NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF THE PLAN
The following description of the Daktronics, Inc. 401(k) Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General:
The Plan is a defined contribution plan providing benefits for substantially all United States based employees of both Daktronics, Inc. (the "Plan Sponsor") and its subsidiaries (collectively referred to as the “Company”) if such employees have attained 21 years of age and completed applicable service requirements. The service requirements are three months in the case of both salary deferrals and employer contributions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The Plan is an employee stock ownership plan under the Internal Revenue Code of 1986 (the "Code"). The employee stock ownership plan provisions are specific to the investments in the Daktronics, Inc. common stock fund. This provides for, among other things, the right to vote shares of Daktronics, Inc. common stock, the right to elect dividends related to Daktronics, Inc. common stock to be passed through and distributed to participants, and the right to receive certain distributions in the form of Daktronics, Inc. common stock.
Administration:
The Company has appointed an Administrative Committee to manage the day-to-day operation and administration of the Plan and an Investment Committee to select and monitor the investments of the Plan.
Participants' contributions:
Participants may elect to have the Company contribute a percentage of their eligible compensation not to exceed the maximum amount allowable under the Code. Participants who elect to have the Company contribute a portion of their compensation to the Plan agree to accept an equivalent reduction in compensation. Contributions withheld are invested in accordance with the participant’s direction.
Participants are also allowed to make rollover contributions of amounts received from other tax-qualified employer-sponsored retirement plans. Such contributions are deposited in the appropriate investment funds in accordance with the participant’s direction and the Plan’s provisions.
Employer contributions:
For fiscal
2017
and fiscal
2016
, the Company matched 50 percent of the first six percent of the employee’s eligible pay. Matching contributions are invested in Daktronics, Inc. common stock and become participant-directed immediately. No additional discretionary contributions were made by the Company for the years ended
April 30, 2017 and 2016
.
Participants' accounts:
Each participant’s account is credited with the participant’s contributions and the Company's matching contributions, is allocated the Plan's earnings and losses, and is charged with an allocation of administrative expenses. Allocations of administrative expenses are based on participants' earnings or account balances, as defined in the Plan’s provisions. The participant is entitled to the benefit provided from the participant's vested account.
Vesting:
Participants are immediately vested in their voluntary contributions, including rollover contributions from other qualified plans, plus actual earnings thereon. The remainder of their accounts are vested according to the number of years of continuous service. Participants’ accounts vest at the rate of 20 percent per year and become fully vested after five years of credited service. Employees based in the United States hired as a result of an acquisition by the Company or its subsidiaries are generally entitled to an appropriate service credit for the length of employment with their former employer for purposes of determining eligibility, vesting and contribution allocations for the Plan.
Payment of benefits:
Distributions of a participant’s vested account balance are made as soon as administratively possible following his or her retirement, total disability, death or termination of employment. The amount of distribution under the Plan is equal to the participant’s vested account balance. If the participant has any loan balance at the time of distributions, the amount of cash available to the participant or beneficiary is reduced by the outstanding balance of the loan. Hardship withdrawals are allowed for participants incurring an immediate and heavy financial need, as defined by the Plan. Hardship withdrawals are strictly regulated by the Internal Revenue Service ("IRS"), and a participant must exhaust all available loan options and available distributions prior to requesting a hardship withdrawal. Benefits are recorded when paid.
Investment fund information:
Participants may individually direct employee contributions into various mutual funds, common collective trusts, money market mutual funds and Daktronics, Inc. common stock. Participants may change their investment options daily.
Notes receivable from participants:
Participants may borrow from their accounts up to the lesser of $50,000 or 50 percent of their vested account balance. Loan transactions are transfers between the investment funds and the participant notes fund. Loan terms range from
one to five years, or longer for the purchase of a primary residence. The loans are secured by the balance in the participant’s account and bear a commercially reasonable rate of interest, which the Company has determined to be the prime rate as determined by the Plan’s Trustee. Changes in the prime rate are implemented by the Trustee when it is reasonably administratively feasible to do so. Principal and interest are paid ratably no less than biweekly through payroll deductions. Loans are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest income on participant loans is recorded when it is earned. If a participant ceases to make loan repayments and the Plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Excess contributions refundable:
At
April 30, 2017 and 2016
,
$9,121
and
$14,990
, respectively, were recorded for amounts refundable by the Plan to participants for contributions made in excess of amounts allowed by the IRS.
