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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 27, 2001
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or
__TRANSITION REPORT PURSUANT TO SECTION B OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ended from ___ to ___
Commission file number: 0-23246
DAKTRONICS, INC.
(Exact name of registrant as specified in its charter)
South Dakota 46-0306862
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
331 32nd Avenue
Brookings, SD 57006
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(Address of principal executive offices, Zip Code)
(605) 697-4000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and/former 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 ___
Title of Class Shares outstanding as of December 3, 2001
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Common Stock, no par value 18,134, 384
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Daktronics, Inc. and Subsidiaries
Table of Contents
Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS as of October 27, 2001
and April 28, 2001....................................................4 - 5
CONSOLIDATED STATEMENTS OF INCOME for the three
and six months ended October 27, 2001 and October 28, 2000............6
CONSOLIDATED STATEMENTS OF CASH FLOWS for the
six months ended October 27, 2001 and October 28, 2000................7
Notes to Consolidated Financial Statements............................8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................11-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk............15
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders...................15
Item 6. Exhibits and Reports on Form 8-K......................................15
SIGNATURES
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this Report and include all statements that are
not historical statements of fact regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) the Company's financing plans; (ii) trends affecting the
Company's financial condition or results of operations; (iii) the Company's
growth strategy and operating strategy; and (iv) the declaration and payment of
dividends. The words "may," "would," "could," "will," "expect," "estimate,"
"anticipate," "believe," "intend," "plans," and similar expressions and
variations thereof are intended to identify forward-looking statements.
Investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, many of
which are beyond the Company's ability to control, and that actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors discussed herein and those factors discussed in detail
in the Company's filings with the Securities and Exchange Commission.
3
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
OCTOBER 27,
2001 APRIL 28,
ASSETS (UNAUDITED) 2001
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,607 $ 2,896
Accounts receivable, less allowance
for doubtful accounts of $673 at
October 27, 2001 and $271 at April 28, 2001 21,877 21,090
Current maturities of long-term receivables 1,423 2,030
Inventories 20,429 19,719
Costs and estimated earnings in
excess of billings on uncompleted contracts 10,532 10,890
Prepaid expenses and other 1,445 529
Income taxes receivable -- 97
Deferred income taxes 2,103 2,103
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Total current assets 59,416 59,354
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Advertising rights 1,224 1,281
Long-term receivables, less current maturities 7,236 5,269
Goodwill, net of accumulated amoritization 1,342 1,469
Intangible and other assets, other than goodwill, net 1,103 970
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10,905 8,989
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PROPERTY AND EQUIPMENT, at cost
Land 616 542
Buildings 12,097 9,451
Machinery and equipment 21,901 19,308
Office furniture and equipment 9,076 7,487
Transportation equipment 2,790 1,901
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46,480 38,689
Less accumulated depreciation 18,639 16,818
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27,841 21,871
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TOTAL ASSETS $ 98,162 $ 90,214
========== ==========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands)
OCTOBER 27,
2001 APRIL 28,
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited) 2001
---------- ----------
CURRENT LIABILITIES:
Notes payable, bank $ 10,550 $ 7,911
Accounts payable 8,523 10,199
Accrued expenses 7,916 6,981
Current maturities of long-term debt 4,060 3,883
Billings in excess of costs and estimated earnings
on uncompleted contracts 3,596 2,177
Customer deposits 881 1,236
Income taxes payable 157 --
---------- ----------
Total current liabilities 35,683 32,387
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Long-term debt, less current maturities 10,499 10,344
Deferred income 1,027 531
Deferred income taxes 1,040 1,050
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12,566 11,925
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TOTAL LIABILITIES 48,249 44,312
MINORITY INTEREST IN SUBSIDIARY 107 79
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SHAREHOLDERS' EQUITY:
Common stock, no par value, authorized 60,000,000 shares
18,154,064 and 18,016,066 shares issued at
October 27, 2001 and April 28, 2001 13,302 12,900
Additional paid-in capital 341 341
Retained earnings 36,190 32,600
Less cost of treasury stock, 19,680 shares (9) (9)
Accumulated other comprehensive income,
foreign currency translation adjustment (18) (9)
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TOTAL SHAREHOLDERS' EQUITY 49,806 45,823
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 98,162 $ 90,214
