Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

                                                                            (Mark One)

    [X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Quarterly Period Ended August 2, 2003

OR

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Transition Period From _____  to ____

Commission File Number: 0-23246

DAKTRONICS, INC.
(Exact name of Registrant as specified in its charter)

331 32nd Avenue
Brookings, SD 57006
(Address of principal executive offices, zip code)

(605) 697-4000
(Registrant’s telephone number, including area code)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).                                                                     Yes [ X] No [  ]

The number of shares of the registrant’s common stock outstanding as of August 20, 2003 was 18,641,927.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Quarterly Report on Form 10-Q (including exhibits and information incorporated by reference herein) contains both historical and forward-looking statements that involve risks, uncertainties and assumptions. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended including statements regarding the Company’s expectations, beliefs, intentions and strategies for the future. These statements appear in a number of places in this Report and include all statements that are not historical statements of fact regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company’s financing plans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words “may,” “would,” “could,” “will,” “expect,” “estimate,” “anticipate,” “believe,” “intend,” “plans” and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, many of which are beyond the Company’s ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors discussed herein and those factors discussed in detail in the Company’s filings with the Securities and Exchange Commission.

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

			August 2,			May 3,
			2003			2003
			(unaudited)			(note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	11,182		$	9,277
Accounts receivable, less allowance for doubtful accounts
of $1,052 at August 2, 2003 and $875 at May 3, 2003				24,716			25,912
Current maturities of long-term receivables				2,466			2,650
Inventories				17,827			14,863
Costs and estimated earnings in excess of billings				16,611			11,467
Prepaid expenses and other				694			756
Deferred income taxes				4,122			3,801
Total current assets				77,618			68,726
Advertising rights, net				394			385
Long term receivables, less current maturities				8,286			6,711
Goodwill, net of accumulated amortization				1,081			1,043
Intangible and other assets				859			873
				10,620			9,012
PROPERTY AND EQUIPMENT:
Land				654			654
Buildings				12,288			12,281
Machinery and equipment				14,382			13,762
Office furniture and equipment				13,845			13,495
Equipment held for rent				3,345			3,476
Transportation equipment				2,529			2,185
				47,043			45,853
Less accumulated depreciation				22,393			21,064
				24,650			24,789
			$	112,888		$	102,527
See notes to consolidated financial statements

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)

			August 2,			May 3,
			2003			2002
			(unaudited)			(note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, bank			$	283		$	180
Accounts payable				12,911			9,312
Accrued expenses				8,969			7,790
Current maturities of long-term debt				2,374			2,951
Billings in excess of costs and estimated earnings				7,840			5,528
Customer deposits				2,448			1,709
Income taxes payable				3,486			1,556
Total current liabilities				38,311			29,026
Long-term debt, less current maturities				2,254			5,449
Deferred revenue				896			1,338
Deferred income taxes				1,443			1,296
				4,593			8,083
Minority interest in subsidiary				120			115
SHAREHOLDERS' EQUITY:
Common stock, no par value, authorized 60,000,000 shares,
18,340,000 and 18,271,000 shares issued at August 2, 2003
and August 3, 2002, respectively				14,883			14,654
Additional paid-in capital				746			746
Retained earnings				54,258			49,950
Treasury stock,at cost, 19,680 shares				(9	)		(9	)
Accumulated other comprehensive loss				(14	)		(38	)
				69,864			65,303
			$	112,888		$	102,527
See notes to consolidated financial statements.

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)

DAKTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)

