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SECURITIES AND 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 November 1, 1997
Commission file number
0-23246
DAKTRONICS, INC.
South Dakota 46-0306862
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
331 32nd Avenue Brookings, SD 57006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (605) 697-4000
------------------------------------
(Former name, address, and/or fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 28, 1997
-------------------------- --------------------------------
Common Stock, No par value 4,306,420
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<PAGE>
Daktronics, Inc.
Table of Contents
Part I. Financial Information Page(s)
Consolidated Balance Sheets -
November 1, 1997 and May 3, 1997 ......................... 3 - 4
Consolidated Statements of Income -
Three months and six months ended
November 1, 1997 and November 2, 1996 . . ................ 5
Consolidated Statements of Cash Flows -
Six months ended November 1, 1997 and
November 2, 1996.......................................... 6
Notes to Consolidated Financial Statements................ 7
Management's Discussion and Analysis of
Financial Condition and Results of Operation..............8 - 11
Part II. Other Information.............................................. 12
Signatures................................................ 13
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
NOVEMBER 1,
1997 MAY 3,
ASSETS (UNAUDITED) 1997
------- -------
CURRENT ASSETS
Cash and cash equivalents ................... $ 179 $ 118
Accounts receivable less allowance
for doubtful accounts of $205 at
Nov 1, 1997 and $194 at May 3, 1997 ........ 9,781 11,889
Current maturities of long-term
receivables ................................ 930 1,072
Inventories ................................... 8,518 8,025
Costs and estimated earnings in
excess of billings on uncompleted
contracts .................................. 5,044 1,251
Prepaid expenses and other .................... 143 129
Deferred income tax benefit ................... 1,185 1,185
------- -------
Total current assets ....................... $25,780 $23,669
------- -------
LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights ............................ $ 1,306 $ 1,766
Long-term receivables,
less current maturities .................... 3,477 3,038
Intangible assets and other ................... 1,010 1,216
------- -------
$ 5,793 $ 6,020
------- -------
PROPERTY AND EQUIPMENT,
at cost
Land .......................................... $ 492 $ 492
Buildings ..................................... 4,429 4,283
Machinery and equipment ....................... 10,548 9,975
Office furniture and equipment ................ 281 242
Transportation equipment ...................... 604 546
------- -------
$16,354 $15,538
Less accumulated depreciation ................. 8,775 8,091
------- -------
$ 7,579 $ 7,447
------- -------
$39,152 $37,136
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
NOVEMBER 1,
1997 MAY 3,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1997
-------- --------
CURRENT LIABILITIES
Notes payable, bank ............................... $ 3,384 $ 2,675
Current maturities of
long-term debt ................................. 479 713
Accounts payable .................................. 4,444 4,089
Accrued expenses .................................. 3,865 2,892
Billings in excess of costs and
estimated earnings on uncompleted contracts .... 1,436 1,075
Accrued loss on uncompleted contracts ............. -- 399
Income taxes payable .............................. 403 903
-------- --------
Total current liabilities ......................... $ 14,011 $ 12,746
-------- --------
LONG-TERM DEBT,
less current maturities ........................... $ 1,269 $ 1,706
DEFERRED INCOME ...................................... $ 571 $ 481
DEFERRED INCOME TAXES ................................ $ 453 $ 453
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 15,000,000 shares
Issued 4,311,340 shares ........................ $ 11,680 $ 11,680
Retained earnings ................................. 11,177 10,079
-------- --------
$ 22,857 $ 21,759
Less:
Cost of 4,920 treasury shares .................. (9) (9)
-------- --------
$ 22,848 $ 21,750
-------- --------
$ 39,152 $ 37,136
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except earnings per share)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2,
1997 1996 1997 1996
(13 WEEKS) (13 WEEKS) (26 WEEKS) (27 WEEKS)
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ................................ $ 16,936 $ 16,257 $ 32,704 $ 33,279
Cost of goods sold ....................... 12,049 12,184 23,809 24,798
-------- -------- -------- --------
Gross profit ....................... $ 4,887 $ 4.073 $ 895 $ 8,481
-------- -------- -------- --------
Operating expenses:
