DAKTRONICS INCDAKTEarnings & Financial Report
Nasdaq · Industrials · Miscellaneous Manufacturing Industries
Daktronics, Inc. is an American company based in Brookings, South Dakota, that designs, manufactures, sells, and services video displays, scoreboards, digital billboards, dynamic message signs, sound systems, and related products. It was founded in 1968 by two South Dakota State University professors.
What changed in DAKTRONICS INC's 10-K — 2023 vs 2024
Top changes in DAKTRONICS INC's 2024 10-K
211 paragraphs added · 245 removed · 138 edited across 6 sections
- Item 7. Management's Discussion & Analysis+78 / −105 · 27 edited
- Item 1A. Risk Factors+81 / −86 · 65 edited
- Item 1. Business+38 / −40 · 34 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+7 / −8 · 7 edited
- Item 5. Market for Registrant's Common Equity+5 / −4 · 3 edited
Item 1. Business
Business — how the company describes what it does
34 edited+4 added−6 removed66 unchanged
Item 1. Business
Business — how the company describes what it does
34 edited+4 added−6 removed66 unchanged
2023 filing
2024 filing
Content includes media, scoring, timing, statistics, advertising, way-finding information, playback loops and entertainment type visualizations. Our Show Control Suite is an easy-to-use and powerful integrated solution to achieve a dynamic, seamless and fully immersive game-day production. Show Control Studio offers products designed for display control, while Show Control Live is designed for video production.
Content includes media, scoring, statistics, timing, advertising, way-finding information, playback loops and entertainment type visualizations. Our Show Control Suite is an easy-to-use and powerful integrated solution to achieve a dynamic, seamless and fully immersive game-day production. Show Control Studio offers products designed for display control, while Show Control Live is designed for video production.
The loss of a key supplier, part unavailability, tariff changes, price changes, war or other geopolitical impacts to trade or transport, or defects in the supplied material or component could have an adverse impact on our business and operations. Our sourcing group is responsible to maintain and implement strategies to mitigate these evolving risks.
The loss of a key supplier, part unavailability, tariff changes, price changes, war, transportation disruptions, or other geopolitical impacts to trade or transport, or defects in the supplied material or component could have an adverse impact on our business and operations. Our sourcing group is responsible to maintain and implement strategies to mitigate these evolving risks.
Our global operations subject us to various laws and regulations, including laws and regulations relating to tax compliance, anti-corruption, data privacy, cybersecurity, governance, and disclosure reporting.
Our global operations subject us to various laws and regulations, including laws and regulations relating to tax compliance, anti-corruption, data privacy, cybersecurity, governance, climate, and disclosure reporting.
To assist our clients' ability to engage, inform and entertain their audiences, we provide professional services including event support, content creation, product maintenance, marketing assistance, training on hardware and software, control room design, and continuing technical support training for operators. Customer Service and Support.
To assist our clients' ability to engage, inform and entertain their audiences, we provide professional services including event support, event production curriculum, content creation, product maintenance, marketing assistance, training on hardware and software, control room design, and continuing technical support training for operators. Customer Service and Support.
As a key component of an integrated system, we market sports statistics and results software under the DakStats® trademark. The software allows the entry and display of sports statistics and other information. It is one of the leading applications of its type in collegiate and high school sports. Message Displays.
As a key component of an integrated system, we market sports statistics and results software under the DakStats® trademark. The software allows the entry and display of sports statistics and other information. It is one of the leading applications of its type in collegiate and high school sports. LED Message Displays and Signs.
This will allow us to pursue infringement claims against competitors for protection due to patent violations. Although we own a number of patents and possess rights under others 5 Table of Contents to which we attach importance, we do not believe that our business as a whole is materially dependent upon any such patents or rights.
This will allow us to pursue infringement claims against competitors for protection due to patent violations. Although we own a number of patents and possess rights under others to which we attach importance, we do not believe that our business as a whole is materially dependent upon any such patents or rights.
Orders and backlog are not measures defined by accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts.
Orders and backlog are not metrics defined by accounting principles generally accepted in the United States of America ("GAAP"), and our methodology for determining orders and backlog may vary from the methodology used by other companies in determining their orders and backlog amounts.
Intellectual Property We own or hold licenses to use numerous patents, copyrights, and trademarks on a global basis. Our policy is to protect our competitive position by filing United States and international patent applications to protect technology and improvements that we consider important to the development of our business.
Intellectual Property We own or hold licenses to use numerous patents, copyrights, and trademarks on a global basis. Our policy is to protect our competitive position by filing United States and international patent applications to protect technology and improvements 5 Table of Contents that we consider important to the development of our business.
Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multimillion dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning.
Order and backlog levels provide management and investors additional details surrounding the results of our business activities in the marketplace and highlight fluctuations caused by seasonality and multi-million dollar projects. Management uses orders to evaluate market share and performance in the competitive environment. Management uses backlog information for capacity and resource planning.
Our products are comprised of the following product families: • Video displays/video walls • Scoreboards and timing systems • Message displays • ITS (intelligent transportation systems) dynamic message signs • Mass Transit displays • Sound systems • Digital billboards • Digital street furniture • Digit and price displays • Indoor dynamic messaging systems and indoor liquid crystal display ("LCD") signs • Software and controllers including Venus® Control Suite, Show Control Studio and Show Control Live Each of these product families is described below: Video Displays/Video Walls.
Our products are comprised of the following product families: • Video displays/video walls • Scoreboards and timing systems • LED Message displays and signs • ITS (intelligent transportation systems) dynamic message signs • Mass Transit displays • Sound systems • Digital billboards • Digital street furniture • Digit and price displays 3 Table of Contents • Indoor dynamic messaging systems and indoor liquid crystal display ("LCD") signs • Software and controllers including Venus® Control Suite, Show Control Studio and Show Control Live Each of these product families is described below: Video Displays/Video Walls.
Our sales force is comprised of direct sales staff and resellers located throughout the world supporting all customer types in both sales and service. We primarily use a direct sales force for large integrated display system sales in professional sports, colleges and universities, and commercial spectacular projects.
Our sales force is comprised of direct sales staff and resellers, including AV integrators, located throughout the world supporting all customer types in both sales and service. We primarily use a direct sales force for large integrated display system sales in professional sports, colleges and universities, and commercial spectacular projects.
Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” in this Form 10-K. Customers We have a large and diverse worldwide customer base, ranging from local main street business owners, out-of-home companies, and schools to the owners and operators of premier professional sports arenas.
Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” in this Form 10-K. Customers We have a large and diverse worldwide customer base, ranging from local main street business owners, out-of-home companies, governmental agencies, and schools, colleges, and universities, to the owners and operators of premier professional sports arenas.
The electronic circuitry, which controls the pixels, allows for variances in the relative brightness of each LED to provide a full color spectrum, thereby displaying 3 Table of Contents video images in striking, vibrant colors.
The electronic circuitry, which controls the pixels, allows for variances in the relative brightness of each LED to provide a full color spectrum, thereby displaying video images in striking, vibrant colors.
We have continued these investments and have supported our long-term customer relationships to grow from a small company operating out of a garage to a world leader in the display industry. We currently employ 2,734 people globally. We are headquartered at 201 Daktronics Dr., Brookings, SD 57006 telephone 605-692-4200. Our Internet address is https:// www.daktronics.com.
We have continued these investments and have supported our long-term customer relationships to grow from a small company operating out of a garage to a world leader in the display industry. We currently employ 2,831 people globally. We are headquartered at 201 Daktronics Dr., Brookings, SD 57006, telephone 605-692-4200.
During fiscal 2024, we will continue to invest in product design and development to improve our video technology over a wide range of pixel pitches and sustainable technologies for both indoor and outdoor applications and to advance micro-LED devices and placement processes.
During fiscal 2024, our design teams focused on investing in product design and development to improve our video technology over a wide range of pixel pitches and sustainable technologies for both indoor and outdoor applications and to advance micro-LED devices and placement processes.
We provide our employees and their families with access to a variety of health programs, including benefits that support their physical and mental health. As of April 29, 2023, we employed approximately 2,441 full-time employees and 293 part-time and temporary employees.
We provide our employees and their families with access to a variety of health programs, including benefits that support their physical and mental health. As of April 27, 2024, we employed approximately 2,520 full-time employees and 311 part-time and temporary employees.
The products are used to display images which change at regular intervals. These systems include many features unique to the outdoor advertising market, such as our patented mounting system, self-adjusting brightness, optimized energy consumption, and enhanced network security. Digital street furniture.
Digital Billboards. Our line of digital billboards offers a unique display solution for the Out-of-Home (“OOH”) advertising industry. The products are used to display images which change at regular intervals. These systems include many features unique to the outdoor advertising market, such as our patented mounting system, self-adjusting brightness, optimized energy consumption, and enhanced network security. Digital street furniture.
Although we follow the over time method of recognizing revenues for uniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations.
Although we follow the over-time method of recognizing revenues for uniquely configured orders, we nevertheless have experienced fluctuations in operating results and expect our future results of operations will be subject to similar fluctuations. Working Capital For information regarding working capital items, see “Part II, Item 7.
Of these employees, approximately 1,121 were in manufacturing, 451 were in sales and marketing, 561 were in customer service, 378 were in engineering and 223 were in general and administrative. None of our employees are represented by a collective bargaining agreement. We believe employee relations are good.
Of these employees, approximately 1,149 were in manufacturing, 482 were in sales and marketing, 570 were in customer service, 387 were in engineering, and 243 were in general and administrative. None of our employees are represented by a collective bargaining agreement. We believe employee relations are good.
Our Mass Transit products include a wide range of LCD and LED display solutions for public transportation applications. Installations often involve a network of displays located on railway platforms, at bus stations, or on concourses within a transportation hub to guide travelers to their intended destination. Sound Systems. Our sound systems include both standard and custom options.
Installations often involve a network of displays located on railway platforms, at bus stations, or on concourses within a transportation hub to guide travelers to their intended destination. Sound Systems. Our sound systems include both standard and custom options.
Financial information concerning these segments is set forth in this Form 10-K in "Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Note 3. Segment Reporting" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations" and "Note 3. Segment Reporting" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
The Vanguard® family of dynamic message displays is typically used to direct traffic and inform motorists. These displays are used over freeways, on arterial roads, near bridges, at toll booths and in other locations. We have also developed a Vanguard® control system for these displays to help transportation agencies manage large networks of displays. Mass Transit Displays.
The Vanguard® family of dynamic message displays is typically used to direct traffic and inform motorists. These displays are used over freeways, on arterial roads, near bridges, at toll booths and in other locations.
Product managers assigned to each product family assist our sales staff in training and implementing product improvements which ensures each product is designed for maximum reliability and serviceability. We employ and contract with process engineers to assist in quality and reliability processing in our product design testing and manufacturing areas.
We employ and contract with engineers and technicians in the areas of mechanical and electrical 2 Table of Contents design; applications engineering; software design; quality design; and customer and product support. Product managers assigned to each product family assist our sales staff in training and implementing product improvements which ensures each product is designed for maximum reliability and serviceability.
We perform component manufacturing, system 2 Table of Contents manufacturing (metal fabrication, electronic assembly, sub-assembly and final assembly) and testing in-house for most of our products to control quality, improve response time and maximize cost-effectiveness.