				Three Months Ended
			August 2,			August 3,
			2003			2002
			(13 weeks)			(14 weeks)
Cash flows from operating activities:
Net income			$	4,308		$	3,134
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation				1,532			1,327
Amortization				43			59
(Gain) loss on sale of property and equipment				(311	)		222
Minority interest in income of subsidiary				4			-
Provision for doubtful accounts				177			372
Deferred income taxes (credit)				(174	)		(287	)
Other				-			167
Change in operating assets and liabilities				971			(2,087	)
Net cash provided by operating activities				6,550			2,907
Cash flows from investing activities:
Purchase of property and equipment				(1,748	)		(1,291	)
Proceeds from sale of property and equipment				666			517
Net cash used in investing activities				(1,082	)		(774	)
Cash flows from financing activities:
Net borrowings on notes payable				103			184
Proceeds from exercise of stock options and warrants				82			130
Principal payments on long-term debt				(3,879	)		(1,308	)
Proceeds form long-term debt				107			-
Net cash used in financing activities				(3,587	)		(994	)
Effect of exchange rate changes on cash				24			(4	)
Increase (decrease) in cash and cash
equivalents				1,905			1,135
Cash and cash equivalents:
Beginning				9,277			2,097
Ending			$	11,182		$	3,232
Supplemental disclosures of cash flow information
Cash payments for:
Interest			$	251		$	165
Income taxes, net of refunds				1,030			1,748
Supplemental schedule of non-cash investing and
financing activities
Tax benefits related to exercise of stock options				-			56
See notes to consolidated financial statements

DAKTRONICS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)

Note 1. Basis of Presentation

        In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The balance sheet at May 3, 2003, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto for the year ended May 3, 2003, which are contained in the Company’s Annual Report on Form 10-K, previously filed with the Securities and Exchange Commission. The results of operations for the interim periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

        The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Star Circuits, Inc., SportsLink, Ltd. and MSC Technologies, Inc. and its majority-owned subsidiary, Daktronics Canada, Inc. (formerly Servtrotech, Inc.) Investments in affiliates owned 50% or less are accounted for by the equity method. Intercompany balances and transactions have been eliminated in consolidation.

Note 2. Significant Accounting Policies

        Stock based compensation.  At May 3, 2003, the Company has four stock-based employee compensation plans, which are described more fully in the Company’s Annual Report of Form 10-K. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.

        Commitments and Contingencies. In connection with certain sales of equipment by the Company, it has agreed to accept a specified level of recourse on the money owed by its customers to other financial institutions. At August 2, 2003 and May 3, 2003, the Company was contingently liable on such recourse agreements in the amounts of $250, respectively.

        The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, based upon consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position.

        Product Warranties.  The Company offers a standard parts coverage warranty for periods varying from one to five years for all of its products. The Company also offers additional types of warranties that include on-site labor, routine maintenance, and event support. In addition, the length of warranty on some installations can vary from one to ten years. The specific terms and conditions of these warranties primarily vary depending on the product sold. The Company estimates the costs that may be incurred under the warranty and records a liability in the amount of such costs at the time product order is received. Factors that affect the Company’s warranty liability include historical and anticipated claims costs. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

        Changes in the Company’s product warranties consisted of the following:

        Lease Commitments. The Company leases office space for various sales and service locations across the country and various equipment, primarily office equipment. Rental expense for operating leases amounted to $279 and $223 for August 2, 2003 and August 3, 2002 respectively. Future minimum payments under noncancelable operating leases, excluding executory cost such as management and maintenance fees with initial or remaining terms of one year or more, consisted of the following at August 2, 2003:

        Purchase Commitments. From time to time, Daktronics, Inc. commits to purchase inventory and advertising rights over periods that extend over a year. Daktronics, Inc. is committed to these purchases through May 2005. As of August 2, 2003, Daktronics, Inc. is obligated to purchase $1,983 of inventory and advertising rights through fiscal year 2006 as follows:

Note 3. Recently Issued Accounting Pronouncements

        Recently issued accounting pronouncements: In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” This statement, which is effective for fiscal years beginning after June 15, 2002, covers the accounting for closure for removal-type cost that are incurred with respect to long-lived assets. The adoption of this new standard did not have a material impact on the Company’s financial position or results of operations.

        In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liabilities incurred. This statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3 “Liability Recognitions for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” which required a liability be recognized at the commitment date to an exit plan. This Statement was effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a material effect on the Company’s consolidated financial position or results of operations.

        In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This Statement elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken issuing the guarantee. The disclosure requirement of FIN No. 45 is effective for financial statements for fiscal years ending after December 2002 and did not have a material effect on the Company’s consolidated financial position or results of operation. The initial recognition and measurement provisions are effective prospectively for guarantees issued or modified on or after January 1, 2003. Implementation of this Statement did not have a material effect on the Company’s consolidated financial position or results of operations.

