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 2, 1997
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
------------------------------------
(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, 1997
- ------------------------------------- ----------------------------------
Common Stock, No par value 4,306,420
Daktronics, Inc.
Table of Contents
Part I. Financial Information Page(s)
Consolidated Balance Sheets -
August 2, 1997 and May 3, 1997 ...................... 3 - 4
Consolidated Statements of Operations -
Three months months ended
August 2, 1997 and August 3, 1996 ................... 5
Consolidated Statements of Cash Flows -
three months ended August 2, 1997 and
August 3, 1996....................................... 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 2,
1997 MAY 3,
ASSETS (UNAUDITED) 1997
----------- ----------
CURRENT ASSETS
Cash and cash equivalents .......................... $ 295 $ 118
Accounts receivable less allowance
for doubtful accounts of $206 at
Aug. 2, 1997 and $194 at May 3, 1997............... 10,656 11,889
Current maturities of long-term
receivables........................................ 906 1,072
Inventories........................................... 7,943 8,025
Costs and estimated earnings in
excess of billings on uncompleted
contracts.......................................... 3,757 1,251
Prepaid expenses and other............................ 46 129
Deferred income tax benefit........................... 1,185 1,185
----------- ----------
Total current assets............................... $ 24,788 $ 23,669
----------- ----------
LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights.................................... $ 1,646 $ 1,766
Long-term receivables,
less current maturities ........................... 3,068 3,038
Intangible assets and other........................... 1,116 1,216
----------- ----------
$ 5,830 $ 6,020
----------- ----------
PROPERTY AND EQUIPMENT,
at cost
Land............................................... $ 492 $ 492
Buildings.......................................... 4,298 4,283
Machinery and equipment............................ 10,267 9,975
Office furniture and equipment..................... 245 242
Transportation equipment................................. 591 546
----------- ----------
$ 15,893 $ 15,538
Less accumulated depreciation......................... 8,435 8,091
----------- ----------
$ 7,458 $ 7,447
----------- ----------
$ 38,076 $ 37,136
=========== ==========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
DAKTRONICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
AUGUST 2,
1997 MAY 3,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 1997
---------- ----------
CURRENT LIABILITIES
Notes payable, bank.................................... $ 3,558 $ 2,675
Current maturities of
long-term debt...................................... 562 713
Accounts payable....................................... 4,930 4,089
Accrued expenses....................................... 2,559 2,892
Billings in excess of costs and
estimated earnings on uncompleted contracts......... 1,273 1,075
Accrued loss on uncompleted contracts.................. 229 399
Income taxes payable................................... 276 903
---------- ----------
Total current liabilities.............................. $ 13,387 $ 12,746
---------- ----------
LONG-TERM DEBT,
less current maturities................................ $ 1,589 $ 1,706
DEFERRED INCOME........................................... $ 628 $ 481
DEFERRED INCOME TAXES..................................... $ 453 $ 453
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized 15,000,000 shares
Issued 4,311,340 shares............................. $ 11,680 $ 11,680
Retained earnings...................................... 10,348 10,079
---------- ----------
$ 22,028 $ 21,759
Less:
Cost of 4,920 treasury shares....................... (9) (9)
---------- ----------
$ 22,019 $ 21,750
---------- ----------
$ 38,076 $ 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
-----------------------------
AUGUST 2, AUGUST 3,
1997 1996
(13 WEEKS) (14 WEEKS)
----------- ----------
Net sales............................................ $ 15,768 $ 17,022
Cost of goods sold................................... 11,760 12,614
----------- ----------
Gross profit...................................... $ 4,008 $ 4,408
----------- ----------
Operating expenses:
Selling........................................... $ 2,207 $ 2,056
General and administrative........................ 719 649
Product design and development.................... 628 571
----------- ----------
$ 3,554 $ 3,276
----------- ----------
Operating income............................... $ 454 $ 1,132
Nonoperating income (expense):
Interest income................................... 96 93
Interest expense.................................. (113) (204)
Other income...................................... 7 60
----------- ----------
Income before income taxes..................... $ 444 $ 1,081
Income tax expense................................... 175 441
----------- ----------
Net income..................................... $ 269 $ 640
=========== ==========
Earnings per share................................... $ .06 $ .15
=========== ==========
Weighted average number of
common and common equivalent shares............... 4,313 4,228
=========== ==========
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 2, AUGUST 3,
1997 1996
(13 weeks) (14 weeks)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 269 $ 640
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation......................................... 344 287
Amortization......................................... 220 195
Provision for doubtful accounts...................... 12 33
Change in operating assets and
liabilities......................................... (928) (3,116)
---------- ----------
Net cash used in
operating activities.............................. $ (83) $ (1,961)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment..................... $ (355) $ (737)
Proceeds from sale of real estate held for sale........ -- 1,126
Other, net............................................. -- 45
---------- ----------
Net cash provided by (used by)
investing activities............................... $ (355) $ 434
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable........................ $ 883 $ 2,615
Principal payments on
long-term debt........................................ (268) (1,051)
---------- ----------
Net cash provided by
financing activities............................... $ 615 $ 1,564
---------- ----------
Increase (Decrease) in cash............................ $ 177 $ 37
Cash:
Beginning.............................................. 118 218
---------- ----------
Ending ............................................... $ 295 $ 255
=========== ==========
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 subsidiary as
of August 2, 1997 and the results of its operations and cash flows for the three
months ended August 2, 1997 and August 3, 1996. 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 2, May 3,
1997 1997
---------- ---------
Raw materials......................... $ 4,488 $ 4,638
Work-in-process....................... 1,957 1,168
Finished goods........................ 1,498 2,219
---------- ---------
$ 7,943 $ 8,025
========== =========
NOTE C. LITIGATION
On May 4, 1995, the Company was served with a complaint alleging that the
Company 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 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. Based on the opinion of the Company's
patent counsel, management of the Company believes there has been no
infringement. The Company's trial counsel is unable to evaluate the likelihood
of an unfavorable outcome or the potential range of loss, if any.
