SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 May 3, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-23246
DAKTRONICS, INC.
(Exact name of registrant as specified in its charter)
South Dakota 41-0306862
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
331 32nd Avenue, Brookings, SD 57006
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (605) 697-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(g) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of July 18, 1997, 4,306,420 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 July 18, 1997 was approximately
$14,431,000 based on the closing price of $4.875 per share of July 18, 1997 on
the NASDAQ/NMS).
Documents Incorporated By Reference
Selected portions of the Definitive Proxy Incorporated into Part III
Statement for the Annual Meeting of Shareholders
to be held August 20, 1997
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DAKTRONICS, INC.
Table of Contents
Page(s)
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PART I. ........................................................... 3 - 15
PART II. ........................................................... 16 - 36
PART III............................................................ 36
PART IV. ........................................................... 36 - 53
Signatures.......................................................... 38
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PART I
Item 1. Business.
GENERAL
Daktronics designs, manufactures and sells a wide range of computer-programmable
information display systems to customers in a variety of markets throughout the
world. These display systems utilize light emitting and light reflective
technologies to display information that can be electronically changed by a
customer. The Company's products include scoreboards and animation displays for
sports facilities and displays for businesses and government applications. The
Company has sold display systems throughout the United States and in more than
50 countries worldwide ranging from small standard scoreboards priced under
$1,000 to large complex displays priced in excess of $4 million. In fiscal 1997,
sales of products and services under $50,000 represented approximately 40% of
net sales.
The Company's net sales and profitability historically have fluctuated due to
the impact of large product orders, such as display systems for the Olympic
Games and 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 percentage of completion method of recognizing
revenues; the Company nevertheless has experienced fluctuations in operating
results and expects that its future results of operations may be subject to
similar fluctuations.
COMPANY BACKGROUND
The Company was founded in 1968 by Drs. Aelred Kurtenbach and Duane Sander,
while professors of electrical engineering at South Dakota State University in
Brookings, South Dakota, in part to utilize the talents of university graduates.
Daktronics produced and sold its first product in 1970, a voting display system
for the Utah Legislature. Using the technology developed from voting display
systems, Daktronics expanded its product line to scoreboards in 1971 and
commercial displays in 1973. Beginning in the late 1970's, the Company
incorporated microprocessor-based computers into its display controllers to
process information provided by an operator and to formulate the information for
presentation on a display. At that time, Daktronics also began building
computer-programmable information display systems utilizing standard modules or
sections in a variety of systems. The use of modular sections for both its
smaller and larger display systems has allowed the Company to offer customers a
broad range of both standard and custom products. These innovations helped the
Company to obtain a scoreboard contract for the 1980 Winter Olympic Games and
several large college installations. In the early to mid-1980's, Daktronics
continued to enhance its controller and display technology, acquired the Glow
Cube(R) display technology and a manufacturer of printed circuit boards, and
installed its first scoreboard in a major league facility.
In 1987, the Company reoriented its sales and marketing efforts based on markets
rather than products, believing that this orientation would lead to significant
growth in net sales through greater penetration in selected target markets. The
continued product developments, along with the Company's focused sales and
marketing, helped capture several prestigious installations, including
scoreboards and results systems for the 1988 Winter Olympic Games and golf
scoring and Glow Cube display systems for the PGA Tour.
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During the 1990's, the Company has continued to expand its product lines,
increase market share in its existing markets and develop new markets for its
products. Daktronics has enhanced its Starburst(R) display technology by
developing new lens and reflector designs to capture viewer attention and reduce
energy consumption. In fiscal 1997 the Company enhanced its display control
circuitry capability to display 16 million possible color combinations at 30
frames per second. The Company has also acquired and developed technology for
LED displays and display controllers. Examples of the Company's continued market
penetration include (i) scoreboards for University of Georgia, Brigham Young
University, Montreal Forum, Philadelphia Sepctrum and Marine Midland Arena in
Buffalo, (ii) another commercial display for Times Square, (iii) variable
message systems for highway usage in Washington and New Jersey, and (iv)
platform passenger displays for Pittsburgh and San Francisco.
Daktronics has received several awards, including being named the South Dakota
Business of the Year in 1987, 1989 and 1993 by the South Dakota Industry and
Commerce Association.
PRODUCTS
The Company offers its customers a wide range of computer-programmable
information display systems consisting of related products, or families of
products, that have similar functions and varying degrees of capabilities.
Products within each family use displays and controllers that are built with
many of the same modular components to reduce the cost of production and provide
flexibility for standard and custom installations. The use of modular components
also enhances the reliability and serviceability of the display systems. For
example, the basketball scoreboard family includes products that use many of the
same display modules and range from a small, single-faced scoreboard to a large,
four-sided display with player statistics. The sizes of displays range from 2
inches by 20 inches for small indoor displays to 20 feet by 40 feet or more for
large outdoor displays.
The two principal components of the Company's systems are the display and the
display controller. The display controller uses computer hardware and software
to process the information provided from the operator and to formulate the
information, graphics or animation to be presented on the display. The display
controller then controls each of the picture elements or "pixels" on the display
to present the message or image.
Data is transferred between the display controller and the displays for both
local and remote display sites. Local connections use twisted pair cables, fiber
optic cables, infrared links or radio frequency. Both standard and cellular
telephone connections are used to connect remote display locations. These
connections are generally purchased from third parties.
Within each product family, Daktronics produces both standard and custom
displays that vary in complexity, size and resolution. For example, a large
color animation display is significantly more complex than a time and
temperature display. The physical dimensions of a display depend on the size of
the viewing area, the distance from the viewer to the display and the amount of
information to be displayed at any one time. Generally, larger pixels spaced
farther apart are used for longer distance viewing. The resolution of a display
is determined by the size and spacing of each pixel, with smaller more densely
packed pixels for higher resolution. The type of the display may depend on the
shape of the viewing area. For example, arena scoreboards may have a viewing
angle as wide as 180 degrees, compared with a roadside display which can been
viewed from a passing vehicle only within a narrow angle from the display.
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DISPLAY TECHNOLOGIES
Each of the Company's display systems uses one or more of the following display
technologies: (i) Starburst(R) four-color incandescent lamps, (ii) SunSpot(R)
monochrome incandescent lamps, (iii) Glow Cube and other reflective elements or
(iv) LEDs. The selection of a display technology depends on a variety of
factors, including price, location, power consumption and operating cost, and
complexity of the information, graphics or animation to be displayed. The
outdoor displays are designed to withstand the elements and to be visible in
both bright sunlight and at night.
STARBURST(R) COLOR INCANDESCENT LAMP DISPLAYS. Starburst(R) displays use four
colors (red, green, blue and clear) to display many shades of color when
different combinations of lights are illuminated. The most popular Starburst(R)
displays use reflectors with colored lenses over clear lamps. Each of the
display lamps is turned on and off at different intervals and rates determined
by the software in the controller to change what is presented on the display.
The Company-designed reflector and lens system consumes less energy than a
traditional incandescent lamp display while maintaining the brightness of the
display to the viewing audience. The Starburst(R) color displays are used both
indoors and outdoors and provide customers the flexibility of displaying text,
numbers, graphics, animation and other types of information. Among the thousands
of the Company's Starburst(R) display installations are the University of
Georgia and University of South Carolina football scoreboards, and various
indoor basketball facilities and baseball stadiums.
SUNSPOT(R) MONOCHROME INCANDESCENT LAMP DISPLAYS. SunSpot(R) displays use
monochrome (one color) incandescent lamps which turn on and off at intervals and
rates similar to a Starburst(R) four color display. SunSpot(R) displays are used
both indoors and outdoors typically for time and temperature, messaging,
graphics and other applications where color is not required. Daktronics has sold
its SunSpot(R) displays for many small and large installations such as high
school football stadiums, commercial businesses, and major league baseball
parks.
REFLECTIVE DISPLAYS. The Company's patented Glow Cube(R) display technology uses
three-dimensional pixels or "cubes." Each pixel is programmed to turn so that
the viewing surface of the cube flips from a bright color to a dark contrasting
color. Words and graphics form as each pixel flips from one color to the other.
Glow Cube(R) displays are generally used outdoors, use less power and can be
configured in a wide variety of sizes. Because a Glow Cube(R) display reflects
sunlight during the day and fluorescent light at night, the display consumes
relatively little power while operating. The Company's 7 x 18 foot Glow Cube(R)
displays for the PGA TOUR each operate on a golf cart battery and are moved
between tour sites throughout the season. Daktronics has also provided Glow
Cube(R) displays for the 1996 Summer Olympic Games, the 1994 Winter Olympic
Games and transportation departments in Connecticut, New Jersey and Virginia.
During fiscal 1995, the Company added a new reflective pixel to the product
family. New MagneView(TM) technology, with its two dimensional design, is a low
cost alternative to the Glow Cube(R) technology. This technology, along with
others, was incorporated into the displays at the 1996 Summer Olympics in
Atlanta.
LED (LIGHT EMITTING DIODE) DISPLAYS. The Company's LED displays use programmable
light emitting diodes as the light source for each display pixel. LED technology
uses individual indicator elements that are commonly found in applications such
as automobile dashboards, small appliances and digital clocks. The LEDs turn on
and off at different intervals and rates to form the display images. One line
LED displays are used for text, and larger LED displays are used for text,
graphics and animation. 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. The Company previously purchased certain LED technology and
products that have been integrated into the Company's product lines. Daktronics
recently began manufacturing outdoor LED displays (including its own pixels) and
has provided high
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intensity LED outdoor displays for the Connecticut, New Jersey, and Washington
Departments of Transportation and Art Kraft Strauss Sign Corporation for several
installation in Times Square.
PRODUCT FAMILIES
Daktronics product offering is comprised of three primary product groups:
1) Sports Products
2) Large Matrix Products
3) DataTrac(TM) / InfoNet(TM) Products
SPORTS PRODUCTS
The Sports Products group includes the following products:
Sports Product Displays. The Company offers a full line of indoor scoreboards
ranging from 2-digit shot clocks to high school basketball scoreboards to large
center hung scoreboards incorporating message centers and ad panels. Starting in
1995 the Company began introducing a number of indoor scoreboard models using
LED technology to complement the incandescent models it had been offering.
Approximately 50% of the popular indoor models sold are now the LED type.
The Company also offers outdoor scoreboards which use mostly incandescent lamp
technology. The outdoor scoreboards likewise range from 2-digit game timers to
high school football scoreboards to large scoring systems incorporating message
centers and ad panels.
In 1996 the Company began standardizing many of the large scoring systems, both
indoor and outdoor, suitable especially for colleges and municipal arenas.
Previously, many of these systems were designed individually from the ground up.
This standardization of the large scoring systems has improved Daktronics
ability to deliver a quality system in minimal time, with improved and more
consistent margins.
Sports Product Controllers. The Company offers a variety of internally developed
controllers depending on the sport and complexity of the system. The following
is a list of controllers for sports displays.
All Sport(R) 2000 - low cost, entry level controller for scoreboards.
All Sport(R) 4000 - introduced Fall '96. Controller with enhanced features
and packaging over All Sport(R) 2000.
Pro Sport(R) 6000 - controller for large multi-display, multi-sport scoring
system for large college and professional levels.
OmniSport(R) 1000 - entry level timer for aquatics, track, and other timed
events.
OmniSport(R) 6000 - timer with enhanced features and packaging for larger
aquatics, track, or other timed events.
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LARGE MATRIX PRODUCTS
The Large Matrix product group consist of displays having a large number of
display pixels (dots or picture elements that make up an image). The pixels
offered are incandescent, LED, or reflective Glow Cube(R) pixels.
In the past five years the electronic sign industry has grown more and more
sophisticated with the increased capability of the desktop PC.
Large Matrix Displays. Whereas prior to that conventional matrix displays formed
images by simply turning a pixel on or off, displays today have the ability to
vary the intensity of each pixel to allow the generation of multiple colors. The
displays to be introduced by the Company in the summer of '97, both incandescent
and LED, will have the capability to display up to 16 million colors at speeds
that allow the display of video information.
The large matrix product offering spans from a basic 24 pixel high display with
on/off pixel control up to a full large-screen video at the high end.