The majority of our products are manufactured in the United States, specifically in South Dakota and Minnesota. We also have manufacturing facilities in China and Ireland. We perform component manufacturing, system manufacturing (metal fabrication, electronic assembly, sub-assembly and final assembly) and testing in-house for most of our products to control quality, improve response time and maximize cost-effectiveness.
We believe order information is useful to investors because it provides an indication of our market share and future revenues. 6 Table of Contents Our product order backlog as of April 29, 2023 was $400.7 million as compared to $471.6 million as of April 30, 2022.
Order fulfillment timing is dependent on customer schedules, supply chain conditions, and our capacity availability. We believe order information is useful to investors because it provides an indication of our market share and future revenues. Our product order backlog as of April 27, 2024 was $316.9 million as compared to $400.7 million as of April 29, 2023.
Our five business segments consist of four domestic business units and the International business unit. The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and Canada.
The four domestic business units consist of Commercial, Live Events, High School Park and Recreation, and Transportation, all of which include the geographic territories of the United States and Canada. Financial information concerning these segments is set forth in this Form 10-K in "Part II, Item 7.
Custom indoor and outdoor systems are tailored for larger venues and venues with unique seating configurations and are often integrated into an overall venue solution for scoring, timing, message display and/or video capability. 4 Table of Contents Digital Billboards. Our line of digital billboards offers a unique display solution for the Out-of-Home (“OOH”) advertising industry.
Standard systems are designed to meet the needs of a variety of indoor and outdoor sports venues based on the size and configuration of the facility. Custom indoor and outdoor systems are tailored for larger venues and venues with unique seating configurations and are often integrated into an overall venue solution for scoring, timing, message display and/or video capability.
These reports and other reports, proxy 1 Table of Contents statements, and electronic filings are also found on the SEC’s website at www.sec.gov. Information contained on our website is not deemed to be incorporated by reference into this Report or filed with the SEC. We focus our sales and marketing efforts on markets, geographical regions and products.
Information contained on our website is not deemed to be incorporated by reference into this Report or filed with the SEC. Reportable Segments We focus our sales and marketing efforts on markets, geographical regions and products. Our five business segments consist of four domestic business units and the International business unit.
We support our resellers through direct mail/email advertising, social media campaigns, trade journal advertising, product and installation training, trade show exhibitions and accessibility to our regional sales or service teams and demonstration equipment. Engineering and Product Design and Development. The large format electronic display industry is characterized by ongoing product innovations and developments in technology and complementary services.
We also utilize resellers outside North America for large integrated system sales where we do not have a direct sales presence. We support our resellers through direct mail/email advertising, social media campaigns, trade journal advertising, product and installation training, trade show exhibitions, and accessibility to our regional sales or service teams and demonstration equipment. Engineering and Product Design and Development.
Our annual, quarterly and current reports and any amendments to those reports are freely available in the "Investor Relations" section of our website. We post each of these documents on our website as soon as reasonably practicable after it is electronically filed with the Securities and Exchange Commission (the "SEC").
We post each of these documents on our website as soon as reasonably practicable after it is electronically filed with the Securities and Exchange Commission (the "SEC"). These reports and other reports, proxy statements, and electronic filings are also found on the SEC’s website at www.sec.gov.
We expect to fulfill the backlog as of April 29, 2023 within the next 24 months . The timing of backlog may be impacted by project delays resulting from parts availability and other constraints stemming from the supply chain disruptions.
We expect to fulfill the backlog as of April 27, 2024 within the next 24 months . The timing of backlog fulfillment may be impacted by project delays resulting from customer site conditions, which are outside our control.
To remain competitive, we have a tradition of applying engineering resources throughout our business to anticipate and respond rapidly to the system needs in the marketplace. We employ and contract with engineers and technicians in the areas of mechanical and electrical design; applications engineering; software design; quality design; and customer and product support.
The large format electronic display industry is characterized by ongoing product innovations and developments in technology and complementary services. To remain competitive, we have a tradition of applying engineering resources throughout our business to anticipate and respond rapidly to the system needs in the marketplace.
We also make selected investments in and contract with affiliated companies to support and advance technologies and capabilities for our product lines and solutions. Manufacturing. The majority of our products are manufactured in the United States, specifically in South Dakota and Minnesota. We also have manufacturing facilities in China and Ireland.
We employ and contract with process engineers to assist in quality and reliability processing in our product design testing and manufacturing areas. We also make selected investments in and contract with affiliated companies to support and advance technologies and capabilities for our product lines and solutions. Manufacturing.
We also use our direct sales force to sell third-party advertising and transportation applications. We utilize resellers outside North America for large integrated system sales where we do not have a direct sales presence. The majority of our products sold by resellers in North America are standard catalog products.
We also use our direct sales force to sell to out-of-home advertising companies, to transportation system operators, and to certain high school park and recreation customers. The majority of our products sold by resellers are standard catalog products such as video boards and dynamic message systems and increasingly include indoor micro-LED configurable display systems.
Removed
Standard systems are designed to meet the needs of a variety of indoor and outdoor sports venues based on the size and configuration of the facility.
Added
Our Internet address is https:// www.daktronics.com. 1 Table of Contents Available Information Our annual, quarterly and current reports and any amendments to those reports are freely available in the "Investor Relations" section of our website.
Removed
Since late fiscal 2021, we have been affected by supply chain disruptions and inflationary pressures stemming from the coronavirus pandemic ("COVID-19"), shipping container shortages, weather events, and the changes in global demand. Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight.
Added
We have also developed a Vanguard® control system for these displays to help transportation agencies manage large networks of displays. 4 Table of Contents Mass Transit Displays. Our Mass Transit products include a wide range of LCD and LED display solutions for public transportation applications.
Removed
While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business.
Added
The decrease in backlog, to more historical levels, is a result of fulfilling orders at a greater pace in fiscal 2024 as supply 6 Table of Contents chain conditions stabilized and production lead times improved, utilizing our increased capacity, and order pace returning to more normalized rates.
Removed
Because of the seasonality and volatility in business demand and variety of product types, we may not be able to utilize our capacity efficiently or accurately plan our capacity requirements, which may negatively affect our business and operating results. Working Capital For information regarding working capital items, see “Part II, Item 7.
Added
Our obligations to conduct site work, including installations or repair, require us to comply with environmental rules and regulation, wage requirements, and safety standards. Often, certain contracts require us to have accident prevention programs that provide for frequent and regular inspection of the jobsites, materials, and equipment by competent persons.
Removed
This decrease in backlog is driven by fulfilling orders from our April 30, 2022 backlog. During fiscal 2022 we had record order volume and muted conversion to sales due to supply chain challenges. Our customers had also placed orders for future deliveries to secure our manufacturing capacity during fiscal 2022.
Removed
During the first half of fiscal 2023, our design teams focused on adjusting designs to utilize available components as a strategy to gain stability in our production levels.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
65 edited+16 added−21 removed113 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
65 edited+16 added−21 removed113 unchanged
2023 filing
2024 filing
The following factors are among those that could complicate capacity planning for market demand: • changes in the demand for and mix of products that our customers buy; • our ability scale down or to add and train our manufacturing and services staff in advance of demand changes; • the market’s pace of technological change; • variability in our manufacturing or services productivity; • long lead times for and availability of raw materials and components used in production; • our ability to engage qualified third parties; • geography of the order and related shipping methods; and • long lead times for our plant and equipment expenditures.
The following factors are among those that could complicate capacity planning for market demand: • changes in the demand for and mix of products that our customers buy; • our ability to scale down or to add and train our manufacturing and services staff in advance of demand changes; • the market’s pace of technological change; • variability in our manufacturing or services productivity; • long lead times for and availability of raw materials and components used in production; • our ability to engage qualified third parties; • geography of the order and related shipping methods; and • long lead times for our plant and equipment expenditures.
Although we believe these estimates and assumptions are reasonable under the circumstances, they 13 Table of Contents are subject to significant uncertainties, some of which are beyond our control. If management's estimates and assumptions change or are not correct, our financial condition or results of operations could be adversely affected.
Although we believe these estimates and 13 Table of Contents assumptions are reasonable under the circumstances, they are subject to significant uncertainties, some of which are beyond our control. If management's estimates and assumptions change or are not correct, our financial condition or results of operations could be adversely affected.
Our credit facilities also impose certain financial covenants on us which restrict the level of cash dividends and capital expenditures. A breach of any of these covenants could result in an event of default under our credit facilities.
Our credit facilities also impose certain financial covenants on us which restrict the level of our cash dividends and capital expenditures. A breach of any of these covenants could result in an event of default under our credit facilities.
These provisions make it more difficult for our shareholders to take some corporate actions and include provisions relating to: • the ability of our Board of Directors, without shareholder approval, to authorize and issue shares of stock with voting, liquidation, dividend and other rights and preferences that are superior to our common stock; • the classification of our Board of Directors, which effectively prevents shareholders from electing a majority of the directors at any one meeting of shareholders; • the adoption of a shareholder rights agreement providing for the exercise of junior participating preferred stock purchase rights when a person becomes the beneficial owner of 20 percent or more of our outstanding common stock and upon the occurrence of certain similar events (subject to certain exceptions); • under the SD Act, limitations on the voting rights of shares acquired in specified types of acquisitions and restrictions on specified types of business combinations; and • under the SD Act, prohibitions against engaging in a “business combination” with an “interested shareholder” for a period of four years after the date of the transaction in which the person became an interested shareholder unless the business combination is approved.
These provisions make it more difficult for our shareholders to take some corporate actions and include provisions relating to: • the ability of our Board of Directors, without shareholder approval, to authorize and issue shares of stock with voting, liquidation, dividend and other rights and preferences that are superior to our common stock; • the classification of our Board of Directors, which effectively prevents shareholders from electing a majority of the directors at any one meeting of shareholders; • the adoption of a shareholder rights agreement providing for the exercise of junior participating preferred stock purchase rights when a person becomes the beneficial owner of 20 percent or more of our outstanding common stock and upon the occurrence of certain similar events (subject to certain exceptions); • under the SD Act, limitations on the voting rights of shares acquired in specified types of acquisitions and restrictions on specified types of business combinations; and • under the SD Act, prohibitions against engaging in a “business combination” with an “interested shareholder” for a period of four years after the date of the transaction in which the person became an interested shareholder unless the business combination is duly approved.
Trade disruptions between countries could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program.
Trade disruptions and trade policies between countries could make us subject to additional regulatory costs and challenges, affect global economic and market conditions, and contribute to volatility in foreign exchange markets, which we may be unable to effectively manage through our foreign exchange risk management program.
These estimates and assumptions affect the timing and amount of net sales, costs, and profits or losses in applying the principles to contracts with customers under over time method of recording revenue using the cost-to-cost input method; credit losses for accounts receivables and contract assets; the valuation of inventory; estimated amounts for warranty and product maintenance agreement costs; the calculation and valuation of our investments and deferred tax assets; the valuation of our investment in affiliates or unconsolidated subsidiaries; fair value estimates used in goodwill and long-term assets testing; estimating the impact of uncertainties in the application of complex tax laws; and calculating share-based compensation expense.
