<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MAY 31, 1996 Commission File Number 0-13394
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
GEORGIA 58-1217564
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1868 TUCKER INDUSTRIAL DRIVE, TUCKER, GEORGIA 30084
(Address of principal executive offices)
Registrant's telephone number including area code: 770-938-2080
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, 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 practical date:
Class Outstanding at May 31, 1996
-------------------------- ---------------------------
Common Stock, No Par Value 3,907,413
<PAGE>
VIDEO DISPLAY CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
--------- -----------
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - May 31, 1996
and February 29, 1996 3-4
Consolidated statements of operations -
Three months ended May 31, 1996 and 1995 5
Consolidated statements of shareholders'
equity - May 31, 1996 and February 29, 1996 6
Consolidated statements of cash flows -
Three Months Ended May 31, 1996 and
May 31, 1995 7-8
Notes to consolidated financial statements -
May 31, 1996 9-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12-13
PART II. OTHER INFORMATION
----- -----------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon its Senior Securities 14
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and reports on Form 8-K 14
SIGNATURES
2
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, February 29,
1996 1996
------------- -------------
UNAUDITED (NOTE A)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents (including
restricted cash of $72,000 and $63,000) $ 1,270,000 $ 1,057,000
Notes and accounts receivable, less
allowance for possible losses of
$139,000 5,231,000 5,039,000
Receivable from affiliates -- 558,000
Note receivable, net of unamortized
discount of $36,000 and $33,000,
respectively (Note B) 144,000 144,000
Inventories:
Raw materials 3,896,000 3,272,000
Finished goods 17,244,000 16,178,000
Prepaid expenses 307,000 276,000
Deferred income taxes 497,000 497,000
------------ -----------
Total current assets 28,589,000 27,021,000
Property, plant and equipment:
Land 435,000 355,000
Buildings 3,886,000 3,606,000
Machinery and equipment 12,313,000 11,862,000
------------ -----------
16,634,000 15,823,000
Accumulated depreciation and amortization (11,598,000) 11,307,000
------------ -----------
5,036,000 4,516,000
Investments (Note B) 663,000 622,000
Note receivable, net of unamortized
discount of $104,000 and $146,000 and
allowance for possible losses of $321,000 694,000 730,000
Excess of cost over net assets acquired,
net of accumulated amortization of
759,000 and $729,000 1,339,000 1,369,000
Other assets 178,000 161,000
------------ -----------
Total assets $ 36,499,000 $34,419,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31, February 29,
1996 1996
------------ -------------
UNAUDITED (NOTE A)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable (Note D) $ 9,227,000 $ 9,089,000
Notes payable to officers and
shareholders (Note D) 1,182,000 220,000
Accounts payable 3,616,000 2,457,000
Accrued liabilities 1,614,000 1,878,000
Current maturities of long-term debt
(Note D) 1,384,000 1,381,000
----------- -----------
Total current liabilities 17,023,000 15,025,000
Long-term debt (Note D) 2,022,000 2,340,000
Deferred income taxes 403,000 403,000
Minority interests 379,000 372,000
Commitments and contingencies --- ---
SHAREHOLDERS' EQUITY
Preferred stock, no par value - shares
authorized 2,000,000; none issued and
outstanding --- ---
Common stock, no par value - shares
authorized 10,000,000; issued and
outstanding shares 3,907,000 3,529,000 3,529,000
Additional paid-in capital 81,000 81,000
Retained earnings 14,109,000 13,655,000
Net unrealized gain (loss) on marketable
equity securities 100,000 200,000
Currency translation adjustments (1,147,000) (1,186,000)
----------- -----------
Total shareholders' equity 16,672,000 16,279,000
----------- -----------
Total liabilities and shareholders' equity $36,499,000 $34,419,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Quarters Ended May 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net sales $12,098,000 $11,951,000
Cost of goods sold 7,735,000 7,462,000
----------- -----------
Gross profit 4,363,000 4,489,000
Operating expenses:
Selling and delivery 941,000 1,152,000
General and administrative 2,436,000 2,244,000
----------- -----------
3,377,000 3,396,000
Operating profit 986,000 1,093,000
Other income (expense)
Interest expense (283,000) (292,000)
Other, net 10,000 12,000
----------- -----------
(273,000) (280,000)
Income before minority interest 713,000 813,000
Minority interest 5,000 1,000
----------- -----------
Income before income taxes 708,000 812,000
Income taxes 254,000 215,000
----------- -----------
Net Income $ 454,000 $ 597,000
=========== -----------
Earnings per share of common stock $ 0.12 $ 0.15
=========== ===========