The latest LED technology, which uses red, green, and blue (RGB) LEDs at
brightness levels adequate for outdoor, is well suited to display video because
of its very quick response times. The 16 million color RGB LED displays offer
state-of-the-art video and animation capability at a price significantly less
than traditional large screen videos used in sports stadiums. The first
installations are scheduled for August '97.
The 16 million color Starburst(R) offers a lower cost alternative, approximately
one-half the price per square foot of the RGB LED technology display for
customers with tighter budgets. Although the Starburst(R) technology has lower
resolution than the RGB LED product, it still provides a very effective video
and animation display.
Large Matrix Controllers. In Winter '97 Daktronics introduced the Venus(R) 7000
controller which uses the Windows operating system. This is a PC based, high end
controller which provides advanced capability for control of large
animation/video displays.
The Venus(R) 4600 controller continues to be a viable product as a lower cost
but very capable controller. The Company has also developed applications
software that supports its Venus(R) display controllers. The Company's
Dakstats(R) software allows score keepers and statisticians to enter and display
sports statistics and other information on certain of the Company's scoreboards.
The user is responsible for updating the statistics after the software has been
installed. The Dakstats(R) baseball software was first used in 1988 by the AAA
minor league Buffalo Bisons and has now been installed at several major league
facilities, including Oriole Park at Camden Yards, Jacobs Field, Ballpark in
Arlington and Coors Field. The Company has developed proprietary statistics and
results software for several other sports such as golf, football, swimming,
diving, auto racing, track and skiing. In addition to providing these software
products, the Company develops customized hardware circuit boards and software
for customers who have special information display requirements.
The Company designs interfaces between its display systems and other computer
systems allowing its large scoreboard systems to receive and display information
from computers used for statistics, timing or scoring. These interfaces allow
the display controller to send information back to a statistics system or
customer computer. These interface products automatically report continually
updated sports scores and information from national wire services.
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DATATRAC(TM) / INFONET(TM)
The DataTrac(TM) / InfoNet(TM) product lines are intended primarily as a
text-base message displays. They are lower cost than a large matrix display
which are designed for full graphics and animation.
DataTrac(TM) / InfoNet(TM) Displays. The DataTrac(TM) product line consists of a
family of indoor LED displays comprised of discrete 5x7 (pixel) characters. Each
character is spaced horizontally and vertically from the adjacent character.
This provides the least expensive display per character for display of text
messages only. Daktronics offers products with .7", 1.2", 2.1" & 4.2" characters
in a wide range of overall display sizes. Some models are available in either
monochrome or tri-color.
InfoNet(TM) product line includes line oriented displays, with character heights
of 2" and 4" on indoor models, and 9" for outdoor. The outdoor model, the G1000
series, has wide application as a low cost marquee display applicable to many of
the markets Daktronics serves, especially the High School and Commercial
markets. InfoNet(TM) products are available as single or multi-line units.
Indoor InfoNet(TM) models find applications in the majority of markets served by
Daktronics.
Controllers for DataTrac(TM) and InfoNet(TM) Displays. All DataTrac(TM) and
InfoNet(TM) products have a controller in the display which is capable of
receiving a downloaded display program, and then operating independently
displaying 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 and line
oriented display product offering. In calendar 1997 the Company plans to
introduce a SunSpot(R) display with an MDC inside.
The Venus(R) 1500 is the software for use on a PC that allows creation of
messages and simple graphic sequences for downloading to a DataTrac(TM) or
InfoNet(TM) display, or future display models containing an MDC. The Venus(R)
1500 software is designed to be useable without any special training, and is
applicable to all general advertising or message presentation applications.
The protocol for transferring data into the MDC is called the Venus(R) 1500
protocol. For applications not addressed by the Venus(R) 1500, OEM's can
purchase the Company displays and write their own software using the Venus(R)
1500 protocol to communicate to the displays. The Company also offers a software
module the OEM's can incorporate into a Windows based program to reduce the time
it takes to write this interface. As of Spring 1997 several OEM's have
implemented the Venus(R) 1500 protocol into these applications, resulting in
display sales in both the airport market and the automatic call distribution
(ACD) market (ie. Credit card processing centers).
OTHER PRODUCTS. Other products outside the three primary product groups include
time and temperature displays, lottery billboard displays and price displays.
MARKETING AND SALES
There are many manufacturers and sellers of signs and displays throughout the
world. The design and manufacture of computer-programmable signs and displays
that allow a customer to readily change the information displayed is a smaller
and more specialized segment of the larger sign and display industry. Many
makers of computer-programmable signs and displays serve only one or a few
specialized markets. Daktronics strives to distinguish itself by providing a
broad range of technologically advanced information display products to a number
of strategic markets.
The Company's display systems have been sold throughout the United States and in
more than 50 countries worldwide. Daktronics markets and sells its products
worldwide by direct sales and through independent resellers. The Company's sales
personnel learn the needs of the Company's markets and customers by establishing
relationships with existing and prospective customers, attending trade shows,
<PAGE>
conventions and seminars, and participating with customers in the installation
of the Company's products.
When the Company targets a potential customer for a display system, the prospect
is contacted either directly or through a reseller. Daktronics sells custom
display systems for larger projects on a direct basis and frequently uses a team
of Company personnel to ensure that the proposed system meets the customer's
needs in the most cost effective manner. Engineers, technicians and direct sales
personnel participate in site visits to assess site conditions and to evaluate
the customer's requirements. The Company's sales staff submits proposals to
prospective customers, often followed by a business and technical presentation.
The Company also regularly hosts prospective customers at its manufacturing
facility to demonstrate product quality and delivery capability.
The Company's direct sales staff, who are grouped by end user market, are also
responsible for international sales in their respective markets. During fiscal
1997, 1996 and 1995, 14.9%, 15.5% and 11.5% of the Company's net sales,
respectively, were derived from international sales. Daktronics intends to
expand its international sales. In fiscal 1995, the Company formed a strategic
business alliance with Omega Electronics, S.A. of Bienne, Switzerland, that will
make use of each other's complementary core business positions. Omega
Electronics, a leading timing systems manufacturer, is now a distributor of the
Company's scoreboards and matrix displays for use in sports applications around
the world. The Company started to receive orders in fiscal 1996 from Omega
Electronics. The Company has added Omega Electronics sports timing and photo
finish products to its product offering for sale in the United States and
Canada.
Resellers are used most prevalently in the areas of standard or "catalog" sports
scoreboards and commercial applications where systems must be installed in
accordance with local zoning ordinances. The Company offers, primarily through
its resellers, a broad selection of scoreboard and display models that are
moderately priced and relatively easy to install. The most popular models are
built to inventory and available for next-day shipment. The remaining models are
built to order and quoted for shipment in 30 to 90 days after order acceptance.
The Company supports its resellers through national and regional direct mail
advertising and trade show exhibitions. Regional sales managers support
resellers in the field, and the Company's sales staff provides daily telephone
support. Daktronics believes that it can expand market share by increasing the
productivity of existing resellers and adding additional resellers in new
geographic areas.
The primary markets served by the Company, along with types of customers, are
shown below.
MARKETS TYPES OF CUSTOMERS
SPORTS Elementary and Secondary Schools, Colleges and
Universities, Recreation Centers, YMCAs, Major and
Minor League Sports, Olympic Games and Other Sports
Federations, Civic Arenas and Convention Centers,
Parimutuel Gaming and Motor Racing
BUSINESS Banks, Auto Dealers, Shopping Malls, Casinos and
other businesses
GOVERNMENT Legislatures and Assemblies, Departments of
Transportation, Financial Exchanges, Airlines,
Transit
During fiscal 1997, the Company's net sales to the sports market were
approximately 70% of net sales, while the business and government markets
accounted for approximately 20% and 10%, respectively, of net sales.
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CUSTOMER SERVICE AND SUPPORT
Daktronics believes that its prompt and reliable customer service distinguishes
it from many of its competitors. The Company provides a limited warranty for
most of its products against failure due to defective parts or workmanship for
periods generally ranging from 90 days to 5 years after first sale or
installation, depending on the product or type of customer. Under the limited
warranty, the customer returns the failed component to the Company for
replacement or repair. The Company also provides customer service and support,
including "Help Desk" access, parts repair and replacement, and programming
support for 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 animation and display programming support department (i) designs
custom animation sequences and answers display operator questions through its
Help Desk, (ii) publishes regular newsletters for operators, (iii) conducts
regularly-scheduled display operator workshops throughout the year and (iv)
provides on-site display operator training. Daktronics 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 14 service centers in 12 states and plans to open other service
centers in the future. Scoreboard and message display sales to schools and
recreation departments are also made through these offices. The Company uses a
network of authorized service dealers in other domestic locations and in a
number of other countries.
ENGINEERING AND PRODUCT DEVELOPMENT
The computer-programmable information display industry is characterized by
ongoing product innovations and developments in display and controller
technology. To remain competitive, the Company must continue to anticipate and
respond to these changes and developments. Daktronics intends to continue its
tradition of applying engineering resources throughout its business to help
achieve more effective product development, manufacturing, sales and customer
support.
The Company employs engineers and engineering technicians in the areas of
mechanical design, electronics design, applications engineering, and customer
and product support. Unlike some of its competitors who depend on contract
engineering from outside vendors, the Company uses in-house engineering staff to
anticipate and respond rapidly to the product development needs of customers and
the marketplace. The Company assigns product managers from its engineering staff
to each product or product family to assist its sales staff in customer
training, to implement product improvements requested by customers, and to
ensure that each product is designed for maximum reliability and serviceability.
The Company's product development personnel also modify existing products and
develop new products to comply with rule changes for particular sports.
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In 1996 Daktronics completed the reorganization of its engineering department,
establishing three design groups, each aligned with one of the three primary
product families, namely:
* Sports Products
* Large Matrix
* DataTrac(TM)/InfoNet(TM) (See "Product Families" Section)
Each of these design groups is autonomous to allow it to focus on the respective
product family. This new 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 1997, 1996, and 1995 were approximately
$2,208,000, $1,857,000 and $1,597,000 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 pixel assembly) and system manufacturing (metal
fabrication, electronic assembly, sub-assembly and final assembly). Star
Circuits, Inc., a wholly owned subsidiary, manufactures printed circuit boards
for the Company and other customers at its separate production facility located
in Brookings, South Dakota. The Company augments its production capacity with
the use of outside subcontractors, primarily for metal fabrication and loading
printed circuit boards.
Daktronics uses a modular approach for manufacturing its displays. Standard
product modules are designed and built to be used in a variety of different
products. This modular approach reduces parts inventory and improves
manufacturing efficiency. The Company inventories finished goods of smaller,
standard products and builds to order larger, seasonal and custom products.
Daktronics designs its product modules so that a custom product may include a
significant percentage of standard products to maximize reliability and ease of
service. Certain components used in the Company's products are currently
available from a limited number of sources. To reduce its inventories and
enhance product quality, the Company elects to purchase certain components from
a limited number of suppliers who are willing to provide components on an "as
needed" basis. From time to time, the Company enters into pricing agreements or
purchasing contracts under which it agrees to purchase a minimum amount of
product in exchange for guaranteed price terms over the course of the contract,
which generally do not exceed one year. Through the Company's "total quality
management" and "just-in-time" methods of scheduling and manufacturing,
production employees work as teams to ensure quality and timely delivery while
minimizing excess inventories. The Company's order entry, production and
customer service functions are also computerized to facilitate communication
throughout the entire sales, design, production and delivery process.
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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
$10 million as of June 30, 1997 and $12.4 million as of June 30, 1996. 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 which
require more complex display systems. Some of the Company's primary competitors
are White Way Sign and Maintenance Company, Chicago, Illinois; Display
Solutions, Inc., Atlanta, Georgia; Nevco, Inc., Greenville, Illinois; and
Trans-Lux Corporation, Norwalk, Connecticut.
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
<PAGE>
products, introduce new products and product features, and provide customers
cost effective solutions to their scoring or display needs.
GOVERNMENT AND OTHER REGULATION
In the United States and other countries, various laws and regulations restrict
the installation of outdoor signs and computer-programmable information
displays. These regulations may impose greater restrictions on
computer-programmable information displays due to alleged concerns over
aesthetics or driver safety if a "moving" display is located near a road or
highway. These factors may prevent the Company from selling products to some
prospective customers.