These estimates and assumptions affect the timing and amount of net sales, costs, and profits or losses in applying the principles to contracts with customers under over time method of recording revenue using the cost-to-cost input method; credit losses for accounts receivables and contract assets; the valuation of inventory; estimated amounts for warranty and product maintenance agreement costs; the calculation of the fair value of our notes payable; the calculation and valuation of our investments and deferred tax assets; the valuation of our investment in affiliates or unconsolidated subsidiaries; fair value estimates used in goodwill and long-term assets testing; estimating the impact of uncertainties in the application of complex tax laws; and calculating share-based compensation expense.
The financial, management and other risks and challenges associated with these activities include, but are not limited to, the following: • diversion of management attention; • difficulty with integrating acquired businesses; • adverse impact on overall profitability if the expanded operations or investments in affiliates do not achieve the strategic benefits forecasted; • potential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business; • inability to effectively manage our expanded operations; • difficulty with the integration of different corporate cultures; • personnel issues; • increased expenses; • assumption of unknown liabilities and indemnification obligations; • potential disputes with the buyers or sellers; • the time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls; • incorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities; and • incorrect assumptions and estimates made in accounting for the value of such asset.
The financial, management and other risks and challenges associated with these activities include, but are not limited to, the following: • diversion of management attention; • difficulty with integrating acquired businesses; 14 Table of Contents • adverse impact on overall profitability if the expanded operations or investments in affiliates do not achieve the strategic benefits forecasted; • potential loss or adverse relationship with or a change of key employees, customers, or suppliers of the acquired business; • inability to effectively manage our expanded operations; • difficulty with the integration of different corporate cultures; • personnel issues; • increased expenses; • assumption of unknown liabilities and indemnification obligations; • potential disputes with the buyers or sellers; • the time involved in evaluating or modifying the financial systems of an acquired business and the establishment of appropriate internal controls; • incorrect estimates made in the accounting for the transaction that cause misstatements of acquisition assets and liabilities; and • incorrect assumptions and estimates made in accounting for the value of such asset.
Our utilization of a complex supply chain for raw material and component imports and the global distribution of our products makes us vulnerable to many risks, including, among other things, shortages or delays because of work restrictions for various reasons like COVID-19 restrictions, supply chain implications due to war or other geopolitical impacts on supply chains, risks of damage, destruction or confiscation of products while in transit to and from our manufacturing facilities; organized labor strikes and work stoppages, such as labor disputes or related employee worker unavailability, that could disrupt operations at ports-of-entry; transportation and other delays in shipments as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions; unexpected or significant port congestion; lack of freight availability; and freight cost increases.
Our utilization of a complex supply chain for raw material and component imports and the global distribution of our products makes us vulnerable to many risks, including, among other things, shortages or delays because of work restrictions for various reasons like pandemic restrictions; supply chain implications due to war or other geopolitical impacts on supply chains; risks of damage, destruction or confiscation of products while in transit to and from our manufacturing facilities; organized labor strikes and work stoppages, such as labor disputes or related employee worker unavailability, that could disrupt operations at ports-of-entry; transportation and other delays in shipments as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions; unexpected or significant port congestion; lack of freight availability; and freight cost increases.
Our supply chain includes materials that are sourced or packaged directly or indirectly through Taiwan or China suppliers. Geopolitical tensions and shipping disruptions can impact our suppliers ability to deliver components and raw materials.
Our supply chain includes materials that are sourced or packaged directly or indirectly through suppliers in Taiwan or China. Geopolitical tensions and shipping disruptions can impact our suppliers ability to deliver components and raw materials.
Violations of anti-corruption, anti-bribery and trade control laws and sanctions regulations are punishable by civil penalties, including fines; the denial of export privileges; injunctions; asset seizures; debarment from government contracts and revocations or restrictions of license; as well as criminal fines and imprisonment, and could harm our reputation, create negative shareholder sentiment and affect our share value.
Violations of anti-corruption, anti-bribery and trade control laws and sanctions regulations are punishable by civil penalties, including fines; the denial of export privileges; injunctions; asset seizures; debarment from government contracts and revocations or restrictions of licenses; as well as criminal fines and imprisonment, and could harm our reputation, create negative shareholder sentiment and affect our share value.
We cannot provide assurance that all necessary or appropriate insurances will be available, cover every type of loss incurred, or be able to be economically secured. For example, some insurers limit or refuse coverages, increase premium costs or increase deductibles when global catastrophic events occur.
We cannot provide assurance that all necessary or appropriate insurances will be available, cover every type of loss incurred, or be able to be economically obtained. For example, some insurers limit or refuse coverages, increase premium costs or increase deductibles when global catastrophic events occur.
Any failure to maintain these systems, a network disruption, or breaches in data security that could cause a material adverse effect on our business. We rely heavily on complex information systems for the successful operation of our business, for the support of our controller offerings, and for the collection and retention of business data.
Any failure to maintain these systems, a network disruption, or breaches in data security could cause a material adverse effect on our business. We rely heavily on complex information systems for the successful operation of our business, for the support of our offerings, and for the collection and retention of business data.
The terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, contingent liabilities, lease obligations or liens; to merge or consolidate with another company; to dispose substantially all our assets ; to acquire or purchase a business or its assets; or to sell our assets.
The terms and conditions of our credit facilities impose restrictions limiting our ability to incur debt, contingent liabilities, lease obligations or liens; to merge or consolidate with another company; to dispose of substantially all our assets; to acquire or purchase a business or its assets; or to sell our assets, among other restrictions.
The terms and conditions of our credit facilities impose restrictions on our operations, and if we default on our credit facilities, it could have a material adverse effect on our results of operations and financial condition and make us vulnerable to adverse economic or industry conditions and cause liquidity issues.
The terms and conditions of our credit facilities and convertible debt impose restrictions on our operations, and if we default on our credit facilities, it could have a material adverse effect on our results of operations and financial condition and make us vulnerable to adverse economic or industry conditions and cause liquidity issues.
Other exposures and uncertainties that exist include changing social conditions and attitudes, terrorism, or political hostilities and war. Other difficulties of global operations include staffing and managing our various locations, including logistical and communication challenges. The likelihood of such occurrences and their overall effect on us vary greatly from country to country and are not predictable.
Other exposures and uncertainties that exist include changing social conditions and attitudes, terrorism, or political hostilities and war. Other difficulties of global operations include staffing 16 Table of Contents and managing our various locations, including logistical and communication challenges. The likelihood of such occurrences and their overall effect on us vary greatly from country to country and are not predictable.
Our future income taxes could be materially adversely affected by changes in the amount or mix of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or the interpretation of tax rules and regulations in jurisdictions in which we do business, changes in tax laws, or the outcome of income tax audits and any related litigation.
Our future income taxes could be materially adversely affected by changes in the amount or mix 18 Table of Contents of earnings amongst countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax rates or the interpretation of tax rules and regulations in jurisdictions in which we do business, changes in tax laws, or the outcome of income tax audits and any related litigation.
If litigation is necessary in the future to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources even if we ultimately prevail.
If litigation is necessary in the future to enforce our intellectual 10 Table of Contents property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others, such litigation could result in substantial costs and diversion of resources even if we ultimately prevail.
Additionally, if we fail to meet or exceed the expectations of securities analysts and investors, or if one or more of the securities analysts who cover us adversely change their recommendation regarding our stock, the market price of our common stock could decline.
Additionally, if we fail to meet or exceed the expectations of securities analysts and investors, or if one or more of the securities analysts who cover us adversely change their recommendation regarding our stock, the market price of our 20 Table of Contents common stock could decline.
If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. 19 Table of Contents Risks Related to an Investment in Our Common Stock The protections we have adopted and to which we are subject may discourage takeover offers favored by our shareholders.
If we are not able to meet customer requirements, customers may choose to disqualify us as a supplier. Risks Related to an Investment in Our Common Stock The protections we have adopted and to which we are subject may discourage takeover offers favored by our shareholders.
Such factors can create trade restrictions, increase tariff costs, increase prices for raw materials and components used in our products, increase the cost of sales, decrease demand for our products, or cause other implications to our business operations.
Such factors can create trade restrictions, increase tariff costs, increase prices for raw materials and components used in our products, increase the cost of sales, decrease demand for our products, or have other implications on our business operations.
We recorded an impairment to the value of one of these investments by $4.5 million during fiscal year 2023. If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.
We recorded an impairment to the value of these investments of $6.4 million and $4.5 million during fiscal year 2024 and 2023, respectively. If goodwill or other intangible assets in connection with our acquisitions become impaired, we could take significant non-cash charges against earnings.
Our other executive officers and directors, in the aggregate, beneficially owned an additional 4.2 percent of our outstanding common stock as of June 30, 2023, assuming the exercise by them of all of their options currently exercisable or that vest within 60 days of June 30, 2023.
Our other executive officers and directors, in the aggregate, beneficially owned an additional 4.1 percent of our outstanding common stock as of June 3, 2024, assuming the exercise by them of all of their options currently exercisable or that vest within 60 days of June 3, 2024.
A serious global pandemic can adversely impact, shock and weaken the global economy. These impacts can amplify other risk factors and could have a material impact on our operations, liquidity, financial conditions, and financial results. Our business, operations, and financial results have been, and may continue to be, impacted by the COVID-19 pandemic.
A serious global pandemic can adversely impact, shock and weaken the global economy. These impacts can amplify other risk factors and could have a material impact on our operations, liquidity, financial conditions, and financial results. Our business, operations, and financial results were impacted by the COVID-19 pandemic.
Together, these individuals, in the aggregate, beneficially owned 10.2 percent of our outstanding common stock as of June 30, 2023, assuming the exercise by them of all of their options that were currently exercisable or that vest within 60 days of June 30, 2023.
Together, these individuals, in the aggregate, beneficially owned 10.0 percent of our outstanding common stock as of June 3, 2024, assuming the exercise by them of all of their options that were currently exercisable or that vest within 60 days of June 3, 2024.
The loss, an interruption, or a material change in our business relationships with our suppliers or in global supply chain conditions has had and could continue to cause a disruption in our supply chains and a substantial increase in the costs of such raw materials and components.
The loss, an interruption, or a material change in our business relationships with our suppliers or in global supply chain conditions has had and could continue to cause a disruption in our supply chains and a substantial increase in the costs of such raw materials and components. Geopolitical tensions can impact our ability to obtain key materials and components.
Our articles of incorporation, by-laws and other corporate governance documents and the South Dakota Business Corporation Act ("SD Act") contain provisions that could have an anti-takeover effect and discourage, delay or prevent a change in control or an acquisition that many shareholders may find attractive.
Our articles of incorporation, by-laws and other corporate governance documents and the South Dakota Business Corporation Act (which is codified as Chapter 47-1A to the South Dakota statutes) ("SD Act") contain provisions that could have an anti-takeover effect and discourage, delay or prevent a change in control or an acquisition that many shareholders may find attractive.
If we are unable to remediate the material weakness in an appropriate and timely manner, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods, could be adversely affected.
In the future, if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and, consequently, our ability to prepare financial statements within required time periods, could be adversely affected.
Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns even if we prevail in the litigation, which could harm our business.
Moreover, our stock price may be based on expectations, estimates and forecasts of our future performance that may be unrealistic or that may not be met. Further, our stock price may fluctuate based on reporting by the financial media, including television, radio, press reports and blogs. There can be no assurance that we will pay dividends on our common stock.
Moreover, our stock price may be based on expectations, estimates and forecasts of our future performance that may be unrealistic or that may not be met. Further, our stock price may fluctuate based on reporting by the financial media, including television, radio, press reports and blogs.