Weighted average shares outstanding 3,907,000 4,088,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Twelve Months Ended February 29, 1996 and
the Three Months Ended May 31, 1996
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Foreign Noncurrent
Currency Additonal Marketable
Common Retained Translation Paid In Equity
Stock Earnings Adjustments Capital Securities
------------ ----------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1995 $ 3,821,000 $11,876,000 $(1,020,000) -- $ (81,000)
Net earnings for year -- 1,779,000 -- -- --
Contribution of capital from
gain realized on sale of stock
by officer -- -- -- $81,000 --
Repurchase and retirement of
168,000 shares of common stock (292,000) -- -- -- --
Currency translation adjustment -- -- (166,000) -- --
Net unrealized loss on noncurrent
marketable equity securities -- -- -- -- 281,000
---------- ----------- ----------- --------- ----------
Balance at February 28, 1996 $3,529,000 $13,655,000 $(1,186,000) $81,000 $ 200,000
Net income for quarter -- 454,000 -- -- --
Currency translation adjustment -- -- 39,000 -- --
Unrealized gain on marketable
equity securities -- -- -- -- (100,000)
---------- ----------- ----------- ------- ----------
$3,529,000 $14,109,000 $(1,147,000) $81,000 $ 100,000
========== =========== =========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Video Display Corporation
VIDEO DISPLAY CORPORATION
For the Three Months ended May 31,
1996 1995
----------- -----------
<TABLE>
<CAPTION>
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 573,000 $ 1,331,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment (161,000) (62,000)
Purchase of investment --- (157,000)
Increase in investments --- 37,000
Cash received in Teltron acquisition 22,000 ---
(Increase) decrease in other assets 3,000 (13,000)
----------- -----------
Net cash used in investing activities (136,000) (195,000)
FINANCING ACTIVITIES
Proceeds from long-term debt and
lines of credit 7,693,000 8,650,000
Proceeds on note receivable 45,000 30,000
Payments on long-term debt and
lines of credit (7,870,000) (8,589,000)
Repurchase of common stock --- ---
Payments on note to shareholder --- (291,000)
----------- -----------
Net cash used in financing activities (132,000) (200,000)
Effect of exchange rates on cash (92,000) 185,000
----------- -----------
Net increase (decrease) in cash 213,000 1,121,000
Cash, beginning of period 1,057,000 104,000
----------- -----------
Cash, end of period $ 1,270,000 $ 1,225,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Video Display Corporation
STATEMENTS OF CASH FLOWS
For the Three Months ended May 31,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET EARNINGS FROM
CONTINUING OPERATIONS TO NET CASH
PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Net earnings from continuing operations $ 454,000 $ 597,000
ADJUSTMENTS TO RECONCILE NET EARNINGS
TO NET CASH PROVIDED BY OPERATIONS:
Depreciation and amortization 334,000 452,000
Amortized interest on note receivable (9,000) (28,000)
Decrease in allowance for doubtful accounts --- (3,000)
CHANGES IN OPERATING ASSETS AND LIABILITIES
NET OF EFFECTS FROM ACQUISITIONS:
(Increase) decrease in accounts receivable 546,000 (79,000)
Increase in inventory (957,000) (830,000)
(Increase) decrease in prepaid expenses (26,000) ---
Increase (decrease) in accounts payable
and accrued expenses 224,000 1,215,000
Increase in minority interest 7,000 7,000
-------- ---------
NET CASH PROVIDED BY (USED IN) CONTINUING
OPERATIONS $ 573,000 $ 1,331,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries after elimination of all significant
intercompany accounts and transactions.
Investments in 50% or less-owned affiliated companies are accounted for on the
equity method.
The balance sheet at February 29, 1996 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.
In the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments "consisting of only normal accruals"
necessary to present fairly the Company's consolidated financial position as of
May 31, 1996 and the Consolidated Statement of Earnings for the three months
ended May 31, 1996 and 1995.
NOTE B - SETTLEMENT OF LITIGATION
The Company and Global Products, Inc. ("Global") entered into a settlement
agreement ("Settlement"), effective February 16, 1995 in which both parties
agreed to dismiss all litigation, claims and counter claims related to the
dispute between the two parties. The settlement contained provisions whereby
certain assets, previously owned by Summit Organization, Ltd., Global and its
affiliates, were transferred to the Company.
In conjunction with the above settlement, the Company received an unsecured note
receivable with a face value of $1,500,000 due in monthly installments of
$15,000 over a term of 100 months. The note is non-interest bearing for the
first 50 payments and interest bearing, at prime plus 1% over the remaining 50
payments. As of May 31, 1996, the note is recorded at a total of $838,000, net
of its discount and allowance.
