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 2, 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)
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 30, 1996
- ------------------------------------ ------------------------------------
Common Stock, No par value 4,306,420
Daktronics, Inc.
Table of Contents
Part I. Financial Information Page(s)
Consolidated Balance Sheets -
November 2, 1996 and April 27, 1996 ........................ 3 - 4
Consolidated Statements of Income -
Three months and six months ended
November 2, 1996 and October 28, 1995 . . .................. 5
Consolidated Statements of Cash Flows -
Six months ended November 2, 1996 and
October 28, 1995............................................ 6
Notes to Consolidated Financial Statements.................. 7
Management's 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)
NOVEMBER 2,
1996 APRIL 27,
ASSETS (UNAUDITED) 1996
----------- ---------
CURRENT ASSETS
Cash and cash equivalents ...................... $ 177 $ 218
Accounts receivable less allowance
for doubtful accounts of $146 at Nov 2, 1996,
and $129 at April 27, 1996 .................. 10,140 8,630
Current maturities of long-term
notes and contracts receivable .............. 1,224 1,372
Inventories .................................... 9,787 9,800
Costs and estimated earnings in
excess of billings on uncompleted
contracts ................................... 3,863 2,684
Real estate held for sale ...................... -- 1,126
Prepaid expenses ............................... 169 245
Deferred income tax benefit .................... 703 703
Income taxes receivable ........................ -- 64
------- -------
Total current assets ........................ $26,063 $24,842
------- -------
LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights ............................. $ 2,379 $ 2,030
Notes and contracts receivables,
less current maturities ..................... 2,518 2,714
Consulting and noncompete
agreements and other ........................ 1,452 1,688
------- -------
$ 6,349 $ 6,432
------- -------
PROPERTY AND EQUIPMENT,
at cost
Land ........................................ $ 491 $ 455
Buildings ................................... 4,368 3,902
Machinery and equipment ..................... 9,016 8,398
Office furniture and equipment .............. 244 233
Transportation equipment .................... 497 423
------- -------
$14,616 $13,411
Less accumulated depreciation ............... 7,501 6,918
------- -------
$ 7,115 $ 6,493
------- -------
$39,527 $37,767
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
NOVEMBER 2,
1996 APRIL 27,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1996
----------- ---------
CURRENT LIABILITIES
Notes payable ............................. $ 6,004 $ 5,690
Current maturities of
long-term debt ......................... 498 1,382
Accounts payable .......................... 3,432 4,330
Accrued expenses .......................... 2,943 2,295
Billings in excess of costs and
estimated earnings on uncompleted
contracts .............................. 2,395 1,001
Accrued loss on uncompleted contracts ..... 544 640
Income taxes payable ...................... 130 --
-------- --------
Total current liabilities .............. $ 15,946 $ 15,338
-------- --------
LONG-TERM DEBT,
less current maturities ................... $ 1,340 $ 1,544
-------- --------
DEFERRED INCOME .............................. $ 430 $ 539
-------- --------
DEFERRED INCOME TAXES ........................ $ 485 $ 485
-------- --------
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 15,000 shares
4,196 shares issued at Apr 27, 1996,
and 4,306 shares issued at Nov 2, 1996 $ 11,680 $ 11,299
Retained earnings ......................... 9,655 8,571
-------- --------
$ 21,335 $ 19,870
Less:
Cost of 5 treasury shares .............. (9) (9)
-------- --------
$ 21,326 $ 19,861
-------- --------
$ 39,527 $ 37,767
======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except earnings per share)
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 2, OCTOBER 28, NOVEMBER 2, OCTOBER 28,
1996 1995 1996 1995
(13 WEEKS) (13 WEEKS) (27 WEEKS) (26 WEEKS)
------------ ------------ ------------ -----------
Net sales .............................. $ 16,257 $ 14,532 $ 33,279 $ 26,978
Cost of goods sold ..................... 12,184 11,181 24,798 20,891
-------- -------- -------- --------
Gross profit ........................ $ 4,073 $ 3,351 $ 8,481 $ 6,087
-------- -------- -------- --------
Operating expenses:
Selling ............................. $ 2,031 $ 1,864 $ 4,087 $ 3,600
General and administrative .......... 666 490 1,315 1,024