Selling ............................... $ 2,293 $ 2,031 $ 4,500 $ 4,087
General and administrative ............ 793 666 1,512 1,315
Product design and development ........ 532 560 1,160 1,131
-------- -------- -------- --------
$ 3,618 $ 3,257 $ 7,172 $ 6,533
-------- -------- -------- --------
Operating income ................... $ 1,269 $ 816 $ 1,723 $ 1,948
Nonoperating income (expense):
Interest income ....................... 160 93 256 186
Interest expense ...................... (99) (233) (212) (437)
Other income .......................... 44 50 51 110
-------- -------- -------- --------
Income before income taxes ......... $ 1,374 $ 726 $ 1,818 $ 1,807
Income tax expense ....................... 545 283 720 724
-------- -------- -------- --------
Net income ......................... $ 829 $ 443 $ 1,098 $ 1,083
======== ======== ======== ========
Earnings per share ....................... $ .19 $ .11 $ .25 $ .26
======== ======== ======== ========
Weighted average number of
common and common equivalent shares ... 4,365 4,210 4,338 4,219
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
SIX MONTHS ENDED
NOVEMBER 1, NOVEMBER 2,
1997 1996
(26 weeks) (27 weeks)
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 1,098 $ 1,083
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ................................... 684 583
Amortization ................................... 440 138
Provision for doubtful accounts ................ 9 66
Change in operating assets and
liabilities ................................... (1,619) (1,099)
------- -------
Net cash provided by
operating activities ........................ $ 612 $ 771
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............... $ (816) $(1,205)
Proceeds from sale of real estate
held for sale ................................. -- 1,126
Other, net ....................................... 227 32
------- -------
Net cash (used in)
investing activities ......................... $ (589) $ (47)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable .................. $ 709 $ 314
Principal payments on
long-term debt .................................. (671) (1,079)
------- -------
Net cash provided by (used in)
financing activities .......................... $ 38 $ (765)
------- -------
Increase (decrease) in cash and cash equivalents $ 61 $ (41)
Cash and cash equivalents:
Beginning ........................................ 118 218
------- -------
Ending ........................................... $ 179 $ 177
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE A. GENERAL
The consolidated financial statements include the accounts of Daktronics,
Inc. and its wholly-owned subsidiary, Star Circuits, Inc. Intercompany accounts
and transactions have been eliminated in consolidation.
Earnings per common and common equivalent share are calculated by dividing
the earnings for the period by the weighted average number of common and common
equivalent shares outstanding during the period, which includes the dilutive
effect of outstanding stock options and warrants.
In the opinion of management, the unaudited financial statements contain all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the consolidated financial position of the Company and its subsidiary as
of November 1, 1997 and the results of its operations for the three months and
six months and cash flows for the six months ended November 1, 1997 and November
2, 1996. These results may not be indicative of the results to be expected for
the full fiscal year.
NOTE B. INVENTORIES
Inventories consist of the following (in thousands):
November 1, May 3,
1997 1997
---------- ----------
Raw materials.................. $ 4,332 $ 4,638
Work-in-process................ 2,860 1,168
Finished goods................. 1,326 2,219
---------- ----------
$ 8,518 $ 8,025
========== =========
NOTE C. LITIGATION
On May 4, 1995, the Company was served with a complaint alleging that the
Company infringed on the plaintiff's patent rights. On November 5, 1997, the
case was dismissed, however the plaintiff still has the right to appeal the
decision. Based on the opinion of the Company's patent counsel, management of
the Company believes that there is no infringement and intends to continue to
defend the litigation vigorously should the matter be appealed. The Company's
trial counsel is unable to evaluate the likelihood of an unfavorable outcome or
the potential range of loss, if any.
Another party has asserted the Company has infringed one certain patent. The
Company commenced an action seeking a declaratory judgment that the patent is
invalid and not infringed by the Company. Based on the opinion of the Company's
patent counsel, management of the Company believes there has been no
infringement. The Company's trial counsel is unable to evaluate the likelihood
of an unfavorable outcome or the potential range of loss, if any.
