<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 AUGUST 31, 1997 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 August 31, 1997
- -------------------------- -------------------------------
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 - August 31, 1997 and
February 28, 1997 3-4
Consolidated statements of operations -
Fiscal quarter and six months ended August 31, 1997 and 1996 5
Consolidated statements of shareholders' equity -
Twelve months ended February 28, 1997 and the six months
ended August 31, 1997 6
Consolidated statements of cash flows - Six months
ended August 31, 1997 and August 31, 1996 7-8
Notes to consolidated financial statements -
August 31, 1997 9-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes is 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>
AUGUST 31, February 28,
1997 1997
UNAUDITED (NOTE A)
--------------- --------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (including restricted cash
of $34,000) $ 1, 394,000 $ 1,043,000
Notes and accounts receivable, less allowance for
possible losses of $267,000 and $247,000 7,255,000 7,568,000
Note receivable, net of unamortized discount of
$36,000 144,000 144,000
Inventories 22,510,000 22,534,000
Prepaid expenses 539,000 550,000
Deferred income taxes 677,000 677,000
------------ ------------
Total current assets 32,519,000 32,516,000
Property, plant and equipment:
Land 435,000 435,000
Buildings 3,910,000 3,905,000
Machinery and equipment 13,756,000 13,485,000
------------ ------------
18,101,000 17,825,000
Accumulated depreciation and amortization (13,313,000) (12,637,000)
------------ ------------
4,788,000 5,188,000
Investments 515,000 147,000
Note receivable, net of unamortized discount of
$53,000 and $146,000 and allowance for possible
losses of $221,000 641,000 686,000
Excess of cost over net assets acquired, net of
accumulated amortization of $1,032,000 and
$889,000 1,975,000 2,118,000
Other assets 256,000 232,000
------------ ------------
Total assets $ 40,694,000 $ 40,887,000
============ ============
</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>
AUGUST 31, February 28,
1997 1997
UNAUDITED (NOTE A)
------------ -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Note payable (Note C) $ 6,662,000 $ 9,657,000
Notes payable to officers and shareholders (Note C) 3,620,000 1,220,000
Accounts payable 3,699,000 4,328,000
Accrued liabilities 2,659,000 2,534,000
Current maturities of long-term debt (Note C) 993,000 993,000
----------- -----------
Total current liabilities 17,633,000 18,732,000
Long-term debt (Note C) 1,451,000 1,962,000
Subordinated debentures 2,000,000 2,000,000
Deferred income taxes 256,000 256,000
Minority interests 200,000 194,000
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 92,000 92,000
Retained earnings 16,951,000 15,553,000
Net unrealized loss on marketable equity securities (160,000) (120,000)
Currency translation adjustments (1,258,000) (1,311,000)
----------- -----------
Total shareholders' equity 19,154,000 17,743,000
----------- -----------
Total liabilities and shareholders' equity $40,694,000 $40,887,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
VIDEO DISPLAY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Fiscal Quarters Ended August 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $14,212,000 $12,961,000 $28,534,000 $25,059,000
Cost of goods sold 8,775,000 8,376,000 18,120,000 16,435,000
----------- ----------- ----------- -----------
Gross profit 5,437,000 4,585,000 10,414,000 8,624,000
Operating expenses:
Selling and delivery 1,030,000 1,111,000 2,228,000 2,052,000
General and administrative 2,672,000 2,372,000 5,386,000 4,808,000
----------- ----------- ----------- -----------
3,702,000 3,483,000 7,614,000 6,860,000
Operating profit 1,735,000 1,102,000 2,800,000 1,764,000
Other income (expense)
Interest expense (317,000) (331,000) (668,000) (614,000)
Other, net 20,000 (1,000) 16,000 9,000
----------- ----------- ----------- -----------
(297,000) (332,000) (652,000) (605,000)
Income before minority interest 1,438,000 770,000 2,148,000 1,159,000
Minority interest --- 9,000 (4,000) 14,000
----------- ----------- ----------- -----------
Income before income taxes 1,438,000 761,000 2,144,000 1,145,000
Income taxes 552,000 187,000 746,000 318,000
----------- ----------- ----------- -----------
Net Income $ 886,000 $ 574,000 $1,398,000 $ 827,000
=========== =========== ========== ===========
Basic earnings per share of common
stock $ 0.22 $ 0.14 $ 0.35 $ 0.21
=========== =========== ========== ===========
Fully diluted earnings per share of
common stock $ 0.21 $ 0.14 $ 0.33 $ 0.20
========== ============ ========== ==========
Basic weighted average shares
outstanding 3,997,000 3,986,000 3,997,000 3,986,000
