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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 28, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23246
DAKTRONICS, INC.
(Exact name of registrant as specified in its charter)
South Dakota 46-0306862
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
331 32nd Avenue, Brookings, SD 57006
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (605) 697-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(g) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of June 27, 2001 18,067,950 shares of the registrant's Common Stock
were issued and outstanding, and the aggregate market value of voting stock held
by non-affiliates of the registrant as of June 27, 2001 was approximately
$233,700,000 based on the closing price of $16.38 per share of June 27, 2001 on
the NASDAQ/NMS).
Documents Incorporated By Reference
Selected portions of the Definitive Proxy Statement for the Annual
Meeting of Shareholders Incorporated into Part III also to be held
August 15, 2001
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DAKTRONICS, INC.
Table of Contents
Page(s)
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PART I. ................................................................. 2-14
PART II. ................................................................. 15-37
PART III.................................................................. 38
PART IV. ................................................................. 38-48
Signatures................................................................ 40
1
PART I
Item 1. Business.
THIS REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE STATEMENTS APPEAR IN A
NUMBER OF PLACES IN THIS REPORT AND INCLUDE ALL STATEMENTS THAT ARE NOT
HISTORICAL STATEMENTS OF FACT REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATIONS OF THE COMPANY, ITS DIRECTORS OR ITS OFFICERS WITH RESPECT TO,
AMONG OTHER THINGS: (i) THE COMPANY'S FINANCING PLANS; (ii) TRENDS AFFECTING THE
COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS; (iii) THE COMPANY'S
GROWTH STRATEGY AND OPERATING STRATEGY; AND (iv) THE DECLARATION AND PAYMENT OF
DIVIDENDS. THE WORDS "MAY," "WOULD," "COULD," "WILL," "EXPECT," "ESTIMATE,"
"ANTICIPATE," "BELIEVE," "INTEND," "PLANS" AND SIMILAR EXPRESSIONS AND
VARIATIONS THEREOF ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, MANY OF
WHICH ARE BEYOND THE COMPANY'S ABILITY TO CONTROL, AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF VARIOUS FACTORS DISCUSSED HEREIN AND THOSE FACTORS DISCUSSED IN DETAIL
IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
GENERAL
Daktronics is a leading supplier of electronic scoreboards, computer
programmable display systems, and large video displays for sport, business,
transportation and government applications. The Company offers the most complete
line of large display products of any single manufacturer, from smaller indoor
scoreboards and displays, to multi-million dollar outdoor video display systems.
The Company is recognized worldwide as a technical leader with the capabilities
to design, manufacture, install and service complete integrated systems that
display real-time data, graphics, animation and video. Thousands of Daktronics
displays communicate with millions of viewers every day in more than 70
countries.
The Company has sold display systems ranging from small standard scoreboards
priced under $1,000 to large complex display systems priced in excess of $13
million. In fiscal 2001, sales of products and services under $100,000
represented approximately 25% of net sales.
The Company's net sales and profitability historically have fluctuated due to
the impact of large product orders, such as display systems for the Olympic
Games and facilities where professional sports events take place. The
seasonality of the sports market has also played a part in the Company's sales
and profit fluctuations. The Company's gross margins on large orders tend to
fluctuate more than those for smaller, standard orders. Large product orders
that involve competitive bidding and substantial subcontract work for product
installation generally have lower gross margins. Although the Company follows
the percentage of completion method of recognizing revenues for these larger
orders, the Company nevertheless has experienced fluctuations in operating
results and expects that its future results of operations may be subject to
similar fluctuations.
INDUSTRY
The Company's products fit into a growing niche that is part of the broad visual
communications business that includes printing, photography, television,
signage, etc. In particular, the Company's products fit within the signage
sub-category of the broad visual communications businesses. Signage includes
various niches commonly identified as painted signs, architectural signage,
electric signs, programmable signs and large screen video displays.
2
Daktronics is an established leader in the niche of computer programmable signs.
Growth of this product category was stimulated by the invention of the
microprocessor and the continued development and acceptance in society of the
personal computer. In many applications, the sign is another peripheral that is
attached to a personal or desktop computer. The growth of computer programmable
signage is related to the growth of the personal computer industry.
Programmable displays either emit or reflect light depending on the specific
display technology that is utilized. Around 1997 another technological
breakthrough occurred. The development of a blue light emitting diode that was
visible outdoors, and that could be manufactured in larger quantities, provided
the basis for significant future growth in the industry. This allowed Daktronics
to enter the large screen video display segment of the signage business. Prior
to this development, the large screen video displays were primarily made of
small cathode ray tubes, and the suppliers were generally the same companies
that were in the television set business.
With the availability of high quality blue and green light emitting diodes, it
has been possible for Daktronics to broaden its scope and provide not only
computer programmable signage but also large video displays for both outdoor and
indoor usage.
Most of the manufacturers of computer programmable displays that are used to
show alphanumeric data and graphics do not manufacture large screen video
displays. Conversely the large video manufacturers do not manufacture computer
programmable displays. Daktronics, however, manufactures both computer
programmable displays and large video displays. This places Daktronics in a
uniquely beneficial position to serve venues that have both requirements such as
the typical large sports venue. Daktronics, through the use of its proprietary
Venus(R) 7000 software, also has the unique capability of time sharing a large
screen such as in a large stadium or arena between the video display functions
previously provided by the large video display and the information and animation
display functions previously provided by computer programmable display. Having
all these functions integrated into one ultra large display system gives the
venue owner significant flexibility in managing the information and
entertainment presentations that has not been available previously.
It is the opinion of the Company's management that the advent of digital
television will further stimulate the ease and value of combining these video
and information presentations into a single display system.
COMPANY BACKGROUND
Drs. Aelred Kurtenbach and Duane Sander founded the Company in 1968 while
professors of electrical engineering at South Dakota State University in
Brookings, South Dakota, in part to utilize the talents of university graduates.
Daktronics produced and sold its first product in 1970, a voting display system
for the Utah Legislature. Using some of the technology developed from voting
display systems, Daktronics expanded its product line to scoreboards in 1971 and
commercial displays in 1973. Beginning in the late 1970's, the Company
incorporated microprocessor-based computers into its display controllers to
process information provided by an operator and to formulate the information for
presentation on a display. At that time, Daktronics also began building
computer-programmable information display systems utilizing standard modules or
sections in a variety of systems. The use of modular sections for both its
smaller and larger display systems has allowed the Company to offer customers a
broad range of both standard and custom products. These innovations helped the
Company to obtain a scoreboard contract for the 1980 Olympic Winter Games and
several large college installations. In the early to mid-1980's, Daktronics
continued to enhance its controller and display technology, acquired the Glow
Cube(R) reflective display technology and a manufacturer of printed circuit
boards, and installed its first scoreboard in a major league facility.
3
During the 1990's, the Company has continued to expand its product lines,
increase market share in its existing markets and develop new markets for its
products. Daktronics enhanced its Starburst(R) incandescent display technology
by developing new lens and reflector designs to capture viewer attention and
reduce energy consumption. The Company has display control circuitry capability
to display 16 million possible color combinations at 30 frames per second for
Starburst(R) displays. The Company has utilized this circuitry to develop
technology for LED video displays. Examples of the Company's continued market
penetration include (i) scoreboards and/or LED video displays for the
Meadowlands Sports Complex, Seattle Mariners, Indianapolis Motor Speedway, West
Virginia University, (ii) commercial displays in Times Square, New York; Las
Vegas, Nevada; Branson, Missouri; and other locations, and (iii) variable
message systems for highway and mass transit use in Virginia, New Jersey,
California, Washington, Delaware, Illinois, Pennsylvania, Mexico and New
Zealand.
Dr. Al Kurtenbach, Daktronics Chairman and CEO, was awarded the national 2000
Ernst & Young Entrepreneur of the Year(R) award in the manufacturing category.
Daktronics has received several awards, including being named the South Dakota
Business of the Year in 1987, 1989, 1993 and 2000 by the South Dakota Chamber of
Commerce and Industry.
PRODUCTS
The Company offers its customers a wide range of computer-programmable
information display systems consisting of related products, or families of
products, that have similar functions and varying degrees of capabilities.
Products within each family use displays and controllers that are built with
many of the same modular components to reduce the cost of production, improve
delivery time and provide flexibility for standard and custom installations. The
use of modular components also enhances the reliability and serviceability of
the display systems. For example, the basketball scoreboard family includes
products that use many of the same display modules and range from a small,
single-faced scoreboard to a large, four-sided display with player statistics.
The sizes of displays range from 2 inches by 20 inches for small indoor displays
to 30 feet by 100 feet or more for large outdoor displays.
The two principal components of the Company's systems are the display and the
display controller. The display controller uses computer hardware and software
to process the information provided from the operator and to formulate the
information, graphics or animation to be presented on the display. The display
controller then controls each of the pixels (dots or picture elements that make
up an image) on the display to present the message or image.
Data can be transferred between the display controller and the displays to both
local and remote display sites. Local connections use twisted pair cables, fiber
optic cables, infrared links or radio links. Both standard and cellular
telephone connections, and satellite transmissions, are used to connect remote
display locations. These connections are generally purchased from third parties.
Within each product family, Daktronics produces both standard and custom
displays that vary in complexity, size and resolution. For example, a large
color animation display is significantly more complex than a time and
temperature display. 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 of
information to be displayed at any one time. Generally, larger pixels spaced
farther apart are used for longer distance viewing. The resolution of a display
is determined by the size and spacing of each pixel, with smaller more densely
packed pixels for higher resolution. The type of the display may depend on the
location of the viewing audience. For example, arena scoreboards may have a
viewing angle nearly as wide as 180 degrees, compared with a roadside display
which can been viewed from a passing vehicle only within a narrow angle from the
display.
4
DISPLAY TECHNOLOGIES
Each of the Company's display systems uses one or more of the following display
technologies: (i) LEDs, (ii) Starburst(R) multi-color incandescent, (iii)
SunSpot(R) monochrome incandescent, (iv) Glow Cube(R) and other reflective
elements or (v) FibreLite(R) fiber-optic. The customers' selection of a display
technology depends on a variety of factors, including price, location, power
consumption and operating cost, and complexity of the information, graphics or
animation to be displayed. Outdoor displays are designed to withstand the
elements and to be visible in both bright sunlight and at night.
LED (LIGHT EMITTING DIODE) DISPLAYS. The Company's LED displays use programmable
light emitting diodes as the light source for each display pixel. LED technology
uses individual indicator elements that are commonly found in applications such
as automobile dashboards, small appliances and digital clocks. The LEDs turn on
and off at different intervals and rates to form the display images. One line
LED displays are used for text, and larger LED displays are used for text,
graphics, animation and video. LED displays can be one or multiple colors. The
LED technology is advantageous because of the long life of LEDs and their low
power consumption. Daktronics manufactures both indoor and outdoor LED displays
(including its own pixels). Displays range from small character-based
DataTrac(TM) signs to ProStar(R) video displays that have the capability to show
moving images in 68 billion shades of color.
STARBURST(R) COLOR DISPLAYS USING INCANDESCENT LAMPS. Starburst(R) displays use
four colors (red, green, blue and white) to display many shades of color when
different combinations of lights are illuminated. The most popular Starburst(R)
displays use reflectors with colored lenses over clear lamps. Each of the
display lamps is turned on and off at different intervals and rates determined
by the software in the controller to change what is presented on the display.
The Company-designed reflector and lens system consumes less energy than a
traditional incandescent lamp display while maintaining the brightness of the
display to the viewing audience. The Starburst(R) color displays are used both
indoors and outdoors and provide customers the flexibility of displaying text,
numbers, graphics, animation and other types of information. Among the thousands
of the Company's Starburst(R) installations are displays at Caesars Palace,
Philips Arena, Tacoma Dome and HSBC Arena, and various indoor and outdoor sports
and entertainment facilities.
SUNSPOT(R) MONOCHROME INCANDESCENT LAMP DISPLAYS. SunSpot(R) displays use
incandescent lamps without lenses or with a single color of lens, which turn on
and off at intervals and rates similar to a Starburst(R) multi-color display.
