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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
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
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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 January 31, 1998
-------------------------- -------------------------------
Common Stock, No par value 4,319,290
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Daktronics, Inc.
Table of Contents
Part I. Financial Information Page(s)
Consolidated Balance Sheets -
January 31, 1998 and May 3, 1997 ........................ 3 - 4
Consolidated Statements of Operations
Three months and nine months ended
January 31, 1998 and February 1, 1997 ................... 5
Consolidated Statements of Cash Flows -
Nine months ended January 31, 1998 and
February 1, 1997......................................... 6
Notes to Consolidated Financial Statements............... 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operation............. 9 - 12
Part II. Other Information............................................. 13
Signatures............................................... 14
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
JANUARY 31,
1998 MAY 3,
ASSETS (UNAUDITED) 1997
------- -------
CURRENT ASSETS
Cash and cash equivalents ................ $ 578 $ 118
Accounts receivable less allowance
for doubtful accounts of $219 at
January 31, 1998 and $194 at May 3, 1997 9,138 11,889
Current maturities of long-term
receivables ............................ 1,002 1,072
Inventories .............................. 9,026 8,025
Costs and estimated earnings in
excess of billings on uncompleted
contracts .............................. 4,496 1,251
Prepaid expenses and other ............... 407 129
Deferred income tax benefit .............. 1,185 1,185
------- -------
Total current assets ................... $25,832 $23,669
------- -------
LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights ....................... $ 1,186 $ 1,766
Long-term receivables,
less current maturities ................ 4,165 3,038
Intangible assets and other .............. 880 1,216
------- -------
$ 6,231 $ 6,020
------- -------
PROPERTY AND EQUIPMENT,
at cost
Land ................................... $ 492 $ 492
Buildings .............................. 4,725 4,283
Machinery and equipment ................ 10,937 9,975
Office furniture and equipment ......... 393 242
Transportation equipment ............... 603 546
------- -------
$17,150 $15,538
Less accumulated depreciation ............ 9,135 8,091
------- -------
$ 8,015 $ 7,447
------- -------
$40,078 $37,136
======= =======
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
JANUARY 31,
1998 MAY 3,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1997
-------- --------
CURRENT LIABILITIES
Notes payable, bank ......................... $ 3,395 $ 2,675
Current maturities of
long-term debt ............................ 562 713
Accounts payable ............................ 4,855 4,089
Accrued expenses ............................ 3,532 2,892
Billings in excess of costs and
estimated earnings on uncompleted contracts 2,132 1,075
Accrued loss on uncompleted contracts ....... -- 399
Income taxes payable ........................ -- 903
-------- --------
Total current liabilities ................... $ 14,476 $ 12,746
-------- --------
LONG-TERM DEBT ................................
Less current maturities ..................... $ 946 $ 1,706
DEFERRED INCOME ............................... $ 620 $ 481
DEFERRED INCOME TAXES ......................... $ 453 $ 453
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 15,000,000 shares
Issued 4,324,210 shares ................... $ 11,723 $ 11,680
Retained earnings ........................... 11,869 10,079
-------- --------
$ 23,592 $ 21,759
Less:
Cost of 4,920 treasury shares ............... (9) (9)
-------- --------
$ 23,583 $ 21,750
-------- --------
$ 40,078 $ 37,136
======== ========
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 NINE MONTHS ENDED
------------------ -----------------
JANUARY 31, FEBRUARY 1, JANUARY 31, FEBRUARY 1,
1998 1997 1998 1997
(13 WEEKS) (13 WEEKS) (39 WEEKS) (40 WEEKS)
-------- -------- -------- --------
Net sales ............................ $ 17,168 $ 11,516 $ 49,872 $ 44,795
Cost of goods sold ................... 12,525 8,524 36,334 33,322
-------- -------- -------- --------
Gross profit ..................... $ 4,643 $ 2,992 $ 13,538 $ 11,473
-------- -------- -------- --------
Operating expenses:
Selling ............................ $ 2,307 $ 1,869 $ 6,807 $ 5,956
General and administrative ......... 828 682 2,340 1,997
Product design and development ..... 500 543 1,660 1,674
-------- -------- -------- --------
$ 3,635 $ 3,094 $ 10,807 $ 9,627
-------- -------- -------- --------
Operating income (loss) .......... $ 1,008 $ (102) $ 2,731 $ 1,846
Nonoperating income (expense):
Interest income .................... 155 106 411 292
Interest expense ................... (149) (170) (361) (607)
Other income ....................... 48 5 99 115
-------- -------- -------- --------
Income (loss) before income taxes $ 1,062 $ (161) $ 2,880 $ 1,646
Income tax expense (credit) .......... 369 (83) 1,089 641
-------- -------- -------- --------
Net income (loss) ................ $ 693 $ (78) $ 1,791 $ 1,005
