UNITED STATES
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 February 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 March 7, 1997
-------------------------- ----------------------------
Common Stock, No par value 4,306,420
Daktronics, Inc.
Table of Contents
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<CAPTION>
Part I. Financial Information Page(s)
<S> <C>
Consolidated Balance Sheets -
February 1, 1997 and April 27, 1996 .............................................. 3 - 4
Consolidated Statements of Income -
Three months and nine months ended
February 1, 1997 and January 27, 1996............................................. 5
Consolidated Statements of Cash Flows -
Nine months ended February 1, 1997 and
January 27, 1996.................................................................. 6
Notes to Consolidated Financial Statements........................................ 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 8 - 10
Part II. Other Information...................................................................... 11
Signatures........................................................................ 12
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<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
FEBRUARY 1,
1997 APRIL 27,
ASSETS (UNAUDITED) 1996
------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............................................. $ 114 $ 218
Accounts receivable less allowance
for doubtful accounts of $ 117 at Feb 1, 1997,
and $ 129 at April 27, 1996 ......................................... 8,671 8,630
Current maturities of long-term
notes and contracts receivable ...................................... 1,268 1,372
Inventories ............................................................ 8,912 9,800
Costs and estimated earnings in
excess of billings on uncompleted
contracts ........................................................... 4,441 2,684
Real estate held for sale ............................................. -- 1,126
Prepaid expenses ....................................................... 12 245
Deferred income tax benefit ............................................ 703 703
Income taxes receivable ............................................... -- 64
------- -------
Total current assets ...................................................... $24,121 $24,842
------- -------
LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights ..................................................... $ 2,569 $ 2,030
Notes and contracts receivables,
less current maturities ............................................. 2,684 2,714
Consulting and noncompete
agreements and other ................................................ 1,335 1,688
------- -------
$ 6,588 $ 6,432
------- -------
PROPERTY AND EQUIPMENT,
at cost
Land ................................................................ $ 492 $ 455
Buildings ........................................................... 4,453 3,902
Machinery and equipment ............................................. 9,460 8,398
Office furniture and equipment ...................................... 245 233
Transportation equipment ............................................ 497 423
------- -------
$15,147 $13,411
Less accumulated depreciation ....................................... 7,800 6,918
------- -------
$ 7,347 $ 6,493
------- -------
$38,056 $37,767
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
FEBRUARY 1,
1997 APRIL 27,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable ........................... $ 5,463 $ 5,690
Current maturities of
long-term debt ....................... 497 1,382
Accounts payable ........................ 2,918 4,330
Accrued expenses ........................ 2,384 2,295
Billings in excess of costs and
estimated earnings on uncompleted
contracts ............................ $ 2,802 $ 1,001
Accrued loss on uncompleted contracts ... 373 640
Income taxes payable .................... 47 --
-------- --------
Total current liabilities ............... $ 14,484 $ 15,338
-------- --------
LONG-TERM DEBT,
less current maturities ................. $ 1,467 $ 1,544
-------- --------
DEFERRED INCOME ............................ $ 372 $ 539
-------- --------
DEFERRED INCOME TAXES ...................... $ 485 $ 485
-------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 15,000,000 shares
4,196 shares issued at April 27, 1996,
and 4,306 shares issued at Feb 1, 1997 $ 11,680 $ 11,299
Retained earnings ....................... 9,577 8,571
-------- --------
$ 21,257 $ 19,870
Less:
Cost of 5 treasury shares ............ (9) (9)
-------- --------
$ 21,248 $ 19,861
-------- --------
$ 38,056 $ 37,767
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except earnings (loss) per share)
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 1, JANUARY 27, FEBRUARY 1, JANUARY 27,
1997 1996 1997 1996
(13 WEEKS) (13 WEEKS) (40 WEEKS) (39 WEEKS)
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales .............................. $ 11,516 $ 12,552 $ 44,795 $ 39,529
Cost of goods sold ..................... 8,524 10,738 33,322 31,628
-------- -------- -------- --------
Gross profit ........................ $ 2,992 $ 1,814 $ 11,473 $ 7,901
-------- -------- -------- --------
Operating expenses:
Selling ............................. $ 1,869 $ 1,668 $ 5,956 $ 5,269
General and administrative .......... 682 631 1,997 1,655
Product design and development ...... 543 473 1,674 1,329
-------- -------- -------- --------
$ 3,094 $ 2,772 $ 9,627 $ 8,253
-------- -------- -------- --------
Operating income (loss) ......... $ (102) $ (958) $ 1,846 $ (352)
Nonoperating income (expense):
Interest income ..................... 106 71 292 224
Interest expense .................... (170) (148) (607) (368)
Other income (expense) .............. 5 (67) 115 73
-------- -------- -------- --------
Income (loss) before income taxes $ (161) $ (1,102) $ 1,646 $ (423)