During the year ended May 3, 1997, a lawsuit was brought by another party
alleging the Company breached contracts, committed tortious interference with
contract, intentionally inflicted emotional distress and is responsible for
compensatory and punitive damages. On October 28, 1997 a jury awarded the
plaintiff exactly what the Company had presented as owing the plaintiff for
royalties and commissions which was previously accrued by the Company.
The Company has recorded estimated legal costs to be incurred in connection with
litigation described above.
<PAGE>
ITEM 2. FINANCIAL REVIEW
(Management's discussion and analysis of financial condition and results of
operations)
The following discussion highlights the principal factors affecting
changes in financial condition and results of operations.
This review should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes to Consolidated Financial
Statements.
GENERAL
The Company designs, manufactures and sells a wide range of
computer-programmable information display systems to customers in a variety of
markets throughout the world. The Company focuses its sales and marketing
efforts on markets rather than products. Major categories of markets include
Sports, Business and Government.
The Company's net sales and profitability historically have fluctuated
due to the impact of large product orders, such as display systems for the
Olympic Games and major league sports, as well as the seasonality of the sports
market. The Company's gross margins on large product orders tend to fluctuate
more than those for small standard orders. Large product orders that involve
competitive bidding and substantial subcontract work for product installation
generally have lower gross margins. Although the Company follows the percentage
of completion method of recognizing revenues for these large orders, the Company
nevertheless has experienced fluctuations in operating results and expects that
its future results of operations may be subject to similar fluctuations.
The Company operates on a 52-53 week fiscal year, with fiscal years
ending on the Saturday closest to April 30 of each year. The first three
quarters end on the Saturday closest to July 31, October 31 and January 31. The
fiscal year ending May 3, 1997, was a 53-week year.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented
by items included in the Company's Consolidated Statements of Operations for the
periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2,
1997 1996 1997 1996
(13 WEEKS) (13 WEEKS) (26 WEEKS) (27 WEEKS)
------ ------ ------ ------
Net sales..................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............ 71.1% 75.0% 72.8% 74.5%
------ ------ ------ ------
Gross profit.................. 28.9% 25.0% 27.2% 25.5%
Operating expenses............ 21.4% 20.0% 21.9% 19.6%
------ ------ ------ ------
Operating income.............. 7.5% 5.0% 5.3% 5.9%
Interest income............... 0.9% 0.6% 0.8% 0.6%
Interest expense.............. (0.6%) (1.4%) (0.6%) (1.3%)
Other income.................. 0.3% 0.3% 0.1% 0.3%
------ ------ ------ ------
Income before income taxes.... 8.1% 4.8% 5.6% 5.5%
Income tax expense............ 3.2% 1.7% 2.2% 2.2%
------ ------ ------ ------
Net income.................... 4.9% 2.7% 3.4% 3.3%
====== ====== ====== ======
<PAGE>
NET SALES
Net sales were $16.9 million and $32.7 million for the three and six months
ended November 1, 1997, compared to $16.3 million and $33.3 million for the
three and six months ended November 2, 1996. The small decrease in net sales for
the six month period was the result of decreases in net sales in the Federation
and major league niches of the sports markets which were partially offset by
increased sales in most of the other niches in the sports markets. The decrease
in the federation niche was due to sales relating to the 1996 Summer Olympics in
the first six months of fiscal 1997. The decrease in the major league niche was
the result of fewer stadium projects in that market.
Based on current backlog and customer quotations, the Company believes that
net sales for the last six months of fiscal year 1998 should exceed the last six
months of fiscal year 1997.
GROSS PROFIT
Gross profit increased 20% from $4.1 million for the three months ended
November 2, 1996 to $4.9 million for the three months ended November 1, 1997.
Gross profit as a percentage of net sales was 25.1% for the three months ended
November 2, 1996 compared to 28.9% for the three months ended November 1, 1997.