Some of the Company's products are tested to safety standards developed by
Underwriters Laboratories(R) in the United States as well as similar standards
in other countries. Daktronics designs and produces these products in accordance
with these standards. The Company's printed circuit board manufacturing
operations use certain chemical processes that are subject to various
environmental rules and regulations. The Company's manufacturing operations must
also meet various safety related rules and regulations. The Company believes it
is in material compliance with all applicable governmental laws and regulations.
INTELLECTUAL PROPERTY
Daktronics currently owns two United States patents. One pertains to the design
of its Glow Cube pixel and expires in 1999 and the other pertains to the lens
display technology and expires in 2011. The Company relies principally on
trademarks, rather than patents, to help establish and preserve limited
proprietary protection for its products. The Company has 19 trademarks
registered in the United States. Daktronics uses these trademarks to establish
brand recognition and distinction in its various markets. The Company's product
drawings, controller software and other works of authorship are also subject to
applicable copyright laws. The Company typically provides software to its
customers in only machine readable form to help preserve trade secret protection
which 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
At June 30, 1997, Daktronics employed approximately 479 full time employees and
337 part time and temporary employees. Of these employees, approximately 433
were in manufacturing, 196 in sales, marketing and customer service, 157 in
engineering, and 30 in administration. None of the Company's employees are
represented by a collective bargaining agreement. The Company believes its
employee relations are good.
EXECUTIVE OFFICERS OF THE COMPANY
AELRED J. KURTENBACH, PH.D. (63) is a co-founder of the Company and has
served as a director and as President of the Company since its incorporation.
Dr. Kurtenbach also served as Treasurer until 1993. Dr. Kurtenbach has 41 years
of experience in the fields of communication engineering and control system
design, technical services, computer systems, electrical engineering education
and small business management. Dr. Kurtenbach has B.S., M.S. and Ph.D. degrees
in Electrical Engineering from South Dakota School of Mines and Technology, the
University of Nebraska and Purdue University, respectively.
<PAGE>
DUANE E. SANDER, PH.D. (59) is a co-founder of the Company and has
served as a director and as Secretary of the Company since its incorporation.
Dr. Sander is currently employed as Dean of Engineering at South Dakota State
University where he has taught electrical engineering courses and directed
biomedical research projects since 1967.
JAMES B. MORGAN (50) joined the Company in 1969 as a part-time engineer
while earning his M.S. degree in Electrical Engineering from South Dakota State
University. Since 1970, he has been employed by the Company as its Engineering
Manager and since 1975 as its Vice President, Engineering, with responsibility
for product development, contract design, project management for customer
contracts, and corporate information and scheduling systems. Mr. Morgan has
served as a director since 1984.
FRANK J. KURTENBACH (59) 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 Sales Manager 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. Aelred
Kurtenbach and Frank Kurtenbach are brothers.
PAUL J. WEINAND (41) joined the Company in August 1990 as its Chief
Financial Officer and has been Treasurer since November 1993. From 1985 to
August 1990, he was employed by American Western Corporation, a publicly held
manufacturer of plastic packaging products, as its controller. From 1980 to
1985, he was an accountant with McGladrey & Pullen, LLP. Mr. Weinand has a M.S.
degree in Accounting from the University of North Dakota and is a Certified
Public Accountant.
Item 2. Properties.
The Company currently owns and occupies 115,000 square feet, including a 12,000
square foot addition in fiscal 1997, of manufacturing space and 33,000 square
feet of office space in adjoining facilities located on a Company-owned 40-acre
site in Brookings, South Dakota. The Company is currently adding approximately
17,000 square feet to its office facility and anticipates completion in late
Winter of 1997-1998. The Company's circuit board manufacturing subsidiary and
reflective pixel assembly operation are located at a separate site in Brookings
and currently occupy 20,000 square feet in a facility owned by that subsidiary.
Item 3. Legal Proceedings.
On May 4, 1995, the Company was served with a complaint, filed in the United
States District Court Northern District of Georgia, by Display Solutions, Inc.
alleging that the Company and Federal Sign Division of Federal Signal
Corporation infringed on the plaintiff's patent rights. Based on the opinion of
the Company's patent counsel, management of the Company believes that there is
no infringement and intends to defend the litigation vigorously. The Company's
trial counsel is unable to evaluate the likelihood of an unfavorable outcome or
the potential range of loss, if any.
On May 20, 1996, the Company filed a complaint in United States District Court
For The District of South Dakota Southern Division against Trans-Lux Corporation
requesting a declaratory judgment. Trans-Lux Corporation asserted that the
Company has infringed on a certain patent. Based on the opinion of the Company's
patent counsel, management of the Company believes that there has been no
infringement. The Company's trial counsel is unable to evaluate the likelihood
of an unfavorable outcome of the potential range of loss if any.
On October 15, 1996, a lawsuit was brought by Roy L. McGreevy, Daktronics
Aust/NZ ltd., and International Sign Displays Co. in the United States District
Court for the District of South Dakota, Southern Division against the Company.
The lawsuit alleges the Company breached contracts,
<PAGE>
committed tortious interference with contracts, intentionally inflicted
emotional distress on the plaintiffs and is responsible for compensatory and
punitive damages. It is the opinion of management of the Company that the claims
are unfounded and the Company is aggressively defending the lawsuit, which is
set for trial starting October 14. Discovery is currently in process and the
Company's trial counsel is unable to evaluate the likelihood of an unfavorable
outcome, or an estimate of the range or amount of possible loss, if any.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of stockholders through a solicitation of
proxies or otherwise, during the fourth quarter of fiscal 1997.
<PAGE>
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 May 3, 1997 the Company had 463 shareholders of
record. Following are the high and low sale prices for the Company's common
stock:
FY 1997 FY 1996
High Low High Low
---- --- ---- ---
1st Quarter 5 1/4 4 7 1/4 5 1/2
2nd Quarter 5 3 5/8 6 1/8 4 1/2
3rd Quarter 4 5/8 3 7/8 5 7/8 3 1/4
4th Quarter 4 1/4 3 7/8 4 3/8 3 1/2
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)
1997 1996 1995 1994 1993
--------------------------------------------
Statement of Operations Data:
Net Sales.......................... $62,640 $52,507 $41,947 $41,102 $30,697
Operating Income (Loss)............ 2,501 (319) 1,210 3,220 2,204
Net Income (Loss).................. 1,508 (215) 967 1,976 1,107
Earnings (Loss) per Share.......... .35 (.05) .23 .62 .39
Weighted Average Share Outstanding. 4,266 4,191 4,228 3,163 2,857
Balance Sheet Data:
Working Capital.................... $10,923 $9,504 $12,169 $11,944 $3,509
Total Assets....................... 37,136 37,767 28,262 27,370 20,772
Long-term Liabilities.............. 2,640 2,568 2,292 2,723 4,884
Shareholder's Equity............... 21,750 19,861 20,076 19,109 7,535
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The Company designs, manufactures and sells a wide range of
computer-programmable information display systems to customers in a variety of
markets throughout the world. The Company focuses its sales and marketing
efforts on markets rather than products. Major categories of markets include
sport, business and government.
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
<PAGE>
large 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 1997 fiscal year
contained 53 weeks.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by items
included in the Company's Consolidated Statements of Operations for the fiscal
years ended 1997, 1996, and 1995:
YEAR ENDED
1997 1996 1995
------------------------------
Net sales................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................... 74.7 78.7 73.3
------------------------------
Gross profit............................ 25.3 21.3 26.7
Operating expenses.......................... 21.3 21.9 23.8
------------------------------
Operating income (loss)................. 4.0 (0.6) 2.9
Interest income............................. 0.9 0.7 0.9
Interest expense............................ (1.2) (1.2) (0.4)
Other income................................ 0.3 0.4 0.2
-------------------------------
Income (loss) before income taxes....... 4.0 (0.7) 3.6
Income tax expense (credits)................ 1.6 (0.3) 1.3
-------------------------------
Net income (loss)........................ 2.4% (0.4)% 2.3%
================================
NET SALES
Net sales for fiscal 1997 were $62.6 million representing a 19% increase over
fiscal 1996 sales of $52.5 million. The increase was primarily the result of
increased sales in all sports market niches except the major league niche. The
business and government niches also experienced a net increase in sales.
Net sales for fiscal 1996 were $52.5 million representing a 25% increase over
fiscal 1995 sales of $41.9 million. The Company experienced sales increases in
almost all of its sports and government market niches. A decrease in net sales
was experienced in the business market niches of commercial and casinos.
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 1997, 1996 and 1995. The gross profit margin on these net sales
has been comparable to the gross profit margin on other net sales.
GROSS PROFIT
Gross profit increased from $11.2 million in fiscal 1996 to $15.9 million in
fiscal 1997. The increase was due to increased sales and an improvement in gross
profit as a percentage of net sales from 21.3% in fiscal 1996 to 25.3% in fiscal
1997. The increase in gross profit as a percentage of net sales was the result
of cost improvement programs, including product standardization, improved
quoting programs and the recognition of a contract overrun in fiscal 1996 as
described below.
Gross profit was $11.2 million for each of fiscal 1996 and 1995. Although sales
increased significantly from fiscal 1995 to fiscal 1996, gross profit as a
percentage of net sales decreased from 26.7% in fiscal 1995 to 21.3% in fiscal
1996. This decrease was due primarily to a $900,000 projected cost overrun
<PAGE>
on a contract to supply variable message signs for the New Jersey Department of
Transportation and competitive conditions in other market niches.
OPERATING EXPENSES
Selling expenses have increased 9% and 17% for fiscal years 1997 and 1996 over
the previous fiscal year. The increases were primarily attributable to the
expansion of sales staff and higher travel expenses as the Company continues to
expand its marketing efforts. In addition, bad debt expense increased $218,000
from fiscal 1995 to 1996.
General and administrative expenses increased 38% and 10% for fiscal years 1997
and 1996 over the previous fiscal year. The increase from fiscal 1996 to fiscal
1997 was the result of incurred and accrued legal fees as the result of several
lawsuits. During the fiscal year 1997 the Company established an accrual to
vigorously defend itself in these suits. The increase from fiscal 1995 to fiscal
1996 was primarily the result of increases in salary and personnel to support
company growth.
Product design and development expenses increased 19% and 16% for fiscal years
1997 and 1996, respectively over the previous fiscal year. The increases were
due to a greater number of product development projects which included new
products, including development of an RGB (red, green, blue) LED video product
and related control system, and upgrading and expanding existing products.
INTEREST INCOME
The Company occasionally sells products on an installment basis or in exchange
for advertising revenues from the scoreboard or display, both of which result in
long-term receivables. Interest income was $.5 million, $.4 million and $.4
million for fiscal 1997, 1996 and 1995 respectively. Factors affecting the
increases and decreases include the average balance of long-term receivables
resulting from new receivables, principal repayments and the sale of long-term
receivables to third parties, and excess cash balances invested in interest
bearing accounts.
INTEREST EXPENSE
Interest expense was $.7 million, $.6 million and $.2 million for the fiscal
years 1997, 1996, and 1995. The increase in interest expense from fiscal year
1996 to fiscal year 1997 and from fiscal 1995 to fiscal 1996 was the result of
increased average loan balances and higher interest rates as the Company
utilized its line of credit to fund increased operating activities.
INCOME TAXES
The effective tax rates were 40%, 41% and 37% for fiscal years 1997, 1996, and
1995, respectively. The effective tax (credit), rate for fiscal year 1996 was
higher than normal due to a reversal of an overaccrual of prior years taxes.
NET INCOME (LOSS)
Net income was $1.5 million for fiscal year 1997 compared to a net loss of
$215,000 for fiscal year 1996. The increase in net income was the result of
increased net sales and improved gross profit as a percentage of net sales.
Net loss was $215,000 for fiscal year 1996 compared to net income of $1.0
million for fiscal year 1995. The net loss was primarily the result of lower
gross profit margins as a percentage of net sales, including a $900,000 loss on
a previously mentioned project, higher operating expenses, and an increase in
interest expense. Management believes that one of the principal factors that
will continue to
<PAGE>
affect the Company's rate of growth is the Company's ability to increase the
marketing of its current and future products in existing markets and expand the
marketing of its products to new markets.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $10.9 million at May 3, 1997 compared to $9.5 million at
April 27, 1996. The increase was the result of an increase in net income and the
sale of long-term receivables, which was offset by the purchase of property and
equipment and advertising rights.