========== ==========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
OCTOBER 27, OCTOBER 28, OCTOBER 27, OCTOBER 28,
2001 2000 2001 2000
(13 WEEKS) (13 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ----------
Net sales $ 41,572 $ 42,114 $ 81,819 $ 76,650
Cost of goods sold 28,993 29,306 57,276 53,517
---------- ---------- ---------- ----------
Gross profit 12,579 12,808 24,543 23,133
---------- ---------- ---------- ----------
Operating expenses:
Selling 5,495 4,462 11,031 8,923
General and administrative 1,772 1,413 3,861 2,625
Product design and development 1,764 1,187 3,422 2,491
---------- ---------- ---------- ----------
Total operating expenses 9,031 7,062 18,314 14,039
---------- ---------- ---------- ----------
Operating income 3,548 5,746 6,229 9,094
Nonoperating income (expense):
Interest income 190 166 364 362
Interest expense (442) (293) (843) (579)
Other income (expense), net (9) 142 70 372
---------- ---------- ---------- ----------
Income before income taxes
and minority interest 3,287 5,761 5,820 9,249
Income tax expense 1,238 2,334 2,202 3,700
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Income before minority interest 2,049 3,427 3,618 5,549
Minority interest in income of subsidiary 33 -- 28 --
---------- ---------- ---------- ----------
Net income $ 2,016 $ 3,427 $ 3,590 $ 5,549
========== ========== ========== ==========
Earnings per share (1):
Basic $ 0.11 $ 0.19 $ 0.20 $ 0.31
========== ========== ========== ==========
Diluted $ 0.10 $ 0.18 $ 0.19 $ 0.30
========== ========== ========== ==========
(1) Per share amounts for the three and six months ended October 28, 2000
have been restated to reflect a two-for-one stock split in the form of
a stock dividend (Note 3).
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
SIX MONTHS ENDED
----------------
OCTOBER 27, OCTOBER 28,
2001 2000
(26 WEEKS) (26 WEEKS)
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,590 $ 5,549
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,821 1,573
Amortization 188 142
Minority interest in income of subsidiary 28 --
Provision for doubtful accounts 402 28
Deferred taxes, net (10) --
Net change in operating assets and liabilities (2,881) (6,478)
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Net cash provided by operating activities 3,138 814
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,641) (4,781)
Other, net -- (469)
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Net cash used in investing activities (5,641) (5,250)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 2,639 2,911
Proceeds from long-term debt -- 1,659
Principal payments on long-term debt (1,818) (1,161)
Proceeds from exercise of stock options 402 167
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Net cash provided by financing activities 1,223 3,576
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Effect of exchange rate changes on cash (9) --
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DECREASE IN CASH AND CASH EQUIVALENTS (1,289) (860)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 2,896 1,217
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CASH AND CASH EQUIVALENTS END OF PERIOD $ 1,607 $ 357
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of building and equipment through contract for deed $ 2,150 $ --
The accompanying notes are an integral part of these Consolidated Financial
Statements.
7
DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
NOTE 1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to fairly present the Company's
financial position, results of operations and cash flows for the periods
presented. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
therein. Due to the inherent uncertainty involved in making estimates, actual
results in future periods may differ from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. These
financial statements should be read in conjunction with the Company's financial
statements and notes thereto for the year ended April 28, 2001, which are
contained in the Company's Annual Report on Form 10-K, previously filed with the
Securities and Exchange Commission. The results of operations for the interim
periods presented are not necessarily indicative of results that may be expected
for any other interim period or for the full fiscal year.
The consolidated financial statements include the accounts of the
Company and its wholly owned and greater than 50% owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB")
approved Statements of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." The
statements eliminate the pooling-of-interests method of accounting for business
combinations and require that goodwill and certain other intangible assets not
be amortized. Instead, the statements provide that these assets should be
tested, at least annually, for impairment with any related losses recognized as
incurred. SFAS No. 141 is generally effective for business combinations
completed after June 30, 2001. SFAS No. 142 is effective January 1, 2002 for
existing goodwill and intangible assets and July 1, 2001 for business
combinations completed after June 30, 2001. The provisions of SFAS No. 142 will
be implemented by the Company in the first quarter of its fiscal year 2003
financial statements. However, as noted above, the remaining unamortized
goodwill and intangible asset balances will be subject to periodic impairment
analysis, which could require a write-down of these assets upon the adoption of
SFAS No. 142 or thereafter. The Company is currently evaluating the impairment
requirements, as provided by SFAS No. 142, on the Company's financial
statements.