========== ========== ========== ==========
Fully diluted weighted average shares
outstanding 4,438,000 4,111,000 4,438,000 4,111,000
========== ========== ========== ==========
</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 28, 1997 and
the Six Months Ended August 31, 1997
<TABLE>
<CAPTION>
Net Unrealized
Loss on
Foreign Noncurrent
Currency Additional Marketable
Common Retained Translation Paid In Equity
Stock Earnings Adjustments Capital Securities
----------- ----------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at February 29, 1996 $3,529,000 $13,655,000 $(1,186,000) $81,000 $ 200,000
Net earnings for year --- 1,898,000 --- --- ---
Contribution of capital from gain
realized on sale of stock by officer --- --- --- 11,000 ---
Currency translation adjustment --- --- (125,000) --- ---
Net unrealized loss on noncurrent
marketable equity securities --- --- --- --- (320,000)
----------- ----------- ----------- ---------- --------------
Balance at February 28, 1997 $3,529,000 $15,553,000 $(1,311,000) $92,000 $(120,000)
Net income for period --- 1,398,000 --- --- ---
Currency translation adjustment --- --- 53,000 --- ---
Unrealized loss on marketable
equity securities --- --- --- --- (40,000)
----------- ----------- ----------- ---------- --------------
Balance at August 31, 1997 $3,529,000 $16,951,000 $(1,258,000) $92,000 $(160,000)
=========== =========== =========== ========== ==============
</TABLE>
6
<PAGE>
Video Display Corporation
STATEMENTS OF CASH FLOWS
For the Six months ended August 31,
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,167,000 $ 504,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment (272,000) (262,000)
Cash received in Z-Axis, Inc. acquisition --- 150,000
Teltron acquisition --- (40,000)
Purchase of investment (408,000) ---
Increase in other assets (42,000) (64,000)
------------ ------------
Net cash used in investing activities (722,000) (216,000)
FINANCING ACTIVITIES
Proceeds from long-term debt and lines of credit 18,235,000 11,426,000
Proceeds on note receivable 60,000 90,000
Payments on long-term debt and lines of credit (19,341,000) (11,283,000)
------------ ------------
Net cash provided (used in) by financing activities (1,046,000) 233,000
Effect of exchange rates on cash 11,000 (162,000)
------------ ------------
Net increase in cash 410,000 359,000
Cash, beginning of period 984,000 1,057,000
------------ ------------
Cash, end of period $ 1,394,000 $ 1,416,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
VIDEO DISPLAY CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Months ended August 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET EARNINGS FROM CONTINUING
OPERATIONS TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net earnings from continuing operations $1,398,000 $ 827,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATIONS:
Depreciation and amortization 837,000 618,000
Amortized interest on note receivable (12,000) (18,000)
Decrease in allowance for doubtful accounts 26,000 ---
CHANGES IN OPERATING ASSETS AND LIABILITIES NET OF EFFECTS
FROM ACQUISITIONS:
Decrease in accounts receivable 310,000 140,000
(Increase) decrease in inventory 86,000 (1,183,000)
(Increase) decrease in prepaid expenses 15,000 (98,000)
Increase (decrease) in accounts payable and accrued expenses (499,000) 201,000
Increase in minority interest 6,000 17,000
---------- -----------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS $2,167,000 $ 504,000
========== ===========
</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.
The balance sheet at February 28, 1997 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
August 31, 1997 and the Consolidated Statement of earnings for the six months
ended August 31, 1997 and 1996.
NOTE B - ACQUISITIONS
In April 1996, the Company purchased substantially all the assets and assumed
certain liabilities of Teltron Technologies, Inc.
In June 1996, the Company acquired 100% of the stock of Z-Axis, Inc.
The following table summarized the unaudited pro forma consolidated results of
operations of the Company, assuming the acquisitions had occurred at the
beginning of the following fiscal period. The pro forma financial information is
not necessarily indicative of what would have occurred had the acquisitions been
made as of that date, nor is it indicative of future results of operations. The
proforma information is not presented for the three month period ended August
31, 1997 as both acquisitions were completed prior to the second quarter of
fiscal 1997. The pro forma amounts give effect to appropriate adjustments for
the fair value of the net assets acquired, amortization of the excess of the
purchase price over the net assets acquired interest expense and income taxes.