These conditions affect consumer and entertainment spending and could adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value of their contracts, or affect attrition rates, all of which could adversely affect our operating results. 8 Table of Contents These demand fluctuations and various factors may reduce our ability to effectively utilize our capacity and impact our results of operations.
These conditions affect consumer and entertainment spending and could adversely affect our 8 Table of Contents customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value of their contracts, or affect attrition rates, all of which could adversely affect our operating results.
For example, the continuing conflict arising from the invasion of Ukraine by Russia, or tensions between Taiwan, China, the United States or other countries, could adversely impact macroeconomic conditions, give rise to regional instability and result in heightened economic tariffs, sanctions and import-export restrictions from the United States and the international community in a manner that adversely affects our Company, including to the extent that any such actions cause material business interruptions or restrict our ability in these regions to conduct business with certain suppliers or vendors.
For example, during calendar 2024, national elections are occurring in countries accounting for 49 percent of the people of the world, including the United States, which could cause changing governmental actions and policies; the Israeli-Palestinian conflict; the continuing conflict arising from the invasion of Ukraine by Russia; or tensions among Taiwan, China, the United States or other countries, could adversely impact macroeconomic conditions, give rise to regional instability, and result in heightened economic tariffs, sanctions and import-export restrictions from the United States and the international community in a manner that adversely affects our Company, including to the extent that any such actions cause material business interruptions or restrict our ability in these regions to conduct business with certain suppliers or vendors.
Any infringement or claimed infringement by us of the intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, products and services.
Any infringement or claimed infringement by us of the intellectual property rights of others could result in litigation and adversely affect our ability to continue to provide, or could increase the cost of providing, products and services, even if we are successful in defending against any such claim.
In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets.
In addition, bonding may be more difficult to obtain in the future or may be available only at significant additional cost as a result of general conditions that affect the insurance and bonding markets. Acquisitions, investments, and divestitures pose financial, management and other risks and challenges.
Our future success will also depend upon our ability to attract, train, motivate and retain qualified personnel. Although we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel.
Although we intend to continue to provide competitive compensation packages to attract and retain key personnel, some of our competitors for these employees have greater resources and more experience, making it difficult for us to compete successfully for key personnel.
Upon the occurrence of an event of default, the lender could elect to declare any and all amounts outstanding under such facilities to be immediately due and payable and terminate all commitments to extend further credit. For additional information on financing agreements, see "Note 7. Financing Agreements" and "Note 17.
Upon the occurrence of an event of default, the lender could elect to declare any and all amounts outstanding under such facilities to be immediately due and payable and terminate all commitments to extend further credit. For additional information on financing agreements, see "Note 7. Financing Agreements" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
Any failure of our digital systems, or any breach of our systems’ security measures, could adversely affect our operations, at least until our data can be restored and/or the breaches remediated.
Any information system failure of or breach in security could adversely affect our operations, at least until our data can be restored and/or the breaches remediated.
If our employees, agents, distributors, suppliers and other third parties with whom we do business violate anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage.
If our employees, agents, distributors, suppliers and other third parties with whom we do business violate anti-bribery, anti-corruption or similar laws and regulations, we may incur severe fines, penalties and reputational damage even if we were 17 Table of Contents not aware of such violation.
Such a constraint could cause and has caused lead times for our products to increase. 10 Table of Contents Cost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs have had and may continue to have a significant impact on our price competitiveness and/or ability to produce our products, which have caused and could continue to cause harm to our sales, financial condition and results of operations.
Cost inflation in, and shortages of, raw materials, components, and related transportation and tariff costs can have a significant impact on our price competitiveness and/or ability to produce our products, which have caused and could continue to cause harm to our sales, financial condition and results of operations.
However, due to the material weakness described above, there is a reasonable possibility that our existing controls would not have detected a material misstatement in a timely manner if it were to be material. We are in the process of remediating the material weakness, but our efforts may not be successful.
However, due to the material weakness described above, there was a reasonable possibility that our existing controls would not have detected a material misstatement in a timely manner if it were to be material.
Unexpected events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition.
Unexpected events could result in damage to, and a complete or partial closure of, one or more of our manufacturing facilities, which could make it difficult to supply our customers with product and provide our employees with work, thereby adversely affecting our business, operating results or financial condition. 9 Table of Contents The occurrence of one or more unexpected events in the United States or in other countries in which we operate may disrupt our operations and the operations of our customers and suppliers.
As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the United States and other countries having jurisdiction over our operations and trade sanctions against embargoed 17 Table of Contents countries and destinations administered by OFAC.
As an exporter, we must comply with various laws and regulations relating to the export of products and technology from the United States and other countries having jurisdiction over our operations and trade sanctions against embargoed countries and destinations administered by OFAC. Before shipping certain items, we must obtain an export license or verify that license exemptions are available.
Pending or future claims against us could result in professional liability, product liability, criminal liability, warranty obligations, indemnity claims, or other liabilities to the extent we are not insured against a loss or our insurance fails to provide adequate coverage.
Litigation, investigations and regulatory proceedings are subject to inherent uncertainties, and unfavorable rulings and outcomes can and do occur. Pending or future claims against us could result in professional liability, product liability, criminal liability, warranty obligations, indemnity claims, or other liabilities to the extent we are not insured against a loss or our insurance fails to provide adequate coverage.
We may fail to continue to attract, develop and retain key management personnel, which could negatively impact our operating results. We depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel. The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy.
We depend on the performance of our senior executives and key employees, including experienced and skilled technical personnel. The loss of any of our senior executives could negatively impact our operating results and ability to execute our business strategy. Our future success will also depend upon our ability to attract, train, motivate and retain qualified personnel.
Any disruption in our digital technologies could affect our business and operations, causing potentially significant expenses to recover and modify the data systems, to reimburse customers' losses, and to investigate and remediate any vulnerabilities, which could severely damage our reputation with customers, suppliers, employees and investors and expose us to risk of litigation and liability. 16 Table of Contents Our global operations expose us to global regulatory, geopolitical, economic and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition.
Any disruption in our digital technologies could affect our business and operations, causing potentially significant expenses to recover and modify the data systems, to reimburse customers' losses, and to investigate and remediate any vulnerabilities, which could severely damage our reputation with customers, suppliers, employees and investors and expose us to risk of litigation and liability.
Reece Kurtenbach, serves as our Chairman of the Board and Chief Executive Officer, and two other children serve as our Vice President of Human Resources and as our Vice President of Manufacturing.
Aelred Kurtenbach's family members currently serve as executive officers of the Company. His son, Mr. Reece Kurtenbach, serves as our Chairman of the Board and Chief Executive Officer, and two other children serve as our Vice President of Human Resources and as our Vice President of Manufacturing.
We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict minerals”, which has imposed and may impose additional costs on us and could raise reputational challenges and other risks.
Our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations. 19 Table of Contents We have been required to conduct a good faith reasonable country of origin analysis on our use of “conflict minerals”, which has imposed and may impose additional costs on us and could raise reputational challenges and other risks.
We also contractually require subcontractors and others working on our behalf to carry common insurance coverages for the types of work they perform to mitigate any risk of our loss. Our failure to obtain adequate insurance coverage at reasonable costs could adversely affect our financial condition or results of operations.
We also contractually require subcontractors and others working on our behalf to carry common insurance coverages for the types of work they perform to mitigate any risk of our loss.
Geopolitical issues, conflicts, governmental actions and other global events could adversely affect our results of operations and financial condition. Our business is subject to global political issues and conflicts and governmental actions.
Increases in SOFR will increase the rate of any extended borrowing on this facility. Geopolitical issues, conflicts, governmental actions and other global events could adversely affect our results of operations and financial condition. Our business is subject to global political issues and conflicts and governmental actions.
There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits. We have $20.7 million, net invested in affiliates as of April 29, 2023.
There can be no assurance that we will engage in any acquisitions or divestitures or that we will be able to do so on terms that will result in any expected benefits. Our investment in and advances to affiliates totaled $16.1 million as of April 27, 2024.
The United States Tax Cuts and Jobs Act of 2017 is one such example of legislation that has impacted our effective tax rate. 18 Table of Contents Further changes in the tax laws of the United States and foreign jurisdictions could arise, including additional tax reform in the United States and the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (“OECD”).
Further changes in the tax laws of the United States and foreign jurisdictions could arise, including additional tax reform in the United States and the base erosion and profit shifting project undertaken by the Organization for Economic Co-operation and Development (“OECD”).
Our executive officers, directors and principal shareholders have the ability to significantly influence all matters submitted to our shareholders for approval. Co-founder Dr. Aelred Kurtenbach served as our Chairman of the Board until September 3, 2014. Dr. Aelred Kurtenbach's family members currently serve as executive officers of the Company. His son, Mr.
The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities. Our executive officers, directors and principal shareholders have the ability to significantly influence all matters submitted to our shareholders for approval. Co-founder Dr. Aelred Kurtenbach served as our Chairman of the Board until September 3, 2014. Dr.
These investments are often made to increase customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio. Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.
We routinely invest in and explore investing in or acquiring other businesses and related assets to complement or enhance our business strategies. These investments are often made to increase and enhance our customer relations and market base, expand geographically, or obtain technological advances to support our solution portfolio.
In addition, a proxy contest for the election of directors would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors. The perceived uncertainties as to our future direction also could affect the market price and volatility of our securities.
Such activities could interfere with our ability to execute our strategic plan. In addition, a proxy contest for the election of directors would require us to incur significant legal fees and proxy solicitation expenses and require significant time and attention by management and our board of directors.
The rate of interest we pay on our asset-based lending facility with JPMorgan Chase Bank, N.A. is correlated to the Standard Overnight Fund Rate (SOFR), which is determined by governmental policy decisions. Increases in SOFR will increase the rate of any extended borrowing on this facility.
These could eliminate our ability to sell our products or receive parts and components through our global supply chains. The rate of interest we pay on our asset-based lending facility with JPMorgan Chase Bank, N.A. is correlated to the Standard Overnight Fund Rate (SOFR), which is determined by governmental policy decisions.
If we are unable to use all of the components we have purchased, we may have excess inventory or obsolescence, or increased inventory or carrying costs, which could have an adverse impact on our results of operation or financial condition. 11 Table of Contents We may fail to continue to attract, develop and retain personnel throughout our business areas, which could negatively impact our operating results.
If we are unable to use all of the components we have purchased, we may have excess inventory or obsolescence, or increased inventory or carrying costs, which could have an adverse impact on our results of operation or financial condition. We operate in highly competitive markets and face significant competition and pricing pressures.
In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits. During late fiscal 2021, supply chain disruptions began to emerge because of COVID-19, shipping container shortages, winter weather, and changes in global demand.
In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits.
Our domestic and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with global regulations and governmental orders.
Our global operations expose us to global regulatory, geopolitical, economic and social changes and add additional risks and uncertainties which can harm our business, operating results, and financial condition. Our domestic and foreign operations, sales, earnings, and strategies for profitable growth can be adversely affected by global conditions and compliance with global regulations and governmental orders.
Such events could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects or cause our suppliers not to perform, resulting in parts and component shortages. 9 Table of Contents Risks Related to Our Business and Industry We operate in highly competitive markets and face significant competition and pricing pressures.