        In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” This Statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123‘s fair value method of accounting for stock-based employee compensation. This statement also amends the disclosure provision of SFAS No. 123 and APB No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. The adoption of SFAS No. 148 did not have a material effect on the Company’s consolidated financial position or results of operations.

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” This interpretation addresses the requirements for business enterprises to consolidate related entities in which they are determined to be the primary beneficiary as a result of their variable economic interest. The interpretation is intended to provide guidance in judging multiple economic interests in an entity and in determining the primary beneficiary. The interpretation outlines disclosure requirements for variable interest entities in existence prior to January 31, 2003, and outlines consolidation requirements for variable interest entities created after January 31, 2003. This interpretation did not have a material impact on the Company’s consolidated financial position or results of operations.

        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

Note 4. Revenue Recognition

        Long-term contracts: Earnings on long-term contacts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Operating expenses are charged to operations as incurred and are not allocated to contract costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are estimable.

        Equipment other than long-term contracts: The Company recognizes revenue on equipment sales, other than long-term contracts, when title passes, which is usually upon shipment.

        Advertising rights: The Company occasionally sells and installs its products at facilities in exchange for the rights to sell and retain future advertising revenues. It recognizes revenue for the amount of the present value of the future advertising payments if enough advertising is sold to obtain normal margins on the contract.

        On those transactions where the Company has not sold the advertising for the full value of the equipment, it records the related cost of equipment as advertising rights and amortizes that cost over the term of the rights. Revenue is recognized when it is earned under the provisions of applicable advertising contracts. Advance collections of advertising revenues are recorded as deferred income. The cost of advertising rights, net of amortization, was $393 as of August 2, 2003 and $385 as of May 3, 2003.

        Product maintenance: In connection with the sale of the Company’s products, it also occasionally sells separately priced extended warranties and product maintenance contracts. The revenue related to such contracts are deferred and recognized as net sales over the term of the agreement, which varies from two to ten years.

        Software: The Company typically sells its proprietary software bundled with its video displays and certain other products. Pursuant to American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-4, “Deferral of the Effective Date of a Provision of SOP 97-2” and SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions” revenues from software license fees on sales, other than long-term contracts are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable and collection is probable. For sales of software, included in long-term contracts, the revenue is recognized under the percentage-of-completion method for long-term contracts starting when the above-mentioned criteria have been meet.

        Services: Revenues generated by the Company for services such as, event support, control room design, on-site training, equipment service and continuing technical support for operators of the Company’s equipment are recognized as net sales as the services are performed.

Note 5. Earnings Per Share

        Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

        A reconciliation of the income and common share amounts used in the calculation of basic and diluted earnings per share (EPS) for the three months ended August 2, 2003 is as follows:

Note 6. Goodwill and Other Intangible Assets — Adoption of SFAS No. 142

        Effective April 28, 2002, the Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets.” This statement prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be reviewed for impairment at least annually. An impairment charge is recognized only when the calculated fair value of a reporting unit, including goodwill, is less than its carrying amount. The Company performed an analysis as of October 25, 2002. The results of the analysis indicated that no goodwill impairment existed as of October 25, 2002. In accordance with SFAS 142 the Company will complete an impairment analysis on an annual basis.

        Goodwill, net of accumulated amortization, was $1,081 at August 2, 2003 and $1,043 at May 3, 2003. Accumulated amortization was $157 at August 2, 2003 and at May 3, 2003 respectfully.

        As required by SFAS 142, intangibles with finite lives continue to be amortized. Included in intangible assets are a non-compete agreement and a patent license. Intangible assets before accumulated amortization were $550 at August 2, 2003 and May 3, 2003 respectively. Accumulated amortization was $447 and $419 at August 2, 2003 and May 3, 2003, respectively. The net value of intangible assets is included as a component of Intangible and other assets in the accompanying consolidated balance sheets. Estimated amortization expense based on intangibles as of May 3, 2003, is $63, $40, and $27 for the fiscal years ending 2004, 2005 and 2006.