Forfeited accounts:
During the years ended
April 30, 2017 and 2016
, respectively, forfeitures of the non-vested account balances of terminated participants of
$18,483
and
$8,601
were used to reduce employer contributions.
Administrative expenses:
Administrative expenses, consisting of investment management service fees, legal fees, and audit fees, are paid by the Plan using forfeitures of the Company’s contributions, and any remaining balance is netted against investment returns.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting:
The accompanying financial statements have been prepared on the accrual basis of accounting.
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts in the financial statements, accompanying notes and supplemental schedule. Actual results may differ from those estimates.
Investment valuation and income recognition:
The investments are stated at fair value as determined by quoted market prices on the last business day of the Plan year, except investment assets in common collective trusts, which are valued based on the net asset value as determined by using estimated fair value of the underlying assets held in the fund.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes that Plan's gains and losses on investments bought and sold as well as held during the year.
NOTE 3. FAIR VALUE MEASUREMENT
ASC 820,
Fair Value Measurement
, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy within ASC 820 distinguishes between the following three levels of inputs which may be utilized when measuring fair value.
Level 1–
Quoted prices in active markets for identical assets or liabilities.
Level 2 –
Observable inputs other than quoted prices included within Level 1 for the assets or liabilities, either directly or indirectly (for example, quoted market prices for similar assets and liabilities in active markets or quoted market prices for identical assets or liabilities in markets not considered to be active, inputs other than quoted prices that are observable for the asset or liability, or market-corroborated input).
Level 3 –
Unobservable inputs supported by little or no market activity based on our own assumptions used to measure assets and liabilities.
The following tables present the Plan’s assets valued at fair value as of
April 30, 2017 and 2016
by level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of April 30, 2017
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Daktronics, Inc.* common stock
|
|
$
|
25,580,024
|
|
|
$
|
—
|
|
|
$
|
25,580,024
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
62,445,672
|
|
|
—
|
|
|
62,445,672
|
|
|
Fixed income
|
|
4,016,063
|
|
|
—
|
|
|
4,016,063
|
|
|
Balanced
|
|
8,519,584
|
|
|
—
|
|
|
8,519,584
|
|
|
Money market mutual fund*
|
|
—
|
|
|
1,248,119
|
|
|
1,248,119
|
|
|
|
|
$
|
100,561,343
|
|
|
$
|
1,248,119
|
|
|
$
|
101,809,462
|
|
|
Investments measured at Net Asset Value (NAV)**:
|
|
|
|
|
|
|
|
Common collective trusts*:
|
|
|
|
|
|
|
|
Wells Fargo Stable Return Fund*
|
|
|
|
|
|
5,397,576
|
|
|
Wells Fargo/Blackrock S&P 500 Index*
|
|
|
|
|
|
4,979,298
|
|
|
Wells Fargo Target Funds*
|
|
|
|
|
|
7,514,964
|
|
|
Total Investments at Fair Value
|
|
|
|
|
|
$
|
119,701,300
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of April 30, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Daktronics, Inc.* common stock
|
|
$
|
23,720,777
|
|
|
$
|
—
|
|
|
$
|
23,720,777
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
52,369,270
|
|
|
—
|
|
|
52,369,270
|
|
|
Fixed income
|
|
4,285,904
|
|
|
—
|
|
|
4,285,904
|
|
|
Balanced
|
|
10,177,881
|
|
|
—
|
|
|
10,177,881
|
|
|
Money market mutual fund*
|
|
—
|
|
|
716,830
|
|
|
716,830
|
|
|
|
|
$
|
90,553,832
|
|
|
$
|
716,830
|
|
|
$
|
91,270,662
|
|
|
Investments measured at Net Asset Value (NAV)**:
|
|
|
|
|
|
|
|
Common collective trusts*:
|
|
|
|
|
|
|
|
Wells Fargo Stable Return Fund*
|
|
|
|
|
|
4,523,513
|
|
|
Wells Fargo/Blackrock S&P 500 Index*
|
|
|
|
|
|
3,875,664
|
|
|
Total Investments at Fair Value
|
|
|
|
|
|
$
|
99,669,839
|
|
|
*Indicates a party-in-interest to the Plan.
|
|
|
|
|
|
|
|
**Certain investments that are measured at fair value using the net asset per share as a practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented on the Statement of Net Assets Available for Benefits.
|
|
|
|
|
|
|
The following is a description of the valuation techniques and inputs used for each major class of investment measured at fair value by the Plan:
Daktronics, Inc. common stock:
The fair values are the quoted market prices of the active market on which the individual securities are traded.
