<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, 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 May 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 - May 31, 1997 and
February 28, 1997 3-4
Consolidated statements of income -
Three months ended May 31, 1997 and 1996 5
Consolidated statements of shareholders' equity -
May 31, 1997 and February 28, 1997 6
Consolidated statements of cash flows - Three months
ended May 31, 1997 and May 31, 1996 7-8
Notes to consolidated financial statements -
May 31, 1997 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes is Securities 15
Item 3. Defaults upon its Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and reports on Form 8-K 15
SIGNATURES
2
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAY 31, February 28,
1997 1997
UNAUDITED (NOTE A)
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (including restricted cash
of $ 34,000) $ 936,000 $ 1,043,000
Notes and accounts receivable, less allowance for
possible losses of $238,000 and $247,000, respectively 6,958,000 7,568,000
Note receivable, net of unamortized discount of
$36,000 (Note B) 144,000 144,000
Inventories:
Raw materials 4,353,000 3,848,000
Finished goods 17,807,000 18,686,000
Prepaid expenses 757,000 550,000
Deferred income taxes 677,000 677,000
------------ ------------
Total current assets 31,632,000 32,516,000
Property, plant and equipment:
Land 435,000 435,000
Buildings 3,907,000 3,905,000
Machinery and equipment 13,623,000 13,485,000
------------ ------------
17,965,000 17,825,000
Accumulated depreciation and amortization (12,974,000) (12,637,000)
------------ ------------
4,991,000 5,188,000
Investments (Note B) 147,000 147,000
Note receivable, net of unamortized discount of
$59,000 and $68,000 and allowance for possible
losses of $221,000 650,000 686,000
Excess of cost over net assets acquired, net of
accumulated amortization of $960,000 and
$889,000 2,047,000 2,118,000
Other assets 237,000 232,000
------------ ------------
Total assets $ 39,704,000 $ 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>
MAY 31, February 28,
1997 1997
UNAUDITED (NOTE A)
------------ -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Note payable (Note D) $ 6,697,000 $ 9,657,000
Notes payable to officers and shareholders (Note D) 3,720,000 1,220,000
Accounts payable 3,477,000 4,328,000
Accrued liabilities 2,346,000 2,534,000
Current maturities of long-term debt (Note D) 993,000 993,000
----------- -----------
Total current liabilities 17,233,000 18,732,000
Long-term debt (Note D) 1,703,000 1,962,000
Subordinated debentures 2,000,000 2,000,000
Deferred income taxes 256,000 256,000
Minority interests 199,000 194,000
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 16,065,000 15,553,000
Net unrealized gain (loss) on marketable equity securities (120,000) (120,000)
Currency translation adjustments (1,253,000) (1,311,000)
----------- -----------
Total shareholders' equity 18,313,000 17,743,000
----------- -----------
Total liabilities and shareholders' equity $39,704,000 $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 May 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net sales $14,322,000 $12,098,000
Cost of goods sold 9,345,000 8,059,000
----------- -----------
Gross profit 4,977,000 4,039,000
Operating expenses:
Selling and delivery 1,198,000 941,000
General and administrative 2,714,000 2,436,000
----------- -----------
3,912,000 3,377,000
Operating profit 1,065,000 662,000
Other income (expense)
Interest expense (351,000) (283,000)
Other, net (4,000) 10,000
----------- -----------
(355,000) (273,000)
Income before minority interest 710,000 389,000
Minority interest 4,000 5,000
----------- -----------
Income before income taxes 706,000 384,000
Income taxes 194,000 131,000
----------- -----------
Net income $ 512,000 $ 253,000
=========== ===========
Basic earnings per share of common stock $0.13 $0.07
=========== ===========
Diluted earnings per share of common stock $0.12 $0.07
=========== ===========
Primary weighted average shares outstanding 3,977,000 3,907,000
=========== ===========
Fully diluted weighted average shares outstanding 4,418,000 3,907,000
=========== ===========
</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 Three Months Ended May 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 quarter --- 512,000 --- --- ---
Currency translation adjustment --- --- 58,000 --- ---
Unrealized gain on marketable
equity securities --- --- --- --- ---
---------- ----------- ----------- ------- ---------
Balance at May 31, 1997 $3,529,000 $16,065,000 $(1,253,000) $92,000 $(120,000)
========== =========== =========== ======= =========
</TABLE>
6
<PAGE>
Video Display Corporation
STATEMENTS OF CASH FLOWS
For the Three months ended May 31,
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 670,000 $ 556,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment (140,000) (161,000)
Cash received in Teltron acquisition --- 22,000
(Increase) decrease in other assets (21,000) 3,000
----------- -----------
(161,000) (136,000)
FINANCING ACTIVITIES
Proceeds from long-term debt and lines of credit 5,886,000 7,693,000
Proceeds on note receivable 45,000 45,000
Payments on long-term debt and lines of credit (6,605,000) (7,870,000)
----------- -----------
Net cash used in financing activities (674,000) (132,000)
Effect of exchange rates on cash 58,000 (92,000)
----------- -----------
Net increase (decrease) in cash (107,000) 196,000
Cash, beginning of period 1,043,000 1,057,000
----------- -----------
Cash, end of period $ 936,000 $ 1,253,000
=========== ===========
</TABLE>
The accompanying notes are an integral pat of these statements.