Income tax expense (credit) ......... (83) (405) 641 (154)
-------- -------- -------- --------
Net income (loss) ................ $ (78) $ (697) $ 1,005 $ (269)
======== ======== ======== ========
Earnings (loss) per share .......... $ (.02) $ (.16) $ .24 $ (.06)
======== ======== ======== ========
Weighted average number of
common and common equivalent shares . 4,335 4,225 4,257 4,240
======== ======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
</TABLE>
<TABLE>
<CAPTION>
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
NINE MONTHS ENDED
FEBRUARY 1, JANUARY 27,
1997 1996
(40 weeks) (39 weeks)
---------- ----------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 1,005 $ (269)
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation ......................................... 882 847
Amortization ......................................... 438 541
Provision for doubtful accounts ...................... 11 11
Change in operating assets and
liabilities ......................................... (698) (5,642)
------- -------
Net cash provided by (used in)
operating activities .............................. $ 1,638 $(4,512)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ..................... $(1,736) $ (815)
Proceeds from sale of real estate
held for sale ......................................... 1,126 --
Other, net ............................................. 47 (1,383)
------- -------
Net cash (used in)
investing activities ............................... $ (563) $(2,198)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable ........................ $ (227) $ 7,202
Principal payments on
long-term debt ........................................ (951) (296)
------- -------
Net cash provided by (used in)
financing activities ................................ $(1,178) $ 6,906
------- -------
(Decrease) in cash and cash equivalents .............. $ (103) $ (196)
Cash and cash equivalents:
Beginning .............................................. 218 380
------- -------
Ending ...............................................$ 115 $ 184
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
</TABLE>
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 subsidiaries
as of February 1, 1997 and the results of its operations and cash flows for the
three months and nine months ended February 1, 1997 and January 27, 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):
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<CAPTION>
February 1, April 27,
1997 1996
------ ------
<S> <C> <C>
Raw materials......................... $6,236 $5,718
Work-in-process....................... 1,624 2,606
Finished goods........................ 1,052 1,476
------ ------
$8,912 $9,800
====== ======
</TABLE>
NOTE C. LITIGATION-
On May 4, 1995, the Company was served with a complai nt, filed in the United
States District Court Northern District of Georgia, by Display Solutions, Inc.
alleging that the Company and Federal Sign Division of Federal Signal
Corporation infringed on the plaintiff's patent rights. Based on the opinion of
the Company's patent counsel, management of the Company believes that there is
no infringement and intends to defend the litigation vigorously. The case is in
its early stages and an evaluation of the likelihood of an unfavorable outcome,
or estimate of the range or amount of possible loss, if any, is unavailable.
On May 20, 1996, the Company filed a complaint in United States District
Court for the District of South Dakota Southern Division against Trans-Lux
Corporation requesting a declaratory judgement. Trans-Lux Corporation asserted
that the Company has infringed one certain patent. Based on the opinion of the
Company's patent counsel, management of the Company believes that there has been
no infringement and is seeking this declaratory judgement to affirm its
position.
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, will be 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:
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 1, JANUARY 27, FEBRUARY 1, JANUARY 27,
1997 1996 1997 1996
(13 WEEKS) (13 WEEKS) (40 WEEKS) (39 WEEKS)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ....... 74.0% 85.6% 74.4% 80.0%
----- ----- ----- -----
Gross profit ............. 26.0% 14.4% 25.6% 20.0%
Operating expenses ....... 26.9% 22.1% 21.5% 20.9%
----- ----- ----- -----
Operating income ......... (0.9%) (7.7%) 4.1% (0.9%)
Interest income .......... 0.9% 0.6% 0.7% 0.5%
Interest expense ......... (1.5%) (1.2%) (1.4%) (0.9%)
Other income (expense) ... 0.1% (0.5%) 0.3% 0.2%
----- ----- ----- -----
Income before income taxes (1.4%) (8.8%) 3.7% (1.1%)
Income tax expense ....... (0.7%) (3.2%) 1.4% (0.4%)
----- ----- ----- -----
Net income ............... (0.7%) (5.6%) 2.3% (0.7%)
===== ===== ===== =====
</TABLE>
NET SALES
Net sales were $12.5 million and $39.5 million for the three and nine months
ended January 27, 1996, compared to $11.5 million and $44.8 million for the
three and nine months ended February 1, 1997, representing a decrease of 8.2%
for the three month period and an increase of 13.3% for the nine month period.
The decrease for the quarter was the result of the timing of receipt of various
contracts, awaiting customer design approval, and delivery of parts from various
suppliers. The increase in net sales for nine month period was the result of
increased sales in the sports and business markets. The Company also experienced
an increase in sales volume of smaller orders in the sports and business markets
over the same periods.
Based on current backlog and customer quotations, the Company believes that
net sales for the last three months of fiscal year 1997 will be similar to and
may exceed the last three months of fiscal year 1996.
GROSS PROFIT
Gross profit increased 66.3% from $1.8 million for the three months ended
January 27, 1996 to $3.0 million for the three months ended February 1, 1997.