Cash provided by operations for fiscal 1997 was $4.9 million. Net income of $1.5
million plus depreciation and amortization of $2.1 million, a decrease in
inventories of $1.8 million, and an increase of $.9 million income taxes payable
were offset by an increase in receivables of $1.7 million. The increase in
receivables was attributable to the increase in net sales. The decrease in
inventories was the result of the sale of inventory relating to the Atlanta
Olympics project and a decrease in raw materials.
Cash used for investing activities for fiscal 1997 was $1.0 million which
consisted of equipment acquisitions and plant expansion which was offset by the
sale of real estate held for sale.
Cash used in financing activities was $4.0 million which consisted primarily of
net payments under the Company's line of credit and principal payments on
long-term debt.
The Company has used and expects to continue to use cash reserves and bank
borrowings to meet its short-term working capital requirements. On large product
orders, the time between order acceptance and project completion may extend up
to 12 months depending on the amount of custom work and the customer's delivery
needs. The Company often receives a down payment or progress payments on these
product orders. To the extent that these payments are not sufficient to fund the
costs and other expenses associated with these orders, the Company uses working
capital and bank borrowings to finance these cash requirements.
The Company's product development activities include the enhancement of existing
products and the development of new products from existing technologies. Product
development expenses for fiscal 1997, 1996, and 1995 were $2.2 million, $1.9
million, and $1.6 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. Daktronics also intends to continue developing software
applications for its display controllers to enable these products to continue to
meet the needs and expectations of the marketplace.
The Company has a credit agreement with a bank. The credit agreement provides
for a $15.0 million line of credit during the period June 1 through December 31
of each year. And $10.0 million during the period January 1 through May 31 of
each year, which includes up to $2.0 million for standby letters of credit. The
line of credit is at the prime rate of interest established by the bank from
time to time (8.50% at May 3, 1997) and is due on September 30, 1998. As of May
3, 1997, $2.7 million had been drawn on the line of credit and no standby
letters of credit had been issued by the bank. The credit agreement is unsecured
and requires the Company to meet certain covenants. Financial covenants include
the maintenance of tangible net worth of at least $19.5 million, a minimum
liquidity ratio and a maximum ratio of liabilities to tangible net worth.
The Company is sometimes required to obtain performance bonds for display
installations. The Company currently has a bonding line available through an
insurance company that provides for an aggregate of $25.0 million in bonded work
outstanding. At May 3, 1997, the Company had $1.4 million of bonded work
outstanding against this line.
<PAGE>
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. The Company believes that cash from operations, from its existing or
increased credit facility, and its current working capital will be adequate to
meet the cash requirements of its operations in the foreseeable future.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
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 subsidiary as of May 3, 1997 and April 27, 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended May 3, 1997. 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 generally accepted auditing
standards. 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
subsidiary as of May 3, 1997 and April 27, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
May 3, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for the impairment of long-lived assets in
1997.
McGLADREY & PULLEN, LLP
Sioux Falls, South Dakota
June 16, 1997
<PAGE>
<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MAY 3, 1997 AND APRIL 27, 1996
(DOLLARS IN THOUSANDS)
ASSETS 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 118 $ 218
Accounts receivable (Note 4) 11,889 8,630
Current maturities of long-term receivables (Note 4) 1,072 1,372
Inventories (Note 2) 8,025 9,800
Costs and estimated earnings in excess of billings (Note 3) 1,251 2,684
Real estate held for sale - 1,126
Prepaid expenses and other 129 309
Deferred income taxes (Note 10) 1,185 703
------------------------------------
TOTAL CURRENT ASSETS 23,669 24,842
Property and equipment, net (Note 2) 7,447 6,493
Advertising rights (Note 5) 1,766 2,030
Long-term receivables (Note 4) 3,038 2,714
Intangible assets 1,216 1,688
------------------------------------
$ 37,136 $ 37,767
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable, bank (Note 5) $ 2,675 $ 5,690
Current maturities of long-term debt (Note 5) 713 1,382
Accounts payable 4,089 4,330
Accrued expenses (Note 2) 2,892 2,295
Billings in excess of costs and estimated earnings (Note 3) 1,075 1,001
Accrued loss on uncompleted contracts 399 640
Income taxes payable 903 -
------------------------------------
TOTAL CURRENT LIABILITIES 12,746 15,338
------------------------------------
Long-Term Debt, less current maturities (Note 5) 1,706 1,544
------------------------------------
Deferred Income 481 539
------------------------------------
Deferred Income Taxes (Note 10) 453 485
------------------------------------
Contingencies (Notes 4 and 11)
Shareholders' Equity (Notes 6 and 7)
Common stock, no par value; authorized 15,000,000 shares,
issued 1997 4,311,340 shares, 1996 4,195,810 shares 11,680 11,299
Retained earnings 10,079 8,571
Less cost of treasury stock 4,920 shares 1997 and 1996 (9) (9)
------------------------------------
21,750 19,861
------------------------------------
$ 37,136 $ 37,767
====================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
YEARS ENDED MAY 3, 1997, APRIL 27, 1996 AND APRIL 29, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATIONS 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 62,640 $ 52,507 $ 41,947
Cost of goods sold 46,768 41,297 30,735
-------------------------------------------------
GROSS PROFIT 15,872 11,210 11,212
-------------------------------------------------
Operating expenses:
Selling 8,108 7,462 6,399
General and administrative 3,055 2,210 2,006
Product design and development 2,208 1,857 1,597
-------------------------------------------------
13,371 11,529 10,002
-------------------------------------------------
OPERATING INCOME (LOSS) 2,501 (319) 1,210
Nonoperating income (expense):
Interest income 534 376 371
Interest expense (748) (631) (175)
Other income, net 206 209 121
-------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,493 (365) 1,527
Income tax expense (credits) (Note 10) 985 (150) 560
-------------------------------------------------
NET INCOME (LOSS) $ 1,508 $ (215) $ 967
==================================================
Earnings (loss) per share $ 0.35 $ (0.05) $ 0.23
==================================================
Common Retained Treasury
SHAREHOLDERS' EQUITY Stock Earnings Stock Total
- ------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1994 $ 11,299 $ 7,819 $ (9) $ 19,109
Net income - 967 - 967
---------------------------------------------------------------
Balance, April 29, 1995 11,299 8,786 (9) 20,076
Net (loss) - (215) - (215)
Balance, April 27, 1996 11,299 8,571 (9) 19,861
---------------------------------------------------------------
Exercise of stock options (Note 7) 381 - - 381
Net income - 1,508 - 1,508
---------------------------------------------------------------
Balance, May 3, 1997 $ 11,680 $ 10,079 $ (9) $ 21,750
================================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 3, 1997, APRIL 27, 1996 AND APRIL 29, 1995
(DOLLARS IN THOUSANDS)
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 1,508 $ (215) $ 967
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 1,255 1,094 982
Amortization 823 736 589
Provision for impairment loss on advertising rights 600 - -
Provision for loss on uncompleted contracts 225 900 -
Provision for doubtful accounts 130 274 56
Deferred income taxes (credits) (514) (248) 46
Other (10) - -
Change in operating assets and liabilities (Note 12) 924 (5,633) (4,262)
--------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 4,941 (3,092) (1,622)
--------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of real estate held for sale 1,126 - -
Purchase of property and equipment (2,208) (1,394) (1,711)
Purchase of other assets - (763) (181)
Other 39 13 (9)
--------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (1,043) (2,144) (1,901)
--------------------------------------------
Cash Flows From Financing Activities
Proceeds from exercise of stock options 381 - -
Principal payments on long-term debt (1,364) (516) (420)
Net borrowings (payments) on note payable (3,015) 5,690 -
Payment on accounts payable for purchase
of other assets - (100) -
-------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (3,998) 5,074 (420)
--------------------------------------------
(DECREASE) IN CASH AND CASH EQUIVALENTS (100) (162) (3,943)
Cash and Cash Equivalents
Beginning 218 380 4,323
--------------------------------------------
Ending $ 118 $ 218 $ 380
=============================================
Supplemental Cash Flow Disclosures
Interest paid $ 725 $ 626 $ 213
Net income tax payments 532 300 520
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Daktronics, Inc. and its subsidiary design, manufacture, and
sell a wide range of computer-programmable information display systems to
customers in a variety of markets throughout the world.
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 year ended
May 3, 1997 included 53 weeks while the years ended April 27, 1996 and April 29,
1995 each included 52 weeks.
A summary of the Company's significant accounting policies is as follows:
Principles of consolidation: The consolidated financial statements include the
accounts of Daktronics, Inc. and its wholly-owned subsidiary, Star Circuits,
Inc. Intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates which are particularly susceptible to significant change in the
near-term relate to the determination of the estimated total costs on long-term
contracts and estimated legal costs for litigation.
Cash and cash equivalents: For purposes of reporting cash flows, the Company
considers all money market mutual funds to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Revenue and cost recognition on long-term contracts: Earnings on long-term
contracts are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to estimated total costs for each contract.
Operating expenses are charged to operations as incurred and are not allocated
to contract costs. Provisions for estimated losses (which were $225 in 1997,
$900 in 1996, and $0 in 1995) on uncompleted contracts are made in the period in
which such losses are estimable.
Long-lived assets and accounting change: In fiscal year 1997, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
The Statement prescribes that an impairment loss is recognized when facts and
circumstances indicate the carrying amount of the asset is more than the
estimate of future undiscounted cash flows. Impairment is recorded based on an
estimate of future discounted cash flows. There was no cumulative effect on the
financial statements as a result of the adoption of SFAS No. 121.
Advertising rights: The Company occasionally installs scoreboards and message
display centers at colleges, universities and other facilities in exchange for
the rights to future advertising revenues from the scoreboard or message display
center for a specific number of years (generally seven to ten years). The
advertising space is sold by the Company for terms ranging from one year to the
complete term of the advertising rights. The Company recognizes revenue at the
time the advertising is sold for the amount of the present value of the future
advertising revenue on the portion of the scoreboard or message display center
advertising (individual advertising panel) which is sold for the entire term.
The cost assigned to the portion sold is based upon the relative value of the
portion of the scoreboard or message display center sold.
Advertising rights on the portion of the advertising which have not been sold to
term are stated at cost which represent the inventory cost of the underlying
scoreboard including materials, labor and overhead. Such costs are amortized on
a straight-line method over the term of the advertising rights. Accumulated
amortization on advertising rights was $1,543 and $1,656 as of May 3, 1997 and
April 27, 1996, respectively. On the portion of the advertising
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
rights which are not sold to term, revenue is recognized when it becomes
receivable under the provisions of the advertising contract. Advance collections
of advertising revenues are recorded as deferred income. Sales include
advertising revenue related to advertising rights of $360, $1,482 and $527 for
the years ended May 3, 1997, April 27, 1996 and April 29, 1995, respectively.
During the fourth quarter of 1997, the Company committed to a plan to dispose of
certain advertising rights with a carrying amount of $1,514. The advertising
rights have an estimated sales value of $914. Accordingly, the Company recorded
an impairment loss of $600 in 1997 on this long-lived asset, which is included
in cost of sales.
Property and equipment: Property and equipment is stated at cost. Depreciation
of property and equipment is computed principally on the straight-line method
over the following estimated useful lives:
Years
-----
Buildings 7 - 40
Machinery and equipment 5 - 7
Office furniture and equipment 3 - 7
Transportation equipment 5 - 7
Real estate held for sale: Real estate held for sale is recorded at the lower of
cost or market. Real estate taxes, insurance and other holding costs, are
expensed as incurred.
Intangible assets: Intangible assets consist of consulting and noncompete
agreements and goodwill. Consulting and noncompete agreements are stated at cost
and are amortized on a straight-line method over their remaining terms, one to
five years. Goodwill is amortized on the straight-line method over 5 years.
Accumulated amortization on intangible assets was $1,414 and $994 as of May 3,
1997 and April 27, 1996, respectively.
Product warranty: Current operations are charged for the estimated cost of
future claims under the terms of the various customer warranty programs provided
by the Company. Customers have the option of purchasing long-term warranty
contracts. The amounts received for long-term warranties are included in
deferred income and are amortized over the lives of the warranties.