Mutual funds:
Mutual funds are valued at the closing price reported on the active market on which the individual funds are traded.
Money market mutual fund:
The money market mutual fund invests in the Wells Fargo Short-Term Investment Fund S. Valuation of this fund's units occurs daily. Unit values are determined by dividing the value of the fund's net assets by the total number of participants' units outstanding on the valuation date. The Wells Fargo Short Term Investment Fund S seeks to maintain a constant net asset value of $1 per unit; however, there can be no guarantee that this fund will meet this goal.
Common collective trusts:
The common collective trust investments are valued at NAV. The individual holdings in the funds are publicly traded on major market exchanges, and their end of day price and total shares held are used to determine each fund’s total market value. None of these funds have a finite life or unfunded commitments related to this type of investment. The Wells Fargo/Blackrock S&P 500
Index Fund is an index fund that invests in the equity securities of companies that compose the Standard & Poor's 500 Index, and allows for daily liquidity with no additional days’ notice required for redemption. The Wells Fargo Stable Return Fund seeks to provide investors with a moderate level of stable income without principal volatility, and allows for redemption following a 12-month notice period. The Wells Fargo Target Date Funds seek total return over time, consistent with its strategic target date allocation. Each Target Date Fund will pursue its objective through investment in a combination of underlying collective investments funds. Purchases and redemptions of units from each Target Date Fund are based on unit values as of the valuation date. Purchase and redemptions of units may occur on a daily basis.
NOTE 4. RECONCILIATION OF FINANCIAL STATEMENTS TO THE FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of
April 30, 2017 and 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2017
|
|
April 30, 2016
|
|
Net assets available for benefits per the financial statements
|
|
$
|
122,516,472
|
|
|
$
|
102,369,117
|
|
|
Deemed loan activity
|
|
(5,724
|
)
|
|
(5,724
|
)
|
|
Net assets available for benefits per Form 5500
|
|
$
|
122,510,748
|
|
|
$
|
102,363,393
|
|
Deemed distributions of participant loans are recorded on the Form 5500 upon default by the participants; such amounts continue to be reported as participant loans in the financial statements until the participants' termination and actual distribution from the Plan.
NOTE 5. PLAN TERMINATION
The Plan Sponsor has the right under the Plan to discontinue contributions at any time and to terminate the Plan subject to the provisions of ERISA. The Plan Sponsor has not expressed any intent to terminate the Plan. If the Plan is terminated, participants will become 100 percent vested in their accounts.
NOTE 6. FEDERAL INCOME TAX STATUS
The Plan has received a determination letter from the IRS dated May 8, 2014, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualified status. The Plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and therefore, believes the Plan, as amended, is qualified and the related trust is tax-exempt.
Accounting principles generally accepted in the United States require plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. Plan management has analyzed the tax positions taken by the Plan, and has concluded that there are no uncertain positions taken or expected to be taken. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
NOTE 7. RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risks associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the financial statements. Daktronics, Inc. common stock is included in investment accounts and represents approximately
20.9
percent and
23.2
percent of the net assets available for Plan benefits at
April 30, 2017 and 2016
, respectively. Fluctuations in the price of Daktronics, Inc. common stock may continue to materially affect the participants’ account balances and the net assets available for Plan benefits as a whole.
NOTE 8. RELATED-PARTY AND PARTY-IN-INTEREST TRANSACTIONS
The Plan invests in mutual funds, common/collective trusts, and a money market security fund that are administered or managed by Wells Fargo Bank, N.A., the Plan’s trustee. In addition, the Plan allows for loans to participants and investment in the common stock of Daktronics, Inc. These transactions qualify as party-in-interest transactions; however, they are exempt from the prohibited transactions rules under ERISA. As of
April 30, 2017 and 2016
, the Plan owned
2,704,261
and
2,727,112
shares of common stock of Daktronics, Inc., respectively. As of April 20, 2017 and 2016, the Plan received 861,218 and 1,039,293 of dividends from the Daktronics stock.