NOTE 3. EARNINGS PER SHARE
Earnings per common share have been computed on the basis of the
weighted-average number of common shares outstanding during each period
presented. A reconciliation of the income and common share amounts used in the
calculation of basic and diluted earnings per share (EPS) for the three and six
months ended October 27, 2001 and October 28, 2000 follows:
8
Per
Net Share
Income Shares Amount
---------- ---------- ----------
For the three months ended October 27, 2001:
Basic earnings per share $ 2,016 18,126,256 $ 0.11
Effect of dilutive securities:
Exercise of stock options and warrants -- 1,087,822 0.01
---------- ---------- ----------
Diluted earnings per share $ 2,016 19,214,078 $ 0.10
========== ========== ==========
For the three months ended October 28, 2000:
Basic earnings per share $ 3,427 17,824,410 $ 0.19
Effect of dilutive securities:
Exercise of stock options and warrants -- 1,029,270 0.01
---------- ---------- ----------
Diluted earnings per share $ 3,427 18,853,680 $ 0.18
========== ========== ==========
For the six months ended October 27, 2001:
Basic earnings per share $ 3,590 18,087,794 $ 0.20
Effect of dilutive securities:
Exercise of stock options and warrants -- 1,175,888 0.01
---------- ---------- ----------
Diluted earnings per share $ 3,590 19,263,682 $ 0.19
========== ========== ==========
For the six months ended October 28, 2000:
Basic earnings per share $ 5,549 17,775,740 $ 0.31
Effect of dilutive securities:
Exercise of stock options and warrants -- 949,092 .01
---------- ---------- ----------
Diluted earnings per share $ 5,549 18,724,832 $ 0.30
========== ========== ==========
On May 24, 2001, the Company declared a two-for-one stock split in the
form of a stock dividend of one share of common stock for each one share
outstanding, payable to shareholders of record on June 11, 2001. All data
related to common shares has been retroactively adjusted based upon the new
shares outstanding after the effect of the two-for-one stock split for all
periods presented.
NOTE 4. INVENTORIES
Inventories consist of the following:
October 27, April 28,
2001 2001
--------- ---------
Raw Materials $ 8,586 $ 9,610
Work-in-process 3,077 2,439
Finished Goods 8,766 7,670
--------- ---------
$ 20,429 $ 19,719
========= =========
NOTE 5. LITIGATION
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, based upon
consultation with legal counsel, the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position.
9
NOTE 6. SEGMENT DISCLOSURE
The Company's chief operating decision maker reviews financial
information presented on a consolidated basis, accompanied by disaggregated
information about revenue and certain expenses, by market and geographic region,
for purposes of assessing financial performance and making operating decisions.
Accordingly, the Company considers itself to be operating in a single industry
segment. The Company does not manage its business by solution or focus area. The
Company has no individual customers which constitute a significant
concentration.
10
ITEM 2. - 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 discussion should
be read in conjunction with the accompanying Consolidated Financial Statements
and Notes to Consolidated Financial Statements.
OVERVIEW
Daktronics is a leading supplier of electronic scoreboards, computer
programmable display systems, and large video displays for sport, business,
transportation and government applications. The Company offers the most complete
line of large display products of any single manufacturer, from smaller indoor
scoreboards and displays, to multi-million dollar outdoor video display systems.
The Company is recognized worldwide as a technical leader with the capabilities
to design, manufacture, install and service complete integrated systems that
display real-time data, graphics, animation and video. Its products are
generally sold in three general markets - sports, commercial and transportation.
The Company has sold display systems ranging from small standard
scoreboards priced under $1,000 to large complex display systems priced in
excess of $13 million.