Product design and development: All expenditures related to product design and
development are charged to operations as incurred.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Stock-based compensation: The Company follows the method of accounting for
employee stock compensation plans prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) (Note
7).
Earnings per share: Earnings (loss) per share are computed based upon the
weighted average common shares and common equivalent shares outstanding during
each year, including shares issuable upon exercise of all dilutive
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
options and warrants outstanding. The weighted average number of common and
common equivalent shares are 4,266,000, 4,191,000 and 4,228,000 for fiscal years
1997, 1996 and 1995, respectively.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share", which establishes standard for computing earnings per
share. The new standard requires the presentation of basic and diluted earnings
per share and will be adopted by the Company in January 1998.
NOTE 2. SELECTED FINANCIAL STATEMENT DATA
1997 1996
----------------------------
Inventories:
Raw materials $ 4,638 $ 5,718
Work-in-process 1,168 2,606
Finished goods 2,219 1,476
----------------------------
$ 8,025 $ 9,800
============================
Property and equipment:
Land $ 492 $ 455
Buildings 4,283 3,902
Machinery and equipment 9,975 8,398
Office furniture and
equipment 242 233
Transportation equipment 546 423
----------------------------
15,538 13,411
Less accumulated
depreciation 8,091 6,918
----------------------------
$ 7,447 $ 6,493
============================
Accrued expenses:
Compensation $ 1,115 $ 779
Product warranty 844 743
Taxes, other than
income taxes 506 352
Other 427 421
----------------------------
$ 2,892 $ 2,295
============================
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. UNCOMPLETED CONTRACTS
Uncompleted contracts consist of the following:
1997 1996
------------------------------
Costs incurred $ 4,922 $ 7,135
Estimated earnings 712 2,414
------------------------------
5,634 9,549
Less billings to date 5,458 7,866
------------------------------
$ 176 $ 1,683
==============================
Uncompleted contracts are included in the accompanying consolidated balance
sheets as follows:
1997 1996
------------------------------
Costs and estimated
earnings in excess
of billings $ 1,251 $ 2,684
Billings in excess of
costs and estimated
earnings 1,075 1,001
------------------------------
$ 176 $ 1,683
==============================
NOTE 4. RECEIVABLES
The Company sells its products throughout the United States and certain foreign
countries on credit terms that the Company establishes for each customer. On the
sale of certain scoreboards and message display centers, the Company has the
ability to file a contractor's lien against the product installed as collateral.
Foreign sales are generally secured by irrevocable letters of credit. During the
fiscal years ended 1997, 1996 and 1995, foreign sales were approximately $9,356,
$8,121 and $4,839, respectively. Foreign sales by individual geographical area
vary from year to year.
Accounts receivable include unbilled receivables of $941 and $628 as of May 3,
1997 and April 27, 1996, respectively. Unbilled receivables are generally
invoiced within thirty days. Accounts receivable are reported net of an
allowance for doubtful accounts of $194 and $129 at May 3, 1997 and April 27,
1996, respectively.
In connection with the sale of certain scoreboards and message display centers,
the Company has entered into long-term sales contracts and sales type leases.
The present value of the contract or lease is recorded as a receivable upon the
installation and acceptance of the scoreboard or message display, and profit is
recognized to the extent that the present value is in excess of cost. The
Company generally retains a security interest in the scoreboard, message display
or advertising rights until the contract is paid. Long-term contract and lease
receivables, including accrued interest before current maturities, were $4,110
and $4,086 as of May 3, 1997 and April 27, 1996, respectively. Contract and
lease receivables bear interest at rates of 9.0% to 24.5% and are due in varying
annual installments through August of 2005.
During the year ended May 3, 1997, the Company sold contracts receivable with
recourse in the amount of $1,156, resulting in a gain of $38.
At May 3, 1997 and April 27, 1996, the Company was contingently liable for
contracts sold with recourse of $1,238 and $624, respectively.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5. FINANCING AGREEMENTS
Long-term debt:
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
9.7% - 12.5% Contracts payable, primarily related to
advertising rights, due in annual installments,
including interest, from August 1997 to October 2005 $ 1,487 $ 966
8.05% and 10% Notes payable to a university, due in annual
installments, including interest, through January 1998 and
January 1999, collateralized by advertising rights 458 595
9.7% - 12.3% Unsecured contracts payable, due in monthly
installments, including interest, from January 1998 to June 2000 299 448
Other notes payable, bank and installment obligations
secured by equipment 175 33
Note payable to a bank - 884
-----------------------------
2,419 2,926
Less current maturities 713 1,382
-----------------------------
$ 1,706 $ 1,544
=============================
</TABLE>
Maturities of long-term debt are as follows at May 3, 1997: 1998 $713; 1999
$537; 2000 $462; 2001 $263; 2002 $87 and thereafter $357.
Credit agreement: The Company has a credit agreement with a bank. The credit
agreement provides for a $15,000 line of credit during the period June 1 through
December 31 of each year and $10,000 during the period January 1 through May 31
of each year, which includes up to $2,000 for standby letters of credit. The
line of credit is at the prime rate of interest established by the bank from
time to time (8.5% at May 3, 1997) and is due on September 30, 1998. As of May
3, 1997, $2,675 had been drawn on the line of credit and no standby letters of
credit had been issued by the bank. The credit agreement is unsecured and
requires the Company to meet certain covenants. Financial covenants include the
maintenance of tangible net worth of at least $19,500, a minimum liquidity ratio
and a maximum ratio of liabilities to tangible net worth.
NOTE 6. SHAREHOLDERS' EQUITY
Common stock: The Company has 15,000,000 shares of no par value stock. The
authorized shares include 10,000,000 shares of common stock and 5,000,000 shares
of "undesignated stock". The Company's board of directors has the power to issue
any or all of the shares of undesignated stock including the authority to
establish the rights and preferences of the undesignated stock, without
shareholder approval.
Common stock warrant: The Company, in connection with its public offering,
issued the underwriter a five year warrant to purchase up to 113,312 shares of
the Company's common stock. The warrant is exercisable at $9.15 per share and
expires in February 1999.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7. STOCK-BASED COMPENSATION
At May 3, 1997, the Company has stock-based compensation plans which are
described below. As permitted under generally accepted accounting principles,
grants under those plans are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under the fixed stock option plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the grant date
fair values of awards (the method described in SFAS No. 123), reported net
income and earnings per common share would have been reduced to the pro forma
amounts shown below:
1997 1996
---------------------------------
Net income (loss):
As reported $ 1,508 $ (215)
Pro forma 1,469 (235)
Earnings (loss) per share:
As reported 0.35 (0.05)
Pro forma 0.34 (0.06)
The pro forma effects of applying Statement No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of the Statement
have been applied only to options granted after April 29, 1995.
Fixed stock option plans: The Company has reserved 360,000 shares of its common
stock for issuance under two fixed stock option plans under which it may grant
options to purchase common stock, with a maximum term of 10 years, at the market
price or 110% of market price on the date of grant. Options for up to 300,000
shares may be granted to employees under the 1993 Stock Option Plan (1993 Option
Plan) and options for up to 60,000 shares may be granted to outside directors
under the 1993 Outside Directors Stock Option Plan (Outside Directors Plan).
Options in the 1993 Option Plan vest at 20% per year and options in the Outside
Directors Plan vest at 1,000 options annually.
The Company has 12,830 options outstanding for the purchase of shares to three
officers/shareholders/directors who personally guaranteed performance bonds in a
prior year. All the options are currently exercisable and expire in 1998.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1997 and 1996, respectively: no dividend rate for all
years; price volatility of 25% for all years, risk-free interest rates of 6.2%
and 6.3% for the 1993 Option Plan and 6.9% and 6.4% for the Outside Directors
Plan; and expected lives of five to seven years for the 1993 Option Plan and
seven years for the Outside Directors Plan.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7. STOCK-BASED COMPENSATION (CONTINUED)
A summary of the status of the plans at May 3, 1997, April 27, 1996 and April
29, 1995 and changes during the years ended on those dates is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 357,010 $ 5.62 290,610 $ 5.55 226,610 $ 5.23
Granted 47,000 4.31 67,700 5.96 64,000 6.71
Forfeited (14,200) 6.46 (1,300) 7.08 - -
Exercised (115,530) 3.30 - - - -
------- ------- -------
Outstanding at end
of year 274,280 6.34 357,010 5.62 290,610 5.55
======= ======= =======
</TABLE>
Options for 112,240, 186,090 and 146,610 shares were exercisable at May 3, 1997,
April 27, 1996 and April 29, 1995, respectively. The weighted average fair value
of options granted were $1.83 and $2.48 for the years ended May 3, 1997 and
April 27, 1996, respectively.
A further summary about fixed options outstanding at May 3, 1997 is as follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.30 to $4.88 57,630 7.6 $ 4.09 12,830 $ 3.30
$5.88 to $6.56 110,950 7.8 6.22 32,390 6.31
$7.22 to $8.39 105,700 6.2 7.68 67,020 7.69
------- -------
$3.30 to $8.39 274,280 7.1 6.34 112,240 7.82
======= =======
</TABLE>
NOTE 8. RELATED PARTY TRANSACTIONS
The Company used a construction company, whose principal shareholder is a
director of the Company, to build additions to the Company's manufacturing
plant. Payments to the construction company for fiscal years 1997, 1996 and 1995
were $316, $224 and $44, respectively. The Company is using this construction
company to build an addition of approximately $650 to the Company's
manufacturing plant in fiscal year 1998. In management's opinion, the terms of
these transactions were no more or less favorable than the prevailing market
price for similar services.
NOTE 9. EMPLOYEE BENEFIT PLANS
The Company has an Employee Stock Ownership Plan (ESOP) and a related trust for
the benefit of its employees. Employees are eligible to participate in the plan
upon completion of one year of service if they have attained the age of 21 and
have worked at least 1,000 hours during such plan year. Contributions to the
plan, which are made at the discretion of the Board of Directors, were $0, $0
and $128 for the fiscal years ended 1997, 1996 and 1995, respectively, and are
recognized as compensation expense. Compensation expense is measured as the fair
value of the shares contributed to the plan or cash contributed to the plan. No
dividends were paid on plan shares in 1997, 1996 or 1995 and all outstanding
plan shares are included as common and common equivalent shares for purposes of
earnings per share computations.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company has an employee savings plan which provides for voluntary
contributions by eligible employees into designated investment funds with a
matching contribution by the Company of 25% of the employee's qualifying
contribution up to 6% of such employee's compensation. Employees are eligible to
participate upon completion of one year of service if they have attained the age
of 21 and have worked more than 1,000 hours during such plan year. The Company
contributed $110, $107 and $93 to the plan for the fiscal years ended 1997, 1996
and 1995, respectively.
NOTE 10. INCOME TAXES
Income tax expense (credits) consists of the following:
1997 1996 1995
-----------------------------------
Current:
Federal $ 1,448 $ 78 $ 478
State 51 20 36
Deferred (514) (248) 46
-----------------------------------
$ 985 $ (150) $ 560
===================================
The components of the net deferred tax asset as of 1997 and 1996 are as follows:
1997 1996
------------------------
Deferred tax assets:
Product warranty accruals $ 352 $ 302
Impairment loss on
advertising rights 216 -
Legal fees accrual 180 -
Vacation accruals 147 119
Uncompleted contracts 144 230
Inventories 105 43
Allowance for
doubtful accounts 70 47
Other accruals 42 36
Deferred income,
advertising rights 4 25
Other, net 130 72
-----------------------
1,390 874
Less valuation allowance - -
-----------------------
1,390 874
-----------------------
Deferred tax liabilities:
Depreciation 652 592
Advertising rights 6 64
-----------------------
658 656
-----------------------
$ 732 $ 218
========================
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10. INCOME TAXES (CONTINUED)
Reflected on the accompanying consolidated balance sheets as follows:
1997 1996
------------------------
Current assets $ 1,185 $ 703
Noncurrent liabilities 453 485
------------------------
$ 732 $ 218
========================
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:
1997 1996 1995
--------------------------------
Computed income tax expense
(credits) at federal statutory rate $ 873 $ (128) $ 534
State taxes, net of federal benefit 34 13 23
Meals and entertainment 67 59 48
Reversal of overaccrual of
prior years' taxes - (103) -
Other, net 11 9 (45)
--------------------------------
$ 985 $ (150) $ 560
================================
NOTE 11. LITIGATION
On May 4, 1995, the Company was served with a complaint alleging that the
Company infringed on the plaintiff's patent rights. Based on the opinion of the
Company's patent counsel, management of the Company believes that there is no
infringement and intends to defend the litigation vigorously. The Company's
trial counsel is unable to evaluate the likelihood of an unfavorable outcome or
the potential range of loss, if any.
