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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 27 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___.
COMMISSION FILE NUMBER: 0-23246
DAKTRONICS, INC.
(Exact name of Registrant as specified in its charter)
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SOUTH DAKOTA 46-0306862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
331 32ND AVENUE
BROOKINGS, SD 57006
(Address of principal executive offices, Zip Code)
(605) 697-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
COMMON STOCK, NO PAR VALUE
(Title of Class)
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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(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K.
Yes [ ] No [X]
As of June 21, 2002 18,282,884 shares of 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 21, 2002 was approximately
$174,967,000 based on the closing price of $9.57 per share of June 21, 2002 on
the NASDAQ/National Market System.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Definitive Proxy Statement Incorporated into Part III
Statement for the Annual Meeting of Shareholders to be held August 21, 2002
DAKTRONICS, INC. AND SUBSIDIARIES
FORM 10-K
For the Fiscal Year Ended April 27, 2002
TABLE OF CONTENTS
PAGE
Part I........................................................................2
Part II......................................................................16
Part III.....................................................................43
Part IV......................................................................43
Signatures...................................................................46
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT OF FORM 10K (INCLUDING EXHIBITS AND INFORMATION
INCORPORATED BY REFERENCE HEREIN) CONTAIN BOTH HISTORICAL AND FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE STATEMENTS
CONTAINED IN THIS REPORT THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED INCLUDING
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS AND
STRATEGIES FOR THE FUTURE. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS
REPORT AND INCLUDE ALL STATEMENTS THAT ARE NOT HISTORICAL STATEMENTS OF FACT
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, ITS
DIRECTORS OR ITS OFFICERS WITH RESPECT TO, AMONG OTHER THINGS: (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
RISK AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S ABILITY TO
CONTROL, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS DISCUSSED HEREIN
AND THOSE FACTORS DISCUSSED IN DETAIL IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
PART I.
ITEM 1. BUSINESS
GENERAL
Daktronics, Inc. (the "Company") is a leading supplier of electronic
scoreboards, computer-programmable display systems, and large video displays for
sport, business, and transportation applications. Its focus is on supporting
customers with superior products and services that provide dynamic, reliable,
and often unique, visual communication solutions. Its products include a
complete line of large display products, from small indoor and outdoor
scoreboards and displays, to large, multi-million dollar, video display systems.
It 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.
Services provided by the Company include project management, on-site
installation support, on-site event support, display content creation, product
maintenance, marketing assistance and large screen video display rentals.
The Company invests a significant portion of its research and
development resources into full-color LED (light emitting diode) based display
systems and has done so over the past several years. During that time, it has
introduced its ProStar(R) and ProAd(R) systems and has converted much of its
display offerings from incandescent & reflective technologies to LED based
technology although these technologies remain important. The Company continues
to invest in technology to develop new products and enhancements for a wide
variety of existing scoreboard and display products.
Every day, millions of viewers all over the world count on Daktronics
scoreboards and displays for information and entertainment. The Company has sold
display systems ranging from small scoreboards under $1,000 to large complex
display systems priced in excess of $10 million. Generally, the Company's
product sales are either custom products built on existing technology with
contract sizes ranging from approximately $25,000 to $11 million, or standard
catalog scoreboards or displays which account for approximately 25% of the
Company's total annual revenues.
The Company's net sales and profitability historically have fluctuated
due to the impact of large product orders such as display systems for facilities
where professional and major college sports events take place and large
commercial projects. The seasonality of the sports market has also played a part
in the Company's sales and profit fluctuations. This seasonality has had the
effect of causing net sales and
2
net income in the first and second quarters of a fiscal year to be generally
higher than the third quarter of a fiscal year, followed by higher levels in the
fourth quarter, leading into the first quarter of the following year. This
seasonality is caused by the completion of football and other fall sports
facilities in the early fall, followed generally by the major indoor winter
sports of basketball and hockey. This seasonal effect is generally compounded by
large product orders in the sports markets. The effects of seasonality are
generally not found in the Company's business and transportation markets,
although the impact of a large order in those markets can cause a significant
fluctuation in net sales and the resulting profits. Approximately two-thirds of
the Company's revenues are in the sports markets with the remaining split
between business and transportation although the Company considers itself to be
operating in a single industry segment as explained in the notes to the
financial statements included in this report.
The Company's gross margins on large orders tend to fluctuate more than
those for smaller, standard orders. Large product orders that involve
competitive bidding and substantial subcontract work for product installation
generally have lower gross margins with greater variability in margins among the
larger orders. Although the Company follows the percentage of completion method
of recognizing revenues for these larger orders, the Company nevertheless has
experienced fluctuations in operating results and expects that its future
results of operations may be subject to similar fluctuations.
INDUSTRY
Daktronics is an established leader in computer-programmable displays
and large screen video displays. Growth of this product category was originally
stimulated by the invention of the microprocessor and the continued development
and acceptance in society of the personal computer. Initially, computers allowed
companies the capability to bring to market incandescent and reflective
technologies controlled by computers. In the past, these incandescent and
reflective technologies were key product categories for the Company.
During the mid-1990s, a technological breakthrough in display
technology occurred which contributed significantly to the growth and position
of the Company as a world leader - the development of a blue light emitting
diode that was visible outdoors, and that could be manufactured in larger
quantities. This provided the basis for significant future growth in the
industry and for the Company. With this development, the Company entered the
large screen video display business in 1997. Prior to this development, large
screen video displays were primarily made of small cathode ray tubes ("CRT"),
were limited in size and the suppliers were generally the same companies that
were in the television set business.
The Company leveraged its knowledge of the display business with the
availability of high quality blue and green light emitting diodes to broaden its
scope and provide not only computer-programmable signage but also large video
displays for both outdoor and indoor usage. It also converted many of its
previous incandescent and reflective technologies to lower cost, LED based
technology.
In general, the industry is characterized by market participants that
provide limited product offerings as compared to the Company. For example, most
manufacturers of computer programmable computer displays that are used to show
alphanumeric data and graphics do not manufacture large screen video displays
and scoreboards. Conversely the large video display manufacturers do not
manufacture computer programmable displays and scoreboards. Daktronics, however,
manufactures both computer programmable displays and large video displays and
supplies the software to integrate various components, as well as marketing
services, content development and scoring information. This places Daktronics in
a uniquely beneficial position to serve venues that have numerous requirements
such as the typical large sports venue. Daktronics, through the use of its
proprietary Venus(R) 7000 display control software and its V-Play(TM) video
server 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 and
providing seamless integration with standard video equipment. Having all these
functions integrated into one large display system gives the venue owner
significant flexibility in managing the information and entertainment spectators
receive that has not been available previously.
3
COMPANY BACKGROUND
Drs. Aelred Kurtenbach and Duane Sander founded the Company in 1968
while professors of electrical engineering at South Dakota State University
("SDSU") in Brookings, South Dakota, in part to utilize the talents of
university graduates. One of the key factors contributing to the growth of the
Company and its leadership in the industry has been its close relationship with
SDSU which provides the Company an important source of highly trained engineers
and other professional full-time and student employees.
The Company produced and sold its first product in 1970, a voting
display system for the Utah Legislature. Using some of the technology developed
from voting display systems, it expanded its product line to scoreboards in 1971
and commercial displays in 1973. Beginning in the late 1970's,
microprocessor-based computers were integrated into display controllers by the
Company to process information provided by an operator and to formulate the
information for presentation on a display. At that time, the Company began
building computer-programmable information display systems utilizing standard
modules in a variety of systems. The use of modular sections for both its
smaller and larger display systems allowed the Company to offer customers a
broad range of both standard and custom products. Innovations like these helped
the Company to obtain a major scoreboard contract for the 1980 Olympic Winter
Games and several large college installations early in its history. In the early
to mid-1980's, the Company 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.
During the 1990's, the Company expanded its product lines, increased
market share in its existing markets and developed new markets for it products.
For example, it enhanced its Starburst(R) incandescent display technology by
developing a new lens and reflector design to capture viewer attention and
reduce energy consumption. It developed display control circuitry capability to
display 16 million possible color combinations at 30 frames per second for the
Starburst(R) displays. The Company utilized this circuitry to develop technology
for LED video displays. Historically, the Company built and enhanced products
through its ability to transition technology from one application to another.
This remains a key initiative for the Company.
With the advent of full-color LED display systems, including software,
the Company made significant progress in building market share through quality
products and services utilizing its technical expertise to become one of the
world's leaders in its market. Its products are now seen in many major league
sports complexes, including fully integrated systems at the American Airlines
Center in Dallas, Texas, CMGI Field in Foxboro, Massachusetts; the Xcel Center
in St. Paul, Minnesota; several major colleges, universities and other amateur
facilities including the 1996, 2000, and 2002 Olympic Games; many commercial
installations including, multi million dollar commercial displays in Times
Square, New York, Las Vegas, Nevada; Branson, Missouri; small message signs for
national retailers and fast food chains; and complex transportation systems such
as over the road message displays for many Departments of Transportation,
including Virginia, New Jersey, California, Washington, Delaware, Illinois,
Pennsylvania, Mexico, Canada, and New Zealand.
Over the past few years, the Company has achieved significant
recognition and awards for its products and financial performance. In 2001, the
Company's Chairman, Dr. Aelred Kurtenbach, was awarded the national 2000 Ernst &
Young Entrepreneur of the Year(R) award for the manufacturing category. The
Company has also been named, on numerous occasions, the South Dakota Business of
the Year by the South Dakota Chamber of Commerce and Industry. It is currently
ranked 128th on Forbes list of the 200 Best Small Companies in America and
ranked 83rd on the list of America's Fastest Growing Small Companies by Fortune
Small Business magazine. Finally, according to a recent industry report, the
Company has the largest share of the worldwide market for LED video displays at
over 26.5%.
4
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 components to reduce the cost of production, improve delivery
time and provide flexibility for standard and custom installations. The use of
standard components also enhances the reliability and serviceability of the
display systems. For example, the basketball scoreboard family includes products
that use many of the same components and range from a small, single-faced
scoreboard to a large, four-sided display with player statistics. The sizes of
displays can vary significantly, depending on the needs of the customer, taking
into account such things as viewing angles and spectator distances.
The two principal components of most of the Company's systems are the
display and the display controller. The display controller uses computer
hardware and software to process the information provided from the operator and
other integrated sources and to formulate the information, graphics, or
animation to be presented on the display. The display controller controls each
of the pixels (dots or picture elements that make up the image) on the display
to present the message or image.
Data can be transferred between the display controller and local and/or
remote displays. Local connections use twisted pair cables, fiber optic cables,
infrared links or radio links. Both standard and cellular telephone connections,
and satellite transmissions, are used to connect to remote displays. The remote
connections are generally purchased from third parties.
Within each product family, the Company produces both standard and
custom displays that vary in complexity, size and resolution. Generally, a
large, full-color video display is significantly more complex than a standard
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 one time. Generally, for displays other
than fixed digit displays, the light source or pixels are spaced farther apart
for longer distance viewing. The resolution of a display is determined by the
size and spacing of each pixel, with smaller, more densely packed pixels
creating higher resolution images. The type of the display may also depend on
the location of the viewing audience. For example, arena scoreboards may have a
viewing angle nearly as wide as 180 degrees, compared with roadside displays
which typically are viewed from a passing vehicle only within a narrow angle
from the display.
KEY DISPLAY AND PRODUCT TECHNOLOGIES
The majority of the Company's display systems use LED technology,
although the Company still supplies of the following display technologies: (i)
Starburst(R) multi-color incandescent, (ii) SunSpot(R) monochrome incandescent,
and (iii) Glow Cube(R) and other reflective elements. It has been and continues
to be the Company's strategy to offer customers a wide range of technologies and
products to fit their individual needs while capitalizing its ability to share
technologies across applications. The customers' selection of a display
technology depends on a variety of factors, including price, location, power
consumption, operating costs, and complexity of the information, graphics or
animation to be displayed. Outdoor displays are designed to withstand the
elements and to be visible in both bright sunlight and at night.
LED DISPLAYS. The Company's LED displays use programmable light
emitting diodes as the light source for each display pixel. The LEDs turn on and
off at different intervals and rates to form the display images. One line LED
displays are used for text, and larger LED displays are used for text, graphics,
animation, and video. LED displays can be one or multiple colors. The LED
technology is advantageous because of the long life of LEDs and their low power
consumption. Daktronics manufactures both indoor and outdoor LED displays.
Displays range from small character-based DataTrac(TM) signs and standard
scoreboards to ProStar(R) and ProAd(R) video
5
displays that have the capability to show moving images in 68 billion shades of
color. LED based products comprise the majority of the Company's products and
contribute a majority of its revenues.
REFLECTIVE DISPLAYS. The Company's Glow Cube(R) display technology uses
three-dimensional pixels or "cubes." Each pixel is programmed to rotate so that
the viewing surface of the cube flips from a bright color to a dark contrasting
color. Words and graphics form as each pixel flips from one color to the other.
Glow Cube(R) displays are generally used outdoors, use less power and can be
configured in a wide variety of sizes. Because a Glow Cube(R) display reflects
sunlight during the day and fluorescent light at night, the display consumes
relatively little power while operating. The Company's 7 x 18 feet Glow Cube(R)
displays for the PGA Tour each operate on a golf cart battery and are moved
between golf tournament sites throughout the season. The Company had also
provided Glow Cube(R) displays for the 2002 Winter Olympic Games, the 2000
Summer Olympic Games, the 1996 Summer Olympic Games, the 1994 Winter Olympic
Games, and many other sports, business and transportation applications.
Although sales of reflective displays are not expected to contribute
significantly to future revenues of the Company, the technology has been a
significant contributor in the past, including the most recently completed
Winter Olympic Games and the PGA Tour. The Company still maintains a market for
this technology in appropriate circumstances, such as low power, portability and
bright light.
SUNSPOT(R) MONOCHROME INCANDESCENT LAMP DISPLAYS. SunSpot(R) displays
use incandescent lamps without lenses or with a single color of lens, which turn
on or off at varying intervals and rates. The displays typically display black
and white, with the capability for up to 64 shades of gray color and are used
both indoors and outdoors typically for time and temperature, messaging,
graphics, and other applications where color is not required. The Company has
sold its SunSpot(R) displays for many small and large installations such as high
school football stadiums, commercial businesses, and major league baseball
stadiums in the past. It expects that most applications of this technology in
the future will be in commercial applications and standard sports products and
that over time this technology will continue to decline in use in favor of LED
technology.