======== ======== ======== ========
Earnings (loss) per share:
Basic .............................. $ .16 $ (.02) $ .41 $ .24
======== ======== ======== ========
Diluted ............................ $ .16 $ (.02) $ .41 $ .24
======== ======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31, FEBRUARY 1,
1998 1997
(39 WEEKS) (40 WEEKS)
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................... $ 1,791 $ 1,005
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ................................. 1,044 882
Amortization ................................. 660 438
Provision for doubtful accounts .............. 25 11
Change in operating assets and
liabilities ................................ (1,507) (698)
------- -------
Net cash provided by
operating activities ................... $ 2,013 $ 1,638
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ............... $(1,612) $(1,736)
Proceeds from sale of real estate
held for sale .................................. -- 1,126
Other, net ....................................... 256 47
------- -------
Net cash (used in)
investing activities ....................... $(1,356) $ (563)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on notes payable ....... $ 720 $ (227)
Principal payments on
long-term debt ................................. (917) (951)
------- -------
Net cash (used in)
financing activities ......................... $ (197) $(1,178)
------- -------
Increase (decrease) in cash and cash equivalents $ 460 $ (103)
Cash and cash equivalents:
Beginning ........................................ 118 218
------- -------
Ending ........................................... $ 578 $ 115
======= =======
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.
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 January 31, 1998 and the results of its operations and cash flows for the
three months and nine months ended January 31, 1998 and February 1, 1997. 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):
January 31, May 3,
1998 1997
---- ----
Raw materials $ 6,129 $ 4,638
Work-in-process 1,949 1,168
Finished goods 948 2,219
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$ 9,026 $ 8,025
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NOTE C. EARNINGS PER SHARE
The Company adopted the Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share for the period ending January 31, 1998. This
Statement establishes standards for computing and presenting earnings per share
(EPS). It replaced the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement of all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
This Statement requires restatement of all prior-period EPS data presented. The
adoption of the Statement had no impact on EPS previously reported.
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) during the period. Shares issued during the period
and shares reacquired during the period are weighted for the portion of the
period that they were outstanding. The weighted average number of common shares
outstanding for the three month period ended January 31, 1998 and February 1,
1997 as adjusted was 4,313,000 and 4,306,000 respectively. The weighted average
number of common shares outstanding for the nine month period ended January 31,
1998 and February 1, 1997 as adjusted was 4,308,000 and 4,231,000 respectively.
Dilutive earnings per share is similar to the computation of basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
options outstanding had been exercised. The weighted average number of common
and dilutive potential common shares outstanding for the three month period
ended January 31, 1998 and February 1, 1997 as adjusted was 4,435,000 and
4,309,000 respectively. The weighted average number of common and dilutive
potential common equivalent shares outstanding for the nine month period ended
January 31, 1998 and February 1, 1997 as adjusted was 4,371,000 and 4,252,000
respectively.
NOTE D. LITIGATION
On May 4, 1995, the Company was served with a complaint alleging that the
Company infringed on the plaintiff's patent rights. On November 5, 1997, the
case was dismissed and the plaintiff appealed the decision. Based on the opinion
of the Company's patent counsel, management of the Company believes that there
is no infringement and intends to continue to defend the litigation vigorously.
The Company's trial counsel is unable to evaluate the likelihood of an
unfavorable outcome or the potential range of loss, if any.
Another party has asserted the Company has infringed one certain patent. The
Company commenced an action seeking a declaratory judgment that the patent is
invalid and not infringed by the Company. The Company has settled this action at
a cost which is not material to the financial statements.
During the year ended May 3, 1997, a lawsuit was brought by another party
alleging the Company breached contracts, committed tortuous interference with
contract, intentionally inflicted emotional distress and is responsible for
compensatory and punitive damages. On October 28, 1997 a jury awarded the
plaintiff exactly what the Company had presented as owing the plaintiff for
royalties and commissions which has been paid by the Company. The plaintiff has
appealed part of the verdict. The Company has settled this action at a cost
which is not material to the financial statements.