Another party has asserted the Company has infringed one certain patent. The
Company commenced an action seeking a declaratory judgment that the patent is
invalid and not infringed by the Company. Based on the opinion of the Company's
patent counsel, management of the Company believes there has been no
infringement. The Company's trial counsel is unable to evaluate the likelihood
of an unfavorable outcome or the potential range of loss, if any.
During the year ended May 3, 1997, a lawsuit was brought by another party
alleging the Company breached contracts, committed tortious interference with
contract, intentionally inflicted emotional distress and is responsible for
compensatory and punitive damages. It is the opinion of management of the
Company that the claims are unfounded and the Company is aggressively defending
the lawsuit. Discovery is currently in process and the Company's trial counsel
is unable to evaluate the likelihood of an unfavorable outcome, or an estimate
of the range or amount of possible loss, if any.
The Company has recorded estimated legal costs to be incurred in connection with
the litigation described above.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12. CASH FLOW INFORMATION
Noncash investing and financing activities consist of purchase of advertising
rights through issuance of long-term debt of $675 and $640 in 1997 and 1996,
respectively, purchase of advertising rights through incurrence of accounts
payable of $160 in 1997, purchase of other assets through issuance of long-term
debt and reduction of accounts receivable of $278 and $128, respectively, in
1996, acquisition of real estate held for sale through assumption of long-term
debt of $1,065 in 1996; purchase of other assets through incurrence of accounts
payable of $100 in 1995; property and equipment transferred to inventory of $10
and $55 in 1997 and 1995, respectively; sale of property and equipment of $193
included in long-term receivables in 1997; purchase of property and equipment
through issuance of long-term debt of $182 in 1997; and purchase of inventory,
property and equipment and noncompete agreement through issuance of long-term
debt of $24 in 1995.
Changes in operating assets and liabilities consist of the following:
1997 1996 1995
----------------------------------
(Increase) decrease:
Trade receivables $ (3,389) $ (186) $ (2,913)
Installment receivables 169 (1,324) (259)
Inventories 1,785 (3,564) (864)
Costs and estimated earnings in excess
of billings 1,433 (1,493) (432)
Advertising rights 97 (805) 92
Prepaids and other 180 (40) (12)
Increase (decrease):
Accounts payable and accrued expenses 196 2,234 (503)
Billings in excess of costs and
estimated earnings 74 45 872
Accrued loss on uncompleted contracts (466) (260) -
Deferred income (58) (89) (237)
Income taxes payable 903 (151) (6)
---------------------------------
$ 924 $ (5,633) $ (4,262)
==================================
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported on the balance sheets for cash and cash
equivalents approximate their fair values due to the highly liquid nature of the
instruments. The fair values for fixed-rate contracts receivable are estimated
using discounted cash flow analyses, using interest rates currently being
offered for contracts with similar terms to customers with similar credit
quality. The carrying amounts reported on the balance sheets for contracts
receivable approximate fair value. Fair values for the Company's
off-balance-sheet instruments (contingent liability for contracts sold with
recourse) are not significant. The note payable, bank is a variable rate note
that reprices frequently. The fair value on this note approximates its carrying
value. 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.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATD FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents summarized quarterly financial data.
<TABLE>
<CAPTION>
1997 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 17,022 $ 16,257 $ 11,516 $ 17,845
Gross profit 4,408 4,073 2,992 4,399
Net income (loss) 640 443 (78) 503
Earnings (loss) per share 0.15 0.11 (0.02) 0.12
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ----------------------------------------------------------------------------------------------
Net sales $ 12,446 $ 14,532 $ 12,552 $ 12,977
Gross profit, after provision
for loss on uncompleted
contract of $900 in the
3rd quarter 2,736 3,351 1,814 3,309
Net income (loss) 43 384 (697) 55
Earnings (loss) per share 0.01 0.09 (0.16) 0.01
* Includes provision for impairment loss on advertising rights of $600 and
accrual of estimated legal costs for litigation of $400 in the 4th quarter.
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
NONE.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The information regarding the directors of the Company is incorporated by
reference from pages 3 to 5 of the Company's Proxy Statement dated July 25,
1997.
The information concerning executive officers is included in Part I, Item 1 of
this Form 10-K.
Item 11. Executive Compensation.
This information is incorporated by reference from pages 7 to 9 of the Company's
Proxy Statement dated July 25, 1997. The "Performance Graph" and the "Report of
the Compensation Committee" on pages 10 to 12 are specifically not incorporated
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
This information is incorporated by reference from pages 14 to 15 of the
Company's Proxy Statement dated July 25, 1997.
Item 13. Certain Relationships and Related Transactions.
During fiscal 1997 the Company retained Waltz Construction, Inc., a commercial
construction company based in Brookings, South Dakota to build a 12,000 square
foot addition to the Company's manufacturing plant. The Company paid Waltz
Construction, Inc. $316,000 during fiscal year 1997 in connection with this
construction. In addition, the Company has contracted with Waltz Construction,
Inc. to build a 17,000 square foot addition connecting the office facility and
manufacturing plant. The estimated cost of this addition which is scheduled for
completion in the fall of 1997 is $650,000. Wayne W. Waltz, a Director of the
Company, is a minority shareholder of Waltz Construction, Inc. The Company's
management believes that the terms of the construction contract were no less
favorable to the Company than the prevailing market price for similar services.
PART IV.
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
2. Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts.
3. Exhibits
3.1 Reserved
3.2 Amended and Restated Articles of Incorporation of the Company.
(1)
3.3 Reserved
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)
10.1 Daktronics, Inc. 1993 Stock Option Plan. (1)
10.2 Daktronics, Inc. 1993 Outside Directors Stock Option Plan. (1)
10.3 Daktronics, Inc. Employee Stock Ownership Plan and Trust. (4)
<PAGE>
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 Reserved
10.7 Reserved
10.8 Credit Agreement dated April 30, 1997 between Norwest Bank
Minnesota, National Association and Daktronics, Inc.(6)
10.9 Reserved
10.10 Form of Stock Option Agreements effective May 25, 1993 between
Daktronics, Inc. and Dr. Aelred Kurtenbach, Dr. Duane Sander
and James Morgan, granted in consideration of their personal
guarantee of performance bonds issued to the Company.(1)
10.11 Reserved
10.12 Reserved
11.1 Statement re Computation Earnings Per Share(6)
21.1 Subsidiaries of the Company.(1)
23.1 Consent of McGladrey & Pullen, LLP.(6)
27.1 Financial Data Schedule
99.1 News Release dated June 19, 1997 regarding the Company's
financial results for the 4th quarter and year ended May 3,
1997.(6)
(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 10K on April 30, 1994
as Commission File No. 0-23246.
(4) Incorporated by reference under same exhibit number
to the exhibits filed with form 10K on April 29, 1995
as Commission File No. 0-23246.
(5) Incorporated by reference under same exhibit number
to the exhibits filed with Form 10K on April 27, 1996
as Commission File No. 0-23246.
(6) Filed herewith
(b) 1. Reports on Form 8-K.
None
All Sport(R), OmniSport(R), Dakstats(R), Venus(R), Glow Cube(R), Starburst(R),
SunSpot(R), DataTime(R), and MagneView(TM) are registered trademarks of
Daktronics, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized on July 22, 1997.
DAKTRONICS, INC.
By: /s/ Aelred J. Kurtenbach
Aelred J. Kurtenbach, President
(principal executive officer)
By: /s/ Paul J. Weinand
Paul J. Weinand, Treasurer and Chief
Financial Officer (principal financial
and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
By /s/ Roland J. Jensen Director July 22, 1997
Roland J. Jensen
By /s/ Aelred J. Kurtenbach Director July 22, 1997
By /s/ Frank J. Kurtenbach Director July 22, 1997
Frank J. Kurtenbach
By /s/ James B. Morgan Director July 22, 1997
James B. Morgan
By /s/ John L. Mulligan Director July 22, 1997
John L. Mulligan
By /s/ Charles S. Roberts Director July 22, 1997
Charles S. Roberts
By /s/ Duane E. Sander Director July 22, 1997
Duane E. Sander
By /s/ Edwin M. Theisen Director July 22, 1997
Edwin M. Theisen
By /s/ Wayne W. Waltz Director July 22, 1997
Wayne W. Waltz
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Daktronics, Inc.
Brookings, South Dakota
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
McGLADREY & PULLEN, LLP
Sioux Falls, South Dakota
June 16, 1997
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MAY 3, 1997, APRIL 27, 1996 AND APRIL 29, 1995
(DOLLARS IN THOUSANDS)
ADDITIONS/
BALANCE AT PROVISIONS
ALLOWANCE FOR BEGINNING (CHARGED TO DEDUCTIONS BALANCE AT
DOUBTFUL ACCOUNTS OF YEAR EXPENSE) (1) END OF YEAR
- --------------------------------------------------------------------------------
1997 $ 129 $ 130 $ (65) $ 194
1996 113 274 (258) 129
1995 128 56 (71) 113
(1) Write off of uncollectible accounts
<PAGE>
INDEX OF EXHIBITS
3.1 Reserved
3.2 Amended and Restated Articles of Incorporation of the Company. (1)
3.3 Reserved
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)
10.1 Daktronics, Inc. 1993 Stock Option Plan. (1)
10.2 Daktronics, Inc. 1993 Outside Directors Stock Option Plan. (1)
10.3 Daktronics, Inc. Employee Stock Ownership Plan and Trust. (4)
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 Reserved
10.7 Reserved
10.8 Credit Agreement dated April 30, 1997 between Norwest Bank Minnesota
and Daktronics, Inc. (6)
10.9 Reserved
10.10 Form of Stock Option Agreements effective May 25, 1993 between
Daktronics, Inc. and Dr. Aelred Kurtenbach, Dr. Duane Sander and James
Morgan, granted in consideration of their personal guarantee of
performance bonds issued to the Company. (1)
10.11 Reserved
10.12 Reserved
11.1 Statement re Computation of Earnings Per Share.(6)
21.1 Subsidiaries of the Company.(1)
23.1 Consent of McGladrey & Pullen, LLP.(6)
99.1 News Release dated June 19, 1997 regarding the Company's financial
results for the 4th quarter and year ended May 3, 1997. (6)
(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 to the exhibits
filed with Form 10K on April 30, 1994 as Commission File No.
0-23246.
(4) Incorporated by reference under same exhibit number to the
exhibits filed with ..form 10K on April 29, 1995 as Commission
File No. 0-23246.
(5) Incorporated by reference under same exhibit number to the
exhibits filed with form 10K on April 27, 1996 as Commission
File No. 0-23246
(6) Filed herewith.
EXHIBIT 10.8
[LOGO]
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION CREDIT AGREEMENT
This Credit Agreement (the "Agreement") is made as of April 30, 1997 (the
"Effective Date"), and is between Norwest Bank Minnesota, National Association
(the "Bank") and Daktronics, Inc. (the "Borrower").
BACKGROUND
The Bank is the holder of that certain Revolving Note dated September 30, 1996
(the "Old Revolving Note") made by the Borrower in the face amount of
$10,000,000.00. The Old Revolving Note evidences indebtedness for direct
borrowings under a revolving line of credit established by the Bank for the
benefit of the Borrower in the amount of $10,000,000.00. The Borrower has
requested the Bank (i) to renew the line of credit to September 30, 1998, (ii)
to provide for an increase of the amount of the line of credit from
$10,000,000.00 to $15,000,000.00, and (iii) to continue to issue letters of
credit upon the Borrower's request under the revolving line of credit. The Bank
is willing to grant the Borrower's requests, subject to the provisions of this
Agreement.
Accordingly, in consideration of the promises contained in this Agreement, the
Borrower and the Bank agree as follows:
1. LINE OF CREDIT
1.1 LINE OF CREDIT AMOUNT. During the availability period described below
(the "Line Availability Period"), the Bank agrees to provide a
committed revolving line of credit (the "Line") to the Borrower.