STARBURST(R) COLOR DISPLAYS USING INCANDESCENT LAMPS. Starburst(R)
displays, which are not being actively sold by the Company, used four colors
(red, green, blue and white) to display many shades of color when different
combinations of lights are illuminated. They also use reflectors with colored
lenses over clear lamps. Each of the display lamps is turned on and off at
different intervals and rates determined by the software in the controller to
change what is presented on the display. The Company-designed reflector and lens
system consumes less energy than a traditional incandescent lamp display while
maintaining the brightness of the display to the viewing audience. Starburst(R)
color displays are used both indoors and outdoors and provide customers the
flexibility of displaying text, numbers, graphics, animation and other types of
information. Among the Company's Starburst(R) installations are displays at
Caesars Palace, Phillips Arena, Tacoma Dome and HSBC Arena, and various indoor
and outdoor sports and entertainment facilities.
CONTROL SOFTWARE. Most of the Company's display technologies rely on
one or more of the Company's control software products to manage the display.
These software products range from the Venus(R) 1500 display control software
that allows the creation, display and scheduling of dynamic text and basic
graphics content on electronic displays to the Venus(R) 7000 display control
system that controls multi-color displays and video boards, providing the
ability to create graphics and animation as well as interfacing with third-party
software for content.
EVENT MANAGEMENT SOFTWARE. The Company's V-Play(TM) video server
software provides facilities with integrated and sophisticated display systems
event management capabilities with integration to video equipment. It controls
things such as instant replays, live action and overlays of information.
6
PRODUCT FAMILIES
Daktronic's product offering is comprised of four general product
groups, although due to the nature of the technology and the products, the same
technologies and products have significant amounts of overlap:
o Sport Products, primarily scoreboards, controllers and timing systems
o Video Products, primarily ProStar(R) and ProAd(R) displays
o Business Products, primarily Galaxy(R) displays
o Transportation Products, primarily Vanguard(R) displays
SPORT PRODUCTS. The Sport Products group includes a full line of indoor
and outdoor scoreboards. The indoor products, which are available in LED
technologies, range from two-digit shot clocks and high school basketball
scoreboards to large, center hung scoreboards incorporating message centers and
advertising panels.
Outdoor scoreboards, which are available in LED, incandescent and
reflective technologies also range from two-digit game timers to high school
football scoreboards to large scoring systems incorporating message centers and
advertising panels.
The Company expects that Sport Product sales in the future will
continue to focus on LED technology due to the lower power consumption, longer
life and resulting lower maintenance costs. Substantially all current indoor
Sport Products offering sales are LED technology, while in outdoor applications,
LED technology comprises more than 50% of sales in this group. The Company
expects that technologies like reflective will continue to be used however for
appropriate applications. Since most of the products within the Sport Products
group have significant standardization, the Company has been able to make
progress on its goal to deliver the highest quality products, while maintaining
consistent and favorable margins.
The Company offers a variety of internally developed controllers
complementing scoreboards and displays, which vary depending on the sport and
complexity of the system. These controllers vary in price and complexity from
the All Sport(R) 1600, which is an entry-level controller for scoreboards, to
the All Sport(R) 5000 which is designed for more sophisticated scoring systems
allowing for more user-defined systems. These controllers can be interfaced with
the scoreboards through radio frequencies, fiber optic and other means. Various
timing solutions for sports such as swimming and track are also offered.
Finally, the Company markets a variety of sports statistics and results
software under the DakStats(R) trademark to complement the controllers. The
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, The Ballpark in
Arlington and Coors Field. The Company has developed proprietary statistics and
results software for several other sports such as golf, football, volleyball,
basketball, auto racing and skiing.
VIDEO PRODUCTS. The Video Products group consists of displays comprised
of a large number of pixels capable of creating various levels of graphics,
animation, text, and controllers which manage the operation of the display.
Within this product group the Company supplies displays that are built on LED,
incandescent, and reflective technologies forming pixels which create the
images. The Video Products group has been the most significant product group for
the Company in terms of revenues.
Historically, conventional displays formed images by turning pixels on
or off without varying the levels of intensity. Combining the on or off with the
ability to vary the intensity of each pixel allows the generation of multiple
colors. When combining the on/off and varying degrees of intensity with a
combination of red, green and blue light sources in a display, the combinations
allow the display of graphics and video in a wide range of colors. Displays vary
by the levels of capabilities within each of
7
these areas. For example, a greater range of intensities combined with generally
more tightly packed spacing of three color pixels leads to improved resolution
and performance. The Company offers a wide range of products within its Video
Products Group which offer the customer a great deal of flexibility to meet
their particular needs.
The Company's ProStar(R) LED video display technology, which is at the
top end of performance in terms of video capabilities and is one of the world's
leading video display products, uses red, green, and blue (RGB) LEDs at a wide
range of brightness levels allowing for peak performance in indoor as well as
outdoor applications. The displays offer state-of-the-art video and animation
capability at a price significantly less than the large screen CRT video screens
used in sports stadiums into the late 1990s. The proprietary technology produces
up to 68 billion colors through varying the brightness of the LEDs. Due to the
modular approach the Company takes in its manufacturing process of ProStar(R)
products, it is able to offer customers virtually any size as well as portable
options. The first ProStar(R) systems were installed in the fall of 1997 and can
now be seen in a number of indoor and outdoor applications such as major league
sports facilities, colleges and universities, and municipal high school
facilities. This technology is also popular in commercial applications such as
Times Square in New York City, casinos, billboards and other entertainment and
business applications. Currently, the Company offers a wide range of pixel
spacings from 6mm to 34mm. The 6mm application provides the user with the
greatest pixel density and the 34mm is the most cost effective for physically
large displays. The Company has been recognized by industry experts as the
world's leading supplier of LED video display systems across all markets. The
ProStar(R) systems are used to entertain, inform and advertise to spectators,
consumers and others.
In the late 1990's the Company adapted the technology used in its
ProStar(R) product line to introduce the ProAd(R) digital advertising and
information display system. ProAd(R) technology uses similar red, green, and
blue LED modules configured in different height-to-width ratios to give arena
and stadium facilities the ability to install long, narrower bands of displays
in various locations, primarily on the fascia of the facility. This application
generally serves as a revenue generation source for facilities through
advertising as well as a location to display information such as scoring and
statistics and video designed to entertain.
The Company's main controller for video displays is its Venus(R) 7000
controller which is built on 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) event management software, which
was released in fiscal year 2001, provides facilities with integrated and
sophisticated event management capabilities with integration to video equipment.
It controls things such as instant replays, live action and overlays of
information, and allows for the organization and playback of digital video and
audio clips. In addition to providing these software products, the Company
develops customized hardware circuit boards and software for customers who have
special information display requirements.
The Company designs interfaces between its display systems and other
computer systems allowing its scoreboard systems to receive and display
information from computers used for statistics, timing or scoring. These
interfaces allow the display controller to send information back to a statistics
system or customer computer. These interface products automatically report
continually updated sports scores and information from national wire services.
Within the Video Products group, the Company acquired a company in 2000
and merged it into the Company under the brand name of Keyframe(SM).
Keyframe(SM) is primarily a service provider to customers who have invested in
ProStar(R) and ProAd(R) systems and require assistance in enhancing the content
displayed on the video displays. These services include a wide range of
offerings from complete event management to creation of custom animations and
graphics for the displays and training services.
BUSINESS PRODUCTS. The key product lines developed and managed by the
Business Products group include the Galaxy(R) product line as well as various
other indoor and outdoor business applications intended primarily as text-based
message displays, some with limited graphics capability. A significant portion
of the Business Products group products utilize LED technologies.
8
Galaxy(R) displays, available in both indoor and outdoor models, have
become the Company's leading product line for business applications and is
expected to be a key product line for the Company's growth in the business
markets. Generally, Galaxy(R) displays in outdoor applications are monochrome,
in red or amber with pixel spacing ranging from 23mm to 89mm, depending on size
and viewing distance and are used primarily as message centers to inform the
public. This product line has been the key driver in the Company's growth in
national accounts used in exterior signage applications. The Company offers
indoor models with pixel sizes starting at .3" for applications in commercial
accounts as well as transportation and airports. Within this product line the
Company offers customized solutions to fit the needs of the customer, which
generally focus on size of the display.
Other product families within the Business Products group include its
DataTrac(TM), DAKTicker(R) and InfoNet(TM) displays. The DataTrac(TM) product
lines consist of indoor LED displays comprised of discrete characters. Each
character is spaced horizontally and vertically from the adjacent character.
This provides the least expensive display per character for display of text
messages only. DAKTicker(R) displays are used primarily in financial
institutions for ticker displays and other financial information. The
InfoNet(TM) product line includes line-oriented displays for indoor use which
are available as single or multi-line units.
All DataTrac(TM), DAKTicker(R) 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.
The majority of the Company's Business Products group's products
utilize the Company's Venus(R) 1500 display control software to control the
creation of messages and graphic sequences for downloading to the display. This
software is designed to be useable without any special training, and is
applicable to all general advertising or message presentation applications. The
Company also provides software that allows customers to write their own software
using the Venus(R) 1500 software developer's kit to communicate to other
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 market (ie. credit card
processing centers), and other markets.
TRANSPORTATION PRODUCTS. The Transportation Products group includes a
full line of electronic displays and controllers marketed primarily under the
Vanguard(R) product line. Vanguard(R) displays are typically installed over
roads to help direct traffic and inform motorists. The Company has also
developed a control system for these displays which help manage a network of
over the road signs. Both the LED based displays and the software are NTCIP
(National Transportation Communications for ITS Protocol) compliant and meet the
various requirements imposed by government and other regulatory bodies. During
fiscal year 2002, the Company also introduced its portable roadside variable
message sign and began marketing it. This display, which runs on batteries and
is built on LED technology, is controlled by remote wireless means.
MARKETING AND SALES
The Company's display systems have been sold throughout the United
States and in more than 70 countries. Its products are marketed and sold
worldwide through a combination of direct sales personnel and independent
resellers. In the United States and eastern Canada, the Company utilizes
primarily a direct sales force for major league sports, colleges and
universities, convention centers and transportation and other commercial sports
entities. In the smaller sports venues, primarily high schools and similar
facilities, as well as commercial facilities, the Company utilizes a combination
of direct sales staff and resellers.
The majority of the products sold by resellers are standard or
"catalog" sports scoreboards and business products where display systems must be
installed in accordance with local zoning ordinances. These are typically
moderately priced and relatively easy to install. The most popular models are
built to inventory and available for quick delivery. The remaining models are
built to order and quoted for
9
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. Members of the Company's direct sales
force support resellers in the field, and the Company's sales staff provide
daily telephone support. The Company believes that it can expand market share by
increasing the productivity of existing resellers and adding additional
resellers in new geographic areas.
The Company's direct sales force is comprised of a network of 29
offices throughout the United States supporting all customer types in both sales
of products and services. In addition to supporting resellers as mentioned
above, the direct sales staff also sells the entire range of products and with
the exception of the non-domestic market, directly sells substantially all the
large video display systems for the Company. Over the last few years the Company
has been transitioning from a customer type sales focus to a regional,
geographic approach, while retaining the market specialization required to serve
that market. This has caused a significant investment in sales infrastructure to
encourage more team selling across markets and more efficient use of the
Company's sales staff. For example, previously a sales person specializing in
colleges and universities tended to overlook opportunities in the business
markets as that was covered by another direct sales person. Under the regional
approach, although they will remain specialists, they are now responsible as a
regional team member to uncover opportunities for the other markets and to
transition their knowledge into the other markets to help close orders.
When the Company targets a potential costumer for a display system, the
prospect is contacted either directly or through a reseller. Frequently,
engineers, technicians, and direct sales personnel jointly participate in site
visits to assess site conditions, evaluate the customer's requirements and work
on proposals. Proposals to prospective customers include business and technical
presentations as well as product demonstrations and visits to existing
installations. The Company also regularly hosts prospective customers at its
manufacturing facility to demonstrate product quality and delivery capability.
The Company's direct sales staff, grouped by end user market, is also
responsible for international sales in their respective markets. Its direct
sales staff works primarily through resellers and during fiscal years 2002, 2001
and 2000, approximately 7.4%, 6.8% and 9.3% 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 includes a letter of
credit or payment in advance in United States dollars. The Company believes that
in addition to substantial growth that it expects will still occur in the
domestic markets, it will also achieve growth in the international markets.
The Company believes that much of its marketing and sales success in
the past has been based on its ability to create new products and product
enhancements for its customers through developing and understanding of their
needs and opportunities. It develops this understanding through active
participation in the sales cycle by engineers and various others and through
attendance at trade shows, conventions and seminars as well as through a culture
of teamwork throughout the organization.
In fiscal year 2001, Daktronics acquired SportsLink, Ltd., a large
screen video rental display company based in Brookings, S.D. SportsLink was
founded in 1995 and rents out a number of large screen video displays for
various types of events. It also provides support services in connection with
the rental at events. The Company believes rentals provide an excellent method
to demonstrate the Company's product and service capabilities.
The primary markets served by the Company, along with types of
customers, are as follows:
MARKETS TYPES OF CUSTOMERS
------- ------------------
SPORTS Elementary and secondary schools, colleges and
universities, recreation centers, YMCAs, major and
minor league sports teams and facilities, Olympic
games, national and international sports federations,
civic arenas and convention centers, pari-mutuel
gaming and motor racing.
10
BUSINESS Banks, auto dealers, shopping malls, casinos, retail
stores, hotels, motels, financial institutions and
other businesses.
TRANSPORTATION State and local departments of transportation,
airlines, airports and related industries, transit
authorities and legislatures and assemblies.
The Company 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.
CUSTOMER SERVICE AND SUPPORT
The Company believes that its prompt and reliable customer service
distinguishes it from many of its competitors. The Company provides a limited
warranty for most of its products against failure due to defective parts or
workmanship for periods generally ranging from 90 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
its 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 principal offices and also contract for on-site
training and maintenance for certain types of installations such as high profile
sports events.
The Company's Keyframe(SM) group provides a variety of services for its
customers, including video and animation production, event support, control room
design, on-site training, and continuing technical support for operators of
Daktronics displays.
