SEC Filing | Daktronics, Inc.

================================================================================ 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 July 29, 2000 ------------- Commission file number 0-23246 DAKTRONICS, INC. (Exact name of registrant as specified in its charter) 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 August 31, 2000 ----- ------------------------------ Common Stock, No par value 8,897,282 ================================================================================

Daktronics, Inc. and Subsidiaries Table of Contents Part I. Financial Information Page(s) ------- Item 1. Financial Statements Consolidated Balance Sheets - July 29, 2000 and April 29, 2000.......................... 3-4 Consolidated Statements of Income - Three months ended July 29, 2000 and July 31, 1999........................... 5 Consolidated Statements of Cash Flows - Three months ended July 29, 2000 and July 31, 1999............................................. 6 Notes to Consolidated Financial Statements................ 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 9-11 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................ 12 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.......................... 12 Signatures 2

Part I. Item 1. DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) JULY 29, 2000 APRIL 29, ASSETS (UNAUDITED) 2000 ----------- ----------- CURRENT ASSETS Cash and cash equivalents ....................... $ 3,085 $ 1,217 Accounts receivable less allowance for doubtful accounts of $218 at July 29, 2000 and $232 at April 29, 2000 ...... 22,994 23,562 Current maturities of long-term receivables ................................... 1,358 1,541 Inventories ..................................... 16,728 13,849 Costs and estimated earnings in excess of billings on uncompleted contracts ..................................... 8,547 5,177 Prepaid expenses and other ...................... 363 451 Income taxes receivable ......................... -- 647 Deferred income taxes ........................... 1,418 1,418 ----------- ----------- Total current assets .......................... 54,493 47,862 ----------- ----------- LONG-TERM RECEIVABLES AND OTHER ASSETS Advertising rights .............................. 824 824 Long-term receivables, less current maturities ....................... 5,692 6,081 Intangible and other assets ..................... 709 850 ----------- ----------- 7,225 7,755 ----------- ----------- PROPERTY AND EQUIPMENT, at cost Land .......................................... 533 528 Buildings ..................................... 8,285 8,008 Machinery and equipment ....................... 17,138 16,372 Office furniture and equipment ................ 4,812 4,258 Transportation equipment ...................... 1,031 970 ----------- ----------- 31,799 30,136 Less accumulated depreciation ................... 14,080 13,346 ----------- ----------- 17,719 16,790 ----------- ----------- $ 79,437 $ 72,407 =========== =========== The accompanying notes are an integral part of these Consolidated Financial Statements. 3

DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in thousands, except per share data) JULY 29, 2000 APRIL 29, LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 2000 ----------- ----------- CURRENT LIABILITIES Note payable, bank .................................. $ 8,761 $ 7,202 Current maturities of long-term debt .................................... 2,404 2,349 Accounts payable .................................... 10,327 7,327 Customer deposits ................................... 95 1,721 Accrued expenses .................................... 5,659 5,521 Billings in excess of costs and estimated earnings on uncompleted contracts ....... 4,812 3,079 Income taxes payable ................................ 653 -- ----------- ----------- Total current liabilities ......................... 32,711 27,199 ----------- ----------- LONG-TERM DEBT less current maturities ............................. 7,274 7,893 DEFERRED INCOME ....................................... 322 312 DEFERRED INCOME TAXES ................................. 772 772 SHAREHOLDERS' EQUITY Common stock, no par value Authorized 30,000,000 shares Issued July 29, 2000 8,874,922 shares; April 29, 2000 8,873,542 shares ................... 12,237 12,232 Additional paid-in capital .......................... 93 93 Retained earnings ................................... 26,037 23,915 ----------- ----------- 38,367 36,240 Less: Cost of 9,840 treasury shares ....................... (9) (9) ----------- ----------- 38,358 36,231 ----------- ----------- $ 79,437 $ 72,407 =========== =========== The accompanying notes are an integral part of these Consolidated Financial Statements. 4

DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data) (unaudited) THREE MONTHS ENDED ------------------ JULY 29, JULY 31, 2000 1999 (13 WEEKS) (13 WEEKS) ----------- ----------- Net sales ........................................... $ 34,536 $ 31,467 Cost of goods sold .................................. 24,211 23,233 ----------- ----------- Gross profit .................................... 10,325 8,234 ----------- ----------- Operating expenses: Selling ........................................... 4,461 3,273 General and administrative ........................ 1,212 913 Product design and development .................... 1,304 1,016 ----------- ----------- 6,977 5,202 ----------- ----------- Operating income ................................ 3,348 3,032 Nonoperating income (expense): Interest income ................................... 196 91 Interest expense .................................. (286) (264) Other income, net ................................. 230 107 ----------- ----------- Income before income taxes ...................... 3,488 2,966 Income tax expense .................................. 1,366 1,199 ----------- ----------- Net income ...................................... $ 2,122 $ 1,767 =========== =========== Earnings per share: Basic ........................................... $ .24 $ .20 ----------- ----------- Diluted ......................................... $ .23 $ .20 ----------- ----------- The accompanying notes are an integral part of these Consolidated Financial Statements. 5

DAKTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited) THREE MONTHS ENDED ------------------ JULY 29, JULY 31, 2000 1999 (13 WEEKS) (13 WEEKS) ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ................................................... $ 2,122 $ 1,767 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation ............................................. 734 554 Amortization ............................................. 66 73 Provision for doubtful accounts .......................... 12 31 Net change in operating assets and liabilities ............................................ (403) (4,143) ----------- ----------- Net cash provided by (used in) operating activities ............................... 2,531 (1,718) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ........................... (1,663) (1,583) ----------- ----------- Net cash (used in) investing activities ................................. (1,663) (1,583) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings on note payable ............................... 1,559 2,991 Principal payments on long-term debt ............................................. (564) (473) Proceeds from exercise of stock options ...................... 5 -- ----------- ----------- Net cash provided by financing activities ..................................... 1,000 2,518 ----------- ----------- Increase (decrease) in cash and cash equivalents ........... 1,868 (783) Cash and cash equivalents: Beginning .................................................... 1,217 1,050 ----------- ----------- Ending ....................................................... $ 3,085 $ 267 =========== =========== The accompanying notes are an integral part of these Consolidated Financial Statements. 6

DAKTRONICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (unaudited) NOTE A. GENERAL The consolidated financial statements include the accounts of Daktronics, Inc. and its subsidiaries (Company). Intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. 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 as of July 29, 2000 and the results of its operations and cash flows for the three months ended July 29, 2000 and July 31, 1999. These results may not be indicative of the results to be expected for the full fiscal year. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended April 29, 2000, previously filed with the Commission. Earnings per common share has 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 stock share amounts used in the calculation of basic and diluted earnings per share (EPS) for the three months ended July 29, 2000 and July 31, 1999 follows: Per Net Share Income Shares Amount ---------- ---------- ---------- For the three months ended July 29, 2000: Basic EPS ................................ $ 2,122 8,864,915 $ 0.24 Effect of dilutive securities: Exercise of stock options .............. -- 427,011 0.01 ---------- ---------- ---------- Diluted EPS .............................. $ 2,122 9,291,926 $ 0.23 ========== ========== ========== For the three months ended July 31, 1999: Basic EPS ................................ $ 1,767 8,739,882 $ 0.20 Effect of dilutive securities: Exercise of stock options .............. -- 276,230 -- ---------- ---------- ---------- Diluted EPS .............................. $ 1,767 9,016,112 $ 0.20 ========== ========== ========== On December 7, 1999, 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 December 20, 1999. 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. 7

NOTE B. INVENTORIES Inventories consist of the following: July 29, April 29, 2000 2000 ---------- ---------- Raw materials ............... $ 7,735 $ 7,403 Work-in-process ............. 3,608 1,341 Finished goods .............. 5,385 5,105 ---------- ---------- $ 16,728 $ 13,849 ========== ========== NOTE C. LITIGATION There are no pending material legal transactions against the Company. NOTE D. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". SAB No. 101 summarizes some of the staff's interpretations of the application of generally accepted accounting principles to revenue recognition. The Company will adopt SAB No. 101 when required in the fourth quarter of 2001. The Company is in the process of determining the impact the adoption will have on its financial statements. 8

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. In addition to statements of fact, this report contains forward-looking statements reflecting the Company's expectations or beliefs concerning future events which could materially affect Company performance in the future. The Company cautions that these and similar statements involve risk and uncertainties including changes in economic and market conditions, seasonality of business in certain market niches, impact of large orders, management of growth, and other risks noted in the Company's Securities and Exchange Commission (SEC) filings which may cause actual results to differ materially. Forward-looking statements are made in the context of information available as of the date stated. The Company undertakes no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. 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 sport, 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. 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 ------------------------- JULY 29, JULY 31, 2000 1999 (13 WEEKS) (13 WEEKS) ---------- ---------- Net sales .................... 100.0% 100.0% Cost of goods sold ........... 70.1% 73.8% ------ ------ Gross profit ................. 29.9% 26.2% Operating expenses ........... 20.2% 16.5% ------ ------ 9