Such events could create additional uncertainties, forcing customers to reduce, delay, or cancel already planned projects or cause our suppliers not to perform, resulting in parts and component shortages. Risks Related to Our Business and Industry We depend on a single-source or a limited number of suppliers for our raw materials and components from countries around the world.
Responding to actions by activist shareholders can be costly and time-consuming, and impact our brand, disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with our ability to execute our strategic plan.
Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our securities. Responding to actions by activist shareholders can be costly and time-consuming, and impact our brand, disrupt our operations and divert the attention of management and our employees.
Before shipping certain items, we must obtain an export license or verify that license exemptions are available. Any failures to comply with these laws and regulations could result in fines, adverse publicity, and restrictions on our ability to export our products. Repeat failures could carry more significant penalties.
Any failures to comply with these laws and regulations could result in fines, adverse publicity, and restrictions on our ability to export our products. Repeat failures could carry more significant penalties. Anti-bribery, corruption, and trade laws and regulations, and the enforcement thereof, are increasing in frequency, complexity and severity on a global basis.
We rely on global supply chains, and inflationary pressures can increase our input costs faster than our ability to raise prices. These could eliminate our ability to sell our products or receive parts and components through our global supply chains.
These demand fluctuations and various factors may reduce our ability to effectively utilize our capacity and impact our results of operations. We rely on global supply chains, and inflationary pressures can increase our input costs faster than our ability to raise prices.
Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods. 15 Table of Contents We performed our annual impairment test on October 30, 2022 and concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded a $4.6 million impairment charge.
Any reduction or impairment of the value of goodwill or other intangible assets will result in charges against earnings, which would adversely affect our results of operations in future periods. We perform our annual impairment test on the first day of our third fiscal quarter. The annual impairment test for fiscal years 2024 and 2022 concluded no goodwill impairment existed.
We are involved from time to time in a variety of litigation, investigations, inquires or similar matters arising in our business. Litigation, investigations and regulatory proceedings are subject to inherent uncertainties, and unfavorable rulings and outcomes can and do occur.
The outcome of pending and future claims, investigations or litigation can have a material adverse impact on our business, financial condition, and results of operations. We are involved from time to time in a variety of litigation, investigations, inquires or similar matters arising in our business.
Furthermore, possible shortages of key personnel, including engineers, could require us to pay more to hire and retain key personnel, thereby increasing our costs. The outcome of pending and future claims, investigations or litigation can have a material adverse impact on our business, financial condition, and results of operations.
Furthermore, 15 Table of Contents possible shortages of key personnel, including engineers, could require us to pay more to hire and retain key personnel, thereby increasing our costs. Increases in the cost of employee benefits could impact our financial results and cash flows. Our expenses relating to employee health benefits are significant.
We monitor for these types of situations and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments. We depend on a single-source or a limited number of suppliers for our raw materials and components from countries around the world.
We monitor for these types of situations and evaluate ways to minimize these impacts through vendor negotiations, alternative sources, and potential price adjustments. 11 Table of Contents We may fail to continue to attract, develop and retain personnel throughout our business areas, which could negatively impact our operating results.
Removed
Item 1A. RISK FACTORS The factors that are discussed below, as well as the matters that are generally set forth in this Form 10-K and the documents incorporated by reference herein, could materially and adversely affect the Company’s business, results of operations and financial condition.
Added
Item 1A. RISK FACTORS Investing in our common stock involves risk.
Removed
The occurrence of one or more unexpected events in the United States or in other countries in which we operate may disrupt our operations and the operations of our customers and suppliers.
Added
You should carefully consider the risks and uncertainties described below, together with all of the other information set forth in this Annual Report on Form 10-K and documents incorporated by reference herein, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before making a decision to invest in our common stock.
Removed
COVID-19 created constraints on supply chain operations and resulted in component part shortages due to global capacity constraints, such as the current global capacity constraint we have been facing in the supply of component parts, particularly of semiconductor components. In addition, transportation availability has disrupted the timeliness of raw material and component shipments and customer shipments.
Added
The risks and uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, operating results, and financial condition could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Removed
Specifically, we are impacted by the global inflation and shortage of semiconductors and related electronic components, other materials needed for production, and freight.
Added
In addition to increased costs, these factors could delay delivery of products, which may result in the assessment of liquidated damages or other contractual damages that could negatively impact our profits.
Removed
While supply chain disruptions from these factors have subsided over the last half of fiscal 2023 and we expect infrequent disruptions going forward from these factors, it is reasonably possible that future disruptions could occur that would have a material impact on our business.
Added
Periodically, we may also consider disposing of these businesses, partial investments, assets, or other lines of business.
Removed
Subsequent Events" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
Added
During fiscal year 2023, we concluded that the carrying value of the Live Events and International reporting units exceeded their respective fair values and consequently recorded a $4.6 million impairment charge. We may fail to continue to attract, develop and retain key management personnel, which could negatively impact our operating results.
Removed
Volatility in our business driven by global economic conditions and supply chain disruptions can have a negative effect on our liquidity and could cause us to express substantial doubt about our ability to continue as a going concern.
Added
Unfavorable changes in the cost of and the unpredictability of claims under such benefits, including the current inflationary pressures on wages and benefits, could negatively impact our financial results and cash flows. Although we purchase stop loss insurance, its cost and healthcare costs have risen significantly in recent years.
Removed
Global economic conditions and supply chain disruptions have and will continue to cause volatility in our cash flow, pricing, order volumes lead times, competitiveness, revenue cycles, and production costs.
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Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
2 edited+0 added−0 removed2 unchanged
2023 filing
2024 filing
Our principal properties consist of the following: Facilities Owned or Leased Square Footage Facility Activities Brookings, SD, USA Owned 771,000 Corporate Office, Manufacturing, Sales, Service Redwood Falls, MN, USA Owned 151,000 Manufacturing, Sales, Service, Office Ennistymon, Ireland Owned 62,000 Manufacturing, Sales, Service, Office Sioux Falls, SD, USA Leased 296,000 Manufacturing, Sales, Service, Office Shanghai, China Leased 152,000 Manufacturing, Sales, Service, Office 21 Table of Contents We also utilize sales and service offices located throughout the United States, Canada, Europe, and the Asia-Pacific region.
Our principal properties consist of the following: Facilities Owned or Leased Square Footage Facility Activities Brookings, SD, USA Owned 771,000 Corporate Headquarters, Manufacturing, Sales, Service Redwood Falls, MN, USA Owned 151,000 Manufacturing, Sales, Service, Office Ennistymon, Ireland Owned 62,000 Manufacturing, Sales, Service, Office Sioux Falls, SD, USA Leased 296,000 Manufacturing, Sales, Service, Office Shanghai, China Leased 157,000 Manufacturing, Sales, Service, Office We have a $75.0 million senior credit facility (the "Credit Facility") consisting of a $60.0 million asset-based revolving credit facility (the "ABL") maturing on May 11, 2026 and a $15.0 million delayed draw loan (the "Delayed Draw Loan). 22 Table of Contents Under the Credit Facility, we have encumbered substantially all of our owned real property for the benefit of the lenders thereunder.
These spaces are generally small leased offices used for sales related activities. See "Note 9. Leases" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information on lease obligations.
For additional information, see "Note 7. Financing Agreements" in the Notes to Consolidated Financial Statements included in this Form 10-K.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
3 edited+2 added−1 removed3 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
3 edited+2 added−1 removed3 unchanged
2023 filing
2024 filing
On December 2, 2021, the Board of Directors of Daktronics voted to reauthorize the stock repurchase program. During fiscal 2023 and 2021, we had no repurchases of shares of our outstanding common stock. During fiscal 2022, we repurchased 0.6 million shares of common stock at a total cost of $3.2 million.
On December 2, 2021, the Board of Directors of Daktronics voted to reauthorize the stock repurchase program. During fiscal 2024 and 2023, we had no repurchases of shares of our outstanding common stock. During fiscal 2022, we repurchased 0.6 million shares of common stock at a total cost of $3.2 million.
As of June 30, 2023, we had 930 shareholders of record. Share Repurchases On June 17, 2016, our Board of Directors approved a stock repurchase program under which Daktronics may purchase up to $40.0 million of its outstanding shares of common stock.
Share Repurchases On June 16, 2016, our Board of Directors approved a stock repurchase program under which Daktronics may purchase up to $40.0 million of its outstanding shares of common stock.
Repurchases of shares are treated as dividends under the South Dakota Business Corporation Act (which is codified as Chapter 47-1A to the South Dakota statutes), so our repurchases of shares could be affected by the limitations imposed on dividends in our credit facility, as further described in "Note 7.
As of April 27, 2024, we had $29.4 million of remaining capacity under our current share repurchase program. Repurchases of shares are treated as dividends under the SD Act, so our repurchases of shares could be affected by the limitations imposed on dividends in our Credit Facility, as further described in "Note 7.
Removed
As of April 29, 2023, we had $29.4 million of remaining capacity under our current share repurchase program.
Added
As of June 3, 2024, we had 852 shareholders of record. The following graph shows changes during the period from April 29, 2017 to April 30, 2022 in the value of $100 invested in: (1) our common stock; (2) The Nasdaq Composite; and (3) the Standard and Poor's 600 Index for Electronic Equipment 23 Table of Contents Manufacturers.
Added
The values of each investment as of the dates indicated are based on share prices plus any cash dividends, with the dividends reinvested on the date they were paid. The calculations exclude trading commissions and taxes.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
27 edited+51 added−78 removed12 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
27 edited+51 added−78 removed12 unchanged
2023 filing
2024 filing
We believe the estimation process for uniquely configured contracts and warranties are most material and critical. These areas contain estimates with a reasonable likelihood to change, and those changes could have a material impact on our financial condition and reported results of operations. The estimation processes for these areas are also difficult, subjective and use complex judgments.
We believe the estimation process for uniquely configured contracts and warranties are most material and critical. These areas contain estimates with a reasonable likelihood to change, and those changes could have a material impact on our financial condition and reported results of operations. The estimation processes for these areas are also difficult and subjective and use complex judgments.
Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed, including a reasonable profit margin. The cost-to-cost input method measures cost incurred to date compared to estimated total costs for each contract.
Over time revenue recognition is appropriate because we have no alternative use for the uniquely configured system and have an enforceable right to payment for work performed, including a reasonable profit margin. The cost-to-cost input method measures costs incurred to date compared to estimated total costs for each contract.
This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform the contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include material and components; manufacturing, project management and engineering labor; and subcontracting expenses.
This method is the most faithful depiction of our performance because it measures the value of the contract transferred to the customer. Costs to perform the contract include direct and indirect costs for contract design, production, integration, installation, and assurance-type warranty reserve. Direct costs include materials and components; manufacturing, project management and engineering labor; and subcontracting expenses.
The effective income tax rate for fiscal 2023 was impacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the tax rate is higher than the United States, as well as prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits.
The effective income tax rate for fiscal 2023 was impacted due to valuation allowances on equity investments and on foreign net operating losses in Ireland, goodwill impairment, state taxes, a mix of taxes in foreign countries where the tax rate is higher 27 Table of Contents than in the United States, as well as a prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits.
Actual results may differ from these estimates. Revenue recognition on uniquely configured contracts. Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost-to-cost input method by comparing cumulative costs incurred to the total estimated costs and applying that percentage of completion to the transaction price to recognize revenue.