The Company believes that its extensive customer support program is
essential to continued market penetration. To enhance the level of service
available to its customers, the Company has established approximately 29 service
centers throughout the United 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 also uses a network
of authorized service companies in other domestic locations and in a number of
other countries to service and maintain its products.
ENGINEERING AND PRODUCT DEVELOPMENT
The computer-programmable 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 changes and developments in the industry and more importantly remain
a leader in creating the innovations and developments. The Company intends to
continue its tradition of applying engineering resources throughout its business
to help achieve more effective product development, manufacturing, sales and
customer support. It also remains committed to investing approximately 4% of its
net sales into research and development.
The Company employs engineers and engineering technicians in the areas
of mechanical design, electronics design, applications engineering, and customer
and product support. Unlike some of its competitors 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.
11
The Company's product development personnel also modify existing products and
develop new products to comply with rule changes for particular sports. The
Company also invests in new creative technologies that appear in the market
place as well as in companies developing these new technologies.
Daktronics engineering department consists of three product-development
groups aligned with the primary product groups, namely:
o Sport Products
o Video Products
o Business Products (See "Product Families" Section)
Each of these design groups is autonomous to allow it to focus on the
respective product family while at the same time closely tied with each other
for sharing of ideas and technology. This organizational structure, plus a
concentrated focus on standardization, which reduces the amount of engineering
time allocated to one-time custom design, positions the Company for even more
effective product development in the future.
Daktronics believes its engineering capability and experience are
unparalleled among its competitors and its product development capability will
continue to be a very important factor in its market position.
Product development expenses for fiscal years 2002, 2001 and 2000 were
approximately $7,442,000, $5,685,000 and $4,292,000 respectively.
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 which provides it with increased capacity with the use of outside
subcontractors, primarily for metal fabrication and loading printed circuit
boards.
The Company uses a modular approach for manufacturing its displays.
Standard product modules are designed and built to be used in a variety of
different products. This modular approach reduces parts inventory and improves
manufacturing efficiency. The Company inventories finished goods of smaller,
standard products and builds to order larger, seasonal and custom products. It
designs 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.
12
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.
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 $44 million as of June 1, 2002 and $32 million as of May 26, 2001.
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.
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.
13
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. 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
The Company holds a number of U.S. patents and has a number of U.S.
patent applications pending. The patents pertain primarily to the Company's LED
and incandescent display technologies, and to its water-submersible swimming
touchpads. The Company also relies on trademarks, in addition to patents, to
help establish and preserve limited proprietary protection for its products. It
owns and uses a number of trademarks on or in connection with its products,
including the stylized Daktronics "D" logo. These trademarks are registered in
the United States and other countries. The Company also has numerous trademark
applications pending. Daktronics uses these trademarks to establish brand
recognition and distinction in its various markets. The Company's product
drawings, software and other works of authorship are also subject to applicable
copyright laws. The Company provides software to its customers in only
machine-readable object code to help preserve trade secret protection that may
be applicable to the text versions of the software code. The Company also relies
on nondisclosure agreements with its employees. Despite these intellectual
property protections, there can be no assurance that a competitor will not copy
the functions or features of the Company's products.
EMPLOYEES
As of June 10, 2002, The Company employed 772 full time employees and
366 part time and temporary employees. Of these employees, approximately 523
were in manufacturing, 316 in sales, marketing and customer service, 242 in
engineering, and 57 in administration. None of the Company's employees is
represented by a collective bargaining agreement. The Company believes its
employee relations are good. The Company has reports that a trade union local
has contacted certain of the Company's employees by phone, mail and in person.
No union representative has made any attempt to contact the Company's management
and the Company is unaware of any demand for recognition or any allegations of
unfair labor practices. The Company continues to believe its employee relations
are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
Aelred J. Kurtenbach 67 Chairman of the Board
James B. Morgan 54 President, Chief Executive Officer, and Director
Frank K. Kurtenbach 63 Vice President, Sales and Director
William R. Retterath 41 Chief Financial Officer, Treasurer
Carla S. Gatzke 40 Personnel Manager, Corporate Secretary
AELRED J. KURTENBACH, PH.D. is a co-founder of the Company and has served as a
director of the Company since its incorporation. Dr. Kurtenbach is currently
Chairman of the Board. He also served as President of the Company until 1999 and
as Treasurer until 1993. Dr. Kurtenbach has 44 years of experience in the fields
of communication engineering and control system design, technical services,
14
computer systems, electrical engineering education and small business
management. Dr. Kurtenbach has B.S., M.S. and Ph.D. degrees in Electrical
Engineering from the South Dakota School of Mines and Technology, the University
of Nebraska and Purdue University, respectively.
JAMES B. MORGAN joined the Company in 1969 as a part-time engineer while earning
his M.S. degree in Electrical Engineering from South Dakota State University.
Mr. Morgan became President and Chief Operating Officer of the Company in 1999.
He served as its Vice President, Engineering, with responsibility for product
development, contract design, project management, and corporate information and
scheduling systems, from 1976 to 1999. Mr. Morgan has also served as a director
since 1984.
FRANK J. KURTENBACH joined the Company in 1979 as Sales Manager of the Standard
Scoreboard Division, which was expanded to include other products in 1981. He
has served as the Company's Vice President of Sales for the Company since 1982,
as a director since 1984 and as Vice President, Sales since November 1993. Mr.
Kurtenbach has a M.S. degree from South Dakota State University.
WILLIAM R. RETTERATH, CPA joined the Company in September 2001 as its Chief
Financial Officer and Treasurer. Mr. Retterath previously served as the Chief
Financial Officer of MQSoftware, Inc. and from 1999 through 2000 was a Vice
President of Finance for Computer Associates, Inc. through its acquisition of
Sterling Software Inc. Prior to that time, Mr. Retterath served as the Chief
Financial Officer for various public and private companies and worked for a
number of years with Deloitte & Touche. Mr. Retterath holds a BS in Accounting
from the University of Minnesota.
CARLA S. GATZKE joined the Company in 1981 while earning her bachelor's degree
in electrical engineering from South Dakota State University. Upon graduation,
she worked full-time as a Systems Sales Engineer. After a leave of absence to
complete a Master's in Business Administration at Drake University, she served
as manager of Star Circuit's, Inc., the Company's circuit board subsidiary. In
1992, she moved to Administration and currently manages Personnel and Enterprise
Information Systems.
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. During fiscal year 2002, SportsLink, Ltd. purchased an
88,000 square foot facility located on adjacent property to the Company's main
facilities. Star Circuits, Inc. is located at a separate site in Brookings and
occupies approximately 20,000 square feet in a facility owned by that
subsidiary.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending material legal transactions against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of stockholders though a
solicitation of proxies or otherwise, during the fourth quarter of fiscal 2002.
15
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 27, 2002 the Company had 511
shareholders of record. Following are the high and low sales prices for the
Company's common stock (amounts have been adjusted to the two-for-one stock
split approved on May 24, 2001):
FY 2002 FY 2001
High Low High Low
------- ------- ------- -------
1st Quarter $ 16.59 $ 8.50 $ 5.69 $ 4.44
2nd Quarter $ 11.50 $ 6.15 $ 7.94 $ 5.31
3rd Quarter $ 8.85 $ 6.56 $ 8.00 $ 5.78
4th Quarter $ 9.50 $ 6.28 $ 11.65 $ 7.00
On May 24, 2001, Daktronics approved a two-for-one stock split of the
Company's common stock in the form of a stock dividend. Stockholders of record
at the close of business on June 11, 2001 received one additional share for each
share of common stock on that date of record. Daktronics stock began trading 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 table below provides selected historical financial data of the
Company, which should be read in conjunction with the financial statements and
the notes to the financial statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," which are included elsewhere
in this report. The statement of operations data for each of the three years in
the 52 week periods ended April 27, 2002 and the balance sheet data at April 27,
2002 and April 28, 2001, are derived from, and are qualified by reference to the
audited financial statements included elsewhere in this report. The statement of
operations data for the years ended April, 1999 and April 1998 and the balance
sheet data at April, 2000, 1999, and May, 1998 are derived from audited
financial statements not included in this report.
2002 2001 2000 1999 1998
----------- ----------- ----------- ---------- ----------
Income Statement Data:
Net Sales $ 148,773 $ 152,331 $ 123,350 $ 95,851 $ 69,884
Operating Income 9,103 14,451 9,996 7,056 5,028
Net Income 4,892 8,685 6,224 4,220 3,392
Diluted Earnings per Share* 0.25 .46 .34 .24 .20
Weighted Average Diluted Shares Outstanding* 19,230 18,874 18,414 17,898 17,346
Balance Sheet Data:
Working Capital $ 28,353 $ 26,967 $ 20,663 $ 20,592 $ 12,229
Total Assets 87,346 90,214 72,407 62,619 43,488
Long-Term Liabilities 11,651 12,004 8,977 9,503 1,659
Shareholders' Equity 51,501 45,823 36,231 29,501 25,184
*Amounts have been adjusted for the two-for-one stock splits approved on
December 7, 1999 and May 24, 2001.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in conjunction
with "Selected Consolidated Financial Data" and the consolidated financial
statements and notes thereto appearing elsewhere in this report.
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 2002
fiscal year contained 52 weeks.
For a summary of recently issued accounting pronouncements and the
effects of those pronouncements on the financial results of the Company, refer
to Note 1 of the financial statements of the Company, which are included
elsewhere in this report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
the Company evaluates its estimates, including those related to estimated total
costs on long-term contracts, estimated costs to be incurred for product
warranties and extended maintenance contracts, bad debts, and contingencies. Its
estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies require
significant judgments and estimates used in the preparation of its consolidated
financial statements:
REVENUE RECOGNITION ON LONG-TERM CONTRACTS. 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.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are estimatable. Generally, contracts entered into by the
Company have fixed prices established and to the extent the actual costs to
complete contracts are higher than the amounts estimated as of the date of the
financial statements, the resulting gross margin would be negatively effected in
future quarters when the Company revises its estimates. The Company's practice
is to revise estimates as soon as such changes in estimates are known.
17
ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of its customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
WARRANTY, EXTENDED WARRANTY AND PRODUCT MAINTENANCE. The Company has
created a reserve for standard warranties on its products equal to its estimate
of the actual costs expected to be incurred in connection with it performance
under the warranty. It also has deferred estimated revenue related to separately
priced extended warranties and product maintenance agreements, based in part on
its estimate of its costs expected to be incurred in connection with these
agreements. In the event that the Company would become aware of an increase in
its warranty and maintenance reserves, deferrals of additional reserves may
become necessary, resulting in an increase in costs of goods sold. As of April
27, 2002, the Company had a total of $ 3 million deferred for these costs and
revenues.
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 2002, 2001 and 2000:
YEARS ENDED
2002 2001 2000
======= ======= =======
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 69.7 70.3 72.2
------- ------- -------
Gross profit 30.3 29.7 27.8
Operating expenses 24.2 20.2 19.7
------- ------- -------
Operating income 6.1 9.5 8.1
Interest income 0.6 0.5 0.7
Interest expense (1.0) (1.0) (1.1)
Other income (expense), net (0.2) 0.2 0.3
------- ------- -------
Income before income taxes 5.5 9.2 8.0
Income tax expense 2.2 3.5 3.0
------- ------- -------
Net income 3.3% 5.7% 5.0%
======= ======= =======
NET SALES
Net sales decreased 2.3% to $149 million for fiscal year 2002 as
compared to approximately $152 million for fiscal year 2001. Net sales in the
sports and transportation markets increased in fiscal year 2002 over fiscal year
2001, while sales in the business markets declined, offsetting the sports and
transportation increases. The increases in the sports markets were primarily in
smaller venues as compared to larger venues. The larger venue revenues were down
as a result of the actual timing of orders which were booked later than expected
in the fourth quarter of fiscal year 2002. Order bookings were up in all
categories of the sports market, including large and small venues.
The decline in net sales for the business markets was the result of the
slowing economic conditions experienced during most of the second half of fiscal
year 2002 and the impact of a large order in fiscal year 2001 that was not
repeated in fiscal year 2002. A single large order in the business market had
contributed approximately $10 million in net sales in fiscal year 2001.
Excluding the revenue from that single large order, sales in the business market
were approximately flat in fiscal year 2002 as compared to fiscal year 2001.
Finally, offsetting the decline in the business markets due to the factors
mentioned was an increase in sales to national retail chain accounts in the
fourth quarter of fiscal year 2002.
Overall sales were effected by delays in booking orders across all
markets beginning late in the second quarter and through the third quarter as
customers hesitated due to the effects on the economy after the events of
September 11, 2001. As the Company progressed into the fourth quarter of fiscal
year 2002, it appeared as though the trends of flat and declining sales overall
were reversing and the Company is expecting increasing sales in the future.
18
The Company's backlog at the end of the fiscal year 2002 was in excess
of $50 million, which was the highest year end level in the Company's history
and an increase over fiscal year end 2001 backlog of $32 million. The increase
in backlog was primarily in the sports markets and resulted from a number of
large orders booked late in the fourth quarter. The backlog varies significantly
quarter to quarter due to the larger orders and therefore significant variations
can be expected as explained previously herein. In addition the Company's
backlog is not necessarily indicative of future sales or net income, also
explained previously.
Net sales for fiscal 2001 were $152.3 million, representing a 23%
increase over fiscal 2000 sales of $123.4 million. The increase was the result
of increased sales in the sports, business and transportation markets.
The Company occasionally sells products in exchange for advertising
revenues from the scoreboard or display. These sales represented less than 10%
of net sales for fiscal 2002, 2001 and 2000. The gross profit margin on these
net sales has been comparable to the gross profit margin on other net sales.
GROSS PROFIT
Gross profit decreased by less than 0.5% from $45.2 million in fiscal
2001 to $45.0 million in fiscal 2002. Gross profit percentage increased from
29.7% in fiscal year 2001 to 30.3% in fiscal year 2002. The decrease in gross
margin dollars was due to the lower level of sales mentioned above offset by
improvements in the gross margin percentage on some specific long-term contracts
which are not expected to occur in the future and an improvement in product mix
between higher margin standard products and lower margin long-term contracts.