Outstandings under the Line will not, at any one time, exceed the
difference of the Borrowing Base minus the L/C Exposure (hereinafter
defined). As used herein, "Borrowing Base" shall mean an amount equal
to (i) Fifteen Million and No/100 Dollars ($15,000,000.00) during the
period June 1 through December 31 of each year, and (ii) Ten Million
and No/100 Dollars ($10,000,000.00) during the period January 1 through
May 31 of each year.
1.2 LINE AVAILABILITY PERIOD. The Line Availability Period will mean the
period from the Effective Date to September 30, 1998 (the "Line
Expiration Date").
1.3 ADVANCES. The Borrower's obligation to repay all advances made under
the Line will be evidenced by a single promissory note (the "Revolving
Note") dated as of the Effective Date and in form and content
acceptable to the Bank. Reference is made to the Revolving Note for
terms relating to interest rate, repayment and other conditions
governing the Line.
1.4 STANDBY LETTERS OF CREDIT
(a) As used herein, the term "L/C Exposure" shall mean the sum of (i) the
aggregate amount available to all beneficiaries under all outstanding
Standby L/Cs, and (ii) the aggregate amount paid by the Bank on drafts
drawn under Standby L/Cs for which the Bank has not been reimbursed by
the Borrower, plus accrued interest thereon. During the Line
Availability Period, the Bank agrees to issue standby letters of credit
for the account of the Borrower (each a "Standby L/C," collectively the
"Standby L/Cs"); provided, however, that the L/C Exposure shall not
exceed $2,000,000.00 at any one time. Each Standby L/C must expire
prior to 180 days after the Line Expiration Date. Each Standby L/C
shall be subject to the provisions of that certain Master Security
Agreement for Irrevocable Standby Letter of Credit executed by the
Borrower on July 29, 1993 (the "Master Agreement"), and to such other
documents as the Bank requires.
<PAGE>
(b) The Borrower will pay a standby letter of credit fee of 1.50% per annum
on the face amount of each Standby L/C, subject to a minimum fee of
$250, and calculated on the basis of actual days elapsed in a 360-day
year. This fee will be paid monthly in advance, and is in addition to
all other fees or expenses provided for in the Master Agreement.
(c) The availability under the Line will be reduced dollar for dollar by
the L/C Exposure.
(d) Should a default occur under this Agreement, and such default remains
in existence beyond any cure period provided therefor, the Bank may
require the Borrower to deposit with it, in a non-interest bearing
account, immediately available funds equal to the L/C Exposure. The
Borrower hereby grants the Bank a security interest in these funds,
which will be security for all of the Borrower's obligations to the
Bank.
2. FEES AND EXPENSES
2.1 FACILITY FEE. During the Line Availability Period the Borrower will pay
the Bank a facility fee of 0.15% per annum on the average daily amount
by which the Borrowing Base exceeds outstandings under the Line. This
fee will be paid monthly in arrears, beginning May 1, 1997.
2.2 EXPENSES. The Borrower agrees to pay all expenses incurred by the Bank
in connection with the administration, amendment and enforcement of
this Agreement and related documents. Expenses to be reimbursed by the
Borrower include, but are not limited to, reimbursement for reasonable
attorneys' fees, including the cost of the Bank's in-house counsel.
3. DISBURSEMENTS AND PAYMENTS
3.1 REQUESTS FOR ADVANCES. Each advance under the Line must be requested by
telephone or in a writing delivered to the Bank by any person
reasonably believed by the Bank to be an authorized officer of the
Borrower. The Bank will not consider any request for an advance under
the Line if there is an event which is, or with notice or the lapse of
time would be, an event of default under this Agreement. Proceeds from
an advance will be deposited into the Borrower's account at the Bank or
disbursed in such other manner as the Bank and the Borrower mutually
agree.
3.2 OPTIONAL INTEREST RATES. According to the terms of the Revolving Note,
the Borrower may elect interest rates based on the LIBOR index. To
elect the LIBOR Rate Option, as defined in the Revolving Note, the
Borrower must request a quote from the Bank three days prior to
funding. This request must designate an amount (the "LIBOR Rate
Portion") and a period (the "LIBOR Interest Period"). The LIBOR Rate
Portion must be $100,000 or multiples thereof, and the LIBOR Interest
Period will be for 30, 60 or 90 days. The LIBOR Interest Period may not
extend later than the Line Expiration Date. The Bank shall not be
obligated to provide a LIBOR rate quote if it determines that no
deposits with an amount and maturity equal to those for which a
quotation has been requested are available to it in the London
interbank market. The Borrower must orally accept a quote at the time
of receipt or it will be deemed rejected. If accepted, the LIBOR Rate
Option will remain in effect for the LIBOR Interest Period specified in
the quote. At the end of each LIBOR Interest Period the principal
amount subject to the LIBOR Rate Option shall bear interest at the Base
Rate Option (as defined in the Revolving Note).
<PAGE>
3.3 PAYMENTS. All principal, interest and fees due under this Agreement
will be paid to the Bank by the direct debit of available funds on
deposit in the Borrower's account with the Bank. The Bank will debit
the account on the dates the payments become due. If a due date does
not fall on a day on which the Bank is open for substantially all of
its business (a "Banking Day," except as otherwise provided), the Bank
will debit the account on the next Banking Day, and interest will
continue to accrue during the extended period. If there are
insufficient funds in the account on the day the Bank enters any debit
authorized by this Agreement, the debit will be reversed and the
payment will be due immediately without necessity of demand by direct
remittance of immediately available funds. For amounts bearing interest
at the LIBOR Rate (if any), a Banking Day is a day on which the Bank is
open for business and on which dealings in U.S. dollar deposits are
carried on in the London interbank market.
4. CONDITIONS PRECEDENT
Prior to the Effective Date, the Borrower must deliver to the Bank the
documents described in the attached Exhibit A, properly executed and in
form and content acceptable to the Bank. Prior to each request for an
advance, or the issuance of a Standby L/C, under this Agreement, the
Borrower must also deliver to the Bank any additional documents that
are described in Exhibit A as a condition precedent to any such advance
or issuance.
5. REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower hereby
makes the representations and warranties contained in the attached
Exhibit B, which is incorporated herein by reference. Each request for
an advance, or the issuance of a Standby L/C, under this Agreement
constitutes a reaffirmation of these representations and warranties.
6. COVENANTS
During the Line Availability Period and thereafter until all amounts
due under this Agreement are paid in full, unless the Bank shall
otherwise agree in writing, the Borrower agrees to:
6.1 FINANCIAL INFORMATION
(a) Annual Financial Statements. Provide the Bank, within 90 days of the
Borrower's fiscal year end, the Borrower's consolidated, annual
financial statements. The statements must be audited with an
unqualified opinion by a certified public accountant acceptable to the
Bank.
(b) Gross Profit Margin Report and Compliance Certificate. Provide the
Bank, within 30 days of each quarter-end, (i) an estimated gross margin
report as of the end of such quarter, and (ii) a compliance certificate
in the form of Exhibit C, signed by an officer of the Borrower, which
(A) attests to the accuracy of the financial statements, and (B)
certifies and demonstrates that the Borrower remains in compliance with
the covenants contained in this Agreement.
(c) Interim Financial Statements. Provide the Bank, within 30 days of each
month-end, the Borrower's interim financial statements prepared on a
consolidated basis and certified as correct in form acceptable to the
Bank.
(d) Notices. Provide the Bank prompt written notice of (i) any event which
has or might after the passage of time or the giving of notice, or
both, constitute an event of default under this Agreement, or (ii) any
event that would cause the representations and warranties contained in
this Agreement to be untrue.
(e) Additional Information. Provide the Bank with such other information as
it may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
<PAGE>
6.2 FINANCIAL MEASUREMENTS
(a) Tangible Net Worth. Maintain its Tangible Net Worth at a level equal to
or greater than (i) $19,500,000.00 at all times from April 1, 1997
through April 30, 1998, and (ii) $21,500,000.00 at all times after
April 30, 1998 (if the Line is renewed beyond said date).
"Tangible Net Worth" means total assets less total liabilities and less
intangible assets.
(b) Total Liabilities to Tangible Net Worth Ratio. Maintain a ratio of
total liabilities to Tangible Net Worth of less than 1.0 to 1.0 at all
times.
(c) Current Ratio. Maintain a ratio of current assets to current
liabilities (determined in accordance with Generally Accepted
Accounting Principles) of at least 1.40 to 1.0 at all times.
(d) Net Profit. Achieve a net profit after taxes (determined in accordance
with Generally Accepted Accounting Principles) at a level equal to or
greater than (i) $300,000.00 for the three-month period ending July 31,
1997, (ii) $600,000.00 for the six-month period ending October 31,
1997, (iii) $900,000.00 for the nine-month period ending January 31,
1998, and (iv) $1,200,000.00 for the fiscal year ending April 30, 1998.
6.3 OTHER COVENANTS
(a) Other Liens. Refrain from allowing or suffering any security interest
or lien on property it owns now or in the future, except:
(i) Liens which secure purchase money indebtedness allowed under
this Agreement.
(ii) The pledge or sale of advertising rights or contract rights
relative to an individual scoreboard or other display for the
purpose of securing indebtedness used to finance the
construction and installation of such scoreboard or other
display. Any such pledge or sale must be disclosed to the Bank
in writing when created.
(b) Guaranties. Refrain from assuming, guaranteeing, endorsing or otherwise
becoming contingently liable for any obligations of any other person,
exceeding $5,000,000.00 in the aggregate.
(c) Insurance. Cause its properties to be adequately insured by a reputable
and solvent insurance company against loss or damage, and to carry such
other insurance (including business interruption insurance) as is
usually carried by persons engaged in the same or similar business.
(d) Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
(e) Merger. Refrain from consolidating, merging, pooling, syndicating or
otherwise combining with any other entity.
(f) Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
(g) Books and Records. Maintain adequate books and records.
(h) Compliance with Laws. Comply with all laws and regulations applicable
to its business.
(i) Preservation of Rights. Maintain and preserve all rights, privileges,
charters and franchises it now has.
<PAGE>
(j) Business Acquisition. Refrain from purchasing or otherwise acquiring
all or substantially all of the assets of any other person, firm,
corporation or other entity if, after giving effect to such
acquisition, the aggregate amount of all such acquisitions during any
fiscal year would exceed $5,000,000.00.
The covenants contained in this Section 6 were negotiated by the Bank
and Borrower based on information provided to the Bank by the Borrower.
A breach of a covenant is an indication that the risk of the
transaction has increased. In consideration for any waiver or
modification of these covenants, the Bank may require: additional
collateral, guaranties or other credit support; higher fees or interest
rates; and/or revised loan documentation or monitoring. The waiver or
modification of any covenant that has been violated by the Borrower
will be made in the sole discretion of the Bank. These options do not
limit the Bank's right to exercise its rights under Section 7 of this
Agreement.
7. EVENTS OF DEFAULT AND REMEDIES
7.1 DEFAULT
Upon the occurrence of any one or more of the following events of
default, or at any time thereafter, unless such default is cured, the
Bank may declare the Line to be terminated and/or declare the unpaid
principal, accrued interest and all other amounts payable under the
Revolving Note and the Master Agreement to be immediately due and
payable:
(a) Default in the payment when due of any principal or interest due under
the Revolving Note, and continuance for 5 days.
(b) The occurrence of any event of default under the Master Agreement, and
such event of default remains in existence beyond any notice and cure
period provided therefor.
(c) Default in the observance or performance of any covenant or agreement
contained in this Agreement (other than defaults addressed elsewhere in
this Section 7), and continuance for more than 30 days.
(d) Default by the Borrower in any agreement with the Bank or any other
lender that relates to indebtedness or contingent liabilities which
would allow the maturity of such indebtedness to be accelerated.
(e) Any representation or warranty made by the Borrower to the Bank is
untrue in any material respect when deemed to have been effective.
(f) Any litigation or governmental proceeding against the Borrower seeking
an amount in excess of $1,000,000.00 results in a judgment equal to or
in excess of that amount against the Borrower, which judgment remains
unsatisfied and in effect for a period of 30 days without a stay of
execution.
(g) Any litigation or governmental proceeding against the Borrower seeking
an amount in excess of $3,000,000.00 either (i) results in a judgment
equal to or in excess of that amount against the Borrower, or (ii)
remains unresolved on the 365th day following its inception.