Note 7. Inventories

           Inventories consist of the following:

Note 8. Segment Disclosure:

        The Company’s chief operating decision makers review financial information presented on a consolidated basis, accompanied by disaggregated information about revenue and certain expenses, by market and geographic region, for purposes of assessing financial performance and making operation decisions. Accordingly, the Company considers itself to be operating in a single industry segment. The Company does not manage its business by solution or focus area. For the first quarter of fiscal year 2004, the Company had no individual customers that constituted a significant concentration. During the first quarter of fiscal year 2003, the Company had one customer that represented approximately $5 million of the Company’s consolidated revenues.

        The Company does not maintain information on sales by products, and therefore, disclosure of such information is not practical.

        The following table presents information about the Company by geographic area:

Note 9. Litigation

        The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, based upon consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position.

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.

OVERVIEW

        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 geographical regions, markets and products. The primary categories of markets include sport, business, and transportation.

        The Company’s net sales and profitability historically have fluctuated due to the impact of large product orders, such as display systems for major league sport facilities and colleges and universities, as well as seasonality factors, including the timing of the various sports seasons and the impact of holidays, which primarily impact the Company’s third quarter. 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 larger custom 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 books orders only upon receipt of a firm contract and, in many cases, only after receipt of any required deposits related to the order. As a result, certain orders for which the Company has received binding letters of intent or contracts will not be booked until all required contractual documents and deposits are received. In addition, order bookings can vary significantly as a result of the timing of large orders.

        The Company operates on a 52-53 week fiscal year, with fiscal years ending on the Saturday closest to April 30 of each year. Fiscal year 2003 contained 53 weeks and the first quarter of fiscal year 2003 contained 14 weeks as compared to the more typical 52-week year and 13-week quarter. Fiscal year 2004 contains 52 weeks.

        For a summary of recently issued accounting pronouncements and the effects of those pronouncements on the financial results of the Company, refer to Note 3 of the consolidated financial statements of the Company, which are included elsewhere in this report.

Critical Accounting Policies and Estimates

        The following discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, the Company evaluates its estimates, including those related to estimated total costs on long-term contracts, estimated costs to be incurred for product warranties and extended maintenance contracts, bad debts, excess and obsolete inventory and contingencies. Its estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        The Company believes the following critical accounting policies require significant judgments and estimates in the preparation of its consolidated financial statements:

        Revenue recognition on long-term contracts. Earnings on long-term contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are estimable. Generally, contracts entered into by the Company have fixed prices established and to the extent the actual costs to complete contracts are higher than the amounts estimated as of the date of the financial statements, the resulting gross margin would be negatively affected in future quarters when the Company revises its estimates. The Company’s practice is to revise estimates as soon as such changes in estimates become known.

        Allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. As of August 2, 2003, the Company had an allowance for doubtful accounts balance of approximately $1.1 million.

      Warranties. The Company has created a reserve for warranties on its products equal to its estimate of the actual costs to be incurred in connection with its performance under the standard warranty. In the event that the Company would become aware of an increase in its warranty reserves additional reserves may become necessary, resulting in an increase in costs of goods sold. As of August 2, 2003, the Company had a total of approximately $3.4 million deferred for these costs.

        Extended warranty and product maintenance. The Company has deferred revenue related to separately priced extended warranty and product maintenance agreements. In the event that the Company would become aware of an increase in its estimated costs under these agreements in excess of its deferred revenue, additional reserves may be necessary, resulting in an increase in costs of goods sold. As of August 2, 2003, approximately $0.04 million in additional reserves were provided for.

        Inventory. Inventories are stated at the lower of cost or market. Market refers to the current replacement cost, except that market may not exceed the net realizable value (i.e., estimated selling price in the ordinary course of business less reasonable predictable costs of completion and disposal); and market is not less than the net realizable value reduced by an allowance for normal profit margins. In valuing inventory the Company estimates market value where it is believed to be the lower of cost or market and any necessary charges are charged to costs of goods sold in the period in which it occurs. All other inventory is valued at cost.