The higher than expected margins on certain long-term contracts resulted from
various factors such as a one time improvement in certain raw materials prices
and higher negotiated margins on a few significant long-term contracts. The
increases were offset partially by negative impacts of costs incurred which are
not expected to continue into 2003 as the Company worked hard to reduce
inventory levels, incurring higher costs of obsolescence as it becomes more
aggressive in order to reduce costs of carrying the excess inventory over the
long term. The Company continues to strive towards higher margin percentages,
although depending on the actual mix of net sales in the future, margin
percentages may not actually increase.
Gross profit increased from $34.3 million in fiscal 2000 to $45.2
million in fiscal 2001. The increase was due to increased sales and continued
improvement in gross profit percentage of sales as the Company continued its
cost improvement programs, including product standardization. Gross profit as a
percentage of net sales was 27.8% in fiscal 2000 and 29.7% in fiscal 2001.
OPERATING EXPENSES
Operating expenses, which are comprised of selling, general and
administrative and product design and development increased by approximately 17%
from $30.8 million in fiscal year 2001 to approximately $35.9 million in fiscal
year 2002. Beginning with the third quarter of fiscal year 2001, the Company
began building its operating expense infrastructure in preparation of the
expected growth in net sales in fiscal year 2002. This buildup continued until
the middle of the second quarter of fiscal year 2002 when the Company began to
see that the anticipated level of sales for the year would not be achievable.
Beginning in the third quarter of fiscal year 2002, the Company undertook
efforts to reduce certain operating expenses, keeping in mind its belief in the
market as a whole and an expectation that the current economic conditions that
the Company was experiencing were not long-term. As such, operating expenses
were not reduced to levels consistent with the fiscal year 2002 net sales.
Operating expenses were reduced to the levels that would support the Company in
a return to levels of growth which could be expected as the economy turned
around and orders started to book again. Although the levels of spending were
reduced, it is expected that in the absence of changing conditions, operating
expenses as a whole will be similar in fiscal year 2003 to fiscal year 2002.
19
SELLING EXPENSES. Selling expenses consist primarily of salaries, other
employee related costs, travel and entertainment, facilities-related costs for
sales and service offices, and expenditures for marketing efforts including such
things as collateral materials, conventions and trade shows, product demos and
supplies. Selling expenses increased 17% to $22.0 million for fiscal year 2002
compared to $18.8 million in fiscal year 2001. As a percentage of net sales,
selling expenses were 14.8% and 12.3% of net sales in fiscal years 2002 and
2001, respectively. The increases in both actual amounts spent and the
percentage of sales resulted from higher levels of personnel costs as the
infrastructure was built as explained above. During this time of higher costs,
the Company invested in personnel and offices as it expanded its sales force
regionally, focusing on developing a stronger presence geographically and on
building new business units within the Company, primarily its Keyframe business
to support the needs of the higher-priced, more complicated ProStar(R) and
ProAd(R) systems. In connection with these higher personnel costs, the Company
also experienced higher costs in indirect categories, such as telephone and
office expenses. In addition, the Company experienced higher bad debt expenses
related to isolated issues, generally not related to product quality or service
and higher commissions paid to resellers. Finally, during the year the Company
spent more on advertising and related costs in order to achieve higher order
bookings. These increased costs were partially offset by a decline in product
demo costs and lower travel costs as a result of more sales staff being located
in geographic regions as opposed to the Company's main facilities.
Selling expenses increased 25% in fiscal year 2001 over fiscal year
2000. This increase was primarily attributable to the expansion of sales staff
and higher travel expenses as the Company continues to expand its marketing
efforts and the Company's increased sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist primarily of salaries, other employee-related costs,
professional fees, shareholder relations costs, facilities and equipment related
costs for administrative departments, amortization of intangibles and supplies.
General and administrative costs increased approximately 3.2% to $6.5 million in
fiscal year 2002 compared to $6.3 million for fiscal year 2001. As a percent of
sales, general and administrative expenses were 4.4% and 4.1% of net sales for
fiscal year 2002 and 2001, respectively. The increases in both the dollars and
the percentage of sales relate to higher costs of personnel as mentioned above,
higher professional fees as a result of higher legal and audit related fees due
to the resignation of the Chief Financial Officer in fiscal year 2001, higher
health and other insurance costs related to higher claims in the Company's self
funded health insurance program and a one time increase in the value of life
insurance policies during fiscal year 2001. These increased costs were offset by
the decline in bonuses paid to the executive management of the Company. For
fiscal year 2002 no bonuses were earned by executive management. The Company
expects that general and administrative expenses may increase slightly in fiscal
year 2003.
General and administrative expenses increased 27% in fiscal year 2001
over the previous fiscal year. The increase was due to the increased
administrative support to sustain the Company's sales growth, including
increased depreciation on computer equipment and office furniture.
PRODUCT DESIGN AND DEVELOPMENT EXPENSES. Product design and development
expenses consist primarily of salaries, other employee related costs, facilities
and equipment related costs and supplies. Product development expenses increased
approximately 31% to $7.4 million in fiscal year 2002 compared to $5.7 million
in fiscal year 2001. As a percent of sales, product development expenses were 5%
and 3.7% of net sales for fiscal year 2002 and 2001, respectively. Generally,
product design and development expenses increase during times when the Company's
engineering resources do not have to be more dedicated to long-term contracts,
as the same personnel who work on research and development also work on
long-term contracts. When the expected levels of net sales did not materialize
as expected in fiscal year 2002, more time was spent on research and
development. Included in these higher costs were increased costs of personnel
and related costs, supplies and other related items. During the year, the
Company made significant enhancements as a result of these higher costs which
are expected to benefit future years net sales. For the future, the Company
expects product design and development expenses to be approximately 4% of net
sales.
20
Product development expenses increased 33% for fiscal year 2001 over
the previous fiscal year. 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(R)
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 the rights to sell and retain advertising revenues from the
scoreboard or display, both of which result in long-term receivables. Interest
income resulting from these long-term receivables increased 7.3% to $0.8 million
for fiscal year 2002 as compared to $0.77 million in fiscal year 2001. Interest
income was approximately 0.5% of net sales for both years. The increase resulted
primarily from a higher average level of interest bearing long-term receivables
outstanding during fiscal year 2002 as compared to fiscal year 2001. The Company
expects the levels of interest income to decline in the future as it seeks
outside third parties to finance these transactions as opposed to the Company.
Interest income decreased to $0.8 million in fiscal year 2001 from $0.9
million in fiscal year 2000. Factors affecting the decrease include the average
balance of long-term receivables resulting from new receivables, principal
repayments, the average interest rate, and excess cash balances invested in
interest-bearing accounts.
INTEREST EXPENSE
Interest expense is comprised primarily of interest costs on the
Company's notes payable and long-term debt. Interest expenses decreased 3.6% to
$1.5 million as compared to $1.6 million in fiscal year 2001. The decrease was
primarily the result of lower average interest rates paid on the debt as rates
declined over the year. This decrease was however offset by higher average
levels of debt over the year. The Company expects interest expense to decline
into fiscal year 2003, as it limits activities causing debt to increase. This
expectation could change in the event the Company is able to make strategic
investments in the future.
Interest expense increased to $1.6 million in fiscal year 2001 as
compared to $1.3 million for fiscal year 2000. 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
Income taxes decreased 38.5% to $3.2 million in fiscal year 2002 as
compared to $5.3 million in fiscal year 2001. The decline was due principally to
the lower net income before taxes. The effective income tax rate was 39.9% and
37.8% for the fiscal years 2002 and 2001, respectively. The increase in the
effective rate was primarily the result of higher state income tax expense. The
Company expects that the effective income tax rate will decline in fiscal year
2003. The key items reconciling the effective income tax rate to the statutory
rates are contained in the financial statements included in this report.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $28.4 million at April 27, 2002, compared to $27.0
million at April 28, 2001. The Company has historically financed working capital
needs through a combination of cash flow from operations and borrowings under
bank credit agreements. The increase in working capital was primarily the result
of the increase in cash provided by operations which was used to pay down short
term debt and which included lower levels of inventory and receivables as the
Company converted those items to cash for debt repayment.
Cash provided by operations for fiscal year 2002 was $17.2 million. Net
income of $4.9 million plus depreciation and amortization of $5.2 million, plus
a decrease in accounts receivable of $2.5 million, a decrease in inventory of
$3.4 million, an increase in customer deposits of $1.0 million, a decrease in
21
costs and estimated earnings in excess of billings and an increase in billings
in excess of costs and estimated earnings totalling $1.4 and various other
decreases in operating assets and increases in operating liabilities were offset
by a decrease in accounts payable and accrued expenses of $3.2 million and other
items. Included in receivables as of April 27, 2002 was approximately $0.5
million of retainage on long-term contracts, all of which is expected to be
collected in one year.
The improvement in cash provided by operations resulted from Company
wide efforts to improve the levels of inventory and accounts receivable and a
focus on cash flow. The Company also used its cash more on debt reduction as
opposed funding a build up of operating assets. During the fiscal year the
Company also made efforts to convert selected long-term receivables to cash.
The Company invested approximately $2.5 million in equipment for its
SportsLink subsidiary to increase its fleet of video boards available for
rental. In addition, SportsLink purchased additional facilities within close
proximity to the Company's existing manufacturing facilities in order to
increase capacity and to house its SportsLink business. The total cost of the
new facilities, which was approximately $2.5 million, was financed through a
contract for deed with the seller of the property. During fiscal year 2002, the
Company invested approximately $2.0 million in office equipment and furniture as
it expanded its general office space to accommodate its planned growth in
personnel to support higher sales and invested $1.5 million in manufacturing
equipment, $.5 million in facility improvements, and the remaining investments
in transportation equipment, demo products and other items.
Cash used by financing activities for fiscal year 2002 was $9.8
million, which consisted primarily of $11.8 million of net payments on notes
payable and payments on long-term debt. This use was offset by borrowings under
long-term debt arrangements of $1.4 million and $.6 million from proceeds from
the exercise of stock options and warrants.
The Company has used and expects to continue to use cash reserves and
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 18 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 2002, 2001 and 2000
were $7.4 million, $5.7 million and $4.3 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.
Credit agreements: The Company has a credit agreement with a bank which
provides for a $20 million line of credit and which includes up to $2.0 million
for standby letters of credit. The interest rate on the line of credit is equal
to LIBOR plus 1.55% (3.4% at April 27, 2002) and is due on October 1, 2004. As
of April 27, 2002, no advances under the line of credit were outstanding. The
credit agreement is unsecured and requires the Company to meet certain covenants
including the maintenance of tangible net worth of at least $40 million ($23
million prior to the amendment dated June 2002, to the loan agreement) a minimum
liquidity ratio, a limit on dividends and distributions, and a minimum adjusted
fixed charge coverage ratio. Servtrotech, Inc. has a credit agreement with a
bank which provides for a $0.2 million line of credit. The interest rate on the
line of credit is equal to 1% above the prime rate of interest (5% at April 27,
2002). As of April 27, 2002, of which $51,000 had been drawn under the line. The
line of credit is secured primarily by accounts receivables, inventory and other
assets of the subsidiary. SportsLink, Ltd. has a credit agreement with a bank
which provides for a $100,000 line of credit. The rate on the line of credit is
equal to the prime rate of interest (4% at April 27, 2002). As of April 27,
2002, no
22
advances were outstanding under the line. The credit agreement is secured by the
assets of the subsidiary and is guaranteed by the Company.
The Company is sometimes required to obtain performance bonds for
display installations. The Company currently has a bonding line available
through a surety company that provides for an aggregate of $100 million in
bonded work outstanding. At April 27, 2002, the Company had $18.2 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.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued certain Statements
of Financial Accounting Standards, which have required effective dates occurring
after the Company's April 27, 2002 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.
FOREIGN CURRENCY EXCHANGE RATES
Through April 27, 2002 substantially all of the Company's net sales
were denominated in United States dollars, and its exposure to foreign currency
exchange rate changes has been immaterial. Through April 27, 2002, net sales
originating outside the United States, substantially all of which were
denominated in United States dollars were 7.4% of total net sales. It is
expected that net sales in the future to international markets may increase as a
percentage of net sales; however, the Company does not expect that such increase
in such sales will be denominated in foreign currencies. As a result, operating
results are not expected to become subject to significant fluctuations based
upon changes in the exchange rates of certain currencies in relation to the
United States dollar. However, to the extent that the Company engages in
international sales denominated in United States dollars, an increase in the
value of the United States dollar relative to foreign currencies could make the
Company's products less competitive in international markets. Although the
Company will continue to monitor its exposure to currency fluctuations, and,
when appropriate, may use financial hedging techniques in the future to minimize
the effect of these fluctuations, exchange rate fluctuations as well as
differing economic conditions, changes in political climates, differing tax
structures and other rules and regulations could adversely affect the Company's
financial results in the future.
INTEREST RATE RISKS
The Company's exposure to market rate risk for changes in interest
rates relates primarily to the Company's debt and long-term accounts receivable.
The Company maintains a blend of both fixed and floating rate debt instruments.
As of April 27, 2002, the Company's outstanding debt approximated $13.8 million,
with approximately $13.3 million in fixed rate obligations. Increases or
decreases in interest rates would not have a material annual effect on variable
rate debt interest based on the balances of such debt as of as of April 27,
2002. For fixed rate debt, interest rate changes affect its fair market value,
but do not impact earnings or cash flows.
23
In connection with the sale of the Company's products, it has entered
into long-term sales contracts and sales type leases. The aggregate amounts due
from customers include an imputed interest element. The majority of these
financings carry fixed rates of interest. As of April 27, 2002, the Company's
outstanding long-term receivables were approximately $7.9 million. Each 25 basis
point increase in interest rates would have an associated annual opportunity
cost of approximately $20,000.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates, including debt
obligations. Weighted average variable interest rates are based on implied
forward rates in the yield curve at the reporting date.
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
(in thousands)
FISCAL YEAR ENDING
---------------------------------------------------- THERE-
2003 2004 2005 2006 2007 AFTER
----------------------------------------------------------------
Assets:
Long-term receivables, including
current portion
Fixed rate 2,256 1,302 1,172 996 674 1,481
Average interest rate 6.1% 6.5% 9.4% 9.5% 8.9% 8.9%
Liabilities:
Long and short term debt
Fixed rate 4,254 3,532 1,864 3,619 494 65
Average interest rate 7.5% 7.8% 8.4% 6.4% 8.1% 10.0%
Variable rate 51 - - - - -
Average interest rate 5.0% - - - - -
The carrying amounts reported on the balance sheet for long-term
receivables and long and short-term debt approximate their fair values.
