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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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
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Commission file number
0-23246
DAKTRONICS, INC.
(Exact name of registrant as specified in its charter)
South Dakota 46-0306862
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
331 32nd Avenue Brookings, SD 57006
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(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 August 31, 2000
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Common Stock, No par value 8,897,282
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<PAGE>
Daktronics, Inc. and Subsidiaries
Table of Contents
Part I. Financial Information Page(s)
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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
<PAGE>
Part I.
Item 1.
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
JULY 29,
2000 APRIL 29,
ASSETS (UNAUDITED) 2000
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ....................... $ 3,085 $ 1,217
Accounts receivable less allowance
for doubtful accounts of $218 at
July 29, 2000 and $232 at April 29, 2000 ...... 22,994 23,562
Current maturities of long-term
receivables ................................... 1,358 1,541
Inventories ..................................... 16,728 13,849
Costs and estimated earnings in
excess of billings on uncompleted
contracts ..................................... 8,547 5,177
Prepaid expenses and other ...................... 363 451
Income taxes receivable ......................... -- 647
Deferred income taxes ........................... 1,418 1,418
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Total current assets .......................... 54,493 47,862
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LONG-TERM RECEIVABLES
AND OTHER ASSETS
Advertising rights .............................. 824 824
Long-term receivables,
less current maturities ....................... 5,692 6,081
Intangible and other assets ..................... 709 850
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7,225 7,755
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PROPERTY AND EQUIPMENT,
at cost
Land .......................................... 533 528
Buildings ..................................... 8,285 8,008
Machinery and equipment ....................... 17,138 16,372
Office furniture and equipment ................ 4,812 4,258
Transportation equipment ...................... 1,031 970
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31,799 30,136
Less accumulated depreciation ................... 14,080 13,346
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17,719 16,790
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$ 79,437 $ 72,407
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</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
JULY 29,
2000 APRIL 29,
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) 2000
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<S> <C> <C>
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 --
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Total current liabilities ......................... 32,711 27,199
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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
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38,367 36,240
Less:
Cost of 9,840 treasury shares ....................... (9) (9)
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38,358 36,231
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$ 79,437 $ 72,407
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</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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JULY 29, JULY 31,
2000 1999
(13 WEEKS) (13 WEEKS)
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<S> <C> <C>
Net sales ........................................... $ 34,536 $ 31,467
Cost of goods sold .................................. 24,211 23,233
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Gross profit .................................... 10,325 8,234
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Operating expenses:
Selling ........................................... 4,461 3,273
General and administrative ........................ 1,212 913
Product design and development .................... 1,304 1,016
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6,977 5,202
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Operating income ................................ 3,348 3,032
Nonoperating income (expense):
Interest income ................................... 196 91
Interest expense .................................. (286) (264)
Other income, net ................................. 230 107
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Income before income taxes ...................... 3,488 2,966
Income tax expense .................................. 1,366 1,199
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Net income ...................................... $ 2,122 $ 1,767
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Earnings per share:
Basic ........................................... $ .24 $ .20
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Diluted ......................................... $ .23 $ .20
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</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE>
DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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JULY 29, JULY 31,
2000 1999
(13 WEEKS) (13 WEEKS)
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<S> <C> <C>
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)
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Net cash provided by (used in)
operating activities ............................... 2,531 (1,718)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ........................... (1,663) (1,583)
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Net cash (used in)
investing activities ................................. (1,663) (1,583)
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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 --
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Net cash provided by
financing activities ..................................... 1,000 2,518
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Increase (decrease) in cash and cash equivalents ........... 1,868 (783)
Cash and cash equivalents:
Beginning .................................................... 1,217 1,050
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Ending ....................................................... $ 3,085 $ 267
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</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
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<PAGE>
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:
<TABLE>
<CAPTION>
Per
Net Share
Income Shares Amount
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<S> <C> <C> <C>
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
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Diluted EPS .............................. $ 2,122 9,291,926 $ 0.23
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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 --
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Diluted EPS .............................. $ 1,767 9,016,112 $ 0.20
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</TABLE>
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.
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NOTE B. INVENTORIES
Inventories consist of the following:
July 29, April 29,
2000 2000
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Raw materials ............... $ 7,735 $ 7,403
Work-in-process ............. 3,608 1,341
Finished goods .............. 5,385 5,105
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$ 16,728 $ 13,849
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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.
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<PAGE>
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
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JULY 29, JULY 31,
2000 1999
(13 WEEKS) (13 WEEKS)
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Net sales .................... 100.0% 100.0%
Cost of goods sold ........... 70.1% 73.8%
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Gross profit ................. 29.9% 26.2%
Operating expenses ........... 20.2% 16.5%
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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%
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Income before income taxes ... 10.1% 9.4%
Income tax expense ........... 4.0% 3.8%
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Net income ................... 6.1% 5.6%
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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.
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<PAGE>
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.
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<PAGE>
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
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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
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Daktronics, Inc.
(Dr. Aelred J. Kurtenbach, Chairman and CEO)
(Chairman and CEO)
Date September 11, 2000
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/s/ Paul J. Weinand, Treasurer
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Daktronics, Inc.
(Paul J. Weinand, Treasurer)
(Principal Financial Officer)
13