UNITED STATES SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
Commission File Number 0-23604
DAKOTAH, INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
South Dakota 46-0339860
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification Number)
One North Park Lane
Webster, SD 57274
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Zip Code: (605) 345-4646
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months and (2) has been subject to such filing requirements
for the past 90 days.
Yes: __X__ No: _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock, $.01 par value, 3,499,755 shares outstanding
as of November 8, 1996.
DAKOTAH, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets (Unaudited):
September 30, 1996 and December 31,1995
Statements of Earnings (Unaudited):
Three month and nine month periods ended
September 30, 1996, and September 30, 1995
Statements of Cash Flows (Unaudited):
Nine month periods ended
September 30, 1996, and September 30, 1995
Notes to Financial Statements:
September 30, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since items
are inapplicable or answer is negative
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit Number: Description:
27.1 Financial Data Schedule
(b.) Reports on Form 8-K None
ITEM 1: Financial Statements
<TABLE>
<CAPTION>
DAKOTAH, INCORPORATED
BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,131 $ 477,330
Accounts receivable less allowance
for doubtful accounts of $391,000
in 1996 and $324,000 in 1995 9,069,269 6,365,606
Inventories 13,099,171 7,364,035
Prepaid expenses 1,051,918 477,507
Deferred income taxes 467,000 467,000
----------- -----------
Total current assets 23,692,489 15,151,478
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 36,000 36,000
Buildings and improvements 1,808,367 1,405,536
Leasehold improvements 122,362 123,731
Machinery and equipment 2,708,051 2,047,676
Office equipment, furniture and fixtures and other 882,876 481,816
----------- -----------
5,557,656 4,094,759
Less accumulated depreciation & amortization 2,432,943 1,885,274
----------- -----------
3,124,713 2,209,485
OTHER ASSETS
Deferred income taxes 349,000 349,000
Other 425,869 425,869
----------- -----------
774,869 774,869
----------- -----------
$27,592,071 $18,135,832
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ 8,809,388 $ 3,666,796
Current maturities of long-term obligations, including
$351,898 in 1996 and $234,077 in 1995 to related parties 456,796 577,152
Accounts payable 5,559,027 2,253,281
Accrued liabilities
Compensation and related benefits 1,355,940 654,036
Other 503,365 413,025
----------- -----------
Total current liabilities 16,684,516 7,564,290
LONG-TERM OBLIGATIONS, less current maturities, including
$221,134 in 1996 and $572,062 in 1995 to related parties 990,611 1,051,487
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 10,000,000 shares authorized;
issued & outstanding shares 3,499,755 34,998 34,998
Additional contributed capital 6,804,156 6,804,156
Retained earnings 3,077,790 2,680,901
----------- -----------
9,916,944 9,520,055
----------- -----------
$27,592,071 $18,135,832
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
DAKOTAH, INCORPORATED
STATEMENTS OF EARNINGS
(Unaudited)
For the three months ended September 30, For the nine months ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 12,592,179 $ 8,239,886 $ 26,556,734 $ 20,071,961
Cost of goods sold 9,498,414 5,959,019 19,468,811 14,541,776
------------ ------------ ------------ ------------
Gross profit 3,093,765 2,280,867 7,087,923 5,530,185
Operating expenses
Selling 1,413,401 1,139,273 3,492,083 2,992,829
General and administrative 988,939 806,942 2,605,991 2,034,030
------------ ------------ ------------ ------------
2,402,340 1,946,215 6,098,074 5,026,859
------------ ------------ ------------ ------------
Operating profit 691,425 334,652 989,849 503,326
Other income (expense)
Interest expense (187,730) (63,397) (391,577) (139,886)
Gain on sale of equipment 100,000 -- 106,867 58,932
Other (60,000) 16,665 (85,000) 33,815
------------ ------------ ------------ ------------