During the year ended May 3, 1997, a lawsuit was brought by another party
alleging the Company breached contracts, committed tortious interference with
contract, intentionally inflicted emotional distress and is responsible for
compensatory and punitive damages. It is the opinion of the management of the
Company that the claims are unfounded and the Company is aggressively defending
the lawsuit. Discovery is currently in process and the Company's trial counsel
is unable to evaluate the likelihood of an unfavorable outcome, or an estimate
of the range or amount of possible loss, if any.
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
--------------------------------
AUGUST 2, AUGUST 3,
1997 1996
(13 WEEKS) (14 WEEKS)
---------- ----------
Net sales................. 100.0% 100.0%
Cost of goods sold........ 74.6% 74.1%
------- -------
Gross profit.............. 25.4% 25.9%
Operating expenses........ 22.5% 19.2%
------- -------
Operating income.......... 2.9% 6.7%
Interest income........... 0.6% 0.5%
Interest expense.......... (0.7%) (1.2%)
Other income ............. --% 0.3%
------- -------
Income before income
taxes............ 2.8% 6.3%
Income tax expense........ 1.1% 2.6%
------- -------
Net income................ 1.7% 3.7%
======= =======
NET SALES
Net sales were $15.8 million for the three months ended August 2, 1997
compared to $17.0 million for the three months ended August 3, 1996. The
decrease in net sales was due primarily to decreases in net sales in the
federation and major league niches of the sports markets. The decrease in the
federation niche was due to the sales relating to the 1997 Summer Olympics in
the first quarter of fiscal 1997. The decrease in the major league niche was the
result of fewer stadium projects in that market. The Company also experienced
lower than expected first quarter net sales due to delays associated with the
introduction of the Company's new Prostar(TM) LED (ligHT emitting diode) stadium
display with video replay capability.
GROSS PROFIT
Gross profit decreased from $4.4 million for the three months ended
August 3, 1996 to $4.0 million for the three months ended August 2, 1997. The
decrease in gross profit was primarily the result of a decrease in net sales.
Gross profit as a percentage of net sales for the two periods were comparable.
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 5% from $2.1 million for the three months
ended August 3, 1996 to $2.2 million for the three months ended August 2, 1997.
The increase was due primarily to increased selling activity.
General and administrative expenses were $719,000 for the three months
ended August 2, 1997 compared to $649,000 for the three months ended August 3,
1996. The increase was primarily attributable to increases in salary and
personnel.
Product design and development expenses increased from $571,000 for the
three months ended August 3, 1996 to $628,000 for the three months ended August
2, 1997. The increase was due to a greater number of product development
projects which included new products, primarily the Company's new LED video
product, 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 $93,000 for the
three months ended August 2, 1996 to $96,000 for the three months ended August
2, 1997. The increase was due to higher average balances of long-term
receivables.
INTEREST EXPENSE
Interest expense decreased from $204,000 for the three months ended
August 3, 1996 to $113,000 for the three months ended August 2, 1997. The
decrease was the result of a decrease in average loan balances.
INCOME TAX EXPENSE
Income tax expense as a percentage of income before income taxes was
41% for both the three months ended August 3, 1996 and August 2, 1997,
respectively.
NET INCOME
Net income decreased from $640,000 to $269,000 for the three months
ended August 3, 1996 and August 2, 1997, respectively. The decrease was due
primarily to the decrease in gross profit and net sales and an increase in
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 $11.4 million at August 2, 1997 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 used by operations for the three months ended August 2, 1997 was
$83,000. Net income of $269,000 plus depreciation and amortization of $564,000
were offset by an increase in receivables including costs and estimated earnings
in excess of billings on uncompleted contracts. Cash used by investing
activities consisted of $355,000 of purchases of property and equipment. Cash
provided from financing activities included $883,000 net borrowings under the
Company's line of credit and was offset by $268,000 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 $628,000 for the three months
ended August 2, 1997 and $571,000 for the three months ended August 3, 1996. 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 during the period June 1 through December 31
of each year. And $10.0 million during the period January 1 through May 31 of
each year, 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 (8.50% at August 2, 1997) and is due on September 30, 1998. As of
August 2, 1977, $3.6 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 August 2, 1997, the Company had $2.1 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
There have been no changes in the status of the various lawsuits that were
disclosed in the Company's 1997 fiscal year annual report.
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 12, 1997
/s/ Paul J. Weinand, Treasurer
Daktronics, Inc.
(Paul J. Weinand, Treasurer)
(Principal Financial Officer)
5
1,000
3-MOS
MAY-02-1998
MAY-04-1997
AUG-02-1997
295
0
10,656
206
7,943
24,788
15,893
7,458
38,076
13,387
0
0
0
11,680
10,339
38,076
15,768
15,768
11,760
11,760
3,554
12
113
444
175
269
0
0
0
269
.06
.15