The Company's net sales and profitability historically have fluctuated
due to the impact of large product orders, such as display systems for
commercial applications 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 orders in excess
of $100,000, 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.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented
by items included in the Company's Consolidated Statements of Income for the
periods indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
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OCTOBER 27, OCTOBER 28, OCTOBER 27, OCTOBER 28,
2001 2000 2001 2000
(13 WEEKS) (13 WEEKS) (26 WEEKS) (26 WEEKS)
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 69.7% 69.6% 70.0% 69.8%
------- ------- ------- -------
Gross profit 30.3% 30.4% 30.0% 30.2%
Operating expenses 21.7% 16.8% 22.4% 18.3%
------- ------- ------- -------
Operating income 8.6% 13.6% 7.6% 11.9%
Interest income 0.5% 0.4% 0.4% 0.5%
Interest expense (1.1%) (0.7%) (1.0%) (0.8%)
Other income (expense), net (0.1%) 0.3% 0.1% 0.4%
------- ------- ------- -------
Income before income taxes and minority interest 7.9% 13.6% 7.1% 12.0%
Income tax expense 3.0% 5.5% 2.7% 4.8%
------- ------- ------- -------
Minority interest in income of subsidiary (0.1%) -- (0.0%) --
------- ------- ------- -------
Net income 4.8% 8.1% 4.4% 7.2%
======= ======= ======= =======
11
NET SALES
Net sales increased 6.7% to $81.8 million for the six months ending
October 27, 2001 compared to $76.7 million for the same period in fiscal year
2001. Net sales decreased 1.3% to $41.6 million for the three months ending
October 27, 2001 from $42.1 million for the same period in fiscal year 2001. The
decline for the quarter ending October 27, 2001 as compared to the same period
of fiscal year 2001 was due to a combination of factors, including the delay of
a large commercial contract in which the customer requested a delay in the
delivery timeframe, a delay in the receipt of an order due to the events of
September 11th, and a general decline in orders from the commercial market as a
result of general economic conditions. The increase for the six months ending
October 27, 2001 as compared to the same period of fiscal year 2001 was due to
an increase in sales in the sports and transportation markets, offset by a
decline in sales for the commercial markets.
The order backlog decreased approximately 20% to $37 million as of
October 27, 2001 as compared to approximately $45 million as of October 28,
2000. Historically, the Company's backlog varies significantly due to timing of
large orders during the year. The backlog as of October 28, 2000 included a
significant commercial market order in excess of $12 million. Offsetting the
decline in the backlog in the commercial market, was an increase in the backlog
in the sports markets, which included the recently announced order for Ford
Field, home of the Detroit Lions of the National Football League.
GROSS PROFIT
Gross profit increased 6.1% to $24.5 million for the six months ending
October 27, 2001 compared to $23.1 million for the same period in fiscal year
2001. Gross profit decreased 1.8% to $12.6 million for the three months ending
October 27, 2001 from $12.8 million for the same period in fiscal year 2001. The
change for both the quarter and six months ending October 27, 2001 as compared
to the same periods of fiscal year 2001 was primarily due to the changes in net
sales. The gross profit percentage was relatively consistent for both the
quarter and six months ending October 27, 2001 as compared to the same periods
of fiscal year 2001. In general, gross profit percentages were positively
affected by cost improvements in manufacturing, and were negatively affected by
a slight decline in standard product orders.