SunSpot(R) displays are used both indoors and outdoors typically for time and
temperature, messaging, graphics and other applications where color is not
required. Daktronics has sold its SunSpot(R) displays for many small and large
installations such as high school football stadiums, commercial businesses, and
major league baseball parks.
REFLECTIVE DISPLAYS. The Company's Glow Cube(R) display technology uses
three-dimensional pixels or "cubes." Each pixel is programmed to rotate so that
the viewing surface of the cube flips from a bright color to a dark contrasting
color. Words and graphics form as each pixel flips from one color to the other.
Glow Cube(R) displays are generally used outdoors, use less power and can be
configured in a wide variety of sizes. Because a Glow Cube(R) display reflects
sunlight during the day and fluorescent light at night, the display consumes
relatively little power while operating. The Company's 7 x 18 foot Glow Cube(R)
displays for the PGA TOUR each operate on a golf cart battery and are moved
between golf tournament sites throughout the season. Daktronics has also
provided Glow Cube(R) displays for the 2000 Olympic Summer Games, the 1994
Olympic Winter Games, and other sports, commercial and transportation
applications.
5
Another reflective product, the MagneView(TM) technology, uses a two dimensional
design, as a lower cost alternative to the Glow Cube(R) technology. This
technology, along with others, was incorporated into the displays at the 1996
Olympics in Atlanta, and was also be used during the 2000 Olympics in Sydney.
FIBRELITE(R) FIBER-OPTIC DISPLAYS. The Company acquired a fiber-optic display
technology in 1999. The Company's FibreLite(R) technology uses fiber-optic
strands to deliver light to a display face from an image generator such as an
LCD monitor. FibreLite(R) technology can provide a very affordable, indoor video
display system for schools and for other applications.
PRODUCT FAMILIES
Daktronics product offering is comprised of three primary product groups:
1) Sports Products
2) Video Products
3) Business Products
SPORTS PRODUCTS
The Sports Products group includes the following products:
Sports Product Displays. The Company offers a full line of indoor scoreboards
ranging from 2-digit shot clocks to high school basketball scoreboards to large
center hung scoreboards incorporating message centers and ad panels. The Company
offers a wide variety of indoor scoreboard models using LED technology.
The Company also offers outdoor scoreboards that use both LED and incandescent
lamp technology. Approximately 40% of outdoor scoreboards sold use LED
technology. Approximately 60% of the Company's outdoor standard scoreboards use
incandescent technology. The Company believes that LED technology will be more
popular with its customers in the future. The outdoor scoreboards likewise range
from 2-digit game timers to high school football scoreboards to large scoring
systems incorporating message centers and ad panels.
In 1996 the Company began standardizing many of the large scoring systems, both
indoor and outdoor, suitable especially for colleges and municipal arenas,
stadiums and ballparks. Previously, many of these systems were designed
individually from the ground up. This standardization of the large scoring
systems has improved Daktronics ability to deliver a quality system in minimal
time, with improved quality and more consistent margins.
Sports Product Controllers. The Company offers a variety of internally developed
controllers depending on the sport and complexity of the system. The following
is a list of controllers for sports displays.
All Sport(R) 1600 - low price, entry-level controller for scoreboards.
All Sport(R) 3100 - controller with enhanced features and packaging over
All Sport(R)1500.
All Sport(R) 5010 - deluxe controller for controlling small and medium
sized scoreboards.
All Sport(R) 5100 - controller for large multi-display, multi-sport scoring
system for large college and professional levels.
OmniSport(R) 6000 - timer with enhanced features and packaging for larger
aquatics, track, or other timed events.
6
The Company manufactures touchpads and electronic start systems that can be
integrated with the OmniSport(R) 6000 timing system to provide complete timing
for aquatics.
The Company offers a variety of sports statistics and results software under the
DakStats(R) trademark to complement the controllers.
VIDEO PRODUCTS
The Video product group consists of displays having a large number of display
pixels. The pixels offered are LED, incandescent, reflective Glow Cube(R) or
fiber-optic pixels.
In recent years, the electronic sign industry has grown more and more
sophisticated with the increased capability and processing power of the desktop
personal computer.
Video Product Displays. Previously, conventional matrix displays formed images
by simply turning a pixel on or off, displays today have the ability to vary the
intensity of each pixel to allow the generation of multiple colors. These
displays have the capability to display more than 68 billion colors at speeds
that allow the display of video information.
The large matrix product offering spans from a basic 24 pixel high display with
on/off pixel control up to a full large-screen video at the high end.
Daktronics ProStar(R) LED video display technology, which uses red, green, and
blue (RGB) LEDs at brightness levels adequate for outdoor, is well suited to
show video images because of its very quick response times. The 12 bit, 68
billion color RGB LED displays offer state-of-the-art video and animation
capability at a price significantly less than traditional large screen CRT video
screens used in sports stadiums. The first ProStar(R) installations were
installed in the fall of 1997.
The Company adapted the technology used in its ProStar(R) product line to
introduce the ProAd(TM) digital advertising and information display system.
ProAd(TM) technology uses red, green and blue LED modules configured in
different height-to-width ratios to accommodate different applications. One of
the more common applications is the installation of ProAd(TM) displays in long
bands on the fascia of arenas and stadiums. Through fiscal year 2001, 430
ProStar(R) and ProAd(TM) displays have been sold.
The 16 million color Starburst(R) technology offers a lower cost alternative to
the Company's RGB LED technology displays. The Starburst(R) technology has lower
resolution than the RGB LED product, it still provides an effective video and
animation display. Although still a popular technology, incandescent displays
are being replaced by LED displays in many applications.
Video Product Controllers. Daktronics Venus(R) 7000 controller uses the
Windows(R) operating system. This is a PC-based, high-end controller that
provides advanced capability for control of large animation/video displays. The
V-Play(TM) controller was released in fiscal year 2001. It allows for the
organization and playback of digital video and audio clips.
The Company has also developed applications software that supports its Venus(R)
display controllers. The Company's DakStats(R) software allows scorekeepers and
statisticians to enter and display sports statistics and other information on
certain of the Company's scoreboards. The user is responsible for updating the
statistics after the software has been installed. The DakStats(R) baseball
software was first used in 1988 by the AAA minor league Buffalo Bisons and has
now been installed at several major league facilities, including Oriole Park at
Camden Yards, Jacobs Field, Ballpark in Arlington and Coors Field. The Company
has developed proprietary statistics and results software for several other
sports such as golf,
7
football, volleyball, basketball, auto racing and skiing. In addition to
providing these software products, the Company develops customized hardware
circuit boards and software for customers who have special information display
requirements.
The Company designs interfaces between its display systems and other computer
systems allowing its large scoreboard systems to receive and display information
from computers used for statistics, timing or scoring. These interfaces allow
the display controller to send information back to a statistics system or
customer computer. These interface products automatically report continually
updated sports scores and information from national wire services.
BUSINESS PRODUCTS
The Business Products develops the Company's DataTrac(TM), InfoNet(TM),
Galaxy(TM), DakTicker(TM) and Vanguard(TM) product lines intended primarily as
text-based message displays, some with limited graphics capability. Each uses
LED technology. They cost less than a large matrix display that is designed for
full graphics and animation.
DataTrac(TM) / InfoNet(TM) / Galaxy(TM) Displays. The DataTrac(TM) product line
consists of a family of indoor LED displays comprised of discrete 5x7 pixel
characters. Each character is spaced horizontally and vertically from the
adjacent character. This provides the least expensive display per character for
display of text messages only. Daktronics offers products with 1.2", 2.1" & 4.2"
characters in a wide range of overall display sizes. Some models are available
in either monochrome or tri-color.
The InfoNet(TM) product line includes line-oriented displays for indoor use,
with character heights of 2". InfoNet(TM) products are available as single or
multi-line units. InfoNet(TM) models find applications in the majority of
markets served by Daktronics.
Galaxy(TM) displays are available in indoor and outdoor models and provide the
capability to show text, graphics and limited animation. Indoor models are
available with pixels on .7" centers and can show various character heights.
Outdoor Galaxy models, with the ability to show different size characters, have
wide application as a low cost marquee display applicable to many of the markets
Daktronics serves, especially the High School and Commercial markets.
DakTicker(TM) Displays. DakTicker(TM) displays are indoor, tri-color LED
displays used primary to display financial information such as delayed stock
quotes. DakTicker(TM) displays can be configured horizontally in 2' increments
(with a minimum of 6' length).
Vanguard(R) Displays. This product line consists of a family of outdoor LED
displays used primarily for the transportation markets. Vanguard(R) displays are
typically installed over roads to help direct traffic and inform motorists. The
Company has developed a control system, Vanguard(R) central software, to operate
a network of displays remotely.
Controllers for DataTrac(TM) and InfoNet(TM) Displays. All DataTrac(TM) and
InfoNet(TM) products have a controller in the display that is capable of
receiving a downloaded display program, and then operating independently to
display that program until a new program is downloaded to it. This controller,
called an MDC (Multi-purpose Display Controller), is a key building block for
future product growth and expansion of the Company character-based,
line-oriented and matrix display product offering.
8
The Venus(R) 1500 is the software used on a PC that allows creation of messages
and graphic sequences for downloading to a DataTrac(TM), InfoNet(TM), Galaxy(TM)
or SunSpot(R) display, or future display models containing an MDC. The Venus(R)
1500 software is designed to be useable without any special training, and is
applicable to all general advertising or message presentation applications.
The protocol for transferring data into the MDC is called the Venus(R) 1500
protocol. For applications not addressed by the Venus(R) 1500, OEMs (original
equipment manufacturers) can purchase the Company displays and write their own
software using the Venus(R) 1500 software developer's kit (SDK) to communicate
to the displays. Several system integrators have implemented the Venus(R) 1500
protocol into their specific applications, resulting in additional display sales
in both the aviation market, the automatic call distribution (ACD) market (ie.
credit card processing centers), and other markets.
OTHER PRODUCTS. Other products outside the three primary product groups include
time and temperature displays, lottery billboard displays and price displays.
MARKETING AND SALES
There are many manufacturers and sellers of signs and displays throughout the
world. The design and manufacture of computer-programmable signs and displays
that allow a customer to readily change the information displayed is a smaller
and more specialized segment of the larger sign and display industry. Many
makers of computer-programmable signs and displays serve only one or a few
specialized markets. Daktronics strives to distinguish itself by providing a
broad range of technologically advanced information display products to a number
of strategic markets.
The Company's display systems have been sold throughout the United States and in
more than 70 countries. Daktronics markets and sells its products worldwide by
direct sales and through independent resellers. The Company's sales personnel
learn the needs of the Company's markets and customers by establishing
relationships with existing and prospective customers, attending trade shows,
conventions and seminars, and participating with customers in the installation
of the Company's products.
When the Company targets a potential customer for a display system, the prospect
is contacted either directly or through a reseller. Daktronics sells custom
display systems for larger projects on a direct basis and frequently uses a team
of Company personnel to ensure that the proposed system meets the customer's
needs in the most cost effective manner. Engineers, technicians and direct sales
personnel participate in site visits to assess site conditions and to evaluate
the customer's requirements. The Company's sales staff submits proposals to
prospective customers, often followed by a business and technical presentation.
The Company also regularly hosts prospective customers at its manufacturing
facility to demonstrate product quality and delivery capability.
The Company's direct sales staff, grouped by end user market, is also
responsible for international sales in their respective markets. During fiscal
2001, 2000, and 1999, 6.8%, 9.3%, and 11.4% of the Company's net sales,
respectively, were derived from international sales. International sales
fluctuate from year to year based on the timing of large projects like Olympic
events. A typical term of sale for international projects is letter of credit or
payment in advance in United States dollars. Daktronics intends to expand its
international sales.
Resellers are used most prevalently in the areas of standard or "catalog" sports
scoreboards and commercial applications where display systems must be installed
in accordance with local zoning ordinances. The Company offers, primarily
through its resellers, a broad selection of scoreboard and display models that
are moderately priced and relatively easy to install. The most popular models
are
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built to inventory and available for next-day shipment. The remaining models are
built to order and quoted for shipment in 30 to 90 days after order acceptance.