Operating income ............. 9.7% 9.6% Interest income .............. 0.5% 0.3% Interest expense ............. (0.8%) (0.8%) Other income, net ............ 0.7% 0.3% ------ ------ Income before income taxes ... 10.1% 9.4% Income tax expense ........... 4.0% 3.8% ------ ------ Net income ................... 6.1% 5.6% ====== ====== NET SALES Net sales were $34.5 million for the three months ended July 29, 2000 compared to $31.5 million for the three months ended July 31, 1999. The increase in net sales was due primarily to increases in net sales in the auto racing, federation, high school, and major league niches of the sports markets, all niches of the business markets, and the voting and aviation niches of the government markets. GROSS PROFIT Gross profit increased to $10.3 million for the three months ended July 29, 2000 from $8.2 million for the three months ended July 31, 1999. The increase was due to increased sales and continued improvement in gross profit percentage of sales as the Company continued its cost improvement programs, including product standardization. OPERATING EXPENSES Selling expenses were $4.5 million for the three months ended July 29, 2000 and $3.3 million for the three months ended July 31, 1999. As a percent of sales, selling expenses increased 2.5%. The increase was due to the addition of sales staff and increased selling activity. General and administrative expenses were $1.2 million for the three months ended July 29, 2000 compared to $913,000 for the three months ended July 31, 1999. The increase was due to increases in salary and personnel to support company growth. Product design and development expenses increased to $1.3 million for the three months ended July 29, 2000 from $1.0 million for the three months ended July 31, 1999. The increase was due to continued development and improvement of the family of ProStar(R) VideoPlus displays, and the continued expansion and improvement of 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 to $196,000 for the three months ended July 29, 2000 from $91,000 for the three months ended July 31, 1999. INTEREST EXPENSE Interest expense increased to $286,000 for the three months ended July 29, 2000 from $264,000 for the three months ended July 31, 1999. The increase was the result of an increase in average loan balances. INCOME TAX EXPENSE Income tax expense as a percentage of income before income taxes was 39% for the three months ended July 29, 2000 and was 40% for the three months ended July 31, 1999. NET INCOME Net income increased to $2.1 million from $1.8 million for the three months ended July 29, 2000 and July 31, 1999, respectively. The increase was due to the increase in net sales and the increase in gross profit percentage. 10

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 current and future products in existing markets and expand the marketing of its products to new markets. LIQUIDITY AND CAPITAL RESOURCES Working capital was $21.8 million at July 29, 2000 and $20.7 million at April 29, 2000. 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 three months ended July 29, 2000 was $2.5 million. Net income of $2.1 million plus depreciation and amortization of $800,000 were offset by an increase in inventories including costs and estimated earnings in excess of billings on uncompleted contracts, an increase in accounts payable and an increase in billings in excess of cost and estimated earnings on uncompleted contracts. Cash used by investing activities consisted of $1.7 million of purchases of property and equipment. Cash provided by financing activities included $1.6 million net borrowings under the Company's line of credit. Cash used for financing activities consisted of $564,000 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 order acceptance and project 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 $1.3 million for the three months ended July 29, 2000 and $1.0 million for the three months ended July 31, 1999. 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. The Company 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 the LIBOR rate plus 1.55% (8.17% at July 29, 2000) and is due on October 1, 2002. As of July 29, 2000, $8.8 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 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 $100 million in bonded work outstanding. At July 29, 2000, the Company had $3.2 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 needs. 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 bank borrowings, and its current working capital will be adequate to meet the cash requirement of its operations in the foreseeable future. 11

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 6. Exhibits and Reports on Form 8-K b. Exhibit 27 is attached 12

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, Chairman and CEO -------------------------------------------- Daktronics, Inc. (Dr. Aelred J. Kurtenbach, Chairman and CEO) (Chairman and CEO) Date September 11, 2000 ------------------ /s/ Paul J. Weinand, Treasurer -------------------------------------------- Daktronics, Inc. (Paul J. Weinand, Treasurer) (Principal Financial Officer) 13

5 3-MOS APR-28-2001 JUL-29-2000 3,085 0 23,212 218 16,728 54,493 31,799 14,080 79,437 32,711 0 0 0 12,237 26,130 79,437 34,536 34,536 24,211 24,211 6,977 0 286 3,488 1,366 2,122 0 0 0 2,122 .24 .23