Product design and development ...... 560 387 1,131 856
-------- -------- -------- --------
$ 3,257 $ 2,741 $ 6,533 $ 5,480
-------- -------- -------- --------
Operating income ................. $ 816 $ 610 $ 1,948 $ 607
Nonoperating income (expense):
Interest income ..................... 93 72 186 152
Interest expense .................... (233) (174) (437) (220)
Other income ........................ 50 84 110 139
-------- -------- -------- --------
Income before income taxes ....... $ 726 $ 592 $ 1,807 $ 678
Income tax expense ..................... 283 208 724 251
-------- -------- -------- --------
Net income ....................... $ 443 $ 384 $ 1,083 $ 427
======== ======== ======== ========
Earnings per share ..................... $ .11 $ .09 $ .26 $ .10
======== ======== ======== ========
Weighted average number of
common and common equivalent shares... 4,210 4,240 4,219 4,247
======== ======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
SIX MONTHS ENDED
----------------
NOVEMBER 2, OCTOBER 28,
1996 1995
(27 weeks) (26 weeks)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................... $ 1,084 $ 427
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation ...................................... 583 548
Amortization ...................................... 138 287
Provision for doubtful accounts ................... 66 11
Change in operating assets and
liabilities ...................................... (1,100) (5,297)
------- -------
Net cash provided by (used in)
operating activities ........................... $ 771 $(4,024)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment .................. $(1,205) $ (627)
Proceeds from sale of real estate
held for sale .................................... 1,126 --
Other, net .......................................... 32 (954)
------- -------
Net cash (used in)
investing activities ............................ $ (47) $(1,581)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable ..................... $ 314 $ 6,043
Principal payments on
long-term debt ..................................... (1,079) (206)
------- -------
Net cash provided by (used in)
financing activities ............................. $ (765) $ 5,837
------- -------
Increase (decrease) in cash and cash equivalents .. $ (41) $ 232
Cash and cash equivalents:
Beginning ........................................... 218 380
------- -------
Ending .............................................. $ 177 $ 612
======= =======
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 November 2, 1996 and the results of its operations and cash flows for the
three months and six months ended November 2, 1996 and October 28, 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):
November 2, April 27,
1996 1996
----------- ---------
Raw materials......................... $6,640 $5,718
Work-in-process....................... 1,967 2,606
Finished goods........................ 1,180 1,476
------ ------
$9,787 $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 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:
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 2, OCTOBER 28, NOVEMBER 2, OCTOBER 28,
1996 1995 1996 1995
(13 WEEKS) (13 WEEKS) (27 WEEKS) (26 WEEKS)
----------- ----------- ----------- -----------
Net sales........................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............... 74.9% 76.9% 74.5% 77.4%
------ ------ ------ ------
Gross profit..................... 25.1% 23.1% 25.5% 22.6%
Operating expenses............... 20.0% 18.9% 19.6% 20.4%
------ ------ ----- ------
Operating income................. 5.1% 4.2% 5.9% 2.2%
Interest income.................. 0.6% 0.5% 0.6% 0.6%
Interest expense................. ( 1.4%) (1.2%) (1.3%) (0.8%)
Other income (expense)........... 0.3% 0.6% 0.3% 0.5%
------ ------ ------ -----
Income before income taxes....... 4.5% 4.1% 5.5% 2.5%
Income tax expense............... 1.7% 1.5% 2.2% 0.9%
------ ------ ------ ------
Net income....................... 2.8% 2.6% 3.3% 1.6%
====== ====== ====== ======
NET SALES
Net sales were $16.3 million and $33.3 million for the three and six months
ended November 2, 1996, compared to $14.5 million and $27.0 million for the
three and six months ended October 28, 1995, representing a increase of 12% for
the three month period and 23% for the six month period. The increase in net
sales for the three and six month periods was the result of increased sales in
most of the sports 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 six months of fiscal year 1997 will be similar to and may
exceed the last six months of fiscal year 1996.