The Company supports its resellers through national and regional direct mail
advertising, trade journal advertising and trade show exhibitions. Regional
sales managers support resellers in the field, and the Company's sales staff
provides daily telephone support. Daktronics believes that it can expand market
share by increasing the productivity of existing resellers and adding additional
resellers in new geographic areas.
In fiscal 2001, Daktronics acquired SportsLink Ltd., a large screen video rental
display company based in Brookings, S.D. SportsLink was founded in 1995 and
provides large screen video displays for all types of events. SportsLink
currently operates four large Daktronics mobile ProStar displays. SportsLink
provides additional revenues through rentals and support services at events. The
Company intends to increase the number of displays in the SportsLink inventory,
believing that rentals provide an excellent method to demonstrate the Company's
product and service capabilities.
The primary markets served by the Company, along with types of customers, are
shown below.
MARKETS TYPES OF CUSTOMERS
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SPORTS Elementary and secondary schools, colleges and universities,
recreation centers, YMCAs, major and minor league sports teams
and facilities, Olympic games, national and international
sports federations, civic arenas and convention centers,
pari-mutuel gaming and motor racing.
BUSINESS Banks, auto dealers, shopping malls, casinos, retail stores,
hotels, motels and other businesses.
GOVERNMENT/ Legislatures and assemblies, departments of transportation,
TRANSPORTATION financial exchanges, aviation, and transit.
Daktronics has a large and diverse customer base. Due to that diverse customer
base, the loss of a major customer would not have an adverse impact on the
Company. Historically, net sales to the sports market made up approximately
two-thirds of the Company's business, with net sales to business and
government/transportation clients made up the remaining third.
CUSTOMER SERVICE AND SUPPORT
Daktronics believes that its prompt and reliable customer service distinguishes
it from many of its competitors. The Company provides a limited warranty for
most of its products against failure due to defective parts or workmanship for
periods generally ranging from 90 days to 5 years after first sale or
installation, depending on the product or type of customer. Under the limited
warranty, the customer returns the failed component to the Company for
replacement or repair. The Company also provides customer service and support,
including "Help Desk" access, parts repair and replacement, and programming
support for video, animation and other display information. The Company staffs
it's Help Desk with experienced technicians who are available at the desk or on
call for the extended hours required to support evening and weekend sports
events. A comprehensive database of customers provides the Company with
immediate access to each customer's equipment and service history. A repair
center is staffed with trained technicians who promptly repair and return
components that require service, and offers a component exchange program for
same day shipment of replacement parts. The Company's modular approach to the
design and production of products enhances its ability to provide effective
customer service. Customers can obtain periodic training and maintenance
seminars at the Company's
10
principal offices and also contract for on-site training and maintenance for
certain types of installations such as high profile sports events.
The Company's Keyframe group provides a variety of services for it customers,
including video and animation production, event support, control room design,
on-site training, and continuing technical support for operators of Daktronics
displays. Current Keyframe offices are located in Brookings, S.D., Sioux Falls,
S.D. and Tampa, Florida. The Company believes that its extensive customer
support program is essential to continued market penetration.
To enhance the level of service available to its customers, the Company has
established 23 service centers in 21 states and plans to open other service
centers in the future. Scoreboard and message display sales to schools and
recreation departments are also made through these offices. The Company uses a
network of authorized service companies in other domestic locations and in a
number of other countries.
ENGINEERING AND PRODUCT DEVELOPMENT
The computer-programmable information display industry is characterized by
ongoing product innovations and developments in display and controller
technology. To remain competitive, the Company must continue to anticipate and
respond to these changes and developments. Daktronics intends to continue its
tradition of applying engineering resources throughout its business to help
achieve more effective product development, manufacturing, sales and customer
support.
The Company employs engineers and engineering technicians in the areas of
mechanical design, electronics design, applications engineering, and customer
and product support. Unlike some of its competitors who depend on contract
engineering from outside vendors, the Company uses in-house engineering staff to
anticipate and respond rapidly to the product development needs of customers and
the marketplace. The Company assigns product managers from its engineering staff
to each product or product family to assist its sales staff in customer
training, to implement product improvements requested by customers, and to
ensure that each product is designed for maximum reliability and serviceability.
The Company's product development personnel also modify existing products and
develop new products to comply with rule changes for particular sports.
Daktronics engineering department, consists of three design groups, each aligned
with one of the three primary product families, namely:
1. Sports Products
2. Video Products
3. Business Products (See "Product Families" Section)
Each of these design groups is autonomous to allow it to focus on the respective
product family. This organizational structure, plus a concentrated focus on
standardization, which reduces the amount of engineering time allocated to
one-time custom design, positions the company for even more effective product
development in the future.
Daktronics believes its engineering capability and experience are unparalleled
among its competitors and its product development capability will continue to be
a very important factor in its market position.
Product development expenses for fiscal 2001, 2000, and 1999 were approximately
$5,685,000, $4,292,000, and $3,809,000 respectively.
11
MANUFACTURING AND TECHNICAL CONTRACTING
As a vertically-integrated manufacturer of display systems, the Company performs
most sub-assembly and substantially all final assembly of its products. The
Company also serves as a technical contractor for customers who desire custom
hardware design, custom software development or specific site support.
MANUFACTURING OPERATIONS
The Company's manufacturing operations include component manufacturing (printed
circuit boards and Glow Cube(R) pixel assembly) and system manufacturing (metal
fabrication, electronic assembly, sub-assembly and final assembly). Star
Circuits, Inc., a wholly owned subsidiary, manufactures printed circuit boards
for the Company and other customers at its separate production facility located
in Brookings, South Dakota. The Company augments its production capacity with
the use of outside subcontractors, primarily for metal fabrication and loading
printed circuit boards.
Daktronics uses a modular approach for manufacturing its displays. Standard
product modules are designed and built to be used in a variety of different
products. This modular approach reduces parts inventory and improves
manufacturing efficiency. The Company inventories finished goods of smaller,
standard products and builds to order larger, seasonal and custom products.
Daktronics designs its product modules so that a custom product may include a
significant percentage of standard products to maximize reliability and ease of
service. Certain components used in the Company's products are currently
available from a limited number of sources. To reduce its inventories and
enhance product quality, the Company elects to purchase certain components from
a limited number of suppliers who are willing to provide components on an "as
needed" basis. From time to time, the Company enters into pricing agreements or
purchasing contracts under which it agrees to purchase a minimum amount of
product in exchange for guaranteed price terms over the course of the contract,
which generally do not exceed one year. Through the Company's "total quality
management" and "just-in-time" methods of scheduling and manufacturing,
production employees work as teams to ensure quality and timely delivery while
minimizing excess inventories. The Company's order entry, production and
customer service functions are also computerized to facilitate communication
throughout the entire sales, design, production and delivery process.
TECHNICAL CONTRACTING
Daktronics serves as a technical contractor for larger display system
installations that require custom designs and innovative product solutions. The
purchase of scoreboards and other state of the art display systems for Olympic
venues and other large installations typically involves competitive proposals by
the Company and its competitors. As a part of its response to a proposal
request, the Company may suggest additional products or features to assist the
prospective customer in analyzing the optimal type of computer-programmable
information display system. If requested by a customer or if necessary to help
secure a bid, the Company will include as a part of its contract proposal the
work necessary to prepare the site and install the display system. In such
cases, Daktronics may serve as the general contractor and retain subcontractors.
With each custom order, the Company forms a project team to assure that the
project is completed to the customer's satisfaction. Key members of a project
team include a project manager, sales person, mechanical design team,
electronics and software team, manufacturing team, animation programmer,
installation supervisor and an executive officer.
12
BACKLOG
The Company's backlog consists of customer sales agreements or purchase orders
that the Company expects to fill within the next 12 months and was approximately
$32 million as of May 26, 2001 and $30 million as of May 27, 2000. Because sales
agreements and purchase orders are typically subject to cancellation or delay by
customers with limited or no penalty, the Company's backlog is not necessarily
indicative of future net sales or net income. While orders for certain products
may be shipped within 90 days, other orders may take longer depending on the
size and complexity of the display.
COMPETITION
The computer-programmable information display industry is highly fragmented and
characterized by intense competition in certain markets. There are a number of
established manufacturers of competing products who may have greater market
penetration in certain market niches or greater financial, marketing and other
resources than the Company. Because a customer's budget for the purchase of a
computer-programmable information display is often part of that customer's
advertising budget, the Company may also compete with other forms of
advertising, such as television, print media or fixed display signs. Competitors
might also attempt to copy the Company's products or product features.
Many of the Company's competitors compete in only one or a few of the market
niches served by the Company. There are generally more competitors in markets
that require less complicated information display systems, such as the high
school scoreboard market and the commercial market for time and temperature or
message displays used by banks and small retail stores. As the needs of a
customer increase and the display systems become more complex, there are fewer
competitors. Nevertheless, competition may be intense even within markets that
require more complex display systems. Some of the Company's primary competitors
are Mitsubishi, Tokyo, Japan; White Way Sign and Maintenance Company, Chicago,
Illinois; Nevco, Inc., Greenville, Illinois; Trans-Lux Corporation, Norwalk,
Connecticut; and MultiMedia of Rancho Cordova, California.
Daktronics competes based on its broad range of products and features, advanced
technology, prompt delivery, and reliable and readily available customer
service. The Company also strives to provide cost effective products and
solutions for its customers. Contrary to the Company's focus on technologically
advanced products and customer support, certain companies compete in some
markets by providing lower cost display systems which, in the Company's belief,
are of a lesser quality with lower product performance or customer support. If a
customer focuses principally on price, the Company is less likely to obtain the
sale. To remain competitive, Daktronics must continue to enhance its existing
products, introduce new products and product features, and provide customers
cost effective solutions to their scoring or display needs.
GOVERNMENT AND OTHER REGULATION
In the United States and other countries, various laws and regulations restrict
the installation of outdoor signs and computer-programmable information
displays. These regulations may impose greater restrictions on
computer-programmable information displays due to alleged concerns over
aesthetics or driver safety if a "moving" display is located near a road or
highway. These factors may prevent the Company from selling products to some
prospective customers.
Some of the Company's products are tested to safety standards developed by
Underwriters Laboratories(R) in the United States as well as similar standards
in other countries. Daktronics designs and produces these products in accordance
with these standards. The Company's printed circuit board manufacturing
operations use certain chemical processes that are subject to various
environmental rules and regulations.
13
The Company's manufacturing operations must also meet various safety related
rules and regulations. The Company believes it is in material compliance with
all applicable governmental laws and regulations.
INTELLECTUAL PROPERTY
Daktronics currently owns eight United States patents. These patents pertain to
the Company's LED and incandescent display technologies, and its
water-submersible touchpad. The Company also relies on trademarks, in addition
to patents, to help establish and preserve limited proprietary protection for
its products. The Company has 25 trademarks registered in the United States.
Daktronics uses these trademarks to establish brand recognition and distinction
in its various markets. The Company's product drawings, controller software and
other works of authorship are also subject to applicable copyright laws. The
Company typically provides software to its customers in only machine- readable
form to help preserve trade secret protection that may be applicable to the text
versions of the software code. The Company also relies on nondisclosure
agreements with its employees. Despite these intellectual property protections,
there can be no assurance that a competitor will not copy the functions or
features of the Company's products.
EMPLOYEES
As of June 1, 2001, Daktronics employed 843 full time employees and 434 part
time and temporary employees. Of these employees, approximately 593 were in
manufacturing, 322 in sales, marketing and customer service, 290 in engineering,
and 72 in administration. None of the Company's employees are represented by a
collective bargaining agreement. The Company believes its employee relations are
good.
Item 2. Properties.
The Company currently owns and occupies approximately 288,000 square feet in
adjoining facilities located on a Company-owned 40-acre site in Brookings, South
Dakota. The Company has recently completed construction on a 32,000 square foot
expansion to its office building facility. The Company's circuit board
manufacturing subsidiary and reflective pixel assembly operation are located at
a separate site in Brookings and currently occupy approximately 20,000 square
feet in a facility owned by that subsidiary.
