investor and its affiliates named therein on June 9, 2023 with the SEC and based on other information provided by the Investor, the following persons may be deemed to be beneficial owners of the shares of the Company’s common stock owned by the Investor: Alta Fox GenPar, LP, as the general partner of Alta Fox Opportunities Fund, LP; Alta Fox Equity, LLC, as the general partner of Alta Fox GenPar, LP; Alta Fox Capital Management, LLC, as the investment manager of Alta Fox Opportunities Fund, LP; and P. Connor Haley, as the sole owner, member and manager of each of Alta Fox Capital Management, LLC and Alta Fox Equity LLC.
On June 7, 2023, the Company received from the sections entitled “Proposal One – ElectionInvestor written notice of Directors – Independent Directors”a decrease in the “Percentage Cap” (as such term is defined in the Convertible Note) from 9.99 percent to 4.99 percent, which decrease became effective immediately upon the Company’s receipt of such written notice. The Percentage Cap generally represents the maximum percentage of shares of the Company’s common stock the Investor may own. Based on Amendment No. 3, the Investor and “Corporate Governance - Compensation Committee Interlocksits affiliates identified in Amendment No. 3 owned 2,292,736 shares of common stock on June 9, 2023, representing 4.99% of the common stock of the Company, meaning the Investor and Insider Participation” that will be contained in our Proxy Statement. There wereits affiliates are no longer “related parties” of the Company under the Company’s written policy and procedures and the applicable definitions under the Securities Act of 1933.
The Company has entered into no other related party transactions since April 30, 2022 through June 30, 2023.
Independence of Directors
Annually, the Board determines the independence of its members in accordance with the Nasdaq Listing Rules and any applicable provisions of or regulations under the Securities Exchange Act of 1934.
During fiscal 2016.2023, the Audit Committee consisted of Kevin P. McDermott (Chairperson), John P. Friel, Shereta D. Williams, and Lance D. Bultena. The Board has determined that each Audit Committee member is independent as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934.
During fiscal 2023, the Compensation Committee consisted of John P. Friel (Chairperson), Dr. José-Marie Griffiths, Shereta D. Williams, and Howard I. Atkins (appointed December 6, 2022) . The Board has determined that all of the Compensation Committee members are independent directors as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules.
During fiscal 2023, the Nominating and Corporate Governance Committee consisted of prior Director James B. Morgan (Chairperson until July 20, 2022), Dr. José-Marie Griffiths, Lance D. Bultena (appointed on September 2, 2021 and named Chairperson on July 20 2022), Kevin P. McDermott, and Andrew D. Siegel (appointed on September 7, 2022). The Board
has determined that all of the Nominating and Corporate Governance Committee members are independent directors, as defined under Rule 5605(a)(2) of the Nasdaq Listing Rules.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Audit Committee of the Board has selected Deloitte & Touche, LLP ("Deloitte") to serve as our independent registered public accounting firm (the "Independent Auditor") for the fiscal year ending April 27, 2024. Deloitte has been our Independent Auditor since fiscal 2018.
Information regardingThe Audit Committee recognizes the importance of maintaining the independence of the Company's Independent Auditor, both in fact and appearance. Each year, the Audit Committee evaluates the qualifications, performance and independence of our principal accountantIndependent Auditor and determines whether to re-engage such firm. In doing so, the Audit Committee considers, among other things, the quality and efficiency of the services provided by the Independent Auditor, its capabilities and its technical expertise, its knowledge of our operations and industry, and relevant information concerning its independence.
While not required to do so, the Board will submit the selection of Deloitte for ratification at the 2023 annual meeting of shareholders to ascertain the views of our shareholders with respect to the choice of Deloitte as our Independent Auditor. If the shareholders do not approve the selection of Deloitte, the Audit Committee will reconsider its selection. A representative from Deloitte is expected to be containedpresent at the 2023 annual meeting.
Audit and Other Professional Fees
The following table presents the aggregate fees billed for professional services rendered by Deloitte, including out-of-pocket expenses, for fiscal 2023 and 2022. As provided in the Proxy Statement underAudit Committee’s Charter, all engagements for any non-audit services by our Independent Auditor must be approved by the heading “Proposal Three - RatificationAudit Committee before the commencement of Appointmentany such services. The Audit Committee may designate a member or members of Independent Registered Public Accounting Firm”the Audit Committee to represent the entire Audit Committee for purposes of approving non-audit services, subject to review by the full Audit Committee at its next regularly scheduled meeting. The Audit Committee considers the provision of services by Deloitte to us, over and is incorporated herein by reference.above the audit fees, to be compatible with the ability of Deloitte to maintain its independence.
| | | | | | | | | | | | | | |
| | Fiscal Year Ended |
| | April 29, 2023 | | April 30, 2022 |
| Audit Fees (1) | | $ | 968,018 | | | $ | 845,800 | |
| Audit-Related Fees (2) | | 43,300 | | | 44,800 | |
| Tax Fees (3) | | 14,453 | | | 43,409 | |
| All Other Fees (3) | | 3,790 | | | 3,790 | |
| Totals | | $ | 1,029,561 | | | $ | 937,799 | |
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| (1) | Audit Fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements, the audit of our internal control over financial reporting, the reviews of the interim financial statements included in our Quarterly Reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements. |
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| (2) | Audit-Related Fees are fees for assurance and related services performed by Deloitte that are reasonably related to the performance of the audit or review of our financial statements. |
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| (3) | All Other Fees are fees for other permissible work performed by Deloitte that does not meet the above category descriptions. |
PART IV.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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| (a)(1) | Financial Statements |
| Our financial statements, a description of which follows, are contained in Part II, Item 8: |
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(a)(1) | |
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Our financial statements, a description of which follows, are contained in Part II, Item 8:
The following financial statement schedule is submitted herewith:
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.
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(3) | 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. |
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| (3) | Exhibits |
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| Certain of the following exhibits are incorporated by reference from prior filings. The form with which each exhibit was filed and the date of filed and the date of filing are as indicated below; the reports described below are filed as Commission File No. 001-38747 unless otherwise indicated. |
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| 3.1 | |
| 3.2 | |
| 4.1 | Form of Stock Certificate Evidencing Common Stock, without par value, of the Company (Incorporated by reference to Exhibit 4.1 filed with our Amendment No. 1 to the Registration Statement on Form S-1 on January 12, 1994 as Commission File No. 33-72466).** |
| 4.2 | |
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| 4.7 | |
| 4.8 | |
| 4.9 | |
A list of exhibits required to be filed as part of this report is set forth in the Index of Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.
All Sport®, Daktronics®, DakStats®, DataTime®, Fuelight™, Fuelink™, Galaxy®, GalaxyPro™, OmniSport®, ProAd®, ProPixel®, ProRail®, ProStar®, ProTour®, Sportsound®, Valo®, Vanguard®, Venus®, V-Net®, Visiconn®, V-Tour®, and V-Link® are trademarks of Daktronics, Inc. All other trademarks referenced are the intellectual property of their respective companies.
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 21, 2016.
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.