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:

NET SALES

        Net sales increased 10.9% to $48.9 million for the three months ended August 2, 2003 compared to $44.1 million for the same period in fiscal year 2003. The increase in net sales was comprised of increases in the sports and transportation markets and a decline in the business market. In addition, sales outside of the United States grew significantly in the first quarter of fiscal year 2004 as compared to the first quarter of fiscal year 2003. Within the sports markets, the growth in the first quarter of fiscal year 2004 as compared to the first quarter of fiscal year 2003 was especially strong in the major league sports area as the Company continued work on a number of larger professional football, hockey and basketball facilities which related primarily to orders booked prior to the beginning of the quarter. Net sales in the mid-sized sports installations, primarily colleges, universities, minor league sports facilities and larger municipal stadiums and arenas were also up quarter over quarter. Net sales in the smaller sports related facilities, primarily high schools, were down quarter over quarter due mainly to the effects of a large transaction recorded in the first quarter of fiscal year 2003. The Company expects that sales will be up for the year in the small and mid-sized facilities and to be down in the larger professional facilities, although for the first quarter of fiscal year 2004 orders for the professional facilities were higher than expected as explained below. The growth in the sports market as a whole was due to a number of factors, including the overall level of order bookings during the quarter and the mix of the backlog at the beginning of the quarter, which allowed the Company to generate more revenue earlier in the quarter as compared to the first quarter of fiscal year 2003. In addition, the Company benefits from its network of sales and service offices throughout the country, giving it the ability to serve its customers more effectively. The Company believes that the effects of the slow economy have a lesser impact on the sports market, as compared to its other markets, since its products are generally revenue generation tools (through advertising) for facilities and the sports business in general is a more resistant to negative factors in the economy as a whole.

        Orders in the sports market were also up quarter over quarter with increases in all levels of facilities from small municipal and high school facilities to major league sports facilities. During the quarter, the Company also benefited from growth opportunities presented through its sports marketing business as it signed additional orders which included sponsorships by advertisers. This has helped drive sales in smaller facilities as well as mid-sized facilities. The Company believes that the growth in the sports market continues to be driven by a growth in market share, new product development and expanding market as the Company’s products have become more affordable to more institutions, and its overall product offerings, which the Company believes are the most complete and integrated systems in the marketplace.

        Net sales in the transportation market were also up slightly in the first quarter of fiscal year 2004 as compared to the first quarter of fiscal year 2003. The increase was due primarily to the orders booked during the quarter and the ongoing effects of the Company's expansion of its transportation related customer base which includes departments of transportation and transportation system integrators, which has resulted in repeat sales. Within the transportation market, net sales in the aviation portion were flat for the first quarter of fiscal year 2004 as compared to the same quarter of fiscal year 2003. Orders in the transportation market are expected to increase for the year over fiscal year 2003, although the actual results will depend to a large degree on Congress appropriating federal funds which is expected to occur during the second half of calendar year 2003.

        Net sales in the business market were down in the first quarter of fiscal year 2004 as compared to the same quarter of fiscal year 2003 and partially offset the increase in the other markets. The decline was in both standard orders and larger custom projects. During the quarter, however, order bookings were up significantly in the business markets as compared to the first quarter of fiscal year 2003 as the Company saw an increase in its national account business as well as an increase in orders for its standard products. Finally, a couple of larger orders in horse racing facilities were booked during the quarter. As a result of the favorable levels of order bookings during the quarter and various other factors, the Company believes that it will see a growth in net sales in the business market for fiscal year 2004 as compared to fiscal year 2003.

        The order backlog as of August 2, 2003 was approximately $56 million as compared to approximately $50 million as of August 3, 2002 and at the beginning of the quarter. The backlog was primarily in the sports markets. The business market backlog showed the greatest percentage increase quarter over quarter, while the backlog in the transportation market declined as compared to the end of the first quarter of fiscal year 2003. Backlog varies significantly quarter to quarter due to the effects of large orders and significant variations can be expected as explained previously herein. In addition, the Company’s backlog is not necessarily indicative of future sales or net income, also as explained previously.

        During the second half of fiscal year 2003 and into the first quarter of fiscal year 2004, there were significant changes in the mix of competitors, primarily in the large screen video display markets. The Company believes that it is still well positioned with respect to the competition.