Item 3. Legal Proceedings.
There are no pending material legal transactions against Daktronics, Inc.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of stockholders through a solicitation of
proxies or otherwise, during the fourth quarter of fiscal 2001.
14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters.
Daktronics common stock currently trades on the NASDAQ National Market System
under the symbol "DAKT". As of April 28, 2001 the Company had 493 shareholders
of record. Following are the high and low sale prices for the Company's common
stock (amounts have been adjusted for the two-for-one stock splits approved on
December 7, 1999 and May 24, 2001):
FY 2001 FY 2000
High Low High Low
----------------------------------------------
1st Quarter $ 5.69 $4.44 $3.22 $2.44
2nd Quarter $ 7.94 $5.31 $4.59 $3.00
3rd Quarter $ 8.00 $5.78 $9.13 $3.31
4th Quarter $11.65 $7.00 $7.44 $3.50
On December 7, 1999, Daktronics approved a two-for-one stock split of the
Company's common stock in the form of a stock dividend. Stockholders of record
at the close of business on December 20, 1999 received one additional share for
each share of common stock on that date of record. Daktronics stock began
trading on the split-adjusted basis on January 10, 2000.
On May 24, 2001, Daktronics approved a two-for-one stock split of the Company's
common stock in the form of a stock dividend. Stockholders of record at the
close of business on June 11, 2001 received one additional share for each share
of common stock on that date of record. Daktronics stock began trading on the
split-adjusted basis on June 25, 2001.
The Company has not paid any cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future. Earnings will be
retained for use in the operation and expansion of the Company's business.
Provisions of the Company's bank credit agreement limit the Company's ability to
pay cash dividends.
Item 6. Selected Financial Data.
(In Thousands, Except Per Share Data)
The following data has been derived from financial statements audited by
McGladrey & Pullen, LLP, independent accountants. Consolidated balance sheets as
of April 28, 2001 and April 29, 2000 and the related consolidated statements of
income and shareholders' equity for each of the three years ended April 28,
2001, April 29, 2000 and May 1, 1999 and notes thereto appear elsewhere in this
Form 10-K.
15
2001 2000 1999 1998 1997
-----------------------------------------------------------
Income Statement Data:
Net Sales................................. $152,331 $123,350 $95,851 $69,884 $62,640
Operating Income.......................... 14,451 9,996 7,056 5,028 2,501
Net Income................................ 8,685 6,224 4,220 3,392 1,508
Diluted Earnings per Share *.............. .46 .34 .24 .20 .09
Weighted Average Shares Outstanding *..... 18,874 18,414 17,898 17,346 17,064
Balance Sheet Data:
Working Capital........................... $26,967 $20,663 $20,592 $12,229 $10,923
Total Assets.............................. 90,214 72,407 62,619 43,488 37,136
Long-Term Liabilities..................... 12,004 8,977 9,503 1,659 2,640
Shareholders' Equity...................... 45,823 36,231 29,501 25,184 21,750
*Amounts have been adjusted for the two-for-one stock splits approved on
December 7, 1999 and May 24, 2001.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The Company designs, manufactures and sells a wide range of
computer-programmable information display systems to customers in a variety of
markets throughout the world. The Company focuses its sales and marketing
efforts on markets rather than products. Major categories of markets include
sport, business, and transportation.
The Company's net sales and profitability historically have fluctuated due to
the impact of large product orders, such as display systems for the Olympic
Games and major league sport facilities, as well as the seasonality of the
sports market. The Company's gross margins on large product orders tend to
fluctuate more than those for small standard orders. Large product orders that
involve competitive bidding and substantial subcontract work for product
installation generally have lower gross margins. Although the Company follows
the percentage of completion method of recognizing revenues for these larger
orders, the Company nevertheless has experienced fluctuations in operating
results and expects that its future results of operations may be subject to
similar fluctuations.
The Company operates on a 52-53 week fiscal year, with fiscal years ending on
the Saturday closest to April 30 of each year. The Company's 2001 fiscal year
contained 52 weeks.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by items
included in the Company's Consolidated Statements of Income for the fiscal years
ended 2001, 2000 and 1999:
16
YEAR ENDED
2001 2000 1999
-------------------------------------
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................... 70.3 72.2 72.7
--------------------------------------
Gross profit............................ 29.7 27.8 27.3
Operating expenses.......................... 20.2 19.7 19.9
--------------------------------------
Operating income........................ 9.5 8.1 7.4
Interest income............................. 0.5 0.7 0.6
Interest expense............................ (1.0) (1.1) (1.0)
Other income, net........................... 0.2 0.3 (0.1)
--------------------------------------
Income before income taxes.............. 9.2 8.0 6.9
Income tax expense.......................... 3.5 3.0 2.5
--------------------------------------
Net income............................... 5.7% 5.0% 4.4%
======================================
NET SALES
Net sales for fiscal 2001 were $152.3 million, representing a 23% increase over
fiscal 2000 sales of $123.4 million. The increase was the result of increased
sales in the sports, business and transportation markets.
Net sales for fiscal 2000 were $123.4 million, representing a 29% increase over
fiscal 1999 sales of $95.9 million. The increase was the result of increased
sales in the sports, business and transportation markets.
The Company occasionally sells products in exchange for advertising revenues
from the scoreboard or display. These sales represented less than 10% of net
sales for fiscal 2001, 2000 and 1999. The gross profit margin on these net sales
has been comparable to the gross profit margin on other net sales.
GROSS PROFIT
Gross profit increased from $34.3 million in fiscal 2000 to $45.2 million in
fiscal 2001. The increase was due to increased sales and continued improvement
in gross profit percentage of sales as the Company continues its cost
improvement programs, including product standardization. Gross profit as a
percentage of net sales was 27.8% in fiscal 2000 and 29.7% in fiscal 2001.
Gross profit increased from $26.1 million in fiscal 1999 to $34.3 million in
fiscal 2000. The increase was due to increased sales and continued improvement
in gross profit percentage of sales as the Company continued its cost
improvement programs, including product standardization. Gross profit as a
percentage of net sales was 27.3% in fiscal 1999 and 27.8% in fiscal 2000.
OPERATING EXPENSES
Selling expenses have increased 25% and 30% for fiscal years 2001 and 2000,
respectively over the previous fiscal years. The increases were primarily
attributable to the expansion of sales staff and higher travel expenses as the
Company continues to expand its marketing efforts and the Company's increased
sales.
General and administrative expenses increased 27% and 34% for fiscal years 2001
and 2000, respectively over the previous fiscal years. The increases were due to
the increased administrative support to sustain the Company's sales growth,
including increased depreciation on computer equipment and office furniture.
17
Product design and development expenses increased 33% and 13% for fiscal years
2001 and 2000, respectively over the previous fiscal years. The increases were
due to the Company's commitment to develop new products and continue to improve
existing products to maintain a competitive advantage. The increases were
primarily the result of the Company aggressively developing its family of
ProStar(R) Video displays and ProAd(TM) digital advertising and information
systems, and adapting other products to LED technology.
INTEREST INCOME
The Company occasionally sells products on an installment basis or in exchange
for advertising revenues from the scoreboard or display, both of which result in
long-term receivables. Interest income was $.8 million, $.9 million and $.6
million for fiscal years 2001, 2000 and 1999, respectively. Factors affecting
the increases and decreases include the average balance of long-term receivables
resulting from new receivables, principal repayments, the average interest rate,
and excess cash balances invested in interest-bearing accounts.
INTEREST EXPENSE
Interest expense was $1.6 million, $1.3 million and $.9 million for the fiscal
years 2001, 2000 and 1999, respectively. The increases in interest expense was
the result of increased average loan balances as the Company utilized its line
of credit and long-term debt to fund increased operating activities.
INCOME TAXES
The effective tax rate was 38% for 2001 and 37% for the fiscal years 2000 and
1999.
NET INCOME
Net income was $8.7 million, $6.2 million and $4.2 million for fiscal years
2001, 2000 and 1999, respectively. The increases in net income were primarily
the result of increased sales with increasing gross profit margins, which was
partially offset by increased operating expenses.
Management believes that one of the principal factors that will continue to
affect the Company's rate of growth is the Company's ability to increase the
marketing of its current and future products in existing markets and expand the
marketing of its products to new markets.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $27.0 million at April 28, 2001, compared to $20.7 million
at April 29, 2000. The increase was primarily the result of increases in
inventory and costs and estimated earnings in excess of billings which were
partially offset by increases in current maturities of long-term debt and
accounts payables.
Cash provided by operations for fiscal 2001 was $7.4 million. Net income of $8.7
million plus depreciation and amortization of $4.1 million were offset by an
increase in inventories of $5.5 million, an increase in costs and estimated
earnings in excess of billings of $5.7 million, a decrease in trade receivables
of $2.7 million, and an increase in accounts payable and accrued expenses of
$4.1 million.
18
Cash used in investing activities for fiscal 2001 was $9.1 million which
principally consisted of equipment acquisitions and plant expansion.
Cash provided by financing activities for fiscal 2001 was $3.4 million, which
consisted primarily of $5.2 million in borrowings in long-term debt and net
borrowings of $.6 million on note payable and the Company's line of credit, less
payments on long-term debt.
The Company has used and expects to continue to use cash reserves and bank
borrowings to meet its short-term working capital requirements. On large product
orders, the time between order acceptance and project completion may extend up
to 12 months depending on the amount of custom work and the customer's delivery
needs. The Company often receives a down payment or progress payments on these
product orders. To the extent that these payments are not sufficient to fund the
costs and other expenses associated with these orders, the Company uses working
capital and bank borrowings to finance these cash requirements.
The Company's product development activities include the enhancement of existing
products and the development of new products from existing technologies. Product
development expenses for fiscal years 2001, 2000 and 1999 were $5.7 million,
$4.3 million and $3.8 million, respectively. The Company intends to continue to
incur these expenditures to develop new display products using various display
technologies to offer higher resolution, more cost-effective and
energy-efficient displays. The Company also intends to continue developing
software applications for its display controllers to enable these products to
continue to meet the needs and expectations of the marketplace.
The Company has a credit agreement with a bank. The credit agreement provides
for a $20 million line of credit. The line of credit is at LIBOR rate plus 1.55%
(6.01% at April 28, 2001) and is due on October 1, 2003. As of April 28, 2001,
$7.9 million had been drawn on the line of credit. The credit agreement is
unsecured and requires the Company to meet certain covenants. Financial
covenants include the maintenance of tangible net worth of at least $23 million,
a minimum liquidity ratio, a limit on dividends and distributions, and a minimum
adjusted fixed charge coverage ratio.
The Company is sometimes required to obtain performance bonds for display
installations. The Company currently has a bonding line available through an
insurance company that provides for an aggregate of $100 million in bonded work
outstanding. At April 28, 2001, the Company had $3.4 million of bonded work
outstanding against this line.
The Company believes that if its growth continues, it may need to increase the
amount of its credit facility. The Company anticipates that it will be able to
obtain any needed funds under commercially reasonable terms from its current
lender or other sources. The Company believes that its working capital available
from all sources will be adequate to meet the cash requirements of its
operations in the foreseeable future.
BUSINESS RISKS AND UNCERTAINTIES
A number of risks and uncertainties exist which could impact the Company's
future operating results. These uncertainties include, but are not limited to,
general economic conditions, competition, the Company's success in developing
new products and technologies, market acceptance of new products, and other
factors, including those set forth in the Company's SEC filings, including its
current report on Form 10-K for the year ended April 28, 2001.
19
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board and the Accounting Standards Executive
Committee have issued certain Statements of Financial Accounting Standards and
Statements of Position, respectively, which have required effective dates
occurring after the Company's April 28, 2001 year-end. The Company's financial
statements, including the disclosures therein, are not expected to be materially
affected by those accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company does not believe its operations are exposed to significant market
risk relating to interest rates or foreign exchange risk.
Item 8. Financial Statements and Supplemental Data.
The financial statements of the Company as of and for the year ended April 28,
2001 begin on page 21 of this Annual Report.