NOTE C - MARKETABLE EQUITY SECURITIES AND INVESTMENTS
The Company owns 266,000 shares of MicroTel International, Inc. (MOL), formerly
CXR, Inc., which it accounts for as an available-for-sale security. As of May
31, 1996 and February 29, 1996, MOL had a market value of $1 3/8 and $1 3/4,
respectively. In accordance with SFAS 115, the Company has reflected unrealized
gains and losses on the MicroTel shares as a separate component of shareholders'
equity.
9
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Note D - Long-Term Debt
Long-term debt consisted of the following:
MAY 31, February 29,
1996 1996
---------- ------------
<S> <C> <C>
Term loan facility. $2,600,000 $2,800,000
Note payable to bank; quarterly principal
payments of $10,000 plus interest at 86%
of prime (8.25% at May, 1996); collateralized
by land, building and equipment with a net
book value of $613,000 at May 31, 1996. 69,000 69,000
Mortgage payable to bank; monthly principal
payments of $5,000 plus interest at prime
plus 1%; balloon payment of outstanding
principal due October 1, 1996; collateralized
by land and building with a net book value of
$1,037,401 at May 31, 1996. 254,000 269,000
Note payable to industrial development
authority; monthly payment of $4,000
including interest at 6.5%; collateralized
by land and building with a net book value
of $552,000 at May 31, 1996. 208,000 217,000
Note payable to bank; monthly principal
payments of $24,000 including interest
at 9%; collateralized by computer
equipment with a net book value of
$481,000 at May 31, 1996. 106,000 154,000
Note payable to bank; monthly payment of $8,000
plus interest at prime plus 1%; collateralized
by machinery and equipment with a net book
value of $398,000 at May 31, 1996. 30,000 53,000
Note payable to bank; monthly payment of
$2,000 plus interest at prime plus 1%;
collateralized by land and buildings
with a net book value of $183,000. 104,000 111,000
Other 35,000 48,000
------------
3,406,000 3,721,000
Less current portion 1,384,000 1,381,000
---------- ------------
$2,022,000 $2,340,000
========== ============
</TABLE>
10
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note D - Long-term Debt (Continued)
On April 1, 1996, the Company acquired substantially all the assets and assumed
all the liabilities of Teltron Technologies, Inc. in exchange
for a demand note payable to an officer and shareholder of the Company
in the amount of $962,000.
11
<PAGE>
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following table sets forth, for the three months ended May 31, 1996 and
1995, the percentages which selected items in the Statements of Income bear to
total revenues:
<TABLE>
<CAPTION>
Fiscal Quarter Ended May 31,
1996 1995
------------ ------------
<S> <C> <C> <C> <C>
Sales
CRT and components $5,773,000 47.7% $5,831,000 48.8%
Wholesale electronic parts 6,325,000 52.3 6,120,000 51.2
---------- ---------- ---------- ----
12,098,000 100.0% 11,951,000 100.0%
Cost and expenses
Cost of goods sold 7,735,000 63.9% 7,462,000 62.4%
Selling and delivery 941,000 7.8 1,152,000 9.6
General and administrative
2,436,000 20.1 2,244,000 18.8
---------- ---------- ---------- ----
11,112,000 91.8% 10,858,000 90.8%
Income from Operations 986,000 8.2 1,093,000 9.2
Interest expense (283,000) (2.3) (292,000) (2.4)
Other income (expense) 5,000 -- 11,000 --
---------- ---------- ---------- ----
Income before income taxes 708,000 5.9 812,000 6.8
Provision for income taxes 254,000 2.1 215,000 1.8
---------- ---------- ---------- ----
</TABLE>
Net income $ 454,000 3.8 597,000 5.0%
=========== === ========== ===
Net Sales
- ---------
Consolidated net sales increased 1.2% or $147,000 for the three months
ended May 31, 1996 as compared to the same period one year ago. CRT division
sales were down 1% or $58,000 and the wholesale consumer electronic parts
division sales were down 3% or $205,000.
12
<PAGE>
MANAGEMENT'S DICUSSION AND ANALYSIS - (Continued)
The net increase in sales of the wholesale electronic parts division is in
part attributed to the return of certain consumer product manufacturers to
standard distribution channels rather than selling direct. This aspect accounts
for $536,000 of the increase. An additional increase of $326,000 is attributed
to the fire safety equipment product line introduced in the first fiscal quarter
of 1995. The offsetting declines of $689,000 reflect the growing trend of small
distribution companies and consumer shops being over powered by large discount
chains.
Gross Margins
- -------------
Consolidated gross profit margins as a percentage of sales declined from
37.6% for the quarter ended May 31, 1996 to 36.1% for the quarter ended May 31,
1996. The CRT and wholesale electronic parts divisions posted declines of 2.3%
and .9% respectively.