<TABLE>
<CAPTION>
Six months ended August 31,
1997 1996
---- ----
<S> <C> <C>
Net sales $28,534,000 $26,093,000
Earnings from continuing operations 2,800,000 1,938,000
Net earnings $ 1,398,000 $ 935,000
=========== ===========
Basic earnings per share $ 0.35 $ 0.24
=========== ===========
Fully diluted earnings per share $ 0.33 $ 0.23
=========== ===========
</TABLE>
9
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following: AUGUST 31, February 28,
1997 1997
----------- -----------
<S> <C> <C>
Term loan facility. $1,600,000 $2,000,000
Mortgage payable to bank; monthly principal payments of
$3,000 plus interest at 8.6%; collateralized by land and
building with a net book value of $734,000 at
August 31, 1997. 296,000 317,000
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 $469,000 at August 31, 1997. 167,000 184,000
Note payable to bank; monthly principal payments
of $9,000 including interest at 8.25%; collateralized
by computer equipment with a net book value of
$758,000 at August 31, 1997. 361,000 402,000
Other 20,000 52,000
---------- ----------
$2,444,000 $2,955,000
Less current portion 993,000 993,000
---------- ----------
$1,451,000 $1,962,000
========== ==========
</TABLE>
In March 1997, Company amended its line of credit with the primary bank to allow
a maximum available line of $4,500,000 and to eliminate the $1,000,000 letter of
credit facility. The interest rates and covenants remained the same as the
original line of credit. The line of credit expires July 1, 1998.
Additionally, the Company entered into a second agreement with a second bank
that provides a $3,500,000 maximum line of credit. An intercreditor agreement
has been executed between the two banks. The second line of credit has
essentially the same terms and conditions as the first agreement including an
expiration date of July 1, 1998.
In conjunction with the amendment of the original line, and the setup of the
second line, the Company received proceeds of $2,800,000 from an officer to pay
down the original line of credit. The proceeds were in the form of a demand
note payable with interest due monthly at prime plus 1%. Subsequently, the
Company has repaid $700,000 on the demand note.
10
<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 six months ended August 31, 1997 and
1996, the percentages which selected items in the Statements of Income bear to
total revenues:
<TABLE>
<CAPTION>
Fiscal Quarter Six Months
Ended August 31, Ended August 31,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales
CRT and components 59.3% 51.4% 57.0% 49.6%
Wholesale electronic parts 40.7 48.6 43.0 50.4
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
Cost and expenses
Cost of goods sold 61.7% 64.6% 63.5% 65.6
Selling and delivery 7.3 8.6 7.8 8.2
General and administrative 18.8 18.3 18.9 19.2
----- ----- ----- -----
87.8 91.5 90.2 93.0
Income from Operations 12.2 8.5 9.8 7.0
Interest expense (2.2) (2.6) (2.3) (2.5)
Other income (expense) 0.1 --- --- ---
----- ----- ----- -----
Income before income taxes 10.1 5.9 7.5 4.5
Provision for income taxes 3.9 1.4 2.6% 1.2%
----- ----- ----- -----
Net income 6.2% 4.5% 4.9% 3.3%
===== ===== ===== =====
</TABLE>
Net Sales
- ---------
Consolidated net sales increased $1,251,000 or 9.7% and $3,475,000 or 13.9% for
the three and six months ended August 31, 1997 as compared to the same period
one year ago. CRT division sales were up 26.5% or $1,762,000 and $3,829,000 or
30.8% for the three and six months ended August 31, 1997. The wholesale
consumer electronic parts division sales decreased 8.1% or $511,000 and 2.8% or
$354,000 or 2.8% for the same comparative periods.
The net increase in sales of the CRT division is primarily attributable to
internal growth of the Company's newest divisions, Z-Axis and Teltron
Technologies, which added $1,128,000 and $2,821,000 for the three and six months
ended August 31, 1997. The remaining increase in CRT sales is a result of
increases in all segments of the CRT division including data display, projection
and television CRT sales.
11
<PAGE>
The net decrease in sales of the wholesale electronic parts division is
primarily attributed to decreases in sales to major electronic distributors of
$824,000 year to date in fiscal 1997. These decreases were offset by increases
in fire safety and sales to retail consumers.