20
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Daktronics, Inc.
Brookings, South Dakota
We have audited the accompanying consolidated balance sheets of Daktronics, Inc.
and subsidiaries as of April 28, 2001 and April 29, 2000, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended April 28, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Daktronics, Inc. and
subsidiaries as of April 28, 2001 and April 29, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
April 28, 2001, in conformity with accounting principles generally accepted in
the United States of America.
/s/ McGladrey & Pullen, LLP
Sioux Falls, South Dakota
June 21, 2001
21
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 28, 2001 AND APRIL 29, 2000
(DOLLARS IN THOUSANDS)
ASSETS 2001 2000
- ----------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 2,896 $ 1,217
Accounts receivable (Note 5) 21,090 23,562
Current maturities of long-term receivables (Note 5) 2,030 1,541
Inventories (Note 3) 19,719 13,849
Costs and estimated earnings in excess of billings (Note 4) 10,890 5,177
Prepaid expenses and other 529 451
Income taxes receivable 97 647
Deferred income taxes (Note 10) 2,103 1,418
------------------------------
TOTAL CURRENT ASSETS 59,354 47,862
Property and equipment, net (Note 3) 21,871 16,790
Advertising rights, net (Note 6) 1,281 824
Long-term receivables (Note 5) 5,269 6,081
Goodwill, net of accumulated amortization 1,469 429
Intangible and other assets, other than goodwill, net 970 421
------------------------------
$ 90,214 $ 72,407
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Current Liabilities
Notes payable, bank (Note 6) $ 7,911 $ 7,202
Current maturities of long-term debt (Note 6) 3,883 2,349
Accounts payable 10,199 7,327
Customer deposits 1,236 1,721
Accrued expenses (Note 3) 6,981 5,521
Billings in excess of costs and estimated earnings (Note 4) 2,177 3,079
------------------------------
TOTAL CURRENT LIABILITIES 32,387 27,199
------------------------------
Long-Term Debt, less current maturities (Note 6) 10,344 7,893
------------------------------
Deferred Income 531 312
------------------------------
Deferred Income Taxes (Note 10) 1,050 772
------------------------------
Minority Interest in Subsidiary 79 --
------------------------------
Commitments and Contingencies (Notes 5 and 14)
Shareholders' Equity (Notes 7, 8 and 15)
Common stock, no par value; authorized 30,000,000 shares,
issued 2001 18,016,066 shares; 2000 17,747,084 shares 12,900 12,232
Additional paid-in capital 341 93
Retained earnings 32,600 23,915
Less cost of treasury stock 19,680 shares (9) (9)
Foreign currency translation adjustment (9) --
------------------------------
45,823 36,231
------------------------------
See Notes to Consolidated Financial Statements $ 90,214 $ 72,407
==============================
22
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND SHAREHOLDERS' EQUITY
YEARS ENDED APRIL 28, 2001, APRIL 29, 2000 AND MAY 1, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME 2001 2000 1999
- ------------------------------------------------------------------------------------------------------
Net sales $ 152,331 $ 123,350 $ 95,851
Cost of goods sold 107,110 89,034 69,730
-----------------------------------------
GROSS PROFIT 45,221 34,316 26,121
-----------------------------------------
Operating expenses:
Selling 18,805 15,091 11,565
General and administrative 6,280 4,937 3,691
Product design and development 5,685 4,292 3,809
-----------------------------------------
30,770 24,320 19,065
-----------------------------------------
OPERATING INCOME 14,451 9,996 7,056
Nonoperating income (expense):
Interest income 767 923 603
Interest expense (1,599) (1,308) (934)
Other income, net 346 347 (78)
-----------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 13,965 9,958 6,647
Income tax expense (Note 10) 5,275 3,734 2,427
-----------------------------------------
INCOME BEFORE MINORITY INTEREST 8,690 6,224 4,220
Minority interest in income of subsidiary 5 -- --
-----------------------------------------
NET INCOME $ 8,685 $ 6,224 $ 4,220
=========================================
Earnings per share:
Basic $ 0.49 $ 0.36 $ 0.25
=========================================
Diluted $ 0.46 $ 0.34 $ 0.24
=========================================
Foreign
Additional Currency
Common Paid-In Retained Treasury Translation
SHAREHOLDERS' EQUITY Stock Capital Earnings Stock Adjustment Total
- ------------------------------------------------------------------------------------------------------------------------------
Balance, May 2, 1998 $ 11,722 $ -- $ 13,471 $ (9) $ -- $ 25,184
Net income -- -- 4,220 -- -- 4,220
Exercise of stock options and warrants 97 -- -- -- -- 97
-----------------------------------------------------------------------------------
Balance, May 1, 1999 11,819 -- 17,691 (9) -- 29,501
Net income -- -- 6,224 -- -- 6,224
Exercise of stock options 413 -- -- -- -- 413
Issuance of warrants -- 93 -- -- -- 93
-----------------------------------------------------------------------------------
Balance, April 29, 2000 12,232 93 23,915 (9) -- 36,231
Net income -- -- 8,685 -- -- 8,685
Translation adjustments -- -- -- -- (9) (9)
---------
Comprehensive income 8,676
---------
Tax benefits related to exercise of
stock options -- 248 -- -- -- 248
Exercise of stock options and
warrants (Note 7) 438 -- -- -- -- 438
Issuance of common stock related
to purchase of business (Note 2) 230 -- -- -- -- 230
-----------------------------------------------------------------------------------
Balance, April 28, 2001 $ 12,900 $ 341 $ 32,600 $ (9) $ (9) $ 45,823
===================================================================================
See Notes to Consolidated Financial Statements.
23
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 28, 2001, APRIL 29, 2000 AND MAY 1, 1999
(DOLLARS IN THOUSANDS)
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 8,685 $ 6,224 $ 4,220
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 3,560 2,656 1,913
Amortization 509 351 353
Equity in loss of affiliate 49 -- --
Minority interest in income of subsidiary 5 -- --
(Gain) loss on sale of property and equipment (65) (1) 129
Provision for doubtful accounts 260 252 182
Deferred income taxes (credits) (415) 204 (226)
Change in operating assets and liabilities, net
of effects of purchase of businesses (Note 11) (5,222) (6,396) (7,204)
-----------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 7,366 3,290 (633)
-----------------------------------------
Cash Flows From Investing Activities
Cash consideration paid for acquired businesses (Note 11) (1,292) -- --
Investment in affiliate (263) -- --
Minority investment in subsidiary 74 -- --
Proceeds from sale of property and equipment 106 164 387
Purchase of property and equipment (7,351) (6,933) (4,842)
Purchase of intangible assets (142) (400) (160)
Other (188) (87) --
-----------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (9,056) (7,256) (4,615)
-----------------------------------------
Cash Flows From Financing Activities
Net borrowings (payments) on notes payable 606 4,543 (2,935)
Proceeds from exercise of stock options 438 413 97
Principal payments on long-term debt (2,865) (2,133) (1,012)
Borrowings on long-term debt 5,199 1,310 10,000
-----------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,378 4,133 6,150
-----------------------------------------
Effect of exchange rate changes on cash (9) -- --
-----------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,679 167 902
Cash and Cash Equivalents
Beginning 1,217 1,050 148
-----------------------------------------
Ending $ 2,896 $ 1,217 $ 1,050
=========================================
See Notes to Consolidated Financial Statements.
24
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Daktronics, Inc. and its subsidiaries (Company) are engaged
principally in one line of business, the design and manufacture of a wide range
of computer-programmable information display systems to customers in a variety
of markets throughout the world. This revenue source represents more than 90% of
the total revenue of the Company.
Fiscal year: The Company operates on a 52 - 53 week fiscal year end with fiscal
years ending on the Saturday closest to April 30 of each year. The years ended
April 28, 2001, April 29, 2000 and May 1, 1999 each included 52 weeks.
A summary of the Company's significant accounting policies follows:
Principles of consolidation: The consolidated financial statements include the
accounts of Daktronics, Inc. and its wholly-owned subsidiaries, Star Circuits,
Inc., Keyframe, Inc. and MSC Technologies, Inc. in 2000. In 2001, the
consolidated financial statements also include the accounts of its wholly owned
subsidiary, Sports Link, Ltd., and its 80% owned subsidiary, Servtrotech Inc.
Also during 2001, Keyframe, Inc. was dissolved and merged into the Company.
Intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in the
near-term relate to the determination of the estimated total costs on long-term
contracts and estimated costs to be incurred for product warranty.
Cash and cash equivalents: For purposes of reporting cash flows, the Company
considers all money market mutual funds to be cash equivalents. The Company
maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Revenue and cost recognition on long-term contracts: Earnings on long-term
contracts are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to estimated total costs for each contract.
Operating expenses are charged to operations as incurred and are not allocated
to contract costs. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are estimable.
Advertising rights: The Company occasionally installs scoreboards and message
display systems at facilities in exchange for the rights to future advertising
revenues. The Company recognizes revenue at the time the advertising is sold for
the amount of the present value of the future advertising revenue on the portion
of the scoreboard or message display system advertising which is sold for the
entire term. The cost assigned to the portion sold is based upon the relative
value of the portion of the scoreboard or message display center sold.
Advertising rights on the portion of the advertising which have not been sold to
term are stated at cost and are amortized on a straight-line method over the
term of the advertising rights. The cost of advertising rights, net of
amortization, was $1,281 as of April 28, 2001 and $824 as of April 29, 2000. On
advertising rights that are not sold to term, revenue is recognized when it
becomes receivable under the provisions of the advertising contract. Advance
collections of advertising revenues are recorded as deferred income.
Property and equipment: Property and equipment is stated at cost. Depreciation
of property and equipment is computed principally on the straight-line method
over the following estimated useful lives:
Years
-----------
Buildings 7 - 40
Machinery and equipment 5 - 7
Office furniture and equipment 3 - 7
Transportation equipment 5 - 7
Intangible assets: Intangible assets consist of consulting and noncompete
agreements and goodwill. Consulting and noncompete agreements are stated at cost
and are amortized on a straight-line method over their remaining terms, which
range from five to twelve years. Goodwill is amortized on the straight-line
method over three to fifteen years. Accumulated amortization on intangible
assets other than goodwill was $200 and $807 as of April 28, 2001 and April 29,
2000, respectively, and on goodwill was $143 and $413 as of April 28, 2001 and
April 29, 2000, respectively.
25
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management reassesses the carrying value and remaining life of goodwill of
businesses acquired on an ongoing basis. Whenever events indicate that the
carrying values are impaired, the excess cost over fair value of those assets is
adjusted appropriately. As of April 28, 2001, management believes there is no
impairment with respect to these assets.
Product warranty: Current operations are charged for the estimated cost of
future claims under the terms of various customer warranty programs provided by
the Company. Customers have the option of purchasing long-term warranty
contracts. The amounts received for long-term warranties are included in
deferred income and are amortized over two to ten years.
Product design and development: All expenditures related to product design and
development are charged to operations as incurred.
Foreign currency translation: The assets and liabilities of foreign operations
are translated at the exchange rates in effect at the balance sheet date, with
the related translation gains or losses reported as a separate component of
shareholders' equity. The results of foreign operations are translated at
weighted average exchange rates.
Income taxes: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Reclassification: Certain prior year amounts have been reclassified to conform
with current year presentation.
Comprehensive income: Comprehensive income is defined as the aggregate change in
shareholders' equity excluding changes in ownership interests. The foreign
currency translation adjustment included in comprehensive income has not been
tax effected, as the investment in the foreign affiliate is deemed to be
permanent.
Segment reporting: Operating segments are defined as components of an enterprise
for which separate financial information is available that is evaluated
regularly by the chief operating decision makers in deciding how to allocate
resources and in assessing performance. The Company's operations are classified
into one business segment, manufacturing.
Stock-based compensation: The Company accounts for stock-based compensation in
accordance with Accounting Principals Board (APB) Opinion No. 25.
Earnings per share (EPS): Basic EPS is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted
into common stock.
A reconciliation of the income and common stock share amounts used in the
calculation of basic and diluted EPS for the years ended April 28, 2001, April
29, 2000 and May 1, 1999 follows.