Substantially all of the Company's cash balances are denominated in
United States dollars. Cash balances in foreign currencies are operating
balances maintained in accounts of the Company's Canadian subsidiary
(Servtrotech, Inc.). These balances are immaterial to the Company as a whole.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA:
24
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 27, 2002 and April 28, 2001, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended April 27, 2002. 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 27, 2002 and April 28, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
April 27, 2002, in conformity with accounting principles generally accepted in
the United States of America.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Sioux Falls, South Dakota
June 7, 2002
25
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
APRIL 27, APRIL 28,
2002 2001
ASSETS -------- --------
CURRENT ASSETS
Cash and cash equivalents $ 2,097 $ 2,896
Accounts receivable, less allowance for doubtful accounts 17,878 21,090
Current maturities of long-term receivables 2,515 2,030
Inventories 16,472 19,719
Costs and estimated earnings in excess of billings 10,277 10,890
Prepaid expenses and other 524 529
Income taxes receivable -- 97
Deferred income taxes 2,784 2,103
-------- --------
TOTAL CURRENT ASSETS 52,547 59,354
-------- --------
Property and equipment, net 26,845 21,871
Advertising rights, net 489 1,281
Long-term receivables, less current maturities 5,366 5,269
Goodwill, net of accumulated amortization 1,037 1,469
Intangible and other assets, other than goodwill, net 1,062 970
-------- --------
$ 87,346 $ 90,214
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, bank $ 51 $ 7,911
Accounts payable 6,690 10,199
Accrued expenses 7,337 6,981
Current maturities of long-term debt 4,254 3,883
Billings in excess of costs and estimated earnings 2,944 2,177
Customer deposits 2,185 1,236
Income taxes payable 733 --
-------- --------
TOTAL CURRENT LIABILITIES 24,194 32,387
-------- --------
Long-term debt, less current maturities 9,574 10,344
Deferred income 711 531
Deferred income taxes 1,282 1,050
-------- --------
11,567 11,925
-------- --------
Minority interest in subsidiary 84 79
-------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value; 60,000 and 30,000 shares authorized at
April 27, 2002 and April 28, 2001, respectively; 18,271 and
18,016 shares issued at April 27, 2002 and April 28, 2001,
respectively 13,533 12,900
Additional paid-in capital 505 341
Retained earnings 37,492 32,600
Treasury stock, at cost, 20 shares (9) (9)
Accumulated other comprehensive loss, foreign currency translation
adjustment (20) (9)
-------- --------
51,501 45,823
-------- --------
$ 87,346 $ 90,214
======== ========
See notes to consolidated financial statements.
26
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
YEARS ENDED
-------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2002 2001 2000
--------- --------- ---------
Net sales $ 148,773 $ 152,331 $ 123,350
Cost of goods sold 103,741 107,110 89,034
--------- --------- ---------
GROSS PROFIT 45,032 45,221 34,316
--------- --------- ---------
Operating expenses:
Selling 22,009 18,805 15,091
General and administrative 6,478 6,280 4,937
Product design and development 7,442 5,685 4,292
--------- --------- ---------
35,929 30,770 24,320
--------- --------- ---------
OPERATING INCOME 9,103 14,451 9,996
Nonoperating income (expense):
Interest income 823 767 923
Interest expense (1,542) (1,599) (1,308)
Other income (expense), net (242) 346 347
--------- --------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 8,142 13,965 9,958
Income tax expense 3,245 5,275 3,734
--------- --------- ---------
INCOME BEFORE MINORITY INTEREST 4,897 8,690 6,224
Minority interest in income of subsidiary 5 5 --
--------- --------- ---------
NET INCOME $ 4,892 $ 8,685 $ 6,224
========= ========= =========
Earnings per share:
Basic $ 0.27 $ 0.49 $ 0.36
========= ========= =========
Diluted $ 0.25 $ 0.46 $ 0.34
========= ========= =========
See notes to consolidated financial statements.
27
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Foreign
Additional Currency
Common Paid-In Retained Treasury Translation
Stock Capital Earnings Stock Adjustment Total
-------- -------- -------- -------- -------- --------
BALANCE, MAY 1, 1999 $ 11,819 $ -- $ 17,691 $ (9) $ -- $ 29,501
Net income -- -- 6,224 -- -- 6,224
Exercise of stock options 413 -- -- -- -- 413
Issuance of warrants -- 93 -- -- -- 93
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 29, 2000 12,232 93 23,915 (9) -- 36,231
Net income -- -- 8,685 -- -- 8,685
Translation adjustment -- -- -- -- (9) (9)
--------
Comprehensive income 8,676
--------
Tax benefits related to
exercise of stock options -- 248 -- -- -- 248
Exercise of stock options
and warrants 438 -- -- -- -- 438
Issuance of common
stock related to purchase
of business 230 -- -- -- -- 230
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 28, 2001 12,900 341 32,600 (9) (9) 45,823
Net income -- -- 4,892 -- -- 4,892
Translation adjustment -- -- -- -- (11) (11)
--------
Comprehensive income 4,881
--------
Tax benefits related to
exercise of stock options -- 164 -- -- -- 164
Exercise of stock options
and warrants 633 -- -- -- -- 633
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 27, 2002 $ 13,533 $ 505 $ 37,492 $ (9) $ (20) $ 51,501
======== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
28
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED
--------------------------------------
APRIL 27, APRIL 28, APRIL 29,
2002 2001 2000
-------- -------- --------
Cash flows from operating activities
Net income $ 4,892 $ 8,685 $ 6,224
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 4,800 3,560 2,656
Amortization 378 509 351
(Gain) loss on sale of property and equipment 115 (65) (1)
Provision for doubtful accounts 724 260 252
Deferred income taxes (credits) (449) (415) 204
Other 430 54 --
Change in operating assets and liabilities, net of effects
of purchase of businesses 6,342 (5,222) (6,396)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,232 7,366 3,290
-------- -------- --------
Cash flows from investing activities
Purchase of property and equipment (7,942) (7,351) (6,933)
Cash consideration paid for acquired businesses -- (1,292) --
Investment in affiliates (289) (263) --
Minority investment in subsidiary -- 74 --
Proceeds from sale of property and equipment 89 106 164
Purchase of intangible assets (140) (142) (400)
Other, net 38 (188) (87)
-------- -------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (8,244) (9,056) (7,256)
-------- -------- --------
Cash flows from financing activities
Net borrowings (payments) on notes payable (7,860) 606 4,543
Proceeds from exercise of stock options and warrants 633 438 413
Principal payments on long-term debt (3,926) (2,865) (2,133)
Borrowings on long-term debt 1,377 5,199 1,310
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (9,776) 3,378 4,133
-------- -------- --------
Effect of exchange rate changes on cash (11) (9) --
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (799) 1,679 167
Cash and cash equivalents
Beginning 2,896 1,217 1,050
-------- -------- --------
Ending $ 2,097 $ 2,896 $ 1,217
======== ======== ========
See notes to consolidated financial statements.
29
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Daktronics, Inc. and its subsidiaries (the "Company")
are engaged principally in the design, manufacture and content development of a
wide range of computer-programmable information display systems which are sold
in a variety of markets throughout the world. Its products are designed
primarily to inform and entertain people through communication of content.
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 27, 2002, April 28, 2001 and April 29, 2000 each included 52 weeks.
Principles of consolidation: The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, Star
Circuits, Inc., SportsLink, Inc. and MSC Technologies, Inc. and its
majority-owned subsidiary, Servtrotech, Inc. Investments in affiliates owned 50%
or less are accounted for by the equity method. Intercompany balances and
transactions have been eliminated in consolidation.
Use of estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near-term relate to the determination
of the estimated total costs on long-term contracts, estimated costs to be
incurred for product warranty, and the reserve for doubtful accounts.
Cash and cash equivalents: All highly liquid investments with maturities
of three months or less at the date of purchase are considered to be cash
equivalents, consisting primarily of money market accounts, and are carried at
cost that approximates market. 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 Recognition:
Long-term contracts: Earnings on long-term contacts are recognized on
the percentage-of-completion method, measured by the percentage of costs
incurred to date to estimated total costs for each contract. Operating expenses
are charged to operations as incurred and are not allocated to contract costs.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are estimable.
Equipment other than long-term contracts: The Company recognizes
revenue on equipment sales, other than long-term contracts, when title passes,
which is usually upon shipment.
Advertising rights: The Company occasionally sells and installs its
products at facilities in exchange for the rights to sell and retain future
advertising revenues. It recognizes revenue for the amount of the present value
of the future advertising payments at such time that all such advertising is
sold for the full term of the contract for the advertising rights.
On those transactions where the Company has not sold the advertising
for the full term of the rights, it records the related cost of equipment as
advertising rights and amortizes that cost over the term of the rights. Revenue
is recognized when it is earned under the provisions of applicable advertising
30
contracts. Advance collections of advertising revenues are recorded as deferred
income. The cost of advertising rights, net of amortization, was $489 as of
April 27, 2002 and $1,281 as of April 28, 2001.
Product maintenance: In connection with the sale of the Company's
products, it also occasionally sells separately priced extended warranties and
product maintenance contracts. The revenue related to such contracts are
deferred and recognized as net sales over the term of the agreement which varies
from two to ten years.
Software: The Company typically sells its proprietary software bundled
with its video displays and certain other products. Pursuant to American
Institute of Certified Public Accountants ("AICPA") Statement of Position
("SOP") 97-2, "Software Revenue Recognition," as amended by SOP 98-4, "Deferral
of the Effective Date of a Provision of SOP 97-2" and SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions"
revenues from software license fees on sales, other than long-term contracts are
recognized when persuasive evidence of an agreement exists, delivery of the
product has occurred, the fee is fixed or determinable and collection is
probable. For sales of software, included in long-term contracts, the revenue is
recognized under the percentage-of-completion method for long-term contracts
starting when the above-mentioned criteria have been meet.
Services: Revenues generated by the Company for services, event
support, control room design, on-site training, and continuing technical support
for operators of the Company's equipment are recognized as net sales as the
services are performed.
Property and equipment: Property and equipment is stated at cost and
depreciated principally on the straight-line method over the following estimated
useful lives:
Years
------
Buildings 7 - 40
Machinery and equipment 5 - 7
Office furniture and equipment 3 - 5
Transportation equipment 5 - 7
Equipment held for rental 2 - 7
Intangible assets: Intangible assets consist primarily of consulting and
noncompete agreements and goodwill. Consulting and noncompete agreements are
stated at cost and are amortized on a straight-line method over their remaining
terms, which range from five to twelve years. Goodwill is amortized on the
straight-line method over three to fifteen years. Accumulated amortization on
intangible assets other than goodwill was $316 and $200 as of April 27, 2002 and
April 28, 2001, respectively, and on goodwill was $182 and $143 as of April 27,
2002 and April 28, 2001, respectively.
Management reassesses the carrying value and remaining life of goodwill of
businesses acquired on an ongoing basis. Whenever events indicate that the
carrying values are impaired, the excess cost over fair value of those assets is
adjusted appropriately. As of April 27, 2002, management believes there is no
impairment with respect to these assets.
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 operating results of foreign operations
are translated at weighted average exchange rates.
Income taxes: The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for 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 carry forwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the amounts of assets and liabilities recorded for income tax and
financial reporting purposes. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion
31
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.
Comprehensive income: The Company follows the provisions of SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components. Comprehensive income
reflects the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. For the
Company, comprehensive income represents net income adjusted for foreign
currency translation adjustments. The foreign currency translation adjustment
included in comprehensive income has not been tax effected, as the investment in
the foreign affiliate is deemed to be permanent. In accordance with SFAS No.
130, the Company has chosen to disclose comprehensive income in the consolidated
statement of shareholders' equity.
Product design and development: All expenses related to product design
and development are charged to operations as incurred. 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 2002, 2001 and 2000 were $7,442, $5,685 and $4,292,
respectively.
Advertising costs: The Company expenses advertising costs as incurred.
Advertising expenses for fiscal years 2002, 2001 and 2000 were $530, $476, and
$674, respectively.
Segment reporting: The Company's chief operating decision maker reviews
financial information presented on a consolidated basis, accompanied by
disaggregated information about revenue and certain expenses, by market and
geographic region, for purposes of assessing financial performance and making
operating decisions. Accordingly, the Company considers itself to be operating
in a single industry segment. The Company has no individual customers which
constitute a significant concentration.
The Company does not maintain information on sales by products, and
therefore, disclosure of such information is not practical.
The following table presents information about the Company by
geographic area:
United
States Other Total
-------- -------- --------
Net sales for the fiscal year ended:
2002 $137,792 $10,981 $148,773
2001 141,922 10,409 152,331
2000 111,838 11,512 123,350
Long-lived assets as of:
April 27, 2002 26,584 261 26,845
April 28, 2001 21,712 159 21,871
Stock-based compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), in accounting for its employee stock options. Under APB 25, since
the exercise price of employee and director stock options equals the market
price of the underlying common stock on the date of grant, no compensation
expense is recognized.
Earnings per share (EPS): Basic EPS is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
would occur if securities or other obligations to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
32
A reconciliation of the income and common stock share amounts used in
the calculation of basic and diluted EPS for the years ended April 27, 2002,
April 28, 2001 and April 29, 2000 follows.
Net Per Share
Income Shares Amount
------- ------- -------
For the year ended April 27, 2002:
Basic EPS $ 4,892 18,135 $ 0.27
Effects of dilutive securities:
Exercise of stock options and warrants -- 1,095 0.02
------- ------- -------
Diluted EPS $ 4,892 19,230 $ 0.25
======= ======= =======
For the year ended April 28, 2001:
Basic EPS $ 8,685 17,843 $ 0.49
Effect of dilutive securities:
Exercise of stock options and warrants -- 1,031 0.03
------- ------- -------
Diluted EPS $ 8,685 18,874 $ 0.46
======= ======= =======
For the year ended April 29, 2000:
Basic EPS $ 6,224 17,586 $ 0.36
Effect of dilutive securities:
Exercise of stock options and warrants -- 828 0.02
------- ------- -------
Diluted EPS $ 6,224 18,414 $ 0.34
======= ======= =======
Options outstanding of 72 and 116 shares of common stock, and warrants
outstanding of 0 and 88 at weighted average share prices of $10.09 and $6.52
during the years ended April 27, 2002 and April 29, 2000, respectively, were not
included in the computation of diluted earnings per share because the exercise
price of those instruments exceeded the average market price of the common
shares during the respective year.