Gross margins
- -------------
Consolidated gross profit margins as a percentage of sales increased from 35.4%
for the quarter ended August 31, 1996 to 38.3% for the quarter ended August 31,
1997. Gross margins were 36.5% versus 34.4% for the same comparative six month
period. The overall increases in margins can be attributed to increases in the
consumer parts division due to decline in sales of replacement parts to major
electronics distributors in the six months ended August 31, 1997. Those sales
are at considerably lower margins and were replaced by sales to other dealer and
end user consumers at higher margins. Additionally, increased volume in the CRT
division as well as revisions in product mix increased margins in that segment.
Operating expenses
- ------------------
Selling and general and administrative expenses increased slightly in dollar
amounts in the three and six month comparative periods, but decreased as a
percentage of sales from 26.9% to 26.7% and 27.4% to 26% for the three and six
months ended August 31, 1997 and 1996.
The Company continues to seek ways to reduce operating expenses.
Interest expense
- ----------------
Interest expense decreased $14,000 for the three months and $54,000 for the six
months ended August 31, 1997 compared to the same periods a year ago.
Income taxes
- ------------
The Company's effective tax rate for the second quarter of fiscal 1998 was 38.4%
as compared to 36.3% for the same period a year ago. The difference in the
effective tax rate is attributable to the decreased ratio of earnings in the
first quarter of fiscal 1998 of the Company's foreign subsidiary as compared to
the same period a year ago. The foreign subsidiary has a tax loss carry forward
which is applicable to these earnings. The tax loss carry forward has been
utilized and future earnings by the Mexican subsidiary will reflect the
effective tax rate.
Liquidity and capital resources
- -------------------------------
The Company's working capital was $15,528,000 at August 31, 1997 as compared to
$13,784,000 at February 28, 1997. The increase in working capital includes
increases of $1,079,000 due to the acquisitions of Z-Axis and Teltron. The
offsetting decline reflects decreases in receivables, inventory and accounts
payable.
Net cash provided by operating activities for the six months ended August 31,
1997 was $2,167,000 compared to $504,000 a year ago.
12
<PAGE>
Capital expenditures for fiscal 1998 are not anticipated to be significant.
In August 1994, the Company entered into a loan agreement with a bank that
provided a $4,000,000 five year term loan and a one year $10,000,000 line of
credit. The line of credit had been renewed through March 18, 1997. In March
1997, the Company renegotiated and reduced its line of credit with this bank to
$4,500,000. The Company entered into an additional agreement with a second bank
establishing a $3,500,000 line of credit bearing interest at the bank's base
rate (8.25% as of the closing) plus 1/2%. Both lines expire July 31, 1997. The
Company, at the same time, borrowed $2,800,000 from the CEO of the Company and
subsequently repaid $300,000. This borrowing was under the terms of an unsecured
demand note bearing interest at prime plus 1%. Proceeds from the borrowing were
used by the Company to reduce the outstanding balance of the original line of
credit. The Company will seek to renew the agreements for a one year term and
does not anticipate problems in the renegotiation.
As in the prior year, the Company is negotiating or bidding on sales contracts
for additional revenues which could impact its working capital requirements.
The intent is to finance short term requirements through existing bank borrowing
relationships; however, longer term sources of more permanent capital may be
required if certain larger contracts are awarded to the Company.
13
<PAGE>
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing litigation
occurred during the quarter ending August 31, 1997.
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 six months
ended August 31, 1997.
14
<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
October 14, 1997 By: /s/ Ronald D. Ordway
_____________________________
Ronald D. Ordway
Chief Executive Officer
By: /s/ Carol D. Franklin
_________________________________
Carol D. Franklin
Chief Financial Officer and Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 1,394,000
<SECURITIES> 0
<RECEIVABLES> 7,666,000
<ALLOWANCES> 267,000
<INVENTORY> 22,510,000
<CURRENT-ASSETS> 32,519,000
<PP&E> 18,101,000
<DEPRECIATION> 13,313,000
<TOTAL-ASSETS> 40,694,000
<CURRENT-LIABILITIES> 17,632,000
<BONDS> 3,451,000
0
0
<COMMON> 3,529,000
<OTHER-SE> 15,625,000
<TOTAL-LIABILITY-AND-EQUITY> 40,694,000
<SALES> 28,534,000
<TOTAL-REVENUES> 28,534,000
<CGS> 18,120,000
<TOTAL-COSTS> 25,734,000
<OTHER-EXPENSES> (12,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668,000
<INCOME-PRETAX> 2,144,000
<INCOME-TAX> 746,000
<INCOME-CONTINUING> 1,398,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,398,000
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.33
</TABLE>