Net Per Share
Income Shares Amount
- ----------------------------------------------------------------------------
For the year ended April 28, 2001:
Basic EPS $ 8,685 17,842,620 $ 0.49
Effect of dilutive
securities:
Exercise of
stock options
and warrants -- 1,031,022 0.03
-------------------------------------------
Diluted EPS $ 8,685 18,873,642 $ 0.46
===========================================
For the year ended April 29, 2000:
Basic EPS $ 6,224 17,585,490 $ 0.36
Effect of dilutive
securities:
Exercise of
stock options -- 828,462 0.02
-------------------------------------------
Diluted EPS $ 6,224 18,413,952 $ 0.34
===========================================
For the year ended May 1, 1999:
Basic EPS $ 4,220 17,380,916 $ 0.25
Effect of dilutive
securities:
Exercise of
stock options -- 517,128 0.01
-------------------------------------------
Diluted EPS $ 4,220 17,898,044 $ 0.24
===========================================
26
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Options outstanding of 116,000 and 100,000 shares of common stock, and warrants
outstanding of 88,000 and 0 at weighted average share prices of $6.52 and $2.96
during the years ended April 29, 2000 and May 1, 1999, respectively, were not
included in the computation of diluted earnings per share because the exercise
price of those instruments exceeded the average market price of the common
shares during the respective year.
On December 7, 1999 and May 24, 2001, the Company declared a two-for-one stock
split in the form of a stock dividend of one share of common stock for each one
share outstanding, payable to shareholders of record on December 20, 1999 and
June 11, 2001, respectively. All data related to common shares has been
retroactively adjusted based upon the new shares outstanding after the effect of
the two-for-one stock splits for all periods presented.
NOTE 2. ACQUISITIONS
During 2001, the Company acquired a 100% interest in Sports Link, Ltd. a company
which rents display devices and provides technical support to sports events and
organizations, and acquired an 80% interest in Servtrotech Inc., a Canadian
based company which manufactures electronic material for displaying and timing.
The Company also acquired the assets of another small company during 2001. These
acquisitions were treated as purchases for accounting purposes. The aggregate
cost of these acquisitions was $1,522, which includes 42,078 shares of the
Company's common stock valued at $230.
Set forth below is the unaudited pro forma combined summary of operations for
the years ended April 28, 2001 and April 29, 2000 as though the acquisitions
made during 2001 occurred on May 2, 1999:
2001 2000
-----------------------------
Net sales $ 152,995 $ 126,412
Operating income 14,448 10,040
Income before income taxes
and minority interest 13,959 10,176
Net income 8,678 6,372
Earnings per share:
Basic 0.49 0.36
Diluted 0.46 0.35
The unaudited pro forma combined summary of operations does not purport to be
indicative of the results which actually would have been obtained if the
acquisitions had been made at May 2, 1999 or of those results which may be
obtained in the future. The unaudited pro forma combined summary of operations
includes the effects of additional interest expense on debt incurred in
connection with the acquisitions as if the debt had been outstanding from the
beginning of the periods presented. In addition, the summary of operations
includes amortization of the cost in excess of net assets of companies acquired
in connection with the acquisitions as if they had been acquired from the
beginning of the periods presented.
During the year ended April 29, 2000, the Company acquired three small
companies. The accounts of the acquired companies have been consolidated in the
accompanying financial statements as of the effective dates of the related
acquisitions. These acquisitions were treated as purchases for accounting
purposes for a total purchase price of $823, of which $443 was allocated to
goodwill.
NOTE 3. SELECTED FINANCIAL STATEMENT DATA
2001 2000
-----------------------
Inventories:
Raw materials $ 9,610 $ 7,403
Work-in-process 2,439 1,341
Finished goods 7,670 5,105
-----------------------
$ 19,719 $ 13,849
=======================
Property and equipment:
Land $ 542 $ 528
Buildings 9,451 8,008
Machinery and equipment 19,308 16,372
Office furniture and
equipment 7,487 4,258
Transportation equipment 1,901 970
-----------------------
38,689 30,136
Less accumulated
depreciation 16,818 13,346
-----------------------
$ 21,871 $ 16,790
=======================
Accrued expenses:
Product warranty $ 2,477 $ 2,307
Compensation 2,955 2,208
Taxes, other than
income taxes 917 535
Other 632 471
-----------------------
$ 6,981 $ 5,521
=======================
27
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 4. UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following:
2001 2000
-------------------------
Costs incurred $ 42,758 $ 19,140
Estimated earnings 17,068 7,598
-------------------------
59,826 26,738
Less billings to date 51,113 24,640
-------------------------
$ 8,713 $ 2,098
=========================
Uncompleted contracts are included in the accompanying consolidated balance
sheets as follows:
2001 2000
-------------------------
Costs and estimated earnings
in excess of billings $ 10,890 $ 5,177
Billings in excess of costs and
estimated earnings 2,177 3,079
-------------------------
$ 8,713 $ 2,098
=========================
NOTE 5. RECEIVABLES
The Company sells its products throughout the United States and certain foreign
countries on credit terms that the Company establishes for each customer. On the
sale of certain scoreboards and message display centers, the Company has the
ability to file a contractor's lien against the product installed as collateral.
Foreign sales are generally secured by irrevocable letters of credit. During the
fiscal years ended 2001, 2000 and 1999, foreign sales were approximately
$10,409, $11,512 and $10,953, respectively. Foreign sales are determined by the
country to which the product is shipped, and vary by individual geographical
area from year to year.
Accounts receivable include unbilled receivables of $0 and $7,159 as of April
28, 2001 and April 29, 2000, respectively. Unbilled receivables are generally
invoiced within thirty days. Accounts receivable are reported net of an
allowance for doubtful accounts of $271 and $232 at April 28, 2001 and April 29,
2000, respectively.
In connection with the sale of certain scoreboards and message display centers,
the Company has entered into long-term sales contracts and sales type leases.
The present value of the contract or lease is recorded as a receivable upon the
installation and acceptance of the scoreboard or message display, and profit is
recognized to the extent that the present value is in excess of cost. The
Company generally retains a security interest in the scoreboard, message display
or advertising rights until the contract is paid. Long-term contract and lease
receivables, including accrued interest and current maturities, were $7,299 and
$7,622 as of April 28, 2001 and April 29, 2000, respectively. Contract and lease
receivables bear interest at rates of 8.5% to 14.4% and are due in varying
annual installments through January of 2010.
At April 28, 2001 and April 29, 2000, the Company was contingently liable for
contracts sold with recourse of $154 and $328, respectively.
28
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 6. FINANCING AGREEMENTS
Long-term debt:
2001 2000
---------------------------
6.8% - 9.3% Notes payable due to banks, due in monthly
installments of $98, $99, $102 and annual installments of $260,
including interest, through November 2003, April 2004, December 2005,
and February 2007, subject to credit agreement
financial covenants discussed below, unsecured $ 11,710 $ 8,981
6.8% - 9.0% Notes payable due to bank, due in monthly
installments of $10 and $33 including interest, through
September 2003 and September 2004, secured by equipment 1,422 --
8.1% - 11.4% Contracts payable, primarily related to
advertising rights, due in annual installments,
including interest, through August 2005 457 506
Other notes payable, installment obligations secured by
equipment 544 755
Other 94 --
---------------------------
14,227 10,242
Less current maturities 3,883 2,349
---------------------------
$ 10,344 $ 7,893
===========================
Maturities of long-term debt are as follows at April 28, 2001: 2002 $3,883; 2003
$4,003; 2004 $3,379; 2005 $1,649; 2006 $1,077 and thereafter $236.
Credit agreements: The Company has a credit agreement with a bank. The credit
agreement provides for a $20,000 line of credit. The line of credit is at the
LIBOR rate of interest plus 1.55% (6.0% at April 28, 2001) and is due on October
1, 2003. As of April 28, 2001, $7,869 had been drawn on the line of credit. The
credit agreement is unsecured and requires the Company to meet certain
covenants. Financial covenants include the maintenance of tangible net worth of
at least $23,000, a minimum liquidity ratio, a limit on dividends and
distributions, and a minimum adjusted fixed charge coverage ratio. The Company
also has another line of credit, of which $42 had been drawn as of April 28,
2001.
29
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 7. STOCK-BASED COMPENSATION
The Company has stock-based compensation plans which are described below. The
Company applies APB Opinion No. 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for grants
under the fixed stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the grant date fair
values of awards, reported net income and earnings per common share would have
been reduced to the pro forma amounts shown below:
2001 2000 1999
--------------------------------
Net income:
As reported $ 8,685 $ 6,224 $ 4,220
Pro forma 8,457 6,088 4,149
Earnings per
share:
As reported:
Basic 0.49 0.36 0.25
Diluted 0.46 0.34 0.24
Pro forma:
Basic 0.48 0.35 0.24
Diluted 0.45 0.33 0.24
The pro forma effects are not indicative of future amounts since, among other
reasons, the pro forma requirements have been applied only to options granted
after April 29, 1995.
Fixed stock option plans: The Company has reserved 3,040,000 shares of its
common stock for issuance under two fixed stock option plans under which it may
grant options to purchase common stock. These options may have a maximum term of
10 years at the market price or 110% of market price on the date of grant. A
total of 2,400,000 shares may be granted to employees under the 1993 Stock
Option Plan (1993 Option Plan). A total of 640,000 options may be granted to
outside directors under the 1993 Outside Directors Stock Option Plan (Outside
Directors Plan). Options in the 1993 Option Plan vest at 20% per year and
options in the Outside Directors Plan vest at 4,000 options annually for options
issued prior to the year ended April 29, 2000, and vest at 6,000 options
annually for subsequent options issued.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in fiscal years 2001, 2000 and 1999, respectively: no
dividend rate for all years; price volatility of 37% for 2001 and 2000 and 32%
for 1999; risk-free interest rates of 6.2%, 5.4%, 5.8% and 5.6% for the 1993
Option Plan and 6.0% for the Outside Directors Plan; and expected lives of five
years for the 1993 Option Plan and the Outside Directors Plan for all years.
30
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 7. STOCK-BASED COMPENSATION (CONTINUED)
A summary of the status of the plans at April 28, 2001, April 29, 2000 and May
1, 1999, and changes during the years ended on those dates follows:
2001 2000 1999
--------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,804,000 $ 2.66 1,655,440 $ 1.93 1,310,040 $ 1.57
Granted 302,000 7.09 399,200 5.09 467,600 2.92
Forfeited (8,560) 5.21 (3,000) 2.47 (63,800) 2.05
Exercised (221,560) 1.83 (247,640) 1.67 (58,400) 1.65
----------- ----------- -----------
Outstanding at end of year 1,875,880 3.46 1,804,000 2.66 1,655,440 1.93
=========== =========== ===========
Options for 916,440, 819,536 and 759,240 shares were exercisable at April 28,
2001, April 29, 2000 and May 1, 1999, respectively. The weighted average fair
value of options granted were $2.99, $2.18 and $0.78 for the years ended April
28, 2001, April 29, 2000 and May 1, 1999, respectively.
A further summary about fixed options outstanding at April 28, 2001 is as
follows:
Options Outstanding Options Exercisable
---------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------------------------- ---------------------------
$1.05 to $1.47 477,240 4.8 years $ 1.32 375,536 $ 1.32
$1.62 to $1.91 272,200 2.8 1.80 288,240 1.79
$2.60 to $2.68 172,000 5.5 2.63 72,000 2.63
$3.07 to $3.37 270,880 6.8 3.11 108,352 3.11
$4.15 64,000 5.3 4.15 8,000 4.15
$5.13 to $5.47 265,560 8.6 5.14 50,712 5.13
$5.64 to $5.92 112,000 5.3 5.82 8,000 5.64
$6.16 to $6.42 38,000 8.9 6.35 5,600 6.42
$7.66 204,000 9.6 7.66 -- --
------------- -------------
1,875,880 6.1 916,440 2.09
============= =============
31
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 8. SHAREHOLDERS' EQUITY
Common stock: The authorized shares of 30,000,000 include 25,000,000 shares of
common stock and 5,000,000 shares of "undesignated stock". In May 2001, the
Board of Directors resolved (subject to shareholder approval) to increase the
number of authorized common shares from 30,000,000 to 60,000,000 shares. The
Company's Board of Directors has the power to issue any or all of the shares of
undesignated stocks, including the authority to establish the rights and
preferences of the undesignated stock without shareholder approval.