OPERATING EXPENSES
SELLING EXPENSES. Selling expenses consist primarily of salaries, other
employee related costs, travel and entertainment, facilities related costs for
sales and service offices, and expenditures for marketing efforts including such
things as collateral materials, conventions and trade shows, product demos and
supplies. Sales expenses increased 23.6% to $11.0 million for the six months
ending October 27, 2001 compared to $8.9 million for the same period in fiscal
year 2001. Sales expenses increased 23.2% to $5.5 million for the three months
ending October 27, 2001 from $4.5 million for the same period in fiscal year
2001. Sales expenses were 13.5% and 11.6% of net sales for the six months ending
October 27, 2001 and October 28, 2000, respectively. Sales expenses were 13.2%
and 10.6% of net sales for the three months ending October 27, 2001 and October
28, 2000, respectively. The change in absolute dollars for both the quarter and
six months ending October 27, 2001 as compared to the same periods of fiscal
year 2001 was primarily due to increased costs of personnel as the Company
continued to develop its markets through an increased number of offices in North
America as part of its regionalization efforts. This increased number of offices
resulted in higher facility, depreciation, supplies and other costs typically
associated with a remote office, and was slightly offset through lower costs of
travel. Finally, the Company experienced much higher levels of bad debt
reserves, primarily in the second quarter of fiscal year 2002 as compared to the
same period of last fiscal year primarily due to specific, non-recurring type
items as well as a general increase in uncollectible accounts. As a percentage
of net sales, selling expenses were higher in both the quarter and six months
ending October 27, 2001 primarily as a result of a lower level of net sales than
the Company had expected to achieve.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, other employee-related costs, professional fees,
facilities and equipment related costs for administration departments,
amortization of intangibles, and supplies. General and administrative expenses
increased 47.1% to $3.9 million for the six months ending October 27, 2001
compared to $2.6 million for the same period in fiscal year 2001. General and
administrative expenses increased 25.4% to $1.8 million for the three months
ending October 27, 2001 from
12
$1.4 million for the same period in fiscal year 2001. The change for both the
quarter and six months ending October 27, 2001 as compared to the same periods
of fiscal year 2001 was primarily due to increased costs of personnel as the
Company positioned itself for higher levels of net sales, the building of
infrastructure to support the regionalization efforts of sales, higher
professional fees and development of more formal training programs for
employees. As a percentage of net sales the increase for both the quarter and
six months ending October 27, 2001 over the previous periods of fiscal year 2001
was due to the items mentioned above as well as a lower level of net sales than
expected.
PRODUCT DESIGN AND DEVELOPMENT. Product design and development expenses
consist primarily of salaries, other employee-related costs, facilities and
equipment related costs, and supplies. Product design and development expenses
increased 37.4% to $3.4 million for the six months ending October 27, 2001
compared to $2.5 million for the same period in fiscal year 2001. Product design
and development expenses increased 48.6% to $1.8 million for the three months
ending October 27, 2001 from $1.2 million for the same period in fiscal year
2001. The change for both the quarter and six months ending October 27, 2001 as
compared to the same periods of fiscal year 2001 was primarily due to increased
costs of personnel associated with design and development efforts. As a
percentage of net sales the increase for both the quarter and six months ending
October 27, 2001 over the previous periods of fiscal year 2001 was due to the
items mentioned above as well as a lower level of net sales than the Company had
expected to achieve and a planned increase by the Company resulting from its
intentions to invest at least 4% of net sales back into product design,
development and research.
INTEREST INCOME
The Company occasionally sells products on an installment basis or in
exchange for advertising revenues from the scoreboard or display, both of which
result in long-term receivables. Interest income resulting primarily from these
long-term receivables increased 0.6% to $.364 million for the six months ending
October 27, 2001 compared to $.362 million for the same period in fiscal year
2001. Interest income increased 14.5% to $.190 million for the three months
ending October 27, 2001 from $.166 million for the same period in fiscal year
2001. The increase was related to higher levels of long-term receivables arising
in fiscal year 2002 as compared to similar periods in fiscal year 2001.
INTEREST EXPENSE
Interest expense is comprised primarily of interest costs on the
Company's notes payable and long-term debt. Interest expense increased 45.6% to
$.8 million for the six months ending October 27, 2001. Interest expense
increased 50.9% to $.4 million for the three months ending October 27, 2001 from
$.3 million for the same period in fiscal year 2001. The increase for both
periods was related to higher average levels of debt, notes payable, bank and
long term debt, offset by a decline in average interest rates during the periods
noted.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $23.7 million at October 27, 2001 and $27.0 million
at April 28, 2001. 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 October 27, 2001 was
$3.1 million. Net income of $3.6 million plus depreciation and amortization of
$2.0 million and an increase in accrued expenses and billings in excess of costs
and estimated earnings on uncompleted contracts were offset by an increase in
accounts receivable, prepaid expenses and inventories and by a decrease in
accounts payable. Cash used by investing activities consisted of $5.6 million of
purchases of property and equipment. Cash provided from financing activities
included $2.6 million of net borrowings under the Company's line of credit, and
$.4 million in proceeds from the exercise of stock options. Cash used for
financing activities consisted of $1.8 million 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
13
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 design and development expenses were $3.4 million for the
six months ended October 27, 2001 and $2.5 million for the six months ended
October 28, 2000, respectively. The Company intends to continue to incur these
expenditures to develop new display products using various display technologies
to offer higher resolution, and 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 $20.0 million line of credit which includes up to $2.0 million
for standby letters of credit. The line of credit is at LIBOR rate plus 1.55%
(3.9% at October 27, 2001) and is due on October 1, 2002. As of October 27,
2001, $10.1 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 $23 million, a minimum liquidity
ratio, a limit on dividends and distributions, and a minimum adjusted fixed
charge coverage ratio.