(147,730) (46,732) (369,710) (47,139)
Earnings before income taxes 543,695 287,920 620,139 456,187
Income tax expense 195,730 103,700 223,250 164,200
------------ ------------ ------------ ------------
NET EARNINGS $ 347,965 $ 184,220 $ 396,889 $ 291,987
============ ============ ============ ============
Net earnings per share $ 0.10 $ 0.05 $ 0.11 0.08
============ ============ ============ ============
Weighted average
common shares outstanding 3,499,755 3,499,755 3,499,755 3,499,755
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
DAKOTAH, INCORPORATED
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 396,889 $ 291,987
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 547,669 317,191
Gain on sale of equipment (106,867) (58,932)
Changes in assets and liabilities:
Accounts receivable (2,703,663) (1,329,066)
Inventories (5,735,136) (2,831,305)
Prepaid expenses (574,411) (340,933)
Accounts payable 3,305,746 1,758,849
Accrued liabilities and other 792,244 27,258
----------- -----------
Total adjustments (4,474,418) (2,456,938)
----------- -----------
Net cash used in operating activities (4,077,529) (2,164,951)
Cash flows from investing activities:
Capital expenditures (1,462,897) (589,967)
Proceeds from sale of equipment 106,867 58,932
----------- -----------
Net cash used in investing activities (1,356,030) (531,035)
Cash flows from financing activities:
Net borrowings under line-of-credit 5,142,592 2,352,652
Proceeds from issuance of long-term obligations 300,000 --
Principal payments on long-term obligations (481,232) (225,369)
----------- -----------
Net cash provided by financing activities 4,961,360 2,127,283
----------- -----------
Net increase (decrease) in cash and cash equivalents (472,199) (568,703)
Cash and cash equivalents at beginning of period 477,330 575,684
----------- -----------
Cash and cash equivalents at end of period $ 5,131 $ 6,981
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 341,376 $ 111,304
Income taxes -- 332,324
The accompanying notes are an integral part of these statements.
</TABLE>
DAKOTAH, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions of Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although management believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of management, the unaudited condensed financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position as of September 30, 1996, the
results of operations for the three and nine month periods ended September 30,
1996 and 1995, and the cash flows for the nine month periods ended September 30,
1996 and 1995. Operating results for interim periods are not necessarily
indicative of results which may be expected for the year as a whole.
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist of the following:
December 31, 1995 September 30, 1996
Raw Materials $5,119,192 $9,141,515
Work In Progress $1,019,664 $1,731,950
Finished Goods $1,225,179 $2,225,706
NOTE C. RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship to net sales of
certain items in the Company's statements of earnings for the three and nine
month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage of Net Sales
for the three month for the nine month
period ended September 30, period ended September 30,
1996 1995 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Profit 24.6 27.7 26.7 27.6
Selling Expenses 11.2 13.8 13.2 14.9
General & Administrative 7.9 9.8 9.8 10.1
Operating Profit 5.5 4.1 3.7 2.5
Interest Expense 1.5 0.6 1.5 0.7
Gain on Sale of Equipment 0.8 0.0 0.4 0.3
Earnings Before Income Taxes 4.3 3.5 2.3 2.3
Net Earnings 2.8 2.2 1.5 1.5
</TABLE>
NET SALES increased 32% to $26,557,000 for the nine months ended September 30,
1996 from $20,072,000 in the same period of 1995. Net sales increased 53% from
$8,240,000 in the third quarter of 1995 to $12,592,000 in the third quarter of
1996. The increase in net sales in the first nine months of 1996, as compared to
the first nine months of 1995, is due primarily to the Company's Polarfleece(R)
line of products and expanded sales of the Company's pillows, table linen,
bedding, and accessories products.
