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 August 3, 1996
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)
Registrants telephone number, including area code (605) 697-4000
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(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 August 31, 1996
- ------------------------------ ----------------------------------
Common Stock, No par value 4,190,890
Daktronics, Inc.
Table of Contents
Part I. Financial Information Page(s)
Consolidated Balance Sheets -
August 3, 1996 and April 27, 1996 ....................... 3 - 4
Consolidated Statements of Operations -
Three months months ended
August 3, 1996 and July 29, 1995 ........................ 5
Consolidated Statements of Cash Flows -
three months ended August 3, 1996 and
July 29, 1995............................................ 6
Notes to Consolidated Financial Statements............... 7
Managements Discussion and Analysis of
Financial Condition and Results of Operation............. 8 - 10
Part II. Other Information............................................. 11
Signatures............................................... 12
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
AUGUST 3,
1996 APRIL 27,
ASSETS (UNAUDITED) 1996
----------- ---------
CURRENT ASSETS
Cash and cash equivalents .............. $ 255 $ 218
Accounts receivable less allowance
for doubtful accounts of $161 at
Aug 3, 1996 and $129 at April 27, 1996 9,940 8,630
Current maturities of long-term
receivables ........................... 1,322 1,372
Inventories .............................. 10,919 9,800
Costs and estimated earnings in
excess of billings on uncompleted
contracts ............................. 4,840 2,684
Real estate held for sale ................ -- 1,126
Prepaid expenses ......................... 212 245
Deferred income tax benefit .............. 702 703
Income taxes receivable .................. -- 64
------- -------
Total current assets .................. $28,190 $24,842
------- -------
LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights ....................... $ 1,941 $ 2,030
Long-term receivables,
less current maturities ............... 2,637 2,714
Consulting and noncompete
agreements and other .................. 1,570 1,688
------- -------
$ 6,148 $ 6,432
------- -------
PROPERTY AND EQUIPMENT,
at cost
Land ..................................... $ 491 $ 455
Buildings ............................. 4,156 3,902
Machinery and equipment ............... 8,769 8,398
Office furniture and equipment ........ 240 233
Transportation equipment .............. 491 423
------- -------
$14,147 $13,411
Less accumulated depreciation ............ 7,205 6,918
------- -------
$ 6,942 $ 6,493
------- -------
$41,280 $37,767
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
AUGUST 3,
1996 APRIL 27,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1996
----------- ---------
CURRENT LIABILITIES
Notes payable ................................ $ 8,305 $ 5,690
Current maturities of
long-term debt ............................ 498 1,382
Accounts payable ............................. 5,346 4,330
Accrued expenses ............................. 2,272 2,295
Billings in excess of costs and
estimated earnings on uncompleted contracts 982 1,001
Accrued loss on uncompleted contracts ........ 640 640
Income taxes payable ......................... 372 --
-------- --------
Total current liabilities ................. $ 18,415 $ 15,338
-------- --------
LONG-TERM DEBT,
less current maturities ...................... $ 1,368 $ 1,544
-------- --------
DEFERRED INCOME ................................. $ 511 $ 539
-------- --------
DEFERRED INCOME TAXES ........................... $ 485 $ 485
-------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 15,000,000 shares
Issued 4,195,810 shares ................... $ 11,299 $ 11,299
Retained earnings ............................ 9,211 8,571
-------- --------
$ 20,510 $ 19,870
Less:
Cost of 4,920 treasury shares ............. (9) (9)
-------- --------
$ 20,501 $ 19,861
-------- --------
$ 41,280 $ 37,767
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share)
(unaudited)
Three Months Ended
-----------------------
AUGUST 3, JULY 29,
1996 1995
(14 WEEKS) (13 WEEKS)
---------- ----------
Net sales ............................ $ 17,022 $ 12,446
Cost of goods sold ................... 12,614 9,710
-------- --------
Gross profit ...................... $ 4,408 $ 2,736
-------- --------
Operating expenses:
Selling ........................... $ 2,056 $ 1,736
General and administrative ........ 649 534
Product design and development .... 571 469
-------- --------
$ 3,276 $ 2,739
-------- --------
Operating income (loss) ........ $ 1,132 $ (3)
Nonoperating income (expense):
Interest income ................... 93 80
Interest expense .................. (204) (46)
Other income ...................... 60 55
-------- --------
Income before income taxes ..... $ 1,081 $ 89
Income tax expense ................... 441 43
-------- --------
Net income ..................... $ 640 $ 43
======== ========
Earnings per share ................... $ .15 $ .01
======== ========
Weighted average number of
common and common equivalent shares 4,228 4,254
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
THREE MONTHS ENDED
------------------------
AUGUST 3, JULY 29,
1996 1995
(14 weeks) (13 weeks)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................... $ 640 $ 43
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ................................ 287 274
Amortization ................................ 195 130
Provision for doubtful accounts ............. 33 (21)
Change in operating assets and
liabilities ................................ (3,116) (1,418)
------- -------
Net cash used in
operating activities ..................... $(1,961) $ (992)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............ $ (737) $ (369)
Proceeds from sale of real estate held for sale 1,126 --
Other, net .................................... 45 (432)
------- -------
Net cash provided by (used by)
investing activities ...................... $ 434 $ (801)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable ............... $ 2,615 $ 1,888
Principal payments on
long-term debt ............................... (1,051) (186)
------- -------
Net cash provided by
financing activities ...................... $ 1,564 $ 1,702
------- -------
Increase (Decrease) in cash ...................... $ 37 $ (91)
Cash:
Beginning ..................................... 218 380
------- -------
Ending ........................................ $ 255 $ 289
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH AND
INVESTING AND FINANCING ACTIVITIES