GROSS PROFIT

        Gross profit increased 13.9% to $17.5 million for the three months ended August 2, 2003 compared to $15.3 million for the same period in fiscal year 2003. As a percent of net sales, gross profit increased from 34.7% in the first quarter of fiscal year 2003 to 35.7% in the first quarter of fiscal year 2004. The increase in gross profit dollars was due to the higher level of net sales mentioned above and an improvement in the gross profit percentage. The increase in the gross profit margins as a percent of net sales was due to a number of factors including improvements in raw materials costs, improvements in on-site project costs as compared to estimates, smaller charges for excess and obsolete inventory as compared to the first quarter of fiscal year 2003 and overall improvement in expected margins at contract signing. The gross margin increases were also stronger in the sports and business market, while margins in the transportation market were flat quarter over quarter. The increases in gross margin were offset slightly by higher freight costs. The Company continues to strive towards higher gross margins, as a percent of net sales, although depending on the actual mix and level of future sales, margin percentages may not increase. The Company expects that the gross margin percentages will decline to lower levels for the rest of the fiscal year, but that it can continue to increase margins over the long term.

OPERATING EXPENSES

        Operating expenses. Operating expenses, which are comprised of selling, general and administrative and product design and development costs, increased by approximately 4.5% from $10.3 million in the first quarter of fiscal year 2003 to $10.8 million dollars in the first quarter of fiscal year 2004. As a percent of net sales, operating expenses decreased from 23.3% to 22.0%. All components of operating expenses were impacted as a result of the first quarter of fiscal year 2004 containing 13 weeks as opposed to the 14 weeks included in the first quarter of fiscal year 2003.

        Selling Expenses. Selling expenses consist primarily of salaries, other employee related costs, travel and entertainment, facilities-related costs for sales and service offices, and expenditures for marketing efforts including such things as collateral materials, conventions and trade shows, product demos and supplies.

        Selling expenses decreased 5.6% to $6.4 million for the three months ended August 2, 2003 compared to $6.8 million for the same period in fiscal year 2003. Selling expenses were 13.1% and 15.4% of net sales for the three months ended August 2, 2003 and August 3, 2002, respectively. The decreases in both actual amounts spent and the percentage of net sales resulted from declines in the level of bad debt expenses and a decline in the costs of product demonstration equipment. These decreases were offset by an increase in travel costs related primarily to the increased level of net sales. Included in bad debt expense in the first quarter of fiscal year 2003 was $300,000 related to a single transaction. During the first quarter of fiscal year 2004, no similar transaction occurred, although the Company did record an expense of $0.15 million related to a single account. In addition, the first quarter or fiscal year 2003 included a $0.3 million write-down of the carrying costs of demonstration equipment primarily due to technology improvements and replacement with new equipment. There were no similar charges in the first quarter of fiscal year 2004. The Company expects selling expenses to increase slightly each quarter for the rest of the fiscal year given its current outlook, however as a percentage of net sales, selling expenses are expected at levels similar to the level achieved for all of fiscal year 2003.

        General and Administrative. General and administrative expenses consist primarily of salaries, other employee-related costs, professional fees, shareholder relations fees, facilities and equipment related costs for administration departments, amortization of intangibles, and supplies.

        General and administrative expenses increased 28.5% to $2.1 million for the three months ended August 2, 2003 compared to $1.7 million for the same period in fiscal year 2003. General and administrative expenses were 4.3% and 3.7% of net sales for the first quarter of fiscal year 2004 and 2003, respectively. The increase for the first quarter of fiscal year 2004 as compared to the first quarter of fiscal year 2003 was primarily due an increases in payroll and payroll related costs, and increases in software and software implementation costs.

        Product Design and Development. Product design and development expenses consist primarily of salaries, other employee-related costs, facilities and equipment related costs, and supplies.

        Product design and development expenses increased 20.5% to $2.2 million for the three months ended August 2, 2003 compared to $1.8 million for the same period in fiscal year 2003. As a percentage of net sales, product design and development expenses were 4.5% and 4.1% of net sales for the first quarter of fiscal year 2004 and 2003, respectively. Generally, product design and development expenses increase during times when the Company’s engineering resources are not dedicated to long-term contracts, as the same personnel who work on research and development also work on long-term contracts. Although historically, based on the foregoing, product development costs would have declined, the Company invested more during the quarter on product development, primarily in further development of its controllers, software, video displays and new products. The Company expects that product design and development expenses will slightly exceed 4.0% of net sales for fiscal year 2004.