Gross profit as a percentage of net sales was 14.4% for the three months ended
January 27, 1996 compared to 26.0% for the three months ended February 1, 1997.
The increase was the result of higher gross profit margins in all market
segments. Also a $1.0 million cost overrun was recorded in this period last
fiscal year on a contract for variable message displays for the New Jersey
Department of Transportation.
Gross profit increased 45.2% from $7.9 million for the nine months ended
January 27, 1996 to $11.5 million for the nine months ended February 1, 1997.
Gross profit as a percentage of net sales was 20.0% for the nine months ended
January 27, 1996, compared to 25.6% for the nine months ended February 1, 1997.
The increase for the nine 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 11.8% from $1.7 million for the three months ended
January 27, 1996, to $1.9 million for the three months ended February 1, 1997.
Selling expenses increased 13.2% from $5.3 million for the nine months ended
January 27, 1996 to $6.0 million for the nine months ended February 1, 1997. The
increases were due primarily to the addition of sales staff and related costs.
General and administrative expenses increased from $631,000 and $1.7 million
for the three and nine months ended January 27, 1996 to $682,000 and $2.0
million for the three and nine months ended February 1, 1997. The increases were
due to increased overhead to enhance company growth.
Product design and development increased from $473,000 and $1.3 million for
the three and nine months ended January 27, 1996 to $543,000 and $1.7 million
for the three and nine months ended February 1, 1997. The increases were due to
continued improvements on existing and new products for use in current and
potential markets.
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 $71,000 and
$224,000 for the three and nine months ended January 27, 1996 to $106,000 and
$292,000 for the three and nine months ended February 1, 1997. The increase was
due to higher average balances of long-term receivables.
INTEREST EXPENSE
Interest expense increased from $148,000 and $368,000 for the three and nine
month periods ended January 27, 1996 to $170,000 and $607,000 for the three and
nine months ended February 1, 1997. The increase was due to an increase in
average loan balances to fund the increase in working capital.
INCOME TAX EXPENSE
Income taxes as a percentage of income before income taxes was 36% and 39%
for the nine months ended January 27, 1996 and February 1, 1997 respectively.
The increase was due to the rounding of state tax accruals and a decrease in
nontaxable interest income.
NET INCOME
Net loss was $697,000 for the three months ended January 27, 1996 compared to
a net loss of $78,000 for the three months ended February 1, 1997. Net loss for
the nine months ended January 27, 1996 was $269,000 compared to net income of
$1.0 million for the nine months ended February 1, 1997. The increase in net
income was due to an increase in gross profit as a percentage of sales, offset
by increased general and administrative and interest expenses. Also the increase
is reflected because of the cost overrun previously mentioned. 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 $9.6 million at February 1, 1997 compared to $9.5 million
at April 27, 1996. Working capital provided by net income, depreciation and
amortization was offset by purchases of property and equipment, repayment of
long-term debt and acquisition of advertising rights. 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 nine months ended February 1, 1997 was
$1.6 million. Net income of $1.0 million plus depreciation and amortization of
$1.3 million were offset by an increase in costs and estimated earnings in
excess of billings on uncompleted contracts. Cash used in investing activities
consisted of $1.7 million for purchase of property and equipment, offset by $1.3
million in proceeds from sale of real estate held for sale. Cash used in
financing activities included $951,000 of repayment of long-term debt and
$227,000 net payments on the Company's line of credit.
The Company has used and expects 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 or more
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.
As of February 1, 1997, the Company had a credit agreement with a bank
providing for an unsecured revolving line of credit of $10.0 million, which
includes up to $5.0 million for standby letters of credit. The line of credit is
at the prime rate as established by the bank from time to time (8.25% at
February 1, 1997) and is due on September 30, 1997. As of February 1, 1997, $5.5
million had been drawn on the line of credit.
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 February 1, 1997, the Company had $6.0 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 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 operation in the foreseeable future.
PART II - OTHER INFORMATION
Item 1. Exhibits and Reports on Form 10-Q
Exhibit 27 - Financial Data Schedule (for SEC use only)
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 March 14, 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> 9-MOS
<FISCAL-YEAR-END> MAY-03-1997
<PERIOD-END> FEB-01-1997
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 8,671
<ALLOWANCES> (117)
<INVENTORY> 8,912
<CURRENT-ASSETS> 24,121
<PP&E> 15,147
<DEPRECIATION> (7,800)
<TOTAL-ASSETS> 38,056
<CURRENT-LIABILITIES> 14,484
<BONDS> 0
0
0
<COMMON> 11,680
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,056
<SALES> 44,795
<TOTAL-REVENUES> 44,795
<CGS> 33,322
<TOTAL-COSTS> 9,627
<OTHER-EXPENSES> (407)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 607
<INCOME-PRETAX> 1,646
<INCOME-TAX> 641
<INCOME-CONTINUING> 1,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,005
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