The Company has recorded estimated legal costs to be incurred in connection with
litigation described above.
ITEM 2. FINANCIAL REVIEW
(Management's discussion and analysis of financial condition and results of
operations)
The following discussion highlights the principal factors affecting changes
in financial condition and results of operations.
This review should be read in conjunction with the accompanying Consolidated
Financial Statements and Notes to Consolidated Financial Statements.
GENERAL
The Company designs, manufactures and sells a wide range of
computer-programmable information display systems to customers in a variety of
markets throughout the world. The Company focuses its sales and marketing
efforts on markets rather than products. Major categories of markets include
Sports, Business and Government.
The Company's net sales and profitability historically have fluctuated due to
the impact of large product orders, such as display systems for the Olympic
Games and major league sports, as well as the seasonality of the sports market.
The Company's gross margins on large product orders tend to fluctuate more than
those for small standard orders. Large product orders that involve competitive
bidding and substantial subcontract work for product installation generally have
lower gross margins. Although the Company follows the percentage of completion
method of recognizing revenues for these large orders, the Company nevertheless
has experienced fluctuations in operating results and expects that its future
results of operations may be subject to similar fluctuations.
The Company operates on a 52-53 week fiscal year, with fiscal years ending on
the Saturday closest to April 30 of each year. The first three quarters end on
the Saturday closest to July 31, October 31 and January 31. The fiscal year
ending May 3, 1997, was a 53-week year.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales represented by
items included in the Company's Consolidated Statements of Operations for the
periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JANUARY 31, FEBRUARY 1, JANUARY 31, FEBRUARY 1,
1998 1997 1998 1997
(13 WEEKS) (13 WEEKS) (39 WEEKS) (40 WEEKS)
---------- ---------- ---------- ----------
Net sales ................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ........ 73.0% 74.0% 72.9% 74.4%
----- ----- ----- -----
Gross profit .............. 27.0% 26.0% 27.1% 25.6%
Operating expenses ........ 21.1% 26.9% 21.6% 21.5%
----- ----- ----- -----
Operating income .......... 5.9% (0.9%) 5.5% 4.1%
Interest income ........... 0.9% 0.9% 0.8% 0.7%
Interest expense .......... (0.9%) (1.5%) (0.7%) (1.4%)
Other income (expense) .... .3% 0.1% 0.2% 0.3%
----- ----- ----- -----
Income before income taxes 6.2% (1.4%) 5.8% 3.7%
Income tax expense (credit) 2.2% (0.7%) 2.2% 1.4%
----- ----- ----- -----
Net income (loss) ......... 4.0% (0.7%) 3.6% 2.3%
===== ===== ===== =====
NET SALES
Net sales were $17.2 million and $49.9 million for the three and nine months
ended January 31, 1998, compared to $11.5 million and $44.8 million for the
three and nine months ended February 1, 1997, representing an increase of 50%
for the three month period and an increase of 11% for the nine month period. The
increase in net sales for the three and nine month periods was the result of
increased sales in most of 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 1998 will be similar to and
may exceed the last three months of fiscal year 1997.
GROSS PROFIT
Gross profit increased 55% from $3.0 million for the three months ended
February 1, 1997 to $4.6 million for the three months ended January 31, 1998.
Gross profit as a percentage of net sales was 26.0% for the three months ended
February 1, 1997 compared to 27.0% for the three months ended January 31, 1998.
The increase was the result of higher gross profit margins in all market
segments. Primarily a result of the Company's standardization program.
Gross profit increased 18% from $11.5 million for the nine months ended
February 1, 1997 to $13.5 million for the nine months ended January 31, 1998.
Gross profit as a percentage of net sales was 25.6% for the nine months ended
February 1, 1997, compared to 27.1% for the nine months ended January 31, 1998.
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 23% from $1.9 million for the three months ended
February 1, 1997, to $2.3 million for the three months ended January 31, 1998.
Selling expenses increased 14% from $6.0 million for the nine months ended
February 1, 1997 to $6.8 million for the nine months ended January 31, 1998. The
increases were due primarily to the addition of sales staff and increased
selling activity.
General and administrative expenses increased from $682,000 and $2.0 million
for the three and nine months ended February 1, 1997 to $828,000 and $2.3
million for the three and nine months ended January 31, 1998. The increases were
due to increased overhead to enhance company growth.