(h) A garnishment summons, levy or writ of attachment is issued against or
served upon the Bank for the attachment of any property of the Borrower
in the Bank's possession, or upon indebtedness owed to the Borrower by
the Bank.
7.2 IMMEDIATE DEFAULT
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, then the Line shall immediately terminate and the
unpaid principal,
<PAGE>
accrued interest and all other amounts payable under the Revolving Note
and the Master Agreement will become immediately due and payable,
without notice or demand.
8. MISCELLANEOUS.
8.1 360 Day Year. All interest and fees due under this Agreement will be
calculated on the basis of actual days elapsed in a 360 day year.
8.2 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all calculations for compliance
with financial covenants will be made using Generally Accepted
Accounting Principles consistently applied ("GAAP").
8.3 No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are cumulative
and not exclusive of any remedies provided by law.
8.4 Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank. Any waiver of any
provision in this Agreement must be in writing and signed by the Bank.
8.5 Binding Effect; Assignment. This Agreement and the related documents
are binding on the successors and assigns of the Borrower and Bank. The
Borrower may not assign its rights under this Agreement or the related
documents without the Bank's prior written consent. The Bank may sell
participations in or assign this Agreement and the related documents
and exchange financial information about the Borrower with actual or
potential participants or assignees. At least 30 days prior to such an
exchange of information, the Bank will provide the Borrower with
written notice identifying the prospective assignee or participant.
8.6 Minnesota Law. This Agreement will be governed by the substantive laws
of the State of Minnesota.
8.7 Severability of Provisions. If any part of this Agreement or the
related documents are unenforceable, the rest of this Agreement or the
related documents may still be enforced.
8.8 Integration. This Agreement and the related documents contain the
entire understanding between the parties, and supersede all prior
agreements (including without limitation that certain Credit Agreement
dated April 20, 1994 (as amended)) between the Bank and the Borrower
relating to the Line, whether verbal or in writing.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Minnesota, Daktronics, Inc.
National Association 331-32nd Avenue
Bloomington Office P.O. Box 128
7900 Xerxes Avenue South Brookings, South Dakota 57006-0128
Bloomington, Minnesota 55479-2206
NORWEST BANK MINNESOTA, DAKTRONICS, INC.
NATIONAL ASSOCIATION
BY: ___________________________ BY: ___________________________
SHARLYN G. REKENTHALER,
VICE PRESIDENT ITS: __________________________
<PAGE>
[LOGO]
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION REVOLVING NOTE
$15,000,000.00 April ____, 1997
FOR VALUE RECEIVED, Daktronics, Inc. (the "Borrower") promises to pay to the
order of Norwest Bank Minnesota, National Association (the "Bank"), at its
Bloomington Office or such other address as the Bank or holder may designate
from time to time, the principal sum of Fifteen Million and No/100 Dollars
($15,000,000.00), or the amount shown on the Bank's records to be outstanding,
plus interest (calculated on the basis of actual days elapsed in a 360-day year)
accruing on the unpaid balance at the annual interest rates defined below.
Absent manifest error the Bank's records will be conclusive evidence of the
principal and accrued interest owing hereunder.
This Revolving Note is issued pursuant to a Credit Agreement of even date
herewith between the Bank and the Borrower (the "Agreement"). The Agreement, and
any amendments or substitutions thereto, contain additional terms and conditions
including default and acceleration provisions. The terms of the Agreement are
incorporated into this Revolving Note by reference. Capitalized terms not
expressly defined herein shall have the meanings given them in the Agreement.
INTEREST RATES.
BASE RATE OPTION. Unless the Borrower chooses the LIBOR Rate Option as defined
below, the principal balance outstanding under this Revolving Note will bear
interest at an annual rate equal to the Base Rate, floating (the "Base Rate
Option"). The Base Rate is the "base" or "prime" rate of interest established by
the Bank from time to time.
LIBOR RATE OPTION. Subject to the terms and conditions of the Agreement, the
Borrower may elect that all or portions of the principal balance of this
Revolving Note bear interest at the LIBOR Rate plus 2.0% (the "LIBOR Rate
Option"). Specific reference is made to the "Disbursements And Payments" Section
of the Agreement for terms governing the designation of interest periods and
rate portions.
The LIBOR Rate will be computed in accordance with the following formula.
LIBOR Rate = London Interbank Rate
1.00 - Reserve Percentage
Where,
(i) "London Interbank Rate" means the average rate at which U.S. Dollar
deposits with a term equal to the applicable LIBOR Interest Period and
in an amount equal to the LIBOR Rate Portion are offered to the Bank on
the London Interbank Market.
(ii) "Reserve Percentage" means the Federal Reserve System requirement
(expressed as a percentage) applicable to the dollar deposits used in
calculating the LIBOR Rate above.
REPAYMENT TERMS
INTEREST. Interest will be payable on the last day of each month, beginning
April 30, 1997, and at maturity.
PRINCIPAL. Principal will be repayable on September 30, 1998. Additionally, the
Borrower shall at all times cause the outstanding principal balance of this
Revolving Note to be equal to or less than the limits set forth in Section 1.1
of the Agreement.
<PAGE>
PREPAYMENT. The Borrower may prepay all or any portion of principal accruing
interest under the Base Rate Option without premium or penalty. Each prepayment
of principal accruing interest under the LIBOR Rate Option, whether voluntary or
by reason of acceleration, will be accompanied by accrued interest on the
prepaid portion and a prepayment premium equal to the amount, if any, by which:
(i) the additional interest that would have been payable on the amount
prepaid if it had not been paid until the last day of the relevant
LIBOR Interest Period, exceeds
(ii) the interest that would have been recoverable by the Bank by
reinvesting the amount prepaid from the prepayment date to the last day
of the relevant LIBOR Interest Period in a like kind investment.
ADDITIONAL TERMS AND CONDITIONS. The Borrower agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred by
the Bank in the event this Revolving Note is not duly paid. Demand, presentment,
protest and notice of nonpayment and dishonor of this Revolving Note are
expressly waived. This Revolving Note will be governed by the substantive laws
of the State of Minnesota.
DAKTRONICS, INC.
BY: ____________________________
ITS: ___________________________
<PAGE>
EXHIBIT A
CONDITIONS PRECEDENT
NOTE: Revolving Note.
L/C APPLICATIONS
Prior to the issuance of each Standby L/C, the Borrower shall submit to the Bank
an Application and Agreement for Irrevocable Standby Letter of Credit, as
contemplated by the Master Agreement.
AUTHORIZATION
Corporate Certificate of Authority. A certificate of the Borrower's corporate
secretary as to the incumbency and signatures of the officers of the Borrower
signing the Credit Agreement and the related documents, and containing a copy of
resolutions of the Borrower's board of directors authorizing execution, delivery
and performance of the Credit Agreement and related documents.
OTHER
Evidence of Insurance. Evidence that the insurance required under the
"Covenants" Section of the Credit Agreement is in force
All of the foregoing shall be in form and content acceptable to the Bank.
<PAGE>
EXHIBIT B
REPRESENTATIONS AND WARRANTIES
Corporate Status. The Borrower is a corporation, duly formed and in good
standing under the laws of the State of South Dakota.
Authorization. The execution, delivery and performance by the Borrower of the
Credit Agreement and the related documents is within the Borrower's powers, and
has been duly authorized, and does not conflict with any of its organizational
papers or any other agreement by which the Borrower is bound.
Financial Reports. The Borrower has provided the Bank with its annual audited
financial statement dated April 30, 1996, and its unaudited interim financial
statement dated March 31, 1997, and these statements fairly represent the
financial condition of the Borrower as of their respective dates and were
prepared in accordance with GAAP.
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect on
the Borrower's financial condition or business.
Taxes. The Borrower has paid when due all federal, state and local taxes.
No Default. There is no event which is, or with notice or the lapse of time
would be, an event of default under the Credit Agreement or under the Credit
Agreement dated April 20, 1994 (as amended).
ERISA. The Borrower is in compliance in all material respects with ERISA and has
received no notice to the contrary from the PBGC or other governmental area.
Environmental Matters. To the best knowledge of the officers of the Borrower,
(i) the Borrower is in compliance in all material respects with all applicable
environmental, health, and safety statutes and regulations, (ii) the Borrower is
not the subject of any "Superfund" evaluations, and (iii) the Borrower has not
incurred, directly or indirectly, any material contingent liability in
connection with the release of any toxic or hazardous waste or substance into
the environment.
<PAGE>
EXHIBIT C
DAKTRONICS, INC.
OFFICER'S CERTIFICATE OF COMPLIANCE
In accordance with the Credit Agreement dated April ____, 1997 between Norwest
Bank Minnesota, National Association (the "Bank") and Daktronics, Inc. (the
"Borrower") attached are the financial statements of the Borrower for the period
ending ___________________, 199__.
I certify that the financial statements have been accurately prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with those applied in the annual financial statements. I also certify
that as of ______________________, 199___, the Borrower is in compliance with
the covenants stated in the Credit Agreement. The calculations made to determine
compliance were as follows:
<TABLE>
<CAPTION>
ACTUAL REQUIREMENT
<S> <C> <C>
TANGIBLE NET WORTH
Net Worth
--------------
(-) Intangible Assets
--------------
Tangible Net Worth $ Minimum $19,500,000.00
==============
TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO
Total Liabilities
--------------
Net Worth
--------------
(-) Intangible Assets
--------------
Tangible Net Worth
--------------
Total Liabilities/Tangible Net Worth Maximum 1.0 to 1.0
==============
CURRENT RATIO
Current Assets
--------------
Current Liabilities
--------------
Current Assets/Current Liabilities Minimum 1.40 to 1.0
==============
NET PROFIT
Net Profit Minimum $_____________
==============
ACQUISITIONS
Aggregate amount of all
acquisitions during fiscal
year ending April 30, 199__ $ Maximum $5,000,000.00
==============
</TABLE>
Furthermore, I have no knowledge of the occurrence of an Event of Default under
the Credit Agreement or of any event which with notice or lapse of time would
constitute an Event of Default pursuant to the terms of the Credit Agreement,
except those specifically stated below.
DAKTRONICS, INC.
BY: _______________________________
ITS: ______________________________
DATE: _____________________________, 199__
DAKTRONICS, INC.
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended
---------------------------------------
May 3, April 27, April 29,
1997 1996 1995
- --------------------------------------------------------------------------------
Net income (loss) $ 1,508 $ (215) $ 967
========================================
Weighted average shares outstanding 4,250,000 4,191,000 4,162,000
Incremental shares - stock options 16,000 66,000
---------------------------------------
Total 4,266,000 4,191,000 4,228,000
=======================================
Per share:
Net income (loss) $ 0.35 $ (0.05) $ 0.23
========================================
Fully diluted earnings per share are the same as primary earnings per share.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 for Daktronics, Inc. 1993 Stock Option Plan and Outside Directors Stock
Option Plan and Daktronics, Inc. 401(k) Profit Sharing Plan and Trust and in the
related Prospectuses of our report, dated June 16, 1997, with respect to the
consolidated financial statements of Daktronics, Inc. and subsidiary and the
schedule included in this Annual Report on Form 10-K for the year ended May 3,
1997.
McGLADREY & PULLEN, LLP
Sioux Falls, South Dakota
July 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-03-1997
<PERIOD-START> APR-27-1996
<PERIOD-END> MAY-03-1997
<CASH> 118
<SECURITIES> 0
<RECEIVABLES> 12,083
<ALLOWANCES> 194
<INVENTORY> 8,025
<CURRENT-ASSETS> 23,669
<PP&E> 15,538
<DEPRECIATION> 8,091
<TOTAL-ASSETS> 37,136
<CURRENT-LIABILITIES> 12,746
<BONDS> 0
0
0
<COMMON> 11,680
<OTHER-SE> 10,070
<TOTAL-LIABILITY-AND-EQUITY> 37,136
<SALES> 62,640
<TOTAL-REVENUES> 62,640
<CGS> 46,768
<TOTAL-COSTS> 46,768
<OTHER-EXPENSES> 13,371
<LOSS-PROVISION> 130
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> 2,493
<INCOME-TAX> 985
<INCOME-CONTINUING> 1,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,508
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