GROSS PROFIT PERCENTAGES decreased from 27.6% in the first nine months of 1995
to 26.7% for the same period of 1996. During the third quarter of 1996, compared
to the same period of 1995, gross profit percentages decreased to 24.6% from
27.7%. Gross profit percentages were negatively affected by an increase in raw
materials as a percentage of sales due to a higher percentage of sales of
Polarfleece(R) throws and blankets and decreased manufacturing efficiencies in
part related to the large increase of new employees and inadequate fabric
deliveries in August and September, and other manufacturing overhead expenses
related to new and expanded manufacturing capacity due to the opening of the new
Redfield, South Dakota Polarfleece(R) manufacturing plant.
SELLING EXPENSES, as a percentage of net sales, decreased from 14.9% in the
first nine months of 1995 to 13.2% in 1996. The decline in selling expense as a
percentage of net sales from the first nine months 1995 to the comparable period
in 1996 is primarily due to the increase in net sales. The amount of selling
expenses increased primarily as the result of higher sales representative
commissions related to increased net sales, the Company's efforts to develop new
channels of distribution and customers, including but not limited to the
Company's expansion of in-house sales staff and the hiring of a new Vice
President of Corporate Sales. Additionally, the Company's participation in the
Heimtextil trade show in Frankfurt, Germany and expanded showrooms in Chicago
and Atlanta has increased selling expenses in 1996 as compared to 1995.
GENERAL AND ADMINISTRATIVE EXPENSES increased from $2,034,000 in the first nine
months of 1995 to $2,606,000 during the same period in 1996. The increase is
primarily due to the Company's expansion of design and product development
capabilities, middle management and clerical support, and other general support
for the addition of the Polarfleece(R) line of products and related
manufacturing facilities in Platte and Redfield, SD. Specifically, increased
telephone, computer and related office expenses are approximately 50% of the
increase in General and Administrative expenses.
GAIN ON SALE of equipment was $56,000 in the first nine months of 1995, compared
to a $107,000 gain during the same period of 1996. These gains are from the sale
of excess equipment.
INTEREST EXPENSE increased from $140,000 in the first nine months of 1995 to
$392,000 in the first nine months of 1996. This increase was the result of
higher average borrowings to finance capital expenditures, higher accounts
receivable, and higher inventories.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $7.6 million as of December 31, 1995 compared to $7.0
million as of September 30, 1996.
At December 31, 1995 and September 30, 1996, the Company had cash and cash
equivalents of $477,000 and $5,000, respectively. The decrease in cash was
applied to the Company's revolving line-of-credit.
The seasonality of the Company's production and sales cycle and the increase of
sales volume have resulted in increased working capital requirements during
1996. Accounts receivable at September 30, 1996 increased by $2,700,000 from
December 31, 1995. Inventory levels at September 30, 1996 increased by
$5,700,000 from December 31, 1995 due to the build-up of inventory to shipped in
the fourth quarter and support a potential influx of orders for Polarfleece(R)
products as a result of the second national Polarfleece(R) advertisement which
is in the newstands during November, 1996. In addition, the buying habits of the
Company's customers indicate a trend away from substantial advance stocking
orders to smaller, more frequent shipping orders. This trend requires the
Company to carry larger levels of work in progress and finished goods
inventories than those historically maintained.
During the first eight months of 1996, to maximize capital utilization, the
Company has procured fabric and manufactured product for shipment during the
third and fourth quarters of 1996. Since August, this inventory is being shipped
and converted to accounts receivable.
The Company has used and expects to continue using bank lines of credit to meet
its short-term working capital requirements. On July 11, 1996, the Company
amended its credit facility. The amended credit facility, which expires August
1998, consists of a revolving note and a term note. The total amount available
under the revolving note, which is due on demand, is limited to the lesser of $9
million or a defined borrowing base of eligible accounts receivable and eligible
inventories.
The Company's amendment to the line of credit allows for an advance against
inventory and finances the capital expenditures related to the opening of the
new Redfield Polarfleece(R) manufacturing facility, and the production of
Polarfleece(R) products for shipment in the third and fourth quarters of 1996.