The Company's Sports Link, Inc. subsidiary has various lines of credit
for operating needs and equipment purchases totaling approximately $2.0 million.
These lines carry interest rates varying from prime (5.5% at October 27, 2001),
to prime + 1/2% (with minimum and maximum rates between 6.5% and 9.5%), (6.5% at
October 27, 2001). These lines are secured by a guarantee by the Company as well
as substantially all the assets of the subsidiary. These lines of credit
terminate over the next 12 months. The Company expects to be able to renew these
lines as they expire.
The Company is sometimes required to obtain performance bonds for
display installations. The Company currently has a bonding line available
through a surety company that provides for an aggregate of $100.0 million in
bonded work outstanding. At October 27, 2001, the Company had $7.9 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.
During the six months ended October 27, 2001, the Company invested
approximately $1.7 million in equipment for its SportsLink subsidiary to
increase its fleet of video boards available for rental. In addition, the
Company purchased additional facilities within close proximity to its existing
manufacturing facilities in order to increase manufacturing capacity. The total
cost of the new facilities which was approximately $2.2 million, was financed
through a contract for deed with the seller of the property. Finally, during the
first six months of the current fiscal year, the company invested approximately
$2.6 million in manufacturing equipment and approximately $1.7 million in office
equipment and furniture as it expanded its general office space to accommodate
its planned growth in personnel to support higher sales.
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ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe its operations are exposed to significant
market risk relating to interest rates or foreign exchange risk.
PART II. OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following items and the results were submitted to the shareholders
at the annual meeting held on August 15, 2001:
1. Election of the following three nominees as directors of the Company,
until their successors are duly elected and qualified:
James B. Morgan: For 16,274,752 Withheld 591,078
John L. Mulligan For 16,225,116 Withheld 640,714
Duane E. Sander For 14,915,048 Withheld 1,950,782
2. Ratification of the appointment of McGladrey & Pullen, LLP as
independent auditors for the Company for the fiscal year ending
April 27 2002:
For 16,741,394 Against 85,186 Abstain 39,250
3. Proposal to approve the Amendment to the Amended and Restated Articles
of Incorporation increasing the shares authorized to be issued from
30,000,000 to 60,000,000:
For 16,471,507 Against 340,215 Abstain 54,105
4. Proposal to approve the Daktronics, Inc. 2001 Stock Option Plan:
For 10,995,462 Against 1,115,929 Abstain 165,297 Broker Non-votes 4,589,142
5. Proposal to approve the Daktronics, Inc, 2001 Outside Directors Stock
Option Plan:
For 9,378,736 Against 2,662,306 Abstain 235,247 Broker Non-votes 4,589,541
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3.5 Amendment to the Amended and Restated Articles of Incorporation of the
Company
4.3 2001 Incentive Stock Option Plan (1)
4.4 2001 Outside Directors Stock Option Plan (1)
(1) Incorporated by reference to Daktronics, Inc. Registration Statement on
Form S-8
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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/ James B. Morgan, Chief Executive Officer
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Daktronics, Inc.
(James B. Morgan, Chief Executive Officer)
(Chief Executive Officer)
Date December 11, 2001
- -----------------------
/s/ William R. Retterath, Chief Financial Officer
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Daktronics, Inc.
(William R. Retterath, Chief Financial Officer)
(Principal Financial Officer)
16