INTEREST INCOME

        The Company occasionally sells products on an installment basis, under lease arrangements or in exchange for the rights to sell and retain advertising revenues from the scoreboard or display, which result in long-term receivables. Interest income resulting from these long-term receivables increased 23.4% to $0.23 million for the three months ended August 2, 2003 as compared to $0.18 million for the first quarter of fiscal year 2003. The increase was the result of higher average levels of long-term receivables outstanding during the first quarter of fiscal year 2004 which resulted primarily from one large transaction entered into during the fourth quarter of fiscal year 2003.

INTEREST EXPENSE

        Interest expense is comprised primarily of interest costs on the Company’s notes payable and long-term debt. Interest expense decreased 8.2% to $0.23 million for the three months ended August 2, 2003 as compared to $0.26 million for the three months ended August 3, 2002. The decrease was due to the reduction of debt outstanding under the Company’s line of credit and decreases in average long-term debt outstanding which was partially offset by penalties the Company paid to retire debt ahead of its scheduled maturity.

OTHER INCOME (EXPENSE)

        Other income (expense) increased 128.9% from $ 0.19 million to $0.44 million. This increase was the result of gains realized on the sale of the rental equipment used by the Company’s video display rental subsidiary.

LIQUIDITY AND CAPITAL RESOURCES

        Working capital was $39.3 million at August 2, 2003 and $39.7 million at May 3, 2003. 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 August 2, 2003 was $6.6 million. Net income of $4.3 million plus depreciation and amortization of $1.6 million, an increase in accounts payable, accrued expenses, customer deposits and income taxes payable and a decrease in accounts receivable, was offset by an increase in inventories, costs and estimated earnings in excess of billings, net of billings in excess of costs and estimated earnings, and the effects of changes in various other operating assets and liabilities.

        Cash used by investing activities consisted of $1.7 million of purchases of property and equipment. During the first quarter of fiscal year 2004, the Company invested approximately $0.3 million in transportation equipment, approximately $0.3 million in computer hardware and software, approximately $0.2 million in equipment held for rent, approximately $0.4 million in manufacturing equipment and $0.2 in demonstration equipment. These purchases were made to support the Company’s continued growth and to replace obsolete equipment.

        Cash used by financing activities included $0.1 million in proceeds under the Company’s Canadian subsidiary’s line of credit, $0.1 million in proceeds from the exercise of stock options, and $0.1 proceeds under long-term debt arrangements by the Company’s Canadian subsidiary. These sources of cash were offset by $3.9 million used to pay down the Company’s long-term debt.

        Included in accounts receivable as of August 2, 2003, was approximately $ 0.6 million of retainage on long-term contracts, all of which is expected to be collected within one year.

        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 and exceed 18 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 design and development expenses were $2.2 million for the three months ended August 2, 2003. 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 that provides for a $20.0 million line of credit, which includes up to $2.0 million for standby letters of credit. The interest rate on the line of credit is equal to LIBOR rate plus 1.55% (2.66% at August 2, 2003) and is due on October 1, 2004. As of August 2, 2003, no advances under the line of credit were outstanding. Two standby letters of credit were issued and outstanding for approximately $1.1 million as of August 2, 2003. The credit agreement is unsecured and requires the Company to meet certain covenants including the maintenance of tangible net worth of at least $40 million, a minimum liquidity ratio, a limit on dividends and distributions, and a minimum adjusted fixed charge coverage ratio. Daktronics Canada, Inc. the Company’s Canadian subsidiary, has various credit agreements that provide up to $0.3 million in borrowings under lines of credit. The interest rate on the lines of credit are equal to 1.5% above the prime rate of interest (4.75% at August 2, 2003). As of August 3, 2003, $0.3 had been drawn under the line. The lines are secured primarily by accounts receivables, inventory and other assets of the subsidiary. SportsLink, Ltd. has a credit agreement with a bank that provides for a $0.1 line of credit and is due September 13, 2003. The rate on the line of credit is equal to the prime rate of interest (4.0% as of August 2, 2003). As of August 2, 2003, no advances were outstanding under the line. The credit agreement is secured by the assets of the subsidiary and is guaranteed by the Company.