Actual results may differ from these estimates. Revenue recognition on uniquely configured contracts. Revenue for uniquely configured (custom) or integrated systems is recognized over time using the cost-to-cost input method by comparing cumulative costs incurred to the total estimated 32 Table of Contents costs and applying that percentage of completion to the transaction price to recognize revenue.
A critical accounting policy is defined as a policy that is both very important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments. We regularly review our 25 Table of Contents critical accounting policies and evaluate them based on these factors.
A critical accounting policy is defined as a policy that is both very important to the portrayal of a company's financial condition and results and requires management's most difficult, subjective or complex judgments. We regularly review our critical accounting policies and evaluate them based on these factors.
As of April 29, 2023 and April 30, 2022, we had approximately $32.5 million and $28.9 million accrued for these warranty obligations, respectively. Due to the difficulty in estimating probable costs related to certain warranty obligations, there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities.
As of April 27, 2024 and April 29, 2023, we had approximately $37.9 million and $32.5 million accrued for these warranty obligations, respectively. Due to the difficulty in estimating probable costs related to certain warranty obligations, there is a reasonable likelihood that the ultimate remaining costs to remediate the warranty claims could differ materially from the recorded accrued liabilities.
We are sometimes required to obtain performance bonds for display installations, and we have bonding capacity available through surety companies for an aggregate of $165.0 million in bonded work outstanding. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics.
We are sometimes required to obtain performance bonds for display installations, and we have an aggregate of $190.0 million bonding line available through surety companies. If we were unable to complete the installation work, and our customer would call upon the bond for payment, the surety company would subrogate its loss to Daktronics.
Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain reasonable liquidity, maintain a leverage ratio that reflects a prudent and compliant capital structure in light of the cyclicality of business, and 32 Table of Contents then return excess cash over time to shareholders through dividends and share repurchases.
Other Liquidity and Capital Uses Our long-term capital allocation strategy is to first fund operations and investments in growth, maintain a reasonable liquidity and leverage ratio that reflects a prudent and compliant capital structure in light of the cyclically of business, reduce debt, and then return excess cash over time to shareholders through dividends and share repurchases.
Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, marketing related expenses (show rooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses.
Non-GAAP Measures Contribution margin is a non-GAAP measure and consists of gross profit less selling expenses. Selling expenses consist primarily of personnel related costs, travel and entertainment expenses, marketing related expenses (show rooms, product demonstration, depreciation and maintenance, conventions and trade show expenses), the cost of customer relationship management/marketing systems, bad debt expenses, third-party commissions, and other expenses.
Nature of Business and Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included elsewhere in this Form 10-K. RESULTS OF OPERATIONS Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year.
The MD&A should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K. Daktronics, Inc. operates on a 52- or 53-week fiscal year, with our fiscal year ending on the Saturday closest to April 30 of each year.
Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product production and expanded capacity and increased automation of processes; investments in quality and reliability equipment and demonstration and showroom assets; and continued information infrastructure investments. We also evaluated and may make strategic investments in new technologies or in our affiliates or acquire companies aligned with our business strategy.
Projected capital expenditures include purchasing manufacturing equipment for new or enhanced product production and expanded capacity and increased automation of processes; investments in quality and reliability equipment and demonstration and showroom assets; and continued information infrastructure investments.
The Credit Facility consists of a $60.0 million asset-based revolving credit facility (the "ABL") maturing on May 11. 2026, secured by first priority lien on the Company's assets and which is subject to certain factors which can impact our borrowing capacity, and a $15.0 million delayed draw loan (the "Mortgage") secured by our Brookings, South Dakota real estate.
The Credit Facility is secured by first priority lien on the Company's assets and is subject to certain factors that can impact our borrowing capacity. We have a mortgage of $13.9 million secured by a first priority lien on our Brookings, South Dakota real estate and matures on May 11, 2026.
We had $10.4 million of retainage on long-term contracts included in receivables and contract assets as of April 29, 2023, which has an impact on our liquidity. We expect to collect these amounts within one year.
We had $14.5 million of retainage on long-term contracts included in receivables and contract assets as of April 27, 2024, which we expect to collect within one year.
Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting total capital expenditures to be approximately $19.0 million for fiscal 2024.
During fiscal year 2024, we did not repurchase shares of common stock, and we did not pay a dividend. Our business growth and profitability improvement strategies depend on investments in capital expenditures and strategic investments. We are projecting total capital expenditures to be approximately $27 million for fiscal 2025.
Working capital was $132.5 million and $103.9 million as of April 29, 2023 and April 30, 2022, respectively. The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, contract assets and liabilities, are impacted by the sports market and construction seasonality.
The changes in working capital, particularly changes in inventory, accounts payable, accounts receivable, and contract assets and 31 Table of Contents liabilities, are impacted by the sports market and construction seasonality.
We must sell more products to generate the same or a greater level of net sales as in previous fiscal years. However, the increased user adoption and number of applications available have increased the size of the global market. Competitors' offerings, actions and reactions also can vary and change over time or in certain customer situations.
We must sell more products to generate the same or a greater level of net sales as in previous fiscal years. Competitors' offerings, actions and reactions can vary and change over time or in certain customer situations. Projects with multimillion-dollar revenue potential attract competition, and competitors can use marketing or other tactics to win business.
Risk Factors." This discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K. 22 Table of Contents Management's Discussion and Analysis - Fiscal 2022 compared to Fiscal 2021 The comparison of fiscal 2022 with fiscal 2021, including the results of operations and liquidity, can be found in the "Management's Discussion and Analysis" section of our Annual Report on Form 10-K for fiscal 2022 filed with the SEC on June 16, 2022, which comparison is incorporated by reference herein.
The comparison of fiscal 2023 with fiscal 2022, including the results of operations and liquidity, can be found in Item 7 section of our Annual Report on Form 10-K for fiscal 2023 filed with the SEC on July 12, 2023, which comparison is incorporated by reference herein.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") are based upon, and should be read in conjunction with, our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
As of April 27, 2024, we had $44.5 million of bonded work outstanding. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our Consolidated Financial Statements and Notes to the Consolidated Financial Statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Under the Pledge and Security Agreement dated as of May 11, 2023 between the Company and the Investor, the Convertible Note is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all of the other assets of the Company, excluding all real property, subject to the Intercreditor Agreement dated as of May 11, 2023 by and among the Company, JPMorgan Chase Bank, N.A., and the Investor.
We also have a convertible note in the original principal amount of $25.0 million due May 11, 2027 (the "Convertible Note") is secured by a second priority lien on assets securing the ABL facility and a first priority lien on substantially all the other assets of the Company, excluding all real property.
Income Taxes" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information. 30 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Year Ended (in thousands) April 29, 2023 April 30, 2022 Dollar Change Net cash (used in) provided by: Operating activities $ 15,024 $ (27,035) $ 42,059 Investing activities (25,388) (31,384) 5,996 Financing activities 17,568 (3,576) 21,144 Effect of exchange rate changes on cash (522) (399) (123) Net (decrease) increase in cash, cash equivalents and restricted cash $ 6,682 $ (62,394) $ 69,076 Net cash (used in) provided by operating activities: Net cash provided by operating activities was $15.0 million for fiscal 2023 compared to $27.0 million net cash used in operating activities in fiscal 2022.
In fiscal 2023, we recorded a goodwill impairment of $2.3 million impacting operating income, with no such impact in fiscal 2024. 30 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Year Ended (in thousands) April 27, 2024 April 29, 2023 Dollar Change Net cash (used in) provided by: Operating activities $ 63,241 $ 15,024 $ 48,217 Investing activities (21,306) (25,388) 4,082 Financing activities 15,122 17,568 (2,446) Effect of exchange rate changes on cash (69) (522) 453 Net increase in cash, cash equivalents and restricted cash $ 56,988 $ 6,682 $ 50,306 Net cash provided by operating activities: The $63.2 million in cash provided by operating activities was the result of improved profitability offset by the net growth in operating assets and liabilities.
Total warranty expense as a percent of sales increased to 2.1 percent for fiscal 2023 as compared to 1.9 percent during fiscal 2022.
Factors impacting gross profit in fiscal 2023 included ongoing supply chain disruptions and inflationary challenges in materials, freight and personnel related costs. Total warranty expense as a percent of sales increased to 2.3 percent for fiscal 2024 as compared to 2.1 percent during fiscal 2023.
Our effective tax rate for fiscal 2022 was 46.6 percent resulting from the tax benefit of permanent tax credits reduced by valuation allowances, various permanent tax adjustments and state taxes and prior year provision to return adjustments. Our consolidated effective tax rate is impacted by the statutory income tax rates applicable to each of the jurisdictions in which we operate.
Additional other items impacting the rate were valuation allowances on equity investments, state taxes, as well as prior year provision to return adjustments reduced in part by tax benefits from permanent tax credits. Our effective tax rate for fiscal 2023 was 48.7 percent.
Contribution margin in fiscal 2023 was positively impacted by the previously discussed sales levels and impacts on gross profit. We have adjusted our sales and marketing activities and staffing levels to achieve current and expected future sales levels.
We regularly adjust our sales and marketing activities and staffing levels to achieve current and expected future sales levels.
Segment Reporting" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further information. Our strategies include the creation of a comprehensive line of innovative solutions and systems and our ability to create and leverage platform designs and technologies.
Nature of Business and Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
High School Park and Recreation : The increase in net sales for fiscal 2023 compared to fiscal 2022 was driven by fulfilling orders in backlog and strong market demand, increased capacity, and realization of price increases implemented beginning in late fiscal year 2022.
High School Park and Recreation : The increase in net sales was driven by fulfilling pent-up orders in backlog and similar market demand for video related products in High Schools. Video projects are a larger dollar-sized transaction than traditional scoreboard products.
The $42.0 million increase in cash provided by operating activities was primarily the result of changes in net operating assets and liabilities and an increase of $6.2 million in net income. For specific quantitative changes in operating assets and liabilities, see "Note 13. Cash Flow Information" of the Notes to our Consolidated Financial Statements included in this Form 10-K.
For additional information on financing agreements, see "Note 7. Financing Agreements" of the Notes to our Consolidated Financial Statements included in this Form 10-K. Working Capital Working capital was $209.7 million and $132.5 million as of April 27, 2024 and April 29, 2023, respectively.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides our highlights and commentary related to factors impacting our financial conditions and further describes the results of operations. The most significant risks and uncertainties are discussed in "Item 1A.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides a narrative from the perspective of management relating to the financial condition, results of operations, liquidity, and other factors that may impact our financial performance.
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EXECUTIVE OVERVIEW Our mission is to be a world leader at informing and entertaining audiences through dynamic audio-visual communication systems. We organize into business units to focus on customer loyalty over time and earn new and replacement business, as our products have a finite lifetime. See "Note 3.
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The fiscal years ended April 27, 2024, April 29, 2023 and April 30, 2022 contained operating results for 52 weeks. 24 Table of Contents The year-over-year comparisons in this MD&A are as of and for the fiscal years ended April 27, 2024 and April 29, 2023, unless stated otherwise.
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These strategies align us to effectively deliver value to our varied customers and their market needs, while serving our stakeholders over the long-term. We focus on creating local capabilities for sales, service, and manufacturing in geographies with expected digital market opportunities. We believe consistently generating profitable growth will provide value to our stakeholders (customers, employees, shareholders, suppliers, and communities).