The increase was the result of higher gross profit margins in the sports and
business markets. Primarily a result of the Company's standardization program.
Gross profit increased 5% from $8.5 million for the six months ended November
2, 1996 to $8.9 million for the six months ended November 1, 1997. Gross profit
as a percentage of net sales was 25.5% for the six months ended November 2,
1996, compared to 27.2 % for the six months ended November 1, 1997. The increase
for the six month period was the result of the same conditions previously
mentioned.
Due in part to the impact of large orders and the amount of subcontracting
work associated with installation of these products, the Company expects that
its gross profit margin will continue to fluctuate in future periods.
OPERATING EXPENSES
Selling expenses increased 13% from $2.0 million for the three months ended
November 2, 1996, to $2.3 million for the three months ended November 1, 1997.
Selling expenses increased 10% from $4.1 million for the six months ended
November 2, 1996 to $4.5 million for the six months ended November 1, 1997. The
increases were due primarily to the addition of sales staff and increased
selling activity.
General and administrative expenses increased from $666,000 and $1.3 million
for the three and six months ended November 2, 1996 to $793,000 and $1.5 million
for the three and six months ended November 1, 1997. The increases were due to
increases in salary and personnel to support company growth.
Product design and development was $560,000 and $1.1 million for the three
and six months ended November 2, 1996 and $532,000 and $1.2 million for the
three and six months ended November 1, 1997.
INTEREST INCOME
The Company occasionally sells products on an installment basis or in
exchange for advertising revenues from the scoreboard or display, both which
result in long-term receivables. Interest income increased from $93,000 and
$186,000 for the three and six months ended November 2, 1996 to $160,000 and
$256,000 for the three and six months ended November 1, 1997. The increase was
due to higher average balances of long-term receivables.
INTEREST EXPENSE
Interest expense decreased from $233,000 and $437,000 for the three and six
month periods ended November 2, 1996 to $99,000 and $212,000 for the three and
six months ended November 1, 1997. The decrease was due to a decrease in average
loan balances.
<PAGE>
INCOME TAX EXPENSE
Income taxes as a percentage of income before income taxes were 40% for the
six months ended November 2, 1996 and November 1, 1997 respectively.
NET INCOME
Net income was $443,000 and $1.1 million for the three and six months ended
November 2, 1996 to $829,000 and $1.1 million for the three and six months ended
November 1, 1997. The increase was due to an increase in gross profit as a
percentage of net sales.
Management believes that one of the principal factors that will affect net
sales and income growth is the Company's ability to increase the marketing of
its products in existing markets and expand the marketing of its products to new
markets.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $11.8 million at November 1, 1997 and $10.9 million
at May 3, 1997. Working capital provided by net income, depreciation and
amortization was offset by purchases of property and equipment and repayment of
long-term debt. The Company has historically financed working capital needs
through a combination of cash flow from operations and borrowings under bank
credit agreements.
Cash provided by operations for the six months ended November 1, 1997
was $612,000. Net income of $1.1 million plus depreciation and amortization of
$1.1 million were offset by increases in receivables including costs and
estimated earnings in excess of billings on uncompleted contracts and
inventories. Cash used by investing activities consisted primarily of $816,000
of purchases of property and equipment. Cash provided from financing activities
included $709,000 net borrowings under the Company's line of credit and was
offset by $671,000 of repayment of long-term debt.
The Company has used and expects to continue to use cash reserves and
bank borrowings to meet its short-term working capital requirements. On large
product orders, the time between acceptance and completion may extend up to 12
months depending on the amount of custom work and the customer's delivery needs.
The Company often receives a down payment or progress payments on these product
orders. To the extent that these payments are not sufficient to fund the costs
and other expenses associated with these orders, the Company uses working
capital and bank borrowings to finance these cash requirements.