On December 7, 1999 and 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.
Recently issued accounting pronouncements: In June 2001, the Financial
Accounting Standards Board ("FASB") approved SFAS No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." The
statements eliminate the pooling-of-interests method of accounting for business
combinations and require that goodwill and certain other intangible assets not
be amortized. Instead, the statements provide that these assets should be
tested, at least annually, for impairment with any related losses recognized as
incurred. SFAS No. 141 is generally effective for business combinations
completed after June 30, 2001. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 for existing goodwill and intangible assets
and July 1, 2001 for business combinations completed after June 30, 2001. The
provisions of SFAS No.142 will be implemented by the Company in the first
quarter of its fiscal year 2003 financial statements. However, as noted above,
the remaining unamortized goodwill and intangible asset balances will be subject
to periodic impairment analysis, which could require a write-down of these
assets upon the adoption of SFAS No. 142 or thereafter. The adoption of SFAS No.
142 will not have a material impact on the Company's financial position or
results of operations.
The FASB also issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement, which is effective for fiscal years beginning
after June 15, 2002, covers the accounting for closure or removal-type costs
that are incurred with respect to long-lived assets. The nature of the Company's
business and long-lived assets is such that adoption of this new standard should
have no significant impact on the Company's financial position or results of
operations.
33
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." The new statement also supersedes certain aspects of APB 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," with regard to reporting the effects of a disposal of
a segment of a business and will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred rather than as of the measurement date as presently required by APB 30.
Additionally, certain dispositions may now qualify for discontinued operations
treatment. The provisions of the statement are required to be applied for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. The adoption of SFAS No.144 will not have a material impact on the
Company's financial position or results of operations.
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 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.
34
NOTE 3. SELECTED FINANCIAL STATEMENT DATA
APRIL 27, APRIL 28,
2002 2001
------- -------
Inventories consist of the following:
Raw materials $ 7,396 $ 9,610
Work-in-progress 1,707 2,439
Finished goods 7,369 7,670
------- -------
$16,472 $19,719
======= =======
Property and equipment consist of the following:
Land $ 654 $ 542
Buildings 12,110 9,451
Machinery and equipment 16,796 18,404
Office furniture and equipment 9,839 7,487
Equipment held for rental 3,265 1,324
Transportation equipment 1,758 1,481
------- -------
44,422 38,689
Less accumulated depreciation 17,577 16,818
------- -------
$26,845 $21,871
======= =======
Accrued expenses consist of the following:
Product warranty $ 2,653 $ 2,477
Compensation 2,947 2,955
Taxes, other than income taxes 1,128 917
Other 609 632
------- -------
$ 7,337 $ 6,981
======= =======
NOTE 4. UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following:
2002 2001
------- -------
Costs incurred $45,423 $42,758
Estimated earnings 19,958 17,068
------- -------
65,381 59,826
Less billings to date 58,048 51,113
------- -------
$ 7,333 $ 8,713
======= =======
Uncompleted contracts are included in the accompanying consolidated balance
sheets as follows:
2002 2001
------- -------
Costs and estimated earnings in excess of billings $10,277 $10,890
Billings in excess of costs and estimated earnings (2,944) (2,177)
------- -------
$ 7,333 $ 8,713
======= =======
NOTE 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 products, 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.
35
Accounts receivable are reported net of an allowance for doubtful
accounts of $1,102 and $271 at April 27, 2002 and April 28, 2001, respectively.
In connection with the certain sales transactions, the Company has
entered into long-term sales contracts and sales type leases. The present value
of the contract or lease is recorded as a receivable upon the installation and
acceptance of the equipment, and profit is recognized to the extent that the
present value is in excess of cost. The Company generally retains a security
interest in the equipment or in the cash flow generated by the equipment until
the contract is paid. Long-term contract and lease receivables, including
accrued interest and current maturities, were $7,881 and $7,299 as of April 27,
2002 and April 28, 2001 respectively. Contract and lease receivables bearing
interest at rates of 7.5% to 14.4% and are due in varying annual installments
through April of 2011. Included in accounts receivable as of April 27, 2002, was
approximated $0.5 million of retainage or long-term contracts, all of which is
expected to be collected in one year.
NOTE 6. FINANCING AGREEMENTS
Long-term debt: Long-term debt consists of the following:
2002 2001
-------- --------
6.8% - 9.3% notes payable due to banks, due in monthly
installments of $300 and annual installments of $260,
including interest with various maturities through
February 2007, subject to credit agreement financial
covenants discussed below, unsecured $ 8,672 $11,710
6.75% - 9.0 % notes payable due to banks, due in monthly
installments of $73 including interest with various
maturities through July, 2007, secured by equipment 2,198 1,422
8.6% - 10.5% Contracts payable, primarily related to
advertising rights, due in annual installments,
including interest, through August 2005 363 457
5% contract for deed, with interest payments only through
June 2005, secured by certain real estate 2,150 --
Other notes payable, installment obligations secured by
equipment 318 544
Other 127 94
------- -------
$13,828 $14,227
Less current maturities 4,254 3,883
------- -------
Total $ 9,574 $10,344
======= =======
The future maturities on long-term debt, consist of the following:
Fiscal years ending:
--------------------
2003 $4,254
2004 3,532
2005 1,864
2006 3,619
2007 494
Thereafter 65
-------
$13,828
=======
36
Credit agreements: The Company has a credit agreement with a bank which
provides for a $20,000 line of credit and which includes up to $2,000 for
standby letters of credit. The interest rate on the line of credit is equal to
LIBOR plus 1.55% (3.4% at April 27, 2002) and is due on October 1, 2004. As of
April 27, 2002, no advances under the line of credit were outstanding. The
credit agreement is unsecured and requires the Company to meet certain covenants
including the maintenance of tangible net worth of at least $40,000 ($23,000
prior to the amendment to the loan agreement dated June, 2002), a minimum
liquidity ratio, a limit on dividends and distributions, and a minimum adjusted
fixed charge coverage ratio. Servtrotech, Inc. has a credit agreement with a
bank which provides for a $200 line of credit. The interest rate on the line of
credit is equal to 1% above the prime rate of interest (5% at April 27, 2002).
As of April 27, 2002, $51 had been drawn under the line. The line of credit is
secured primarily by accounts receivables, inventory and other assets of the
subsidiary. SportsLink, Ltd. has a credit agreement with a bank which provides
for a $100 line of credit. The rate on the line of credit is equal to the prime
rate of interest (4% at April 27, 2002). As of April 27, 2002, no advances were
outstanding under the line. The credit agreement is secured by the assets of the
subsidiary and is guaranteed by the Company.
NOTE 7. SHAREHOLDERS' EQUITY
Common stock: The authorized shares of 60,000 include 50,000 shares of
common stock and 10,000 shares of "undesignated stock". In August 2001, the
shareholders approved the increase in the number of authorized common shares
from 30,000 to 60,000 shares. The Company'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 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
shares of common stock. Such amount was 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 2002, 38 warrants were exercised, and at April 28, 2002, 45
warrants were outstanding.
The Company, in connection with its public offering, issued the
underwriter five year warrants to purchase up to 453 shares of the Company's
common stock. The warrants were exercised at $2.29 per share during the year
ended April 29, 2000, in a cashless exercise. The result was to increase common
stock outstanding by 144 shares.
Stock option plans: The Company has adopted SFAS No. 123, "Accounting
for Stock-Based Compensation." As permitted by SFAS No. 123, the Company has
elected to continue following the guidance of APB No. 25 for measurement and
recognition of stock-based transactions with employees and outside directors. No
compensation cost has been recognized for stock options issued under its plans
since the exercise price for all options granted was at least equal to the fair
value of the common
37
stock at the date of grant. If compensation cost for the Company's stock option
plans had been determined based on the fair value at the grant dates for grants
during fiscal years 2002, 2001 and 2000, consistent with the method provided in
SFAS No. 123, the Company's net income and income per share would have been as
follows:
2002 2001 2000
-------- -------- --------
Net income:
As reported $ 4,892 $ 8,685 $ 6,224
Pro forma 4,577 8,457 6,088
Earnings per Share:
As reported:
Basic .27 0.49 0.36
Diluted .25 0.46 0.34
Pro forma:
Basic .25 0.48 0.35
Diluted .24 0.45 0.33
The pro forma effects are not indicative of future amounts since, among
other reasons, the pro forma requirements have been applied only to options
granted after April 29, 1995.
The fair value of each option grant is estimated at the grant date
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
2002 2001 2000
----------- ----------- -----------
Dividend Yield None None None
Expected volatility 41% 37% 37%
Risk-free interest rate 4.0% - 4.6% 5.4% - 6.2% 5.8% - 6.2%
Expected life of option 5 yr. 5 yr. 5 yr.
During fiscal year 2002, the Company established the 2001 Incentive
Stock Option Plan and the 2001 Outside Directors Option Plan ("2001 Plans"), and
ceased granted options under the 1993 Incentive Stock Option Plan, as amended
and the 1993 Outside Directors Option Plan, as amended ("1993 Plans"). The 2001
Plans and the 1993 Plans authorize awards of incentive stock options to
employees of the Company and nonqualified stock options to non-employees and
outside directors as compensation for services rendered. Under both the 2001
Plans and the 1993 Plans, options granted may have a maximum term of 10 years in
the case of the Incentive Stock Option Plan and seven years in the case of the
Outside Directors Stock Option Plan and contain exercise prices equal to the
market value at date of grant or 110% of market value at date of grant in the
case of an employee who owns more than 10% of all voting power of all classes of
the Company's stock then outstanding. The options generally vest ratably over a
five-year period in the case of options granted under the Incentive Stock Option
Plans and over a three-year period in the case of options granted under the
Outside Directors Option Plans although under the 2001 Plans and the 1993 Plans
the actual period of vesting is determined at the time of the grant.
The total number of shares of stock reserved and available for
distribution under the 2001 Incentive Stock Option Plan and the 2001 Outside
Directors Pan are 1,200 and 400 shares, respectively. At April 27, 2002, there
were 1,353 shares available for granting of options under the 2001 Plans. The
total number of shares reserved under the 1993 Plans was 3,040. Although the
1993 Plans remain in effect for options outstanding, no new options are expected
to be granted under the 1993 Plans.
38
A summary of the status of the plans at April 27, 2002, April 28, 2001
and April 29, 2000, and changes during the years ended on those dates follows:
2002 2001 2000
-------------------- ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ---------------------------------------------- ------- ------- ------- ------- -------
Outstanding at beginning of year 1,876 $ 3.46 1,804 $ 2.66 1,655 $ 1.93
Granted 255 8.11 302 7.09 399 5.09
Forfeited (27) 3.77 (9) 5.21 (3) 2.47
Exercised (219) 1.90 (221) 1.83 (247) 1.67
------- ------- -------
Outstanding at end of year 1,885 4.32 1,876 3.46 1,804 2.66
======= ======= =======
Options for 1038, 916 and 820 shares were exercisable at April 27, 2002,
April 28, 2001 and April 29, 2000, respectively. The weighted average fair value
of options granted were $3.51, $2.99 and $2.18 for the years ended April 27,
2002, April 28, 2001 and April 29, 2000 respectively.
The following table summarizes information about fixed options
outstanding at April 27, 2002:
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------------------------ --------- --------- --------- ---------
$1.00 to $1.99 541 3.6 years $ 1.45 509 $ 1.45
$2.00 to $2.99 172 4.5 2.62 148 2.62
$3.00 to $3.99 250 6.6 3.11 150 3.11
$4.00 to $4.99 60 4.3 4.15 40 4.15
$5.00 to $5.99 352 7.1 5.30 133 5.27
$6.00 to $6.99 34 8.0 6.34 12 6.38
$7.00 to $7.99 404 9.0 7.61 46 7.66
$10.00 to $10.99 72 6.3 10.09 -- --
--------- ---------
1,885 6.1 4.32 1,038 2.78
========= =========
NOTE 8. 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 50% of the employee's qualifying
contribution up to 6% of such employee's compensation (25% for fiscal years
ending 2001 and 2000). Employees are eligible to participate upon completion of
one year of service if they have attained the age of 21 and have worked more
than 1,000 hours during such plan year. The Company contributed $488, $168 and
$165 to the plan for the fiscal years ended 2002, 2001 and 2000, respectively.
The Company had an Employee Stock Ownership Plan (ESOP) and a related
trust for the benefit of its employees. The ESOP merged with the employee
savings plan effective May 1, 2000. Contributions to the plan were recognized as
compensation expense and were made at the discretion of the Board of Directors.
The contributions to the plan were $39 during the fiscal year ended 2000. The
plan held 917 shares as of April 29, 2000, all of which were allocated to plan
participants. No dividends were paid on plan shares in fiscal year 2000, and all
outstanding plan shares are included for purposes of earnings per share
computations.
39
Subsequent to April 27, 2002, the Board of Directors approved, subject
to approval by the Company's shareholders the Daktronics, Inc. 2002 Employee
Stock Purchase Plan ("the plan"). The Plan, which becomes effective September 1,
2002 is intended to qualify under Section 423 of the Internal Revenue Code and
allows employees to purchase shares of common stock of the Company, subject to
annual limitations of 85% of the lower of the fair market value of the common
stock at the beginning or the end of a six month offering period. The total
number of shares received under the Plan is 500,000.