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In addition to gross profit, management uses contribution margin as another measure of assessing segment profitability and allocating selling resources to each segment. Management believes that contribution margin is useful to investors because it permits investors to view and evaluate our segment financial performance through the same lens as management.
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We measure our success using a variety of measures including: • our percentage of market share by comparing our estimated revenue to the total estimated global digital display revenue; • our order growth compared to the overall digital market order change; • financial metrics such as annual order volume and profit change as compared to our previous financial results; • customer retention and expansion rates; and • our ability to generate profits over the long-term to provide a shareholder return.
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Overview Daktronics, Inc. and its subsidiaries are industry leaders in designing and manufacturing electronic scoreboards, programmable display systems and large screen video displays for sporting, commercial and transportation applications. We serve our customers by providing high quality standard display products as well as custom-designed and integrated systems.
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Certain factors impact our ability to succeed in these strategies and impact our business units to varying degrees. For example, due to volatility in our supply chain and labor conditions through the last two years, our lead times and manufacturing and fulfillment costs increased. We deployed various pricing strategies and redesigned products to utilize available raw materials and components.
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We offer a complete line of products, from small scoreboards and electronic displays to large multimillion-dollar video display systems as well as related control, timing, and sound systems. We are recognized as a technical leader with the capabilities to design, market, manufacture, install and service complete integrated systems displaying real-time data, graphics, animation and video.
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However, not all of our competitors were impacted to the same degree in accessibility to parts and components or reacted similarly with pricing. As a result, in some instances, competitors were awarded more business. The cost to produce digital solutions has declined, which has caused a decline of digital solution pricing over the years.
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We engage in a full range of activities: marketing and sales, engineering and product design and development, manufacturing, technical contracting, professional services and customer service and support. Known Trends and Uncertainties: The supply chain and operating environment continued to stabilize over the past eighteen months post-pandemic and allowed for a more efficient production and fulfillment of orders.
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Projects with multimillion-dollar revenue potential attract competition, and competitors can use marketing or other tactics to win business. Each business unit's long-term performance can be impacted by economic conditions in different ways and to different degrees.
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The expansion of use of digital display systems in the global market continues post-pandemic despite a number of factors that can impact customers committing to a system. In addition to often being discretionary purchases, a customer's decision to purchase a system can be dependent on factors such as macroeconomic environment, interest rates levels, regulatory environments, geopolitical events, and competitive factors.
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The effects of an adverse economy are generally less severe on our sports related business as compared to our other businesses, although in severe economic downturns with social changes causing decreases in sporting event revenues, the sports business can also be seriously impacted. Outlook: Daktronics endured a dynamic operating environment through the pandemic years.
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Display and control technologies and related professional services continue to advance. A majority of digital displays are constructed using standard surface mount display technology. Micro-LED technologies (also referred to as narrow pixel pitch) are being used and advanced, especially for displays installed for short viewing distances. Global investments have been made to advance these technologies and to increase manufacturing capacity.
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At the beginning of the pandemic, orders pulled back swiftly and abruptly, and we lowered capacity. Then order volumes recovered sharply while supply chain disruptions coupled with a tight labor market constrained our ability to deliver efficiently at traditional lead times and service levels. Inflation in parts, components, and labor increased our operating costs and decreased gross margins.
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The use of artificial intelligence and other software advances continues to improve content creation and digital display monitoring systems. Inflation in parts supply, labor, and other resources continued to stabilize during fiscal 2024. Over the past decade, the cost to produce digital solutions has declined, which has caused a decline of digital solution pricing.
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To adapt to these conditions, our teams came together to take decisive and deliberate actions to improve our customers' experience while implementing strategies to improve our profitability and working capital levels.
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We believe the audiovisual industry fundamentals of increased use of LED display systems across industries and our development of new technologies, services, and sales channels will drive long-term growth for our Company. 25 Table of Contents RESULTS OF OPERATIONS Consolidated Performance Summary The following is an analysis of changes in key items included in the statements of operations for fiscal year 2024 as compared to fiscal year 2023. 2024 % of Net sales (1) 2023 % of Net sales (1) Dollar Change (1) Percent Change (1) Net sales $ 818,083 100.0 % $ 754,196 100.0 % $ 63,887 8.5 % Cost of sales 595,640 72.8 602,841 79.9 (7,201) (1.2) Gross profit 222,443 27.2 151,355 20.1 71,088 47.0 Operating expenses: Selling 56,954 7.0 56,655 7.5 299 0.5 General and administrative 42,632 5.2 38,747 5.1 3,885 10.0 Product design and development 35,742 4.4 29,989 4.0 5,753 19.2 Goodwill impairment — — 4,576 0.6 (4,576) (100.0) Total operating expenses 135,328 16.5 129,967 17.2 5,361 4.1 Operating income 87,115 10.6 21,388 2.8 65,727 307.3 Nonoperating (expense) income: Interest (expense) income, net (3,418) (0.4) (920) (0.1) (2,498) 271.5 Change in fair value of convertible note (16,550) (2.0) — — (16,550) — Other expense and debt issuance costs write-off, net (13,096) (1.6) (7,211) (1.0) (5,885) 81.6 Income before income taxes 54,051 6.6 13,257 1.8 40,794 307.7 Income tax expense 19,430 2.4 6,455 0.9 12,975 201.0 Net income $ 34,621 4.2 % $ 6,802 0.9 % $ 27,819 409.0 % Diluted earnings per share $ 0.74 $ 0.15 $ 0.59 397.8 % Diluted weighted average shares outstanding 46,543 45,521 1,022 2.2 % Orders $ 740,171 $ 680,954 $ 59,217 8.7 % ( 1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided.
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Supply chains have gradually been stabilizing, which should allow reduced inventory levels in the coming months as our production levels continue to increase and we are able to purchase less safety stock.
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In addition, percentages may not add in total due to rounding. Net Sales: The stable operating environment and supply chain combined with our past investments in capacity resulted in a more efficient fulfillment process and a return to market expected lead times. These conditions and strong order levels resulted in the growth of net sales.
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Although the post-pandemic 23 Table of Contents geopolitical situation and global trade patterns continue to evolve, we believe that the levels of uncertainty and volatility will not be as great in the coming months and will continue to stabilize in the coming fiscal year.
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These conditions are in contrast to the fiscal year 2023 operating environment where we 26 Table of Contents faced manufacturing material supply and labor shortages which extended lead times and delayed the conversion of orders into sales.
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We believe the audiovisual industry fundamentals and the development of new technologies and services will drive long-term growth for our business; however, our customers may reduce their spend on audiovisual systems and related services because of the impacts of global economic conditions, war and geopolitical situations, or other factors outside of our control.
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For the years ended April 27, 2024 and April 29, 2023, our operating income was positively impacted by a net amount of 1.0% and 0.3% of overtime revenue or $4.1 million and $1.2 million, respectively, as a result of changes in contract estimates related to projects in progress at the beginning of the respective period.
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The outlook and unique key growth drivers and challenges by our business units include the following: Commercial Business Unit: Over the long-term, we believe growth in the Commercial business unit will result from a number of factors, including: • Standard display product market growth due to market adoption and lower product costs, which drive marketplace expansion.
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These changes in estimates resulted primarily from favorable project execution of 1.5% of overtime revenue or $6.5 million, reduced cost estimates and contingencies that were relieved when conditions were resolved. Gross unfavorable changes in contract estimates were 0.6% of overtime revenue or $2.4 million and immaterial for the years ended April 27, 2024 and April 29, 2023, respectively.
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Standard display products are used to attract or communicate with customers and potential customers of retail, commercial, and other establishments. Pricing and economic conditions are the principal factors that impact our success in this business unit.
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See "Note 1. Nature of Business and Summary of Significant Accounting Policies" for more information regarding revenue recognition. Order volume growth is attributable to a stable macroeconomic environment in North America, to the continued use and market adoption of digital display technology, and to our success in capturing existing and new customers orders for larger project-based sports and transportation business.
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We utilize a reseller network to distribute our standard products. • National accounts standard display market opportunities due to customers' desire to communicate their message, advertising and content consistently across the country.
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As we are a project-based business, large sized project orders can impact levels of orders. During fiscal 2024, fewer large sized projects were booked to orders in Commercial and International because there were fewer large projects available in the market place.
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Increased demand is possible from national retailers, quick-serve restaurants, petroleum retailers, and other nationwide organizations. • Additional standard display offerings using micro-LED designs. • Increasing use of LED technologies replacing signage previously using LCD technology by existing and new customers. • Development and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products. • Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and Times Square type locations. • New market adoption and expansion for use of LED in government and military and corporate campuses. • Dynamic messaging systems demand growth due to market adoption and expanded use of this technology. • The use of architectural lighting products for commercial buildings, which real estate owners use to add accents or effects to an entire side or circumference of a building to communicate messages or to decorate the building. • The continued deployment of digital billboards as OOH advertising companies continue developing new sites and replacing digital billboards reaching end of life.
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Gross profit percentage increase is attributable to past strategic pricing actions, the record sales volume over our fixed manufacturing cost structure, stabilization of input costs, and fewer supply chain and operational disruptions during fiscal 2024 as compared to fiscal 2023.
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This is dependent on no adverse changes occurring in the digital billboard regulatory environment restricting future billboard deployments, as well as maintaining our current market share in a business that is concentrated in a few large OOH companies. • Replacement cycles within each of these areas.
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All expense lines increased for variable compensation and profit sharing linked to operating margins achieved in fiscal year 2024 as compared to amounts achieved in fiscal year 2023.
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Live Events Business Unit: We believe growth in the Live Events business unit will result from a number of factors, including: • Facilities spending more on larger display systems to enhance the game-day and event experience for attendees. • Lower product costs, driving an expansion of the marketplace. • Our product and service offerings, including additional micro-LED offerings which remain the most integrated and comprehensive offerings in the industry. • The competitive nature of sports teams, which strive to out-perform their competitors with display systems. • The desire for high-definition video displays, which typically drive larger displays or higher resolution displays, both of which increase the average transaction size. • Dynamic messaging system needs throughout a sports facility. • Increasing use of LED technologies replacing signage previously using LCD technology in and surrounding live events facilities. • Replacement cycles within each of these areas.
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For fiscal 2024, these expenses totaled $6.5 million, including $3.1 million in cost of sales, $1.2 million in selling, $1.4 million in general and administrative, and $0.8 million in product design and development. In fiscal 2023, the amounts achieved were immaterial. Selling expense s were relatively flat.
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High School Park and Recreation Business Unit: Over the long-term, we believe growth in the High School Park and Recreation business unit will result from a number of factors, including: • Increased demand for video systems in high schools as school districts realize the revenue generating potential of these displays compared to traditional scoreboards and these systems' ability to provide or enhance academic curriculum offerings for students. 24 Table of Contents • Increased demand for different types of displays and dynamic messaging systems, such as message centers at schools to communicate to students, parents and the broader community. • Lower system costs driving the use of more sophisticated displays in school athletic facilities, such as large integrated video systems. • Expanding control system options tailored for the markets' needs. • Certain display requirements for sporting events.
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Personnel related wages and benefits expense increases were offset by less bad debt charges and third party commission related costs. General and administrative increased for additional personnel wage and benefits and increased staffing levels for our digital transformation strategies, offset by lower professional fees. Product design and development increased primarily due to personnel-related expenses and increased staffing levels.