7
<PAGE>
VIDEO DISPLAY CORPORATION
STATEMENTS OF CASH FLOWS
For the Three Months ended May 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 $ 512,000 $ 253,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATIONS:
Depreciation and amortization 424,000 334,000
Amortized interest on note receivable (9,000) (9,000)
Decrease in allowance for doubtful accounts (3,000) ---
CHANGES IN OPERATING ASSETS AND LIABILITIES NET OF EFFECTS
FROM ACQUISITIONS:
Decrease in accounts receivable 613,000 546,000
(Increase) decrease in inventory 374,000 (957,000)
Increase in prepaid expenses (207,000) (59,000)
Increase (decrease) in accounts payable and accrued expenses (1,039,000) 441,000
Increase in minority interest 5,000 7,000
----------- ---------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS $ 670,000 $ 556,000
=========== =========
</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
May 31, 1997 and the Consolidated Statement of earnings for the three months
ended May 31, 1997 and 1996.
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, lnc., 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, 1997, the note is recorded at a total of $794,000, net
of its discount and allowance.
NOTE C - 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
9
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - ACQUISITIONS (Continued)
acquisitions been made as of that date, nor is it indicative of future results
of operations. 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.
First Quarter Ended May 31,
1997 1996
----------- ------------
Net sales $14,322,000 $13,260,000
Earnings from operations 1,065,000 837,000
Net earnings 512,000 362,000
Basic earnings per share $ 0.13 $ 0.09
=========== ===========
Diluted earnings per share $ 0.12 $ 0.08
=========== ===========
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
MAY 31, February 28,
1997 1997
----------- -----------
<S> <C> <C>
Term loan facility. $ 1,800,000 $ 2,000,000
Mortgage payable to bank; monthly principal payments
of 2,000 plus interest at 8.6%; collateralized by
land and building with a net book value of $ 578,000
at May 31, 1997. 240,000 242,000
Note payable to industrial development authority;
monthly payment of 4,000 including interest at 6.5%;
collateralized y land and building with a net book
value of $483,000 at May 31, 1997. 175,000 184,000
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
$482,000 at May 31, 1997. 382,000 402,000
Other 99,000 127,000
----------- -----------
$ 2,696,000 $ 2,955,000
Less current portion 993,000 993,000
----------- -----------
$ 1,703,000 $ 1,962,000
=========== ===========
</TABLE>
10
<PAGE>
Video Display Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - LONG TERM DEBT (Continued)
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 31, 1997 and the
Company will be required to seek renewal. The Company does not anticipate
problems renewing the line of credit.
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 31, 1997. As in the case of the original line of
credit, the Company does not anticipate problems renewing.
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 $300,000 on the demand note.