NOTE 9. INCOME TAXES
Income tax expense consists of the following:
2002 2001 2000
-------- -------- --------
Current:
Federal $ 3,102 $ 5,344 $ 3,056
State 592 338 474
Deferred taxes (credits) (449) (407) 204
-------- -------- --------
$ 3,245 $ 5,275 $ 3,734
======== ======== ========
The components of the net deferred tax asset as of April 27, 2002 and
April 28, 2001 are as follows:
2002 2001
-------- --------
Deferred tax assets:
Product warranty accruals $ 1,174 $ 1,042
Legal fees accrual -- 37
Vacation accrual 530 439
Inventories 751 437
Allowance for doubtful accounts 429 100
Other accruals and deferrals 155 126
Amortizations of intangibles 528 376
Other 20 60
-------- --------
3,587 2,617
Less valuation allowance -- --
-------- --------
3,587 2,617
Deferred tax liabilities:
Property and equipment 2,085 1,564
-------- --------
$ 1,502 $ 1,053
======== ========
The following is reflected on the accompanying consolidated balance sheets:
2002 2001
-------- -----------
Current assets $ 2,784 $ 2,103
Noncurrent liabilities 1,282 1,050
-------- -----------
$ 1,502 $ 1,053
======== ===========
A reconciliation of the provision for income taxes and the amount
computed by applying the federal statutory rate to income before income tax
expense is as follows:
2002 2001 2000
-------- -------- --------
Computed income tax expense at federal
statutory rate $ 2,850 $ 4,888 $ 3,485
State taxes, net of federal benefit 246 236 308
Meals and entertainment 212 217 162
Foreign source income (140) (44) --
Other, net 77 (22) (221)
-------- -------- --------
$ 3,245 $ 5,275 $ 3,734
======== ======== ========
40
NOTE 10. CASH FLOW INFORMATION
The change in operating assets and liabilities consists of the
following:
2002 2001 2000
------- ------- -------
(Increase) decrease:
Accounts receivable $ 2,488 $ 2,714 $(3,982)
Long-term receivables (582) 323 726
Inventories 3,377 (5,532) 15
Costs and estimated earnings in excess of billings 613 (5,713) 197
Prepaid expenses and other 5 (70) (140)
Income taxes receivable 97 823 (647)
Advertising rights 704 (641) (824)
Increase (decrease):
Accounts payable and accrued expenses (3,153) 4,083 (1,354)
Customer deposits 949 (500) 429
Billings in excess of costs and estimated earnings 767 (902) 109
Deferred income 180 193 (290)
Income taxes payable 897 -- (635)
------- ------- -------
$ 6,342 $(5,222) $(6,396)
======= ======= =======
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,570 $ 1,600 $ 1,315
Income taxes, net of refunds 2,675 4,864 4,812
Supplemental Schedule of Non-cash Investing and Financing Activities
Purchase of businesses, net of cash and cash equivalents 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
Purchase of intangible and other assets through issuance of
warrants -- -- 93
Property and equipment acquired through long term debt 2,150 -- 839
Demo equipment transferred to inventories 130 122 --
Tax benefits related to exercise of stock options 164 248 --
41
NOTE 11. 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. In fiscal years 2002 and 2001 there were no individual customers with
sales exceeding 10% if total revenues.
NOTE 12. 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 approximates their carrying values.
The carrying amounts reported for variable rate long-term debt approximate fair
value. Fair values for fixed-rate long-term debt are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered for debt with similar terms and underlying collateral. The total
carrying value of long-term debt reported on the balance sheets approximates
fair value.
NOTE 13. COMMITMENTS AND CONTINGENCIES
In connection with certain sales of equipment by the Company, it has
agreed to accept a specified level of recourse on the money owed by its
customers to other financial institutions. At April 27, 2002 and April 28, 2001,
the Company was contingently liable on such recourse agreements in the amounts
of $859 and 154, respectively.
As of April 27, 2002, the Company is contingently liable for the
guarantee of debt to an unrelated party in the amount of approximately $902.
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.
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly financial data:
FISCAL YEAR 2002 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------- -------- -------- --------
Net sales $ 40,247 $ 41,572 $ 30,863 $ 36,091
Gross profit 11,228 12,579 9,046 12,179
Net income (loss) 1,574 2,016 (293) 1,595
Basic earnings (loss) per share 0.09 0.11 (0.02) 0.09
Diluted earnings (loss) per share 0.08 0.10 (0.02) 0.08
FISCAL YEAR 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
42
Certain reclassifications have been made to the first quarter results
for the year ended April 27, 2002 as previously reported in the Company's Form
10Q for the quarter ended July 28, 2001 to conform with prior year presentations
($215 and $521 of selling and general and administrative expenses, respectively
were reclassified to cost of goods sold). The reclassifications had no effect on
previously reported net income or earnings per share. A reconciliation of these
reclassifications for the first quarter of fiscal year 2002 are as follows:
As Previously Reclassified
Reported Adjustments Amounts
------------- ------------- -------------
Net sales $ 40,247 $ -- $ 40,247
Gross profit 11,964 (736) 11,228
Net income 1,574 -- 1,574
Basic earnings per share 0.09 -- 0.09
Diluted earnings per share 0.08 -- 0.08
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information under the heading "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement is
incorporated herein by reference. The information regarding executive officers
is included in Part I of this report under the caption "Executive Officers of
the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding compensation of directors and officers for the
fiscal year ended April 27, 2002 is in the Proxy Statement under the heading
"Election of Directors" and "Executive Compensation" and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The security ownership of certain beneficial owners and management is
contained in the Proxy Statement under the heading "Common Stock Ownership" and
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
1. Financial Statements
The following financial statements of the Company, accompanied by an
Independent Auditor's Report, are contained in Part II, Item 8:
Consolidated Balance Sheets, April 27, 2002 and April 28, 2001
Consolidated Statements of Income for each of the three
years in the period ended April 27, 2002.
Consolidated Statements of Cash Flows for each of the three
years in the period ended April 27, 2002.
Consolidated Statement of Changes in Shareholders' Equity for Each of
the three years in the period ended April 27, 2002.
43
Notes to Consolidated Financial Statements
2. Schedules
The following financial statement schedules are submitted herewith:
SCHEDULE II - Valuation Accounts
Other schedules are omitted because they are not required or are not
applicable or because the required information is included in the
financial statements listed above.
3. Exhibits
Certain of the following exhibits are incorporated by reference from
prior filings. The form with which each exhibit was filed and the date
of filing are as indicated below.
3.1 Reserved
3.2 Amended and Restated Articles of Incorporation of the
Company.(1)
3.3 Amendment to the Articles of Incorporation.(5)
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)
4.3 2001 Incentive Stock Option Plan.(8)
4.4 2001 Outside Directors Stock Option Plan.(8)
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 dated February 4, 1999 between U.S. Bank National
Association and Daktronics, Inc.(5)
10.8 Term Note dated February 2, 2000 between U.S. Bank National
Association and Daktronics, Inc.(6)
10.9 Term Note dated December 8, 2000 between U.S. Bank National
Association and Daktronics, Inc.(7)
10.10 Form of Stock 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 Third Amendment, dated June 20, 2002 to the Loan Agreement
dated October 14, 1998 between USBank National Association and
Daktronics, Inc.
10.12 Contract for Deed dated June 18, 2001 between O. Dale Larson
and SportsLink, Inc.(9)
10.13 Term Note dated March 4, 2002 between First National Bank in
Brookings and SportsLink, Inc.(9)
21.1 Subsidiaries of the Company.(9)
23.1 Consent of McGladrey & Pullen, LLP.(9)
(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.
44
(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 from 8-K on November 30,
1998 as Commission File No. 0-23246.
(5) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 28, 1999
as Commission File No. 0-23246.
(6) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on July 27, 2000
as Commission File No. 0-23246.
(7) Incorporated by reference under the same exhibit
number to the exhibits filed with Form 10K on July 3,
2001 as Commission File No. 0-23246.
(8) Incorporated by reference to Daktronics, Inc.
Registration Statement on Form S-8 filed on November
8, 2001.
(9) File herewith
(b). Reports on Form 8K
The Company filed two reports on Form 8-K during the fiscal year
ended April 27, 2002, as follows:
(i) Current Report on Form 8-K filed on March 11, 2002, relating
the award of a contract in excess of $5 million dollars for
scoring and video equipment for Lambeau Field
(ii) Current Report on Form 8-K filed on June 7, 2001, relating to
the two-for-one stock split on May 24, 2001
All Sport(R), Daktronics(R), DakStats(R), DakTicker(R), DataTime(R),
DataTrac(TM), Galaxy(R), Glow Cube(R), InfoNet(TM), Keyframe(SM) MagneView(TM),
OmniSport(R), ProAd(R), ProStar(R), Pro Sport(R), Scoreboard Sales and
Service(R), Servtrotech(TM), SportsLink(R), Starburst(R), SunSpot(R),
Vanguard(R), V-Play(TM), Venus(R), and V-Link(R) are trademarks of Daktronics,
Inc.
45
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 June 27,
2002.
DAKTRONICS, INC.
By: /s/ James B. Morgan
---------------------
President
(Principal Executive Officer)
By: /s/ William R. Retterath
--------------------------
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
By /s/ Roland J. Jensen Director June 27, 2002
- ------------------------------
Roland J. Jensen
By /s/ Aelred J. Kurtenbach Director June 27, 2002
- ------------------------------
Aelred J. Kurtenbach
By /s/ Frank J. Kurtenbach Director June 27, 2002
- ------------------------------
Frank J. Kurtenbach
By /s/ James B. Morgan Director June 27, 2002
- ------------------------------
James B. Morgan
By /s/ John L. Mulligan Director June 27, 2002
- ------------------------------
John L. Mulligan
By /s/ Charles S. Roberts Director June 27, 2002
- ------------------------------
Charles S. Roberts
By /s/ Duane E. Sander Director June 27, 2002
- ------------------------------
Duane E. Sander
By /s/ James A. Vellenga Director June 27, 2002
- ------------------------------
James A. Vellenga
By /s/ Nancy D. Frame Director June 27, 2002
- ------------------------------
Nancy D. Frame
46
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Daktronics, Inc.
Brookings, South Dakota
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Sioux Falls, South Dakota
June 7, 2002
47
DAKTRONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended April 27, 2002, April 28, 2001, and April 29, 2000
(in thousands)
Balance at
Allowance for Beginning of (Charged to Additions/ Balance at
Doubtful Accounts Year Expense) Deductions(1) End of Year
- ----------------- ----------------- ----------------- ----------------- -----------------
2002 $ 271 $ 724 $ 107 $ 1,102
2001 232 249 (210) 271
2000 212 250 (230) 232
(1)Write-off of uncollected accounts, net of collections
48
INDEX OF EXHIBITS
3. Exhibits
3.1 Reserved
3.2 Amended and Restated Articles of Incorporation of the
Company.(1)
3.3 Amendment to the 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)
4.3 2001 Incentive Stock Option Plan.(8)
4.4 2001 Outside Directors Stock Option Plan.(8)
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 dated February 4, 1999 between U.S. Bank National
Association and Daktronics, Inc.(5)
10.8 Term Note dated February 2, 2000 between U.S. Bank National
Association and Daktronics, Inc.(6)
10.9 Term Note dated December 8, 2000 between U.S. Bank National
Association and Daktronics, Inc.(7)
10.10 Form of Stock 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 Third Amendment, dated June 20, 2002 to the Loan Agreement
dated October 14, 1998 between USBank National Association and
Daktronics, Inc.
10.12 Contract for Deed dated June 20, 2001 between O. Dale Larson
and SportsLink, Ltd.(9)
10.13 Term Note dated March 4, 2002 between First National Bank in
Brookings and SportsLink, Ltd.(9)
21.1 Subsidiaries of the Company.(9)
23.1 Consent of McGladrey & Pullen, LLP.(9)
(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) Incorporated by reference under the same exhibit
number to the exhibits filed with Form 10K on July 3,
2001 as Commission File No. 0-23246.
(8) Incorporated by reference to Daktronics, Inc.
Registration Statement on Form S-8 filed on November
8, 2001.
(9) Filed herewith
49
Exhibit 10.11
THIRD AMENDMENT TO LOAN AGREEMENT
AND REVOLVING NOTE
This Third Amendment to Loan Agreement and Revolving Note is made and
entered into this 20th day of June, 2002, by and between U.S. Bank National
Association, a national banking association, with an address of 141 North Main
Avenue, Post Office Box 5308, Sioux Falls, South Dakota 57117-5308 ("Lender")
and Daktronics, Inc., a South Dakota corporation, with an address of 331 32nd
Avenue, Brookings, South Dakota 57006 ("Borrower").
RECITALS:
A. Lender and Borrower entered into a Loan Agreement dated October 14,
1998, which Loan Agreement was amended by an Amendment dated November 30, 1999
and an Amendment dated December 8, 2000.
B. In accordance with the Loan Agreement, Lender is the holder of a
Revolving Note dated October 14, 1998 signed on behalf of Borrower. Pursuant to
the Amendment to Loan Agreement dated November 30, 1999, the loan amount is
$20,000,000.00 (the "Revolving Loan").
C. Lender and Borrower mutually wish to extend the maturity date of the
Revolving Loan from October 1, 2003 to October 1, 2004 and modify some of the
covenants of Borrower.
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows:
1. The Revolving Loan Maturity Date is extended to October 1, 2004.
2. Section 6.1(e) of the Loan Agreement, requiring quarterly statements
from the Borrower as to no Default or Event of Default, is deleted.
3. Section 6.10 of the Loan Agreement is amended to read as follows:
Merger. The Borrower may merge, consolidate or enter into an
analogous reorganization without the prior written consent of the
Lender, provided that the transaction is valued at less than
$1,000,000.00 and the Borrower is in compliance with all covenants and
conditions of this Loan Agreement.
50
4. Section 6.11 of the Loan Agreement is amended to read as follows:
Acquisitions. The Borrower will not acquire during any fiscal
year another business, firm or company in excess of $1,000,000.00,
without prior written approval from the Lender.
5. Schedule VI is amended to provide with respect to the Tangible Net
Worth covenant:
Tangible Net Worth. The Borrower will not permit its Tangible
Net Worth (the excess of its assets, excluding intangible assets, over
its liabilities) at any time to be less than $40,000,000.00.
6. Schedule VI is further amended to provide with respect to the
definition of "Adjusted Fixed Charge Coverage Ratio":
Minimum Adjusted fixed Charge Coverage Ratio. The Borrower
will not permit the Minimum Adjusted Fixed Charge Ratio, as of the last
day of any fiscal year for the four consecutive fiscal quarters ending
on that date to be less than 2 to 1.
For purposes hereof, the following definitions have the
following meanings:
"EBITDA": For any period of determination, the net income of
the Borrower before deductions for income taxes, interest expense, depreciation
and amortization, all as determined in accordance with GAAP.
"Adjusted Fixed Charge Coverage Ratio": For any period of determination
with respect to the Borrower, the ratio of
(a) EBITDA minus the sum of (i) any dividends or other
distributions, (ii) expenditures in the sum of $1,500,000.00
for fixed and capital assets not financed and (iii) tax
expenses,
to
(b) all required principal and interest payments with respect
to Indebtedness (including but not limited to all payments
with respect to capitalized lease obligations of the
Borrower), in each case determined for said period in
accordance with GAAP.