During the year ended May 1, 1999, the Company declared a dividend of one
preferred share purchase right (Right) for each outstanding share of common
stock of the Company. The dividend was paid on December 9, 1998 to the
stockholders of record on such date. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock at a price of $160 per one-hundredth of a
preferred share, subject to the complete terms as stated in the Rights
Agreement. The Rights become exercisable immediately after the earlier of (i)
ten business days following a public announcement that a person or group has
acquired beneficial ownership of 20% or more of the outstanding common shares of
the Company (subject to certain exclusions), (ii) ten business days following
the commencement or announcement of an intention to make a tender offer or
exchange offer, the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding common shares.
The Rights expire on November 19, 2008, which date may be extended subject to
certain additional conditions.
Common stock warrants: On December 29, 1999, the Company entered into an asset
purchase agreement with another entity to purchase substantially all of the
assets of the entity. As part of the consideration for the purchase, the Company
provided warrants with a computed value of $93, to purchase up to 88,000 shares
of common stock. Such amount has been included in the consolidated balance
sheets as additional paid-in capital. The warrants may be exercised at any time
during the seven-year period beginning on December 29, 1999 at a price per share
of $6.32. During 2001, 5,344 warrants were exercised, and at April 28, 2001,
82,656 warrants were outstanding.
The Company, in connection with its public offering, issued the underwriter five
year warrants to purchase up to 453,248 shares of the Company's common stock.
The warrants were exercised at $2.29 per share during the year ended April 29,
2000, in a cashless exercise. The result was to increase common stock
outstanding by 144,204 shares.
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company has an employee savings plan which provides for voluntary
contributions by eligible employees into designated investment funds with a
matching contribution by the Company of 25% of the employee's qualifying
contribution up to 6% of such employee's compensation. Employees are eligible to
participate upon completion of one year of service if they have attained the age
of 21 and have worked more than 1,000 hours during such plan year. The Company
contributed $168, $165 and $185 to the plan for the fiscal years ended 2001,
2000 and 1999, respectively.
The Company had an Employee Stock Ownership Plan (ESOP) and a related trust for
the benefit of its employees. The ESOP was merged with the employee savings plan
effective May 1, 2000. Contributions to the plan were recognized as compensation
expense and were made at the discretion of the Board of Directors. The
contributions to the plan were $39 and $45 during the fiscal years ended 2000
and 1999, respectively. The plan held 917,160 shares as of April 29, 2000, all
of which were allocated to plan participants. No dividends were paid on plan
shares in fiscal years 2000 or 1999, and all outstanding plan shares are
included for purposes of earnings per share computations.
NOTE 10. INCOME TAXES
Income tax expense consists of the following:
2001 2000 1999
------------------------------------
Current:
Federal $ 5,344 $ 3,056 $ 2,433
State 338 474 220
Deferred taxes
(credits) (407) 204 (226)
------------------------------------
$ 5,275 $ 3,734 $ 2,427
====================================
32
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset as of April 28, 2001 and April 29,
2000 are as follows:
2001 2000
------------------------
Deferred tax assets:
Product warranty accruals $ 1,042 $ 807
Legal fees accrual 37 36
Vacation accrual 439 332
Inventories 437 201
Allowance for doubtful
accounts 100 84
Other accruals and deferrals 126 42
Amortization of intangibles 376 323
Other 60 13
------------------------
2,617 1,838
Less valuation allowance -- --
------------------------
2,617 1,838
Deferred tax liabilities:
Property and equipment 1,564 1,192
------------------------
$ 1,053 $ 646
========================
Reflected on the accompanying consolidated balance sheets as follows:
2001 2000
------------------------
Current assets $ 2,103 $ 1,418
Noncurrent liabilities 1,050 772
------------------------
$ 1,053 $ 646
========================
A reconciliation of the provision for income taxes and the amount computed by
applying the federal statutory rate to income before income tax expense is as
follows:
2001 2000 1999
-----------------------------------
Computed income
tax expense at
federal statutory
rate $ 4,888 $ 3,485 $ 2,327
State taxes, net of
federal benefit 236 308 145
Meals and
entertainment 217 162 105
Other, net (66) (221) (150)
-----------------------------------
$ 5,275 $ 3,734 $ 2,427
===================================
33
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 11. CASH FLOW INFORMATION
Change in operating assets and liabilities consist of the following:
2001 2000 1999
-----------------------------------------
(Increase) decrease:
Trade receivables $ 2,714 $ (3,982) $ (6,382)
Installment receivables 323 726 (2,783)
Inventories (5,532) 15 (2,870)
Costs and estimated earnings in excess of billings (5,713) 197 (3,851)
Prepaid expenses and other (70) (140) 137
Income taxes receivable 823 (647) --
Advertising rights (641) (824) --
Increase (decrease):
Accounts payable and accrued expenses 4,083 (1,354) 4,771
Customer deposits (500) 429 1,042
Billings in excess of costs and estimated earnings (902) 109 2,325
Deferred income 193 (290) 241
Income taxes payable -- (635) 166
-----------------------------------------
$ (5,222) $ (6,396) $ (7,204)
=========================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,600 $ 1,315 $ 891
Income taxes, net of refunds 4,864 4,812 2,488
34
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 11. CASH FLOW INFORMATION (CONTINUED)
Supplemental Schedule of Noncash Investing and Financing Activities
2001 2000 1999
------------------------------------
Purchase of businesses, net of cash and cash equivalent
acquired, allocated to:
Accounts receivable $ 502
Inventories 216
Prepaid expenses and other 8
Income taxes receivable 25
Property and equipment 1,453
Intangible and other assets 1,370
Notes payable, bank (103)
Long term debt (1,651)
Accounts payable (230)
Customer deposits (15)
Accrued expenses (19)
Deferred income (26)
Deferred income taxes (8)
--------
1,522
Issuance of common stock related to purchase of business (230)
--------
Cash paid for purchase of businesses, net of cash and cash
equivalents acquired $ 1,292
========
Property and equipment acquired through accounts payable $ -- $ 94 $ 105
Purchase of intangible and other assets through issuance of warrants -- 93 --
Property and equipment acquired through long term debt -- 839 --
Demo equipment transferred to inventories 122 -- --
Tax benefits related to exercise of stock options 248 -- --
NOTE 12. MAJOR CUSTOMER
A major customer is a customer to whom sales greater than 10% were made during
the period. Net sales for the year ended April 29, 2000 included sales to one
major customer of $12,534. At April 29, 2000, $1,858 was due from this customer.
35
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported on the balance sheets for cash and cash
equivalents approximate their fair values due to the highly liquid nature of the
instruments. The fair values for fixed-rate contracts receivable are estimated
using discounted cash flow analyses, using interest rates currently being
offered for contracts with similar terms to customers with similar credit
quality. The carrying amounts reported on the balance sheets for contracts
receivable approximate fair value. Fair values for the Company's
off-balance-sheet instruments (contingent liability for contracts sold with
recourse and the contingent liability for the guarantee of debt) are not
significant. The notes payable, bank are variable rate notes that reprice
frequently. The fair value on these notes approximate their carrying values. The
carrying amounts reported for variable rate long-term debt approximate fair
value. Fair values for fixed-rate long-term debt are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered for debt with similar terms and underlying collateral. The total
carrying value of long-term debt reported on the balance sheets approximates
fair value.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Company has a commitment for approximately $2.1 million to purchase a
building located in Brookings, South Dakota on a contract for deed.
As of April 28, 2001, the Company is contingently liable for the guarantee of
debt to an unrelated party in the amount of approximately $1,100.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based upon
consultation with legal counsel, the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position.
36
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly financial data.
2001 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ----------------------------------------------------------------------------------------------
Net sales $ 34,536 $ 42,114 $ 33,071 $ 42,610
Gross profit 10,411 12,944 9,918 11,948
Net income 2,122 3,427 1,528 1,608
Basic earnings per share 0.12 0.19 0.09 0.09
Diluted earnings per share 0.11 0.18 0.08 0.09
2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ----------------------------------------------------------------------------------------------
Net sales $ 31,467 $ 37,127 $ 27,159 $ 27,597
Gross profit 8,314 9,823 7,608 8,571
Net income 1,767 2,343 1,006 1,108
Basic earnings per share 0.10 0.14 0.06 0.06
Diluted earnings per share 0.10 0.13 0.05 0.06
37
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The information regarding the directors of the Company is incorporated by
reference from the Company's Proxy Statement.
The information concerning executive officers is included in Part I, Item 1 of
this Form 10-K.
Item 11. Executive Compensation.
This information is incorporated by reference from the Company's Proxy
Statement. The "Performance Graph" and the "Report of the Compensation
Committee" are specifically not incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference from of the Company's Proxy
Statement.
Item 13. Certain Relationships and Related Transactions.
None
PART IV.
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts.
3. Exhibits
3.1 Reserved
3.2 Amended and Restated Articles of Incorporation of the Company.
(1)
3.3 Amendment to Articles of Incorporation (5)
3.4 Amended and Restated Bylaws of the Company. (1)
4.1 Form of Stock Certificate evidencing Common Stock, without par
value, of the Company. (2)
4.2 Shareholders Rights Agreement (4)
10.1 Amended Daktronics, Inc. 1993 Stock Option Plan. (5)
10.2 Amended Daktronics, Inc. 1993 Outside Directors Stock Option
Plan. (5)
10.3 Reserved
10.4 Daktronics, Inc. 401(k) Profit Sharing Plan and Trust. (2)
10.5 Form of Indemnification Agreement between the Company and each
of its officers and directors.(1)
10.6 Loan Agreement dated October 14, 1998 between U.S. Bank
National Association and Daktronics, Inc.(3)
38
10.7 Term Note date February 4, 1999 between U.S. Bank National
Association and Daktronics, Inc. (5)
10.8 Term Note date February 2, 2000 between U.S. Bank National
Association and Daktronics, Inc. (6)
10.9 Term Note date December 8, 2000 between US Bank National
Association and Daktronics, Inc. (7)
10.10 Form of Stock Option Agreements effective May 25, 1993 between
Daktronics, Inc. and Dr. Aelred Kurtenbach, Dr. Duane Sander
and James Morgan, granted in consideration of their personal
guarantee of performance bonds issued to the Company.(1)
10.11 Reserved
10.12 Reserved
21.1 Subsidiaries of the Company (7)
23.1 Consent of McGladrey & Pullen, LLP (7)
(1) Incorporated by reference under the same exhibit
number to the exhibits filed with the Registration
Statement on Form S-1 on December 3, 1993 as
Commission File No. 33-72466.
(2) Incorporated by reference under the same exhibit
number to the exhibits filed with Amendment No. 1 to
the Registration Statement on Form S-1 on January 12,
1994 as Commission File No. 33-72466.
(3) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10Q on October 31,
1998 as Commission File No. 0-23246.
(4) Incorporated by reference under same exhibit number
to the exhibits filed with form 8-K on November 30,
1998 as Commission File No. 0-23246.
(5) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 28, 1999
as Commission File No. 0-23246
(6) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 27, 2000
as Commission File No. 0-23246.
(7) Filed herewith
(b)1. Reports on Form 8-K - None
All Sport(R), OmniSport(R), DakStats(R), Venus(R), Glow Cube(R), Starburst(R),
SunSpot(R), ProStar(R), DataTime(R), MagneView(TM), DataTrac(TM), InfoNet(TM),
ProSport(R) are trademarks of Daktronics, Inc.
39
SIGNATURES
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 July 3, 2001.
DAKTRONICS, INC.