        The Company is sometimes required to obtain performance bonds for display installations and currently has a bonding line available through a surety company that provides for an aggregate of $100.0 million in bonded work outstanding. At August 2, 2003, the Company had approximately $8.3 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATES

        Through August 2, 2003 substantially all of the Company’s net sales were denominated in United States dollars, and its exposure to foreign currency exchange rate changes has not been significant. Net sales originating outside the United States for the first quarter of fiscal year 2004 were 13.3% of total net sales. The Company operates in Canada through a majority owned subsidiary. Sales of the Canadian subsidiary comprised 3% of net sales in the first quarter of fiscal year 2004. In the event the Company believed that currency risk in Canada was significant it would utilize foreign exchange hedging contracts to manage its exposure to the Canadian dollar.

        During the first quarter of fiscal year 2004, the Company entered into a order denominated in euros. To minimize its risk on fluctuations in euros versus the dollar, it entered into a forward contract to sell euros, net of its euro denominated obligations on the contact.

        It is expected that in the future net sales denominated in foreign currency may increase as a percentage of net sales. As a result, operating results may become subject to fluctuations based upon changes in the exchange rates of certain currencies in relation to the United States dollar. To the extent that the Company engages in international sales denominated in United States dollars, an increase in the value of the United States dollar relative to foreign currencies could make the Company’s products less competitive in international markets. Although the Company will continue to monitor and minimize its exposure to currency fluctuations, and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, exchange rate fluctuations as well as differing economic conditions, changes in political climates, differing tax structures and other rules and regulations could adversely affect the Company’s financial results in the future.

Interest rate risks

        The Company’s exposure to market rate risk for changes in interest rates relates primarily to the Company’s debt and long-term accounts receivable. The Company maintains a blend of both fixed and floating rate debt instruments. As of August 2, 2003, the Company’s outstanding debt approximated $4.9 million, substantially all of which was in fixed rate obligations. Each 100 basis point increase or decrease in interest rates would have an insignificant annual effect on variable rate debt interest based on the balances of such debt as of as of August 2, 2003. For fixed rate debt, interest rate changes affects its fair market value, but do not impact earnings or cash flows.

        In connection with the sale of certain video displays, scoreboards and message display centers, the Company has entered into various types of financings. The aggregate amounts due from customers include an imputed interest element. The majority of these financings carry fixed rates of interest. As of August 2, 2003, the Company’s outstanding long-term receivables were approximately $10.8 million. Each 25 basis point increase in interest rates would have an associated annual opportunity cost of approximately $0.02 million.

        The following table provides information about the Company’s financial instruments that are sensitive to changes in interest rates, including debt obligations for the three quarters ending May 1, 2004 and fiscal years following fiscal year 2004.

        The carrying amounts reported on the balance sheet for long-term receivables and long and short-term debt approximate their fair values.

        Substantially all of the Company’s cash balances are denominated in United States dollars. Cash balances in foreign currencies are operating balances maintained in accounts of the Company’s Canadian subsidiary and euro denominated accounts. These balances are not significant to the Company as a whole.

Item 4. CONTROLS AND PROCEDURES

        Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, James B. Morgan, President and Chief Executive Officer of the Company, and William R. Retterath, Chief Financial Officer and Treasurer of the Company, have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

      None

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

      None

Item 3. DEFAULTS UPON SENIOR SECURITIES

      None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        The following items and the results were submitted to the shareholders at the annual meeting held on August 20, 2003:

1.     Election of the following three nominees as directors of the Company, until their successors are duly elected and qualified:

2.     Ratification of the appointment of Ernst & Young LLP as independent auditors for the Company for the fiscal year ending May 1, 2004.

Item 5. OTHER INFORMATION

      None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)    Exhibits

      (b)     Reports on Form 8-K

                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. After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Date: August 29, 2003