The term note is due on demand and requires monthly principal payments of
$20,833. Both notes provide for monthly interest payments at 1.5% above the
bank's prime rate and are collateralized by accounts receivable, inventory,
equipment, and general intangibles. The outstanding balances on the revolving
note and term note were $8,038,000 and $771,000 at September 30, 1996.
The Company has utilized its line of credit to finance working capital and
capital expenditures made during 1996.
To improve liquidity, during the fourth quarter of 1996, the Company expects it
will close a $750,000 term loan from the South Dakota Board of Economic
Development. This loan, which bears an interest rate of three percent, is
amortized over twenty years with a five year balloon and will be used to pay
down the Company's line of credit.
Additionally, to improve liquidity, the Company expects it will close a $150,000
term loan from the Northeast South Dakota Energy Conservation Corporation. This
loan, which bears an interest rate of 5.75 percent, is amortized over twenty
years with a five year balloon, will be used to pay down the Company's line of
credit.
For the nine month period ended September 30, 1996, the Company's capital
expenditures were $1,463,000. These capital expenditures include $1,115,000 to
expand manufacturing capacity, upgrade existing buildings, and acquire
additional production equipment and $247,000 to upgrade the Company's computer
system. Capital expenditures do not include the acquisition of the Company's
42,000 square foot Polarfleece(R) manufacturing facility in Redfield, South
Dakota. The Company expects to enter into a long-term lease purchase agreement
with the Redfield Development Corporation during the fourth quarter of 1996. The
total non-equipment capital expenditure related to the Redfield manufacturing
plant will be approximately $700,000.
The Company expects to spend an additional $250,000 for the remainder of 1996 to
expand capacity and to expand and up-grade existing buildings and production
equipment. In addition to the above capital expenditures, the Company expects to
spend an additional $100,000 to continue the upgrade and expansion of the
Company's computer system.
Upon termination of the officers' stock appreciation program, the Company became
indebted to the Company's President and a former Executive Vice President in the
aggregate amount of $1,318,000. As of September 30, 1996, the total outstanding
indebtedness was $484,000. This indebtedness bears interest at 6% per annum and
is payable in varying installments through January 1998.
The Company believes that cash flows generated from operations and funds
available as a result of its borrowing capacity will be adequate to meet its
short-term and long-term working capital, projected capital expenditures and
other financing needs.
Forward looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that such forward looking statements involve risks and uncertainties, including,
without limitation, continued acceptance of the Company's products, cancellation
of orders, increased levels of competition for the Company, new products and
technological changes, the Company's dependence upon third party suppliers, and
intellectual property rights.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registered has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAKOTAH, INCORPORATED
November 12, 1996 By: /S/ TROY JONES, JR.
-----------------------------------
Troy Jones, Jr.
Chief Executive Officer
(Principal Financial and Accounting
Officer)
November 12, 1996 By: /S/ GEORGE WHYTE
-----------------------------------
George Whyte
President and Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,131
<SECURITIES> 0
<RECEIVABLES> 9,460,269
<ALLOWANCES> 391,000
<INVENTORY> 13,099,171
<CURRENT-ASSETS> 23,692,489
<PP&E> 5,557,656
<DEPRECIATION> 2,432,943
<TOTAL-ASSETS> 27,592,071
<CURRENT-LIABILITIES> 16,684,516
<BONDS> 990,611
0
0
<COMMON> 34,998
<OTHER-SE> 9,881,946
<TOTAL-LIABILITY-AND-EQUITY> 27,592,071
<SALES> 26,556,734
<TOTAL-REVENUES> 26,556,734
<CGS> 19,468,811
<TOTAL-COSTS> 19,468,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 391,577
<INCOME-PRETAX> 620,139
<INCOME-TAX> 223,250
<INCOME-CONTINUING> 396,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396,889
<EPS-PRIMARY> .11
<EPS-DILUTED> 0
</TABLE>