Product design and development was $543,000 and $1.7 million for the three
and nine months ended February 1, 1997 to $500,000 and $1.7 million for the
three and nine months ended January 1, 1998. The Company continues to make
improvements on existing products and develops 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 $106,000 and
$292,000 for the three and nine months ended February 1, 1997 to $155,000 and
$411,000 for the three and nine months ended January 31, 1998. The increase was
due to higher average balances of long-term receivables.
INTEREST EXPENSE
Interest expense decreased from $170,000 and $607,000 for the three and nine
month periods ended February 1, 1997 to $149,000 and $361,000 for the three and
nine months ended January 31, 1998. The decrease was due to a decrease in
average loan balances.
INCOME TAX EXPENSE
Income taxes as a percentage of income before income taxes was 39% and 38%
for the nine months ended February 1, 1997 and January 31, 1998 respectively
NET INCOME
Net income was $693,000 for the three months ended January 31, 1998 compared
to a net loss of $78,000 for the three months ended February 1, 1997. Net income
for the nine months ended January 31, 1998 was $1.8 million compared to net
income of $1.0 million for the nine months ended February 1, 1997. 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 $11.4 million at January 31, 1998 and $10.9 million at
May 3, 1997. Working capital provided by net income, depreciation and
amortization was offset by purchases of property and equipment and repayment of
long-term debt. The Company has historically financed working capital needs
through a combination of cash flow from operations and borrowings under bank
credit agreements.
Cash provided by operations for the nine months ended January 31, 1998 was
$2.0 million. Net income of $1.8 million plus depreciation and amortization of
$1.7 million were offset by increases in receivables including costs and
estimated earnings in excess of billings on uncompleted contracts and
inventories. Cash used by investing activities consisted primarily of $1.6
million of purchases of property and equipment. Cash provided from financing
activities included $720,000 net borrowings under the Company's line of credit
and was offset by $917,000 of repayment of long-term debt.
The Company has used and expects to continue to use cash reserves and bank
borrowings to meet its short-term working capital requirements. On large product
orders, the time between acceptance and completion may extend up to 12 months
depending on the amount of custom work and the customer's delivery needs. The
Company often receives a down payment or progress payments on these product
orders. To the extent that these payments are not sufficient to fund the costs
and other expenses associated with these orders, the Company uses working
capital and bank borrowings to finance these cash requirements.
The Company's product development activities include the enhancement of
existing products and the development of new products from existing
technologies. Product development expenses were $1.7 million for the nine months
ended February 1, 1997 and January 31, 1998. The Company intends to continue to
incur these expenditures to develop new display products using various display
technologies to offer higher resolution, more cost effective and energy
efficient displays. Daktronics also intends to continue developing software
applications for its display controllers to enable these products to continue to
meet the needs and expectations of the marketplace.
The Company has a credit agreement with a bank. The credit agreement provides
for a $15.0 million line of credit which includes up to $2.0 million for standby
letters of credit. The line of credit is at the prime rate of interest
established by the bank from time to time (8.5% at January 31, 1998) and is due
on September 30, 1998. As of January 31, 1998, $3.4 million had been drawn on
the line of credit and no standby letters of credit had been issued by the bank.
The credit agreement is unsecured and requires the Company to meet certain
covenants. Financial covenants include the maintenance of tangible net worth of
at least $19.5 million, a minimum liquidity ratio and a maximum ratio of
liabilities to tangible net worth.
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 January 31, 1998, the Company had $3.4 million of bonded work
outstanding against this line.
The Company believes that if its growth continues, it may need to increase
the amount of its credit facility. The Company anticipates that it will be able
to obtain any needed funds under commercially reasonable terms from its current
lender. The Company believes that cash from operations, from its existing or
increased credit facility, and its current working capital will be adequate to
meet the cash requirements of its operations in the foreseeable future.
PART II - OTHER INFORMATION
None
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 9, 1998
/s/ Paul J. Weinand, Treasurer
-----------------------------------
Daktronics, Inc.
(Paul J. Weinand, Treasurer)
(Principal Financial Officer)
5
1,000
9-MOS
MAY-02-1997
JAN-31-1998
578
0
9,138
219
9,026
25,832
17,150
9,135
40,078
14,476
0
0
0
11,723
11,680
40,078
49,872
49,872
36,334
10,807
0
0
361
2,880
1,089
0
0
0
0
1,791
.16
.16