9. Section 6.1(a) is amended to read as follows:
51
6.1(a) As soon as available in any event within ninety (90) days after
the end of each fiscal year of the Borrower, financial statements of
income cash flow and changes in stockholders' equity, a balance sheet
as at the end of such year, and notes thereto, setting forth each case
in comparative form corresponding figures from the previous annual
audit, certified without qualification by an independent Certified
Public Accountant of recognized regional standing selected by the
Borrower. Provided Borrower is in compliance with all filing
requirements of the Securities and Exchange Commission and timely files
all of the above information with the Securities and Exchange
Commission and within the timeframes required above, Borrower shall not
be obligated to provide such financial information to the Lender.
8. The following sentence is added to the end of Section 6.1(b):
Provided Borrower is in compliance with all filing
requirements of the Securities and Exchange Commission and timely files
all of the above information with the Securities and Exchange
Commission and within the timeframes required above, Borrower shall not
be obligated to provide such information directly to the Lender.
9. Sections 6.1(c) and 6.1(d) are deleted in their entirety.
10. All other terms and conditions of the Loan Agreement and Revolving
Note shall remain in full force and effect except as modified herein.
DAKTRONICS, INC. U.S. BANK NATIONAL ASSOCIATION
By /s/ William R. Retterath By /s/ Carl Wynja
--------------------------- ---------------------------
William R. Retterath Carl Wynja
Chief Financial Officer Vice President
52
Exhibit 10.12
CONTRACT FOR DEED
-----------------
THIS AGREEMENT Made and entered into this 19th day of June, 2001, by
and between O. DALE LARSON of Brookings, South Dakota, hereinafter described as
Seller and SPORTS LINK, LTD., a South Dakota corporation of Brookings, South
Dakota, hereinafter described as Purchaser.
I.
Legal Description and Terms of Sale
-----------------------------------
That if the Purchaser shall first make the payments and perform the
covenants hereinafter mentioned on its part to be made and performed, the said
Seller hereby covenants and agrees to convey and assure to the Purchaser, in fee
simple, clear of all encumbrances whatsoever, by good and sufficient Warranty
Deed, the real property situated in the County of Brookings and State of South
Dakota described as follows:
Lot Four (4), Block Five (5) of Gilkerson Addition to the City of
Brookings, Brookings County, South Dakota,
and as consideration therefor, the said Purchaser shall covenant and agree to
pay the said Seller the sum of TWO MILLION ONE HUNDRED FIFTY THOUSAND AND ONE
DOLLARS ($2,150,001). The terms of the payment for this property are as follows:
The sum of $1.00 shall be due at the execution of this Contract, the
receipt of which is hereby acknowledged. The balance of $2,150,000
shall be payable, interest only at the rate of five percent (5%) with
an interest accrual date of July 1, 2001 with the first payment of
monthly interest due August 1, 2001. Interest only payments shall
continue for a period of four (4) years until June 30, 2005 at which
time the entire principal sum plus any accrued interest shall be due
and payable in full.
1
53
II.
Possession Date
---------------
The possession date shall be July 1, 2001, entitling Purchaser to all
rents, issues and profits thereafter, including without limitation, the rights
as Landlord to any outstanding lease agreements, which lease agreements, if any,
shall be assigned to the Purchaser as of the date of possession.
III.
Real Estate Taxes
-----------------
It is understood and agreed that the Seller shall pay the 2000 and all
prior real estate taxes. Furthermore the Seller shall pay, when due, the first
half of the 2001 real estate taxes which are due and payable in the year 2002.
The Purchaser shall be responsible for the second half of the 2001 real estate
taxes, and all real estate taxes and assessments thereafter.
IV.
Insurance
---------
It is understood and agreed that the Purchaser shall maintain insurance
covering the property which insurance shall protect against fire, lightning,
wind and extended coverage in the amount of $2,150,000 or such other amount as
the parties may agree. However no reduction in this amount of insurance required
shall be effective unless agreed to in writing by Seller. The Purchaser shall
show proof of insurance to the Seller on or before July 1, 2001 and shall
provide proof of insurance to the Seller on or before July lst of each year
thereafter during the term of this Contract. In addition the Seller shall also
be a named loss payee under the insurance policy of the Purchaser. Purchaser
will promptly notify Seller of any accident or incident that may result in an
insurance claim. Purchaser shall indemnify and hold Seller harmless from any
liability arising out of the use and occupation of the premises by Purchaser or
anyone claiming under him, including without limitation, reasonable attorney's
fees in the event Seller is made a party to any action.
2
54
V.
Title Insurance
---------------
It is further understood and agreed that title insurance will be
immediately ordered and will be provided to the parties prior to July 1, 2001.
The cost of the title insurance will be paid by the Purchaser.
VI.
Default
-------
In the case of the failure of the Purchaser to make either the payments
or any part thereof or perform any of the covenants on its part hereby made and
entered into, the Seller shall give written notice by certified mail of the
default and how the default can be cured. Said default shall be cured within
thirty (30) days of the receipt of the notice of default.
In the event the default is not cured as mentioned above, the remaining
balance shall, at the election of the Seller, shall become immediately due and
payable, and the Contract shall, at the option of the Seller, be forfeited and
determined by giving to said Purchaser thirty (30) days' notice in writing of
the intention of said Seller to cancel and determine this Contract, setting
forth in said notice the amount due upon said Contract, and the time and place
when and where payment can be made.
It is mutually understood and agreed by and between the parties to this
Contract that thirty (30) days is a reasonable and sufficient notice to be given
to said Purchaser in case of failure to perform any of the covenants on its part
hereby made and entered into.
It is further understood and agreed that in the event of default, the
Seller shall be entitled to exercise any remedy or remedies allowed by South
Dakota law including but not limited to forfeiture or specific performance and
the remedy mentioned previously. If the Seller shall choose specific
performance, then the laws set forth at SDCL Chapter 21-9 and related statutes
shall govern.
3
55
In the event the Seller elects forfeiture and after thirty (30) days'
notice has been given and the Purchaser has failed to make payment in full, then
all obligations hereunto on the part of the Seller shall be cancelled and it
shall be fully reinvested with all right, title and interest hereby agreed to be
conveyed, and the Purchaser shall forfeit all payments made by it on this
Contract with all right, title and interest in all buildings, fences and other
improvements whatsoever, and such payments and improvements shall be retained by
said Seller in full satisfaction and in liquidation of all damages by them
sustained, and it shall have the right to re-enter and take possession of the
above described premises.
VII.
Time of Payment
---------------
It is mutually agreed by and between the parties hereto that the time
of payment shall be an essential part of this Contract and that all the
covenants and agreements herein contained shall extend to and be obligatory upon
the heirs, executors and administrators of the respective parties.
VIII.
Assignment of Contract
----------------------
It is further agreed by the parties that neither the Seller nor the
Purchasers shall sell, convey, transfer or assign their interest in this
Contract for Deed without the prior written consent of the other party hereto,
which consent shall not be unreasonably withheld.
IX.
Personal Property
-----------------
It is understood and agreed that the personal property to be
transferred from the Seller to the Buyer that will be included in the above sale
price is as follows:
4
56
All office furniture including any modular offices, dividers and board
room furniture within the premises as of July 1, 2001 and as identified by the
Seller.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year first above written.
SELLER:
By: /s/ O. Dale Larson
--------------------------
O. Dale Larson
PURCHASER:
ATTEST:
SPORTS LINK, LTD.
By: /s/ Michael J. Cooper
--------------------------
Its President
- ------------------------------
Secretary
(CORPORATE SEAL)
State of South Dakota )
: ss.
County of Brookings )
On this the 19th day of June, 2001, before me, the undersigned officer,
personally appeared O. Dale Larson, known to me or satisfactorily proven to be
the person whose name is subscribed to the within instrument and acknowledged
that he executed the same for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Jean Osttis
----------------------------
Notary Public - South Dakota
My Commission expires:
May 20, 2006
- ----------------------
(SEAL)
5
57
State of South Dakota )
: ss.
County of Brookings )
On this the 19th day of June, 2001, before me, the undersigned officer,
personally appeared Michael J. Cooper, who acknowledged himself to be the
President of SPORTS LINK, LTD., a corporation, and that he, as such President
being authorized so to do, executed the foregoing instrument for the purposes
therein contained, by signing the name of the corporation by himself as
President.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Jean Osttis
----------------------------
Notary Public - South Dakota
My Commission expires:
5-20-2006
- ----------------------
(SEAL)
GUARANTEE OF PAYMENTS
---------------------
As further consideration for the sale of the above described property
to SPORTS LINK, LTD., Daktronics, Inc., a South Dakota corporation of Brookings,
South Dakota, hereby unconditionally guarantees to pay the indebtedness,
together with all interest accrued and all other obligations of the Purchaser
thereon to Seller under the terms and conditions in the foregoing Contact for
Deed.
Dated this 21st day of June, 2001.
DAKTRONICS, INC.
By: /s/ James B. Morgan
----------------------------
Its President
----------------------------
ATTEST:
/s/ Carla Gatzke
- ----------------------
Secretary
(CORPORATE SEAL)
6
58
Exhibit 10.13
JKA/DJG
- ------------------------------------------------------------------------------------------------------------
SPORTS LINK LTD FIRST NATIONAL BANK IN BROOKINGS
117 PRINCE DR PO BOX 5057 Loan Number 7200377
PO BOX 544 BROOKINGS, SD 57006-5057 Date 03/04/02
BROOKINGS SD 57006 Maturity Date 03/01/07
Loan Amount $1,002,786.20
Renewal Of 69842-06
TIN: 46-044067B
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
"I" includes each borrower above, "You" means the lender, its successors
joint and severally. and assigns.
- ------------------------------------------------------------------------------------------------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of One million two thousand seven hundred eighty
six & 20/100 Dollars $1,002,786.20
[X] Single Advance: I will receive all of this principal sum on 03/04/02. No
additional advances are contemplated under this note.
[ ] Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On _______________ I will receive
the amount of $_____________ and future principal advances are contemplated.
Conditions: The conditions for future advances are _________________________
____________________________________________________________________________
____________________________________________________________________________
[ ] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on ____________________.
[X] Closed End Credit: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
MARCH 04, 2002 at the rate of 6.7500% per year until MARCH 01, 2007.
[ ] Variable Rate: This rate may then change as stated below.
[ ] Index Rate: The future rate will be ______________the following index
rate____________________________________________________________________
________________________________________________________________________
________________________________________________________________________
[ ] No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[ ] Frequency and Timing: The rate on this note may change as often as
________________________________________________________________________
A change in the interest rate will take effect ________________________.
[ ] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than ________% or less than _______%. The
rate may not change more than _________% each __________.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change.
[ ] _______________________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[X] at a rate equal to 20.00%.
[X] LATE CHARGE: If a payment is made more than 10 days after it is due, I agree
to pay a late charge of 5.0% OF THE PAST DUE PAYMENT AMOUNT SUBJECT TO A
MAXIMUM OF $50.00 AND MINIMUM OF $20.00.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
____________________________________________________________________________
PAYMENTS: I agree to pay this note as follows:
[ ] Interest: I agree to pay accrued interest __________________________________
____________________________________________________________________________
[ ] Principal: I agree to pay the principal ON DEMAND, BUT IF NO DEMAND IS MADE
THEN:
[X] Installments: I agree to pay this note in 60 payments. The first payment
will be in the amount of $19,740.00 and will be due APRIL 01, 2002. A
payment of $19,740.00 will be due MONTHLY thereafter. The final payment of
the entire unpaid balance of principal and interest will be due MARCH 01,
2007.
ADDITIONAL TERMS: THIS NOTE IS SECURED BY: S/A DATED 8/28/01 AND A
CORPORATE GUARANTY DATED 8/29/00.
- ------------------------------------------------------------------------------------------------------------
[X] SECURITY: This note is separately secured PURPOSE: The purpose of this loan is BUSINESS:
by (describe separate document by type and date): DJG: EQUIPMENT TERM FINANCING.
SAME AS ADDITIONAL TERMS ABOVE SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE
(INCLUDING THOSE ON PAGE 21). I have received a copy
on today's date.
(This section is for your internal use. Failure SPORTS LINK LTD
to (illegible))
/s/ James B. Morgan
----------------------------------------------------
Signature for Lender JAMES B. MORGAN, CEO
/s/ DAVE GIBSON V.P.
- ------------------------------------------------ ----------------------------------------------------
DAVE GIBSON
VICE PRESIDENT
- ------------------------------------------------- ----------------------------------------------------
59
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state in which you are located will govern this
note. Any term of this note which is contrary to applicable law will not be
effective, unless the law permits you and me to agree to such a variation. If
any provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement. No
modification of this agreement may be made without your express written consent.
Time is of the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: This index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right of set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note be used in an manner of for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without first
notifying you before making such a change; (10) I fail to plant, cultivate and
harvest crops in due season if I am a producer of crops; (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to,
the following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment
of money from you, subject to the terms of the "Set-Off" paragraph
herein.
(3) You may demand security, additional security, or additional parties
to be obligated to pay this note as a condition for not using any
other remedy.
(4) You may refuse to make advances to me or allow purchases on credit
by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of
dishonor).
I waive any ___?_____ I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
- --------------------------------------------------------------------------------------------------------------
BORROWER'S INTEREST
DATE OF PRINCIPAL INITIALS PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE (not required) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------
60
EXHIBIT 21.1
SUBSIDIARIES OF COMPANY
Star Circuits, Inc.
MSC Technologies, Inc.
SportsLink, Ltd.
Servtrotech, Inc.
61
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Forms S-8 for Daktronics, Inc. 2001 Incentive Stock Option Plan, the 2001
Outside Directors Stock Option Plan, the 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 7, 2002, with respect to the consolidated financial statements of
Daktronics, Inc. and subsidiaries as of April 27, 2002 and April 28, 2001, and
for each of the three years in the period ended April 27, 2002, and the schedule
included in this Annual Report on Form 10-K for the year ended April 27, 2002.
/s/ McGladrey & Pullen, LLP
McGLADREY & PULLEN, LLP
Sioux Falls, South Dakota
June 27, 2002
62