By: /s/ Aelred J. Kurtenbach
---------------------------
Aelred J. Kurtenbach, CEO
(principal executive officer)
By: /s/ Aelred J. Kurtenbach
---------------------------
Acting Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
By /s/ Roland J. Jensen Director July 3, 2001
- -------------------------------
Roland J. Jensen
By /s/ Aelred J. Kurtenbach Director July 3, 2001
- -------------------------------
Aelred J. Kurtenbach
By /s/ Frank J. Kurtenbach Director July 3, 2001
- -------------------------------
Frank J. Kurtenbach
By /s/ James B. Morgan Director July 3, 2001
- -------------------------------
James B. Morgan
By /s/ John L. Mulligan Director July 3, 2001
- -------------------------------
John L. Mulligan
By /s/ Charles S. Roberts Director July 3, 2001
- -------------------------------
Charles S. Roberts
By /s/ Duane E. Sander Director July 3, 2001
- -------------------------------
Duane E. Sander
By /s/ James A. Vellenga Director July 3, 2001
- -------------------------------
James A. Vellenga
By /s/ Nancy D. Frame Director July 3, 2001
- -------------------------------
Nancy D. Frame
40
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Daktronics, Inc.
Brookings, South Dakota
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
McGLADREY & PULLEN, LLP
Sioux Falls, South Dakota
June 21, 2001
41
DAKTRONICS, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 28, 2001, APRIL 29, 2000 AND MAY 1, 1999
(DOLLARS IN THOUSANDS)
Additions/
Balance at Provisions
Allowance for Beginning (Charged to Deductions Balance at
Doubtful Accounts of Year Expense) (1) End of Year
- ----------------- ------- -------- --- -----------
2001 $ 232 $ 249 $ (210) $ 271
2000 212 250 (230) 232
1999 208 182 (178) 212
(1) Write off of uncollectable accounts
42
INDEX OF EXHIBITS
3. Exhibits
3.1 Reserved
3.2 Amended and Restated Articles of Incorporation of the Company.
(1)
3.3 Amendment to Articles of Incorporation (5)
3.4 Amended and Restated Bylaws of the Company. (1)
4.1 Form of Stock Certificate evidencing Common Stock, without par
value, of the Company. (2)
4.2 Shareholders Rights Agreement (4)
10.1 Amended Daktronics, Inc. 1993 Stock Option Plan. (5)
10.2 Amended Daktronics, Inc. 1993 Outside Directors Stock Option
Plan. (5)
10.3 Reserved
10.4 Daktronics, Inc. 401(k) Profit Sharing Plan and Trust. (2)
10.5 Form of Indemnification Agreement between the Company and each
of its officers and directors. (1)
10.6 Loan Agreement dated October 14, 1998 between U.S. Bank
National Association and Daktronics, Inc.(3)
10.7 Term Note date February 4, 1999 between U.S. Bank National
Association and Daktronics, Inc. (5)
10.8 Term Note date February 2, 2000 between U.S. Bank National
Association and Daktronics, Inc. (6)
10.9 Term Note date December 8, 2000 between US Bank National
Association and Daktronics, Inc. (7)
10.10 Form of Stock Option Agreements effective May 25, 1993 between
Daktronics, Inc. and Dr. Aelred Kurtenbach, Dr. Duane Sander
and James Morgan, granted in consideration of their personal
guarantee of performance bonds issued to the Company.(1)
10.11 Reserved
10.12 Reserved
21.1 Subsidiaries of the Company (7)
23.1 Consent of McGladrey & Pullen, LLP (7)
(1) Incorporated by reference under the same exhibit
number to the exhibits filed with the Registration
Statement on Form S-1 on December 3, 1993 as
Commission File No. 33-72466.
(2) Incorporated by reference under the same exhibit
number to the exhibits filed with Amendment No. 1 to
the Registration Statement on Form S-1 on January 12,
1994 as Commission File No. 33-72466.
(3) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10Q on October 31,
1998 as Commission File No. 0-23246.
(4) Incorporated by reference under same exhibit number
to the exhibits filed with form 8-K on November 30,
1998 as Commission File No. 0-23246.
(5) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10-K on July 28, 1999
as Commission File No. 0-23246.
(6) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 27, 2000
as Commission File No. 0-23246.
(7) Filed herewith
43
TERM NOTE Exhibit 10.9
$5,000,000.00 Brookings, South Dakota
December 8, 2000
FOR VALUE RECEIVED, Daktronics, Inc., a South Dakota corporation
("Borrower"), hereby promises to pay to the order of U.S. Bank National
Association, a national banking association, 141 North Main Avenue, Post Office
Box 5308, Sioux Falls, South Dakota 57117 ("Lender", which term shall include
any future holder hereof), at or at such other place as Lender may from time to
time designate in writing, in lawful money of the United States of America, the
principal sum of Five Million and No/100 Dollars ($5,000,000.00) or so much
thereof as may be advanced hereunder and to pay interest on the outstanding
principal balance hereof from time to time at the rate of eight and 29/100
percent (8.29%) per annum. Interest shall be computed on the basis of actual
days elapsed and year of 360 days. Equal installments of principal and interest
shall be paid in the sum of One-Hundred, Two Thousand, One-Hundred, Ninety-Three
and No/100 Dollars ($102, 193.00) commencing on the first day of January, 2001
and continuing on the first day of each month thereafter through December 1,
2005 (the "Term Maturity Date") at which time all accrued interest and remaining
principal will be due.
Borrower acknowledges and agrees as follows: (I) Borrower has no right to
prepay the Note, except upon payment of the prepayment indemnity provided for
herein; (ii) Lender will be harmed by reason of any prepayment of the Note at
time when interest rates have declined below the levels prevailing at the time
funds were advanced under the Note or, if earlier, the date Lender locked in the
interest rate on the Note, because any reinvestment of the prepaid funds at the
lower return to Lender; (iii) there is no readily available index of rates
payable on loans such as that from Lender to Borrower, nor any assurance that
Lender could replace the loan with a similar loan; and (iv) changes in the
yields on U.S. government securities provide a reasonable approximation for
changes in interest rates generally.
Now, therefore, to induce Lender to agree to accept voluntary prepayments,
Borrower agrees to pay Lender a prepayment indemnity as described in the Note
upon any prepayment, whether voluntary, mandatory or upon acceleration of the
Note, and agrees to all of the other terms of prepayment herein.
As used herein, all capitalized terms not otherwise defined herein have the
meanings assigned to them in the Note, and the following terms have the meanings
assigned to them:
"Average Initial Maturity Period" means the weighted average time to
scheduled maturity of the Note. Average Initial Maturity Period shall be
computed by multiplying the dollar amount of each installment of principal of
the Note by the number of days from the Note Date until the scheduled maturity
of that installment, adding together the resulting products and dividing the
resulting sum by the total dollar amount of principal of the Note.
"Average Remaining Maturity Period" means the weighted average time to
scheduled maturity of the amount prepaid. Average Remaining Maturity Period
shall be computed by multiplying the dollar amount of each installment of
principal prepaid by the number of days from the prepayment date until the
scheduled maturity of that installment, adding together the resulting products
and dividing the resulting sum by the total dollar amount of principal being
prepaid.
"Government Yield" means the annual yield (converted as necessary to the
equivalent semi-annual compound rate) on a U.S. Treasury security having a
maturity date closest to the date computed by adding (I) for the Government
Yield as of the Note Date, the Average Initial Maturity period to the Note Date
or (ii) for the Government Yield as of the prepayment date, the Average
Remaining Maturity Period to the date of prepayment, as published in The Wall
Street Journal (or, if not so published, as determined by Lender based on
quotations by secondary market dealers selected by Lender). "U.S. Treasury
securities" means actively traded U.S. Treasury bonds, bills and notes. If more
than one issue of U.S. Treasury securities is scheduled to mature at or about
the time of such computed date, then to the extent possible the U.S. Treasury
security trading closest to its par value will be chosen as the basis of the
Government Yield.
44
"Interest Differential" means the Government Yield as of the Note Date
minus the Government Yield as of the prepayment date.
"Note Date" means the date that the Note is funded or such other date that
Lender locks in the interest rate in effect on the Note as of the date
prepayment.
Any voluntary prepayment under the Note shall be either in the full amount
of the outstanding loans under the Note or, if a partial prepayment, in the
amount of [$100,000] or an integral multiple thereof, and partial prepayments
shall be applied to installments due under the Note in inverse order of their
maturities. If, at the time of any prepayment (whether voluntary, mandatory or
upon acceleration of the Note), the Interest Differential shall exceed zero,
such prepayment shall be accompanied by payment of a prepayment indemnity. The
amount of the prepayment indemnity shall equal the present value (determined by
Lender using the Government Yield as of the date of prepayment as the discount
factor) on the prepayment date of a stream of equal monthly payments in number
equal to the number of whole months (using a thirty-day month) in the Average
Remaining Maturity Period. The amount of each such monthly payment shall equal
the quotient obtained by dividing (a) the product of the amount prepaid, times
the Interest Differential, times a fraction, the numerator of which is the
number of days in the Average Remaining Maturity Period and the denominator of
which is 360, by (b) the number of whole months (using a thirty-day month) in
the Average Remaining Maturity Period.
Failure to exercise any option provided herein shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default.
Borrower agrees that if, and as often as, this Note is given to an attorney for
collection or to defend or enforce any of Lender's rights hereunder, Borrower
will pay to the Lender Lender's reasonable attorney's fees together with all
court costs and other expenses paid by Lender.
Borrower waives presentment, protest and demand, notice of protest, demand
and of dishonor and nonpayment of this Note and any lack of diligence or delays
in collection or enforcement of this Note. Borrower agrees that this Note, or
any payment hereunder, may be extended from time to time, and Borrower consents
to the release of any party liable for the obligation evidenced by this Note,
the release of any of security for this Note, the acceptance of any other
security therefore, or any other indulgence for forbearance whatsoever, all
without notice to any party and without affecting the liability of Borrower.
THE NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
SOUTH DAKOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS OR PRINCIPLES THEREOF,
BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO NATIONAL
BANKS. WHENEVER POSSIBLE, EACH PROVISION OF THIS NOTE AND ANY OTHER STATEMENT,
INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO, SHALL BE
INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER SUCH APPLICABLE
LAW, BUT, IF ANY PROVISION OF THIS NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR
TRANSACTION CONTEMPLATED HEREBY OR RELATING HERETO SHALL BE HELD TO BE
PROHIBITED OR INVALID UNDER SUCH APPLICABLE LAW, SUCH PROVISION SHALL BE
INEFFECTIVE ONLY TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT
INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS
NOTE OR ANY OTHER STATEMENT, INSTRUMENT OR TRANSACTION CONTEMPLATED HEREBY OR
RELATING HERETO.
AT THE OPTION OF LENDER, THIS NOTE MAY BY ENFORCED IN ANY FEDERAL COURT OR
SOUTH DAKOTA CIRCUIT COURT SITTING IN SIOUX FALLS OR BROOKINGS, SOUTH DAKOTA;
AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES
ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
NOTE, LENDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE
OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
45
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Borrower and Lender each irrevocably waives any and all right to trial by
jury in any legal proceeding arising out of or relating to this Note or any of
the Loan Documents (as defined in the Loan Agreement) or the transactions
contemplated hereby or thereby.
DAKTRONICS, INC.
By
-------------------------------------
Its President
46
Exhibit 21.1
SUBSIDIARIES OF COMPANY
Star Circuits, Inc.
MSC Technologies, Inc.
SportsLink, Ltd.
Servtrotech, Inc.
47
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 for Daktronics, Inc. 1993 Stock Option Plan and Outside Directors Stock
Option Plan and Daktronics, Inc. 401(k) Profit Sharing Plan and Trust and to the
Registration Statement on Form S-3 relating to the sale of no par value common
stock, and in the related Prospectuses of our reports, dated June 21, 2001, with
respect to the consolidated financial statements of Daktronics, Inc. and
subsidiaries as of April 28, 2001 and April 29, 2000, and for each of the three
years in the period ended April 28, 2001, and the schedule included in this
Annual Report on Form 10-K for the year ended April 28, 2001.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Sioux Falls, South Dakota
July 3, 2001
48