The Company's product development activities include the enhancement of
existing products and the development of new products from existing
technologies. Product development expenses were $1.2 million for the six months
ended November 1, 1997 and $1.1 million for the six months ended November 2,
1996. The Company intends to continue to incur these expenditures to develop new
display products using various display technologies to offer higher resolution,
more cost effective and energy efficient displays. Daktronics also intends to
continue developing software applications for its display controllers to enable
these products to continue to meet the needs and expectations of the
marketplace.
The Company has a credit agreement with a bank. The credit agreement provides
for a $15.0 million line of credit during the period June 1 through December 31
of each year. And $10.0 million during the period January 1 through May 31 of
each year, which includes up to $2.0 million for standby letters of credit. The
line of credit is at the prime rate of interest established by the bank from
time to time (8.50% at November 1, 1997) and is due on September 30, 1998. As of
November 1, 1997, $3.4 million had been drawn on the line of credit and no
standby letters of credit had been issued by the bank. The credit agreement is
unsecured and requires the Company to meet certain covenants. Financial
covenants include the maintenance of tangible net worth of at least $19.5
million, a minimum liquidity ratio and a maximum ratio of liabilities to
tangible net worth.
<PAGE>
The Company is sometimes required to obtain performance bonds for display
installations. The Company currently has a bonding line available through an
insurance company that provides for an aggregate of $25.0 million in bonded work
outstanding. At November 1, 1997, the Company had $6.4 million of bonded work
outstanding against this line.
The Company believes that if its growth continues, it may need to increase the
amount of its credit facility. The Company anticipates that it will be able to
obtain any needed funds under commercially reasonable terms from its current
lender. The Company believes that cash from operations, from its existing or
increased credit facility, and its current working capital will be adequate to
meet the cash requirements of its operations in the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
On May 4, 1995, the Company was served with a complaint, filed in the United
States District Court Northern District of Georgia, by Display Solutions, Inc.
alleging that the Company and Federal Sign Division of Federal Signal
Corporation infringed on the plaintiff's patent rights. On November 5, 1997, the
case was dismissed, however the plaintiff still has the right to appeal the
decision. Based on the opinion of the Company's patent counsel, management of
the Company believes that there is no infringement and intends to continue to
defend the litigation vigorously should the matter be appealed. The Company's
trial counsel is unable to evaluate the likelihood of an unfavorable outcome or
the potential range of loss, if any.
On October 15, 1996, a lawsuit was brought by Roy L. McGreevy, Daktronics
Aust/NZ Ltd., and International Sign Displays Co. in the United States District
Court for the District of South Dakota, Southern Division against the Company.
The lawsuit alleges the Company breached contracts, committed tortious
interference with contracts, intentionally inflicted emotional distress on the
plaintiffs and is responsible for compensatory and punitive damages. On October
28, 1997 a jury awarded the plaintiff exactly what the Company had presented as
owing the plaintiff for royalties and commissions which was previously accrued
by the Company.
Item 6 - EXHIBITS
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Aelred J. Kurtenbach, President
Daktronics, Inc.
(Dr. Aelred J. Kurtenbach, President)
(President)
Date December 12, 1997
/s/ Paul J. Weinand, Treasurer
Daktronics, Inc.
(Paul J. Weinand, Treasurer)
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-02-1998
<PERIOD-START> MAY-04-1998
<PERIOD-END> NOV-01-1997
<CASH> 179
<SECURITIES> 0
<RECEIVABLES> 9,781
<ALLOWANCES> (205)
<INVENTORY> 8,518
<CURRENT-ASSETS> 25,780
<PP&E> 16,354
<DEPRECIATION> (8,775)
<TOTAL-ASSETS> 39,152
<CURRENT-LIABILITIES> 14,011
<BONDS> 0
0
0
<COMMON> 11,680
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,152
<SALES> 32,704
<TOTAL-REVENUES> 32,704
<CGS> 23,809
<TOTAL-COSTS> 7,172
<OTHER-EXPENSES> (307)
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> 1,818
<INCOME-TAX> 720
<INCOME-CONTINUING> 1,098
<DISCONTINUED> 0
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<EPS-PRIMARY> .25
<EPS-DILUTED> .25
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