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, 1997 and
1996, the percentages which selected items in the Statements of Income bear to
total revenues:
<TABLE>
<CAPTION>
Fiscal Quarter Ended May 31,
1997 1996
---- ----
<S> <C> <C> <C> <C>
Sales
CRT and components $ 7,840,000 54.7% $ 5,773,000 47.7%
Wholesale electronic parts 6,482,000 45.3 6,325,000 52.3
----------- ----- ----------- -----
14,322,000 100.0% 12,098,000 100.0%
Cost and expenses
Cost of goods sold 9,345,000 65.2 8,059,000 66.6
Selling and delivery 1,198,000 8.5 941,000 7.8
General and administrative 2,714,000 18.9 2,436,000 20.1
----------- ----- ----------- -----
13,257,000 92.6 11,436,000 94.5
Income from Operations 1,065,000 7.4 662,000 5.5
Interest expense (351,000) (2.5) (283,000) (2.3)
Other income (expense) (8,000) --- 5,000 ---
----------- ----- ----------- -----
Income before income taxes 706,000 4.9 384,000 3.2
Provision for income taxes 194,000 1.4 131,000 1.1
----------- ----- ----------- -----
Net income $ 512,000 3.5% $ 253,000 2.1%
=========== ===== =========== =====
</TABLE>
Net Sales
- ---------
Consolidated net sales increased 18.4% or $2,224,000 for the three months ended
May 31, 1997 as compared to the same period one year ago. CRT division sales
were up 35.8% or $2,067,000 and the wholesale consumer electronic parts division
sales were up 2.5% or $157,000.
The net increase in sales of the CRT division is attributed in part to the
acquisitions completed in May and June of fiscal 1997. These subsidiaries added
$1,344,000 in the first quarter of fiscal 1998. The remaining $723,000 increase
in CRT sales is a result of increases in the data display, projection and
television segments of the CRT division.
The net increase in sales of the wholesale electronic parts division is
primarily attributed to increases in the fire and safety product line. Sales to
major electronic distributors and to retail consumers were relatively flat in
the corresponding periods.
12
<PAGE>
Gross margins
- -------------
Consolidated gross profit margins as a percentage of sales increased from 33.4%
for the quarter ended May 31, 1996 to 34.8% for the quarter ended May 31, 1997.
The CRT and wholesale electronic parts divisions posted increases of 1.5% and
1%, respectively.
Operating expenses
- ------------------
Selling and general and administrative expenses increased by $535,000 or 15.8%
over a year ago. Included in the increase is $282,000 of expenses from the
addition of two subsidiaries reflected in the results of the first quarter of
fiscal 1998.
The Company continues to seek ways to reduce operating expenses.
Interest expense
- ----------------
Interest expense increased $68,000 to $351,000 in the first quarter of 1997. In
conjunction with the refinancing of the debt and the acquisitions in fiscal
1997, there was an overall increase of debt in the comparative first quarters.
Additionally, these increased borrowings are at rates slightly higher (prime
plus 1%) than the term and line of credit facilities which are at prime plus
1/2%.
Income taxes
- ------------
The Company's effective tax rate for the first quarter of fiscal 1998 was 27.5%
as compared to 34.1% for the same period a year ago. The difference in the
effective tax rate is attributable to the increase 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.
Foreign currencies
- ------------------
The Company recorded a $58,000 increase to shareholders' equity in the first
quarter of fiscal 1998 related to the Company's foreign subsidiaries.
Liquidity and capital resources
- -------------------------------
The Company's working capital was $14,399,000 at May 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 three months ended May 31,
1997 was $670,000 compared to $573,000 a year ago.
Capital expenditures for fiscal 1998 are not anticipated to be significant.
13
<PAGE>
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.
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, 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 three months
ended May 31, 1997.
<PAGE>
SIGNATURES
Pusuant 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 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> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 936,000
<SECURITIES> 0
<RECEIVABLES> 7,340,000
<ALLOWANCES> 238,000
<INVENTORY> 22,160,000
<CURRENT-ASSETS> 31,632,000
<PP&E> 17,965,000
<DEPRECIATION> 12,974,000
<TOTAL-ASSETS> 39,704,000
<CURRENT-LIABILITIES> 17,233,000
<BONDS> 3,703,000
0
0
<COMMON> 3,529,000
<OTHER-SE> 14,784,000
<TOTAL-LIABILITY-AND-EQUITY> 39,704,000
<SALES> 14,322,000
<TOTAL-REVENUES> 14,322,000
<CGS> 9,345,000
<TOTAL-COSTS> 13,257,000
<OTHER-EXPENSES> 8,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 351,000
<INCOME-PRETAX> 706,000
<INCOME-TAX> 194,000
<INCOME-CONTINUING> 512,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 512,000
<EPS-PRIMARY> $0.13
<EPS-DILUTED> $0.12
</TABLE>