Real estate acquired by the assumption of
long-term debt ............................... $ -- $ 1,065
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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 August 3, 1996 and the results of its operations and cash flows for the
three months ended August 3, 1996 and July 29, 1995. 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):
August 3, April 27,
1996 1996
-------- ---------
Raw materials......................... $ 6,533 $ 5,718
Work-in-process....................... 2,239 2,606
Finished goods........................ 2,147 1,476
-------- --------
$ 10,919 $ 9,800
======== ========
NOTE C. LITIGATION
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. 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 of discovery 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 judgment. 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:
Three Months Ended
----------------------------
AUGUST 3, JULY 29,
1996 1995
(14 WEEKS) (13 WEEKS)
---------- ----------
Net sales ............. 100.0% 100.0%
Cost of goods sold .... 74.1% 78.0%
----- -----
Gross profit .......... 26.9% 22.0%
Operating expenses .... 19.2% 22.0%
----- -----
Operating income (loss) 6.7% (0.0%)
Interest income ....... 0.5% 0.6%
Interest expense ...... (1.2%) (0.4%)
Other income .......... 0.3% 0.4%
----- -----
Income before income
taxes ........ 6.3% .6%
Income tax expense .... 2.6% .3%
----- -----
Net income ............ 3.7% .3%
===== =====
NET SALES
Net sales were $17.0 million for the three months ended August 3, 1996
compared to $12.4 million for the three months ended July 29, 1995. This
represents a 37% increase which was the result of increased sales in almost all
of the segments of the sports markets. Net sales in the government and business
markets were comparable to the previous period. In addition the three months
ended August 3, 1996 consisted of 14 weeks as compared to 13 weeks for the
quarter ended July 29, 1995.
Based on current backlog and sales activities, the Company believes
that net sales for the last nine months of fiscal year 1997 may exceed net sales
for the last nine months of fiscal year 1996.
GROSS PROFIT
Gross profit increased 61% from $2.7 million for the three months ended
July 29, 1995 to $4.4 million for the three months ended August 3, 1996. The
increase in gross profit was the result of an increase in gross profit as a
percentage of net sales and an increase in net sales. The increase in gross
profit as a percentage of net sales was the result of improved market conditions
and product development.
Due in part to the impact of large orders and the amount of
subcontracting work associated with the installation of these products, the
Company expects that its gross profit margin will continue to fluctuate in
future periods.
OPERATING EXPENSES
Selling expenses increased 18% from $1.7 million for the three months
ended July 29, 1995 to $2.1 million for the three months ended August 3, 1996.
The increase was due primarily to increased selling activity.
General and administrative expenses were $649,000 for the three months
ended August 3, 1996 compared to $534,000 for the three months ended July 29,
1995. The increase was primarily attributable to increases in salary and
personnel to support company growth.
Product design and development expenses increased from $469,000 for the
three months ended July 29, 1995 to $571,000 for the three months ended August
3, 1996. The increase was due to a greater number of product development
projects which included new products and upgrading and expanding existing
products.
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 increased from $80,000 for the
three months ended July 29, 1995 to $93,000 for the three months ended August 3,
1996. The increase was due to higher average balances of long-term receivables.
INTEREST EXPENSE
Interest expense increased from $46,000 for the three months ended July
29, 1995 to $204,000 for the three months ended August 3, 1996. The increase was
the result of an increase in average loan balances to fund the increase in
working capital to support sales growth.
INCOME TAX EXPENSE
Income tax expense as a percentage of income before income taxes was
50% and 41% for the three months ended July 29, 1995 and August 3, 1996,
respectively. The decrease was primarily due to the rounding of state tax
accruals and the minimal income before taxes in 1995.
NET INCOME
Net income increased from $43,000 to $640,000 for the three months
ended July 29, 1995 and August 3, 1996, respectively. The increase was due
primarily to the increase in gross profit as a percentage of sales and net sales
increasing at a faster rate than operating expenses.
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 $9.8 million at August 3, 1996 and $9.5 million at
April 27, 1996. 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 used by operations for the three months ended August 3, 1996 was
$2.0 million. Net income of $640,000 plus depreciation and amorization of
$482,000 were offset by increases in inventory and receivables including costs
and estimated earnings in excess of billings on uncompleted contracts. Cash
provided by investing activities consisted of proceeds from the sale of real
estate held for sale of $1.1 million which was offset by $737,000 of purchases
of property and equipment. Cash provided from financing activities included $2.6
million net borrowings under the Company's line of credit and was offset by $1.0
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 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.
At August 3, 1996, 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 of interest as established by the bank from time to time
(8.25% at August 3, 1996) and is due on September 30, 1996. As of August 3,
1996, $8.3 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 $20 million in
bonded work outstanding. At August 3, 1996, the Company had $5.6 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.
PART II - OTHER INFORMATION
Item 1 - LITIGATION
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. Based on the opinion of
the Company's patent counsel, management believes that there is no infringment
and intends to defend the litigation vigorously. The case is in its early stages
of discovery 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 judgment. 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.
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 September 13, 1996
------------------------
/s/ Paul J. Weinand, Treasurer
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Daktronics, Inc.
(Paul J. Weinand, Treasurer)
(Principal Financial Officer)