GROSS PROFIT
Gross profit increased 22% from $3.4 million for the three months ended
October 28, 1995 to $4.1 million for the three months ended November 2, 1996.
Gross profit as a percentage of net sales was 23.1% for the three months ended
October 28, 1995 compared to 25.1% for the three months ended November 2, 1996.
The increase was the result of higher gross profit margins in the sports and
business markets.
Gross profit increased 39% from $6.1 million for the six months ended
October 28, 1995 to $8.5 million for the six months ended November 2, 1996.
Gross profit as a percentage of net sales was 22.6% for the six months ended
October 28, 1995, compared to 25.5 % for the six months ended November 2, 1996.
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 9% from $1.9 million for the three months ended
October 28, 1995, to $2.0 million for the three months ended November 2, 1996.
Selling expenses increased 14% from $3.6 million for the six months ended
October 28, 1995 to $4.1 million for the six months ended November 2, 1996. The
increases were due primarily to the addition of sales staff and increased
selling activity.
General and administrative expenses increased from $490,000 and $1.0 million
for the three and six months ended October 28, 1995 to $666,000 and $1.3 million
for the three and six months ended November 2, 1996. The increases were due to
increases in salary and personnel to support company growth.
Product design and development increased from $387,000 and $856,000 for the
three and six months ended October 28, 1995 to $560,000 and $1.1 million for the
three and six months ended November 2, 1996. The increases were due to a greater
number of product development projects to improve and upgrade existing products
and develop new products.
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 $72,000 and
$152,000 for the three and six months ended October 28, 1995 to $93,000 and
$186,000 for the three and six months ended November 2, 1996. The increase was
due to higher average balances of long-term receivables.
INTEREST EXPENSE
Interest expense increased from $174,000 and $220,000 for the three and six
month periods ended October 28, 1995 to $233,000 and $437,000 for the three and
six months ended November 2, 1996. The increase was due to an increase in
average loan balances to fund the increase in working capital to support sales
growth.
INCOME TAX EXPENSE
Income taxes as a percentage of income before income taxes was 37% and 40%
for the six months ended October 28, 1995 and November 2, 1996 respectively. The
increase was due to the rounding of state tax accruals and a decrease in
nontaxable interest income.
NET INCOME
Net income increased from $384,000 and $427,000 for the three and six months
ended October 28, 1995 to $443,000 and $1.1 million for the three and six months
ended November 2, 1996. The increase was due to increased net sales and an
increase in gross profit as a percentage of 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 $10.1 million at November 2, 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, 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 six months ended November 2, 1996 was
$771,000. Net income of $1.1 million plus depreciation and amortization of
$721,000 were offset by increases in inventory and receivables including costs
and estimated earnings in excess of billings on uncompleted contracts. Cash used
in investing activities consisted primarily of $1.2 million for purchase of
property and equipment, and was offset by $1.1 million in proceeds from sale of
real estate held for sale. Cash used in financing activities included $1.1
million of repayment of long-term debt and was offset by $314,000 net borrowings
provided from 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 November 2, 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 as established by the bank from time to time ( 8.25 % at
November 2, 1996) and is due on September 30, 1997. As of November 2, 1996, $6.0
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 November 2, 1996, the Company had $ 10.9 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 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 6 - EXHIBITS
10.1 Revolving Note between Daktronics, Inc. and Norwest Bank
Minnesota, National Association dated September 30, 1996.
10.2 Second Amendment to credit agreement dated September 30, 1996
between Norwest Bank Minnesota, National Association, and
Daktronics, Inc.
27.1 Financial Data Schedule
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, 1996
/s/ Paul J. Weinand, Treasurer
------------------------------------=
Daktronics, Inc.
(Paul J. Weinand, Treasurer)
(Principal Financial Officer)