Decreases in the gross margin of the CRT division are attributed to two
factors: an increase in the cost of certain television grade tubes and the mix
of tube categories sold (i.e. lower margin monochrome tubes vs. higher margin
color tubes.
Operating Expenses
- ------------------
Selling and general and administrative expenses declined by $19,000 or .6%
over a year ago. The Company continues to reduce its operating expenses in
response to lower sales.
Interest Expense
- ----------------
Interest expense decreased $9,000 to $283,000 in the first quarter of 1997.
The Company derived a net $5,000 benefit from interest rate swap agreements with
a bank that fixed the interest rate on $7,500,000 of outstanding borrowings
adjusted upward for the excess of prime over 8%, if any. These agreements
expired during May 1996.
Income Taxes
- ------------
The Company's effective tax rate for the first quarter of fiscal 1997 was
35.8% as compared to 26.5% for the same period a year ago. The difference in
the effective tax rate is attributable to the decrease in earnings in the first
quarter of fiscal 1997 of our foreign subsidiary. The foreign subsidiary has a
tax loss carry forward which is applicable to these earnings.
13
<PAGE>
Foreign Currencies
- ------------------
The Company recorded a $39,000 increase to shareholders' equity in the
first quarter of fiscal 1997 related primarily to the Company's Mexican facility
and the effects on its financial statements calculated using the Mexican pesco
as its functional currency. The peso rebounded slightly in the first quarter
accounting for the gain reported.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital was $11,567,000 at May 31, 1996 as compared
to $11,996,000 at February 29, 1996.
Net cash provided by operating activities for the three months ended May
31, 1996 was $573,000 on net income of $454,000.
Capital expenditures for fiscal 1997 are not anticipated to be significant
other than the leasehold improvements and moving costs associated with the
relocation of the Arizona electron gun facility to Stone Mountain, Georgia.
Those costs are estimated to be $250,000.
In fiscal 1995, the Company entered into a new loan agreement with the bank
providing a $4,000,000 five year term loan and a one year $10,000,000 revolving
line of credit. The revolver has been renewed through August 31, 1996 and the
Company will be rquired to seek renewal of this facility in fiscal 1997. The
Company does not anticipate problems in the renegotiation of the debt.
In April 1996, the Company exercised its option to purchase substantially
all the assets and assume the liabilities of Teltron Technologies, Inc. ("TTI")
for a purchase price of $962,497 consisting of cash of $62,497 and a demand note
payable of $900,000.
Subsequent to May, the Company acquired 100% of the stock of Z-Axis, Inc.
The Company issued $2,000,000 in face value of an 8% Convertible Subordinated
Debenture in payment for the acquistion. The Debenture has a 5-year maturity
date with a conversion rate of 200 shares per $1000 face value of debentures. An
additional amount of Debentures may be due based upon a performance contingency
formula during 2/28/97-98-99 inclusive. Z-Axis, Inc., founded in 1989 with
strong support of the Company's management, manufactures and markets specialty
monochrome and color CRT monitor assemblies.
The Company is currently bidding on sales contracts for additional revenues
which could significantly increase its requirements for working capital. It is
the Company's intent to finance its short term capital requirements through its
existing bank borrowing relationships; however, longer term sources of more
permanent capital may be required if certain larger contracts are awarded to the
Company.
14
<PAGE>
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing
litigation occurred during the quarter ending May 31, 1996.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the three months ended May 31, 1996.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
VIDEO DISPLAY CORPORATION
July 15, 1996 By: /s/ Ronald D. Ordway
-------------------------
Ronald D. Ordway
Chief Executive Officer
By: /s/ Carol D. Franklin
-------------------------
Carol D. Franklin
Secretary and Controller
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000758743
<NAME> VIDEO DISPLAY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 1,270,000
<SECURITIES> 0
<RECEIVABLES> 5,514,000
<ALLOWANCES> 139,000
<INVENTORY> 21,140,000
<CURRENT-ASSETS> 28,589,000
<PP&E> 16,634,000
<DEPRECIATION> 11,598,000
<TOTAL-ASSETS> 36,499,000
<CURRENT-LIABILITIES> 17,023,000
<BONDS> 2,022,000
0
0
<COMMON> 3,529,000
<OTHER-SE> 13,143,000
<TOTAL-LIABILITY-AND-EQUITY> 36,499,000
<SALES> 12,098,000
<TOTAL-REVENUES> 12,098,000
<CGS> 7,735,000
<TOTAL-COSTS> 11,112,000
<OTHER-EXPENSES> (5,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,000
<INCOME-PRETAX> 708,000
<INCOME-TAX> 254,000
<INCOME-CONTINUING> 454,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 454,000
<EPS-PRIMARY> $0.12
<EPS-DILUTED> $0.12
</TABLE>