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Transportation Business Unit: Daktronics has experienced governmental agencies placing orders as a way to spend their allocated budgets for their fiscal years. In addition, the Infrastructure Investment and Jobs Act signed into law in November 2021 is expected to have a positive impact on all segments of United States transportation terminals and public transit facilities.
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Our focus has been to advance product features aligned with customer needs and to reduce product costs. We focused these efforts on both standard product and control offerings and in new emerging areas, including microLED products and new control capabilities.
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Over the long-term, we believe growth in the Transportation business unit will result from a number of factors, including: • Increasing applications and acceptance of electronic displays to manage transportation systems, including roadway, airport, parking, transit and other applications. • Development and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products. • Effective use of the United States transportation infrastructure requires intelligent transportation systems.
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Interest (expense) income, net increase was the result of the May 2023 closing on the Convertible Note and asset-based and mortgage financings at higher borrowed values and interest rates than the utilization of our previous line of credit during fiscal 2023 .
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This growth is highly dependent on government spending, primarily by state and federal governments, along with the continuing acceptance of private/public partnerships as an alternative funding source. • Expanded use of dynamic messaging systems for advertising and wayfinding use in public transport and airport terminals due to expanded market usage and displays, with LED technology replacing prior LCD installations and additional display offerings using micro-LEDs.
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Change in fair value of Convertible Note results from accounting for the Convertible Note we issued during fiscal 2024, under the fair value option. The fair value change was primarily caused by the increase in value of the embedded features of the note as the stock price has increased since inception of the note.
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International Business Unit: Over the long-term, we believe growth in the International business unit will result from a number of factors, including: • Achieving greater penetration in various geographies and building products more suited to individual markets.
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Other expense and debt issuance costs write-off, net is primarily comprised of $10.1 million of losses and impairments recorded for equity method affiliates, and expensing of $3.4 million of debt issuance costs related to the Convertible Note. Income tax expense increased due to the year-over-year increase in Income before income taxes.
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We continue to broaden our product offerings into the transportation segment in Europe and the Middle East. • Continued focus on sports facility, spectacular-type, OOH advertising products, and architectural lighting market opportunities and the factors listed in each of the other business units to the extent they apply outside of the United States and Canada. • Increasing interest in spectaculars, which include very large and sometimes highly customized displays as part of entertainment venues such as casinos, shopping centers, cruise ships and city-center locations. • New market adoption and expansion of use of LED in government and military and corporate campuses. • Additional opportunities exist with expanded market usage of LED technology due to price considerations, usage of LED technology replacing prior LCD installations and additional display offerings using micro-LEDs. • Development and marketing alternative low-power and sustainable solutions for installations in power constrained areas or for customers desiring these types of products. • Our product and service offerings, including additional micro-LED offerings, which remain the most integrated and comprehensive offerings in the industry. • Growing our reseller channels to promote our products and gain market share.
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O ur effective tax rate for fiscal 2024 was 35.9 percent. The effective income tax rate for fiscal 2024 was primarily impacted due to the convertible note fair value adjustment to expense that is not deductible for tax purposes.
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When April 30 falls on a Wednesday, the fiscal year ends on the preceding Saturday. Within each fiscal year, each quarter is comprised of 13-week periods following the beginning of each fiscal year.
Added
Income Taxes" for further information. 28 Table of Contents Reportable Segment Performance Summary The following table shows information regarding our reportable segment financial performance of contribution margin reconciled to GAAP operating income for the fiscal years ended April 27, 2024 and April 29, 2023: Fiscal Year 2024 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 161,626 $ 338,508 $ 170,349 $ 85,390 $ 62,210 $ 818,083 Cost of sales 127,393 78.8 % 242,524 71.6 % 112,985 66.3 % 59,369 69.5 % 53,369 85.8 % 595,640 72.8 % Gross profit 34,233 21.2 95,984 28.4 57,364 33.7 26,021 30.5 8,841 14.2 222,443 27.2 Selling 17,425 10.8 10,991 3.2 14,276 8.4 4,127 4.8 10,136 16.3 56,954 7.0 Contribution margin 16,808 10.4 84,993 25.1 43,088 25.3 21,894 25.6 (1,295) (2.1) 165,489 20.2 General and administrative — — — — — — — — — — 42,632 5.2 Goodwill impairment — — — — — — — — — — — — Product design and development — — — — — — — — — — 35,742 4.4 Operating income (loss) $ 16,808 10.4 % $ 84,993 25.1 % $ 43,088 25.3 % $ 21,894 25.6 % $ (1,295) (2.1) % $ 87,115 10.6 % Orders $ 135,251 $ 321,191 $ 148,505 $ 80,107 $ 55,117 $ 740,171 Fiscal Year 2023 Commercial Percent of net sales (1) Live Events Percent of net sales (1) High School Park and Recreation Percent of net sales (1) Transportation Percent of net sales (1) International Percent of net sales (1) Total Percent of net sales (1) Net sales $ 170,590 $ 284,900 $ 141,748 $ 72,306 $ 84,652 754,196 Cost of sales 139,435 81.7 % 235,645 82.7 % 100,603 71.0 % 52,481 72.6 % 74,677 88.2 % 602,841 79.9 % Gross profit 31,155 18.3 49,255 17.3 41,145 29.0 19,825 27.4 9,975 11.8 151,355 20.1 Selling 17,130 10.0 10,240 3.6 13,524 9.5 3,924 5.4 11,837 14.0 56,655 7.5 Contribution margin 14,025 8.2 39,015 13.7 27,621 19.5 15,901 22.0 (1,862) (2.2) 94,700 12.6 General and administrative — — — — — — — — — — 38,747 5.1 Goodwill impairment — — 2,281 0.8 — — — — 2,295 2.7 4,576 0.6 Product design and development — — — — — — — — — — 29,989 4.0 Operating income (loss) $ 14,025 8.2 % $ 36,734 12.9 % $ 27,621 19.5 % $ 15,901 22.0 % $ (4,157) (4.9) % $ 21,388 2.8 % Orders $ 158,028 $ 259,653 $ 144,919 $ 66,751 $ 51,603 $ 680,954 Net Dollar and % Change (1) Commercial Percent Change (1) Live Events Percent Change (1) High School Park and Recreation Percent Change (1) Transportation Percent Change (1) International Percent Change (1) Total Percent Change (1) Net sales $ (8,964) (5.3) $ 53,608 18.8 $ 28,601 20.2 $ 13,084 18.1 $ (22,442) (26.5) $ 63,887 8.5 Cost of sales (12,042) (8.6) 6,879 2.9 12,382 12.3 6,888 13.1 (21,308) (28.5) (7,201) (1.2) Gross profit 3,078 9.9 46,729 94.9 16,219 39.4 6,196 31.3 (1,134) (11.4) 71,088 47.0 Selling 295 1.7 751 7.3 752 5.6 203 5.2 (1,701) (14.4) 299 0.5 Contribution 2,783 19.8 45,978 117.8 15,467 56.0 5,993 37.7 567 (30.5) 70,789 74.8 General and administrative — — — — — — — — — — 3,885 10.0 Goodwill impairment — — (2,281) (100.0) — — — — (2,295) (100.0) (4,576) (100.0) Product design and development — — — — — — — — — — 5,752 19.2 Operating income (loss) $ 2,783 19.8 % $ 48,259 131.4 % $ 15,467 56.0 % $ 5,993 37.7 % $ 2,862 (68.8) % $ 65,727 307.3 % Orders $ (22,776) (14.4) % $ 61,538 23.7 % $ 3,585 2.5 % $ 13,356 20.0 % $ 3,514 6.8 % $ 59,217 8.7 % ( 1) Amounts are calculated based on unrounded numbers and therefore may not recalculate using the rounded numbers provided.
Removed
In each 53-week year, an additional week is added to the first quarter, and each of the last three quarters is comprised of a 13-week period. 26 Table of Contents Net Sales The following table shows information regarding net sales for the fiscal years ended April 29, 2023 and April 30, 2022: Year Ended (in thousands) April 29, 2023 April 30, 2022 Dollar Change Percent Change Net Sales: Commercial $ 170,590 $ 154,211 $ 16,379 10.6 % Live Events 284,900 199,106 85,794 43.1 High School Park and Recreation 141,748 111,816 29,932 26.8 Transportation 72,306 62,707 9,599 15.3 International 84,652 83,130 1,522 1.8 $ 754,196 $ 610,970 $ 143,226 23.4 % Orders: Commercial $ 158,028 $ 192,917 $ (34,889) (18.1) % Live Events 259,653 313,940 (54,287) (17.3) High School Park and Recreation 144,919 156,305 (11,386) (7.3) Transportation 66,751 77,993 (11,242) (14.4) International 51,603 104,916 (53,313) (50.8) $ 680,954 $ 846,071 $ (165,117) (19.5) % Fiscal Year 2023 as compared to Fiscal Year 2022 For fiscal year 2023, net sales were $754.2 million, an increase of $143.2 million from fiscal year 2022.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
7 edited+0 added−1 removed9 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
7 edited+0 added−1 removed9 unchanged
2023 filing
2024 filing
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Rates Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. We derive net sales in United States dollars and other currencies including Canadian dollars, Euros, Chinese renminbi, British pounds, Australian dollars, or other currencies.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Rates Our results of operations could be affected by factors such as changes in foreign currency rates or weak economic conditions in foreign markets. We derive net sales in United States dollars and other currencies including Canadian dollars, Euros, British pounds, Australian dollars, or other currencies.
Some of these materials are sourced outside of the countries in which we manufacture our products and are subject to transportation delays. Any of these factors may cause a sudden increase in costs and/or limited or 33 Table of Contents unavailable supplies.
Some of these materials are sourced outside of the countries in which we manufacture our products and are subject to transportation delays. Any of these factors may cause a sudden increase in costs and/or limited or unavailable supplies.
For fiscal 2023, 12.3 percent of net sales were derived in currencies other than United States dollars.
For fiscal 2024, 9.0 percent of net sales were derived in currencies other than United States dollars.
Of our $24.0 million in cash balances as of April 29, 2023, $15.9 million were denominated in United States dollars, of which $1.3 million were held by our foreign subsidiaries. As of April 29, 2023, we had an additional $8.1 million in cash balances denominated in foreign currencies, of which $7.7 million were maintained in accounts of our foreign subsidiaries.
Of our $81.3 million in cash balances as of April 27, 2024, $67.8 million were denominated in United States dollars, of which $0.3 million were held by our foreign subsidiaries. As of April 27, 2024, we had an additional $13.5 million in cash balances denominated in foreign currencies, of which $8.0 million was maintained in accounts of our foreign subsidiaries.
Derivative Financial Instruments" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further details. We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $0.4 million.
We estimate that a 10 percent change in all foreign exchange rates would impact our reported income before taxes by approximately $0.5 million.
Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies.
This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area. 33 Table of Contents Over the long term, net sales to international markets are expected to increase as a percentage of total net sales and, consequently, a greater portion of our business could be denominated in foreign currencies.
The notional amount of the foreign currency agreements as of April 29, 2023 was $7.8 million, and all contracts mature within six months. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 15.
There were no foreign currency agreements outstanding as of April 27, 2024. These contracts are marked to market each balance sheet date and are not designated as hedges. See "Note 15. Derivative Financial Instruments" of the Notes to our Consolidated Financial Statements included in this Form 10-K for further details.
Removed
This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.