<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, 1998 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, 1998
- -------------------------- ----------------------------
Common Stock, No Par Value 3,930,512
<PAGE>
VIDEO DISPLAY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - May 31, 1998 and
February 28, 1998 3-4
Consolidated statements of income -
Three months ended May 31, 1998 and 1997 5
Consolidated statements of shareholders' equity -
May 31, 1998 and February 28, 1998 6
Consolidated statements of cash flows - Three months
ended May 31, 1998 and May 31, 1997 7-8
Notes to consolidated financial statements -
May 31, 1998 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 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
</TABLE>
2
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, February 28,
1998 1998
UNAUDITED (NOTE A)
--------- --------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents (including restricted cash
of $34,000) $ 1,671,000 $ 2,598,000
Notes and accounts receivable, less allowance for
possible losses of $402,000 and $370,000, respectively 6,705,000 6,776,000
Inventories (Note B) 22,047,000 21,491,000
Prepaid expenses and other 1,614,000 1,710,000
--------------- -------------
Total current assets 32,037,000 32,575,000
Property, plant and equipment:
Land 470,000 435,000
Buildings 3,638,000 3,449,000
Machinery and equipment 14,817,000 14,605,000
---------- ----------
18,925,000 18,489,000
Accumulated depreciation and amortization (14,084,000) (13,776,000)
----------- -----------
4,841,000 4,713,000
Excess of cost over net assets acquired, net of
accumulated amortization of $1,279,000 and
$1,207,000 1,760,000 1,832,000
Other assets 1,410,000 1,462,000
-------------- ------------
Total assets $ 40,048,000 $ 40,582,000
============== ============
</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,
1998 1998
UNAUDITED (NOTE A)
--------- --------
Liabilities and Shareholders' Equity Current liabilities:
<S> <C> <C>
Revolving lines of credit (Note E) 6,996,000 $ 5,279,000
Notes payable to officers and shareholders (Note E) 1,300,000 2,900,000
Accounts payable 3,061,000 3,108,000
Accrued liabilities 2,557,000 3,872,000
Current maturities of long-term debt (Note D) 975,000 975,000
------------- -------------
Total current liabilities 14,889,000 16,134,000
Long-term debt less current maturities (Note D) 805,000 1,016,000
Convertible subordinated debentures 1,775,000 1,775,000
Deferred income taxes 311,000 311,000
Minority interests 201,000 200,000
------------ ------------
Total liabilities 17,981,000 19,436,000
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 3,931,000 3,482,000 3,465,000
Additional paid-in capital 92,000 92,000
Retained earnings 19,990,000 19,094,000
Net unrealized loss on marketable equity securities (213,000) (206,000)
Currency translation adjustments (1,284,000) (1,299,000)
------------- -------------
Total shareholders' equity 22,067,000 21,146,000
------------ ------------
Total liabilities and shareholders' equity $40,048,000 $40,582,000
=========== ===========
</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>
1998 1997
---- ----
<S> <C> <C>
Net sales $15,039,000 $14,322,000
Cost of goods sold 9,481,000 9,345,000
------------ ------------
Gross profit 5,558,000 4,977,000
Operating expenses
Selling and delivery 1,141,000 1,198,000
General and administrative 2,731,000 2,714,000
------------ ------------
3,872,000 3,912,000
Operating profit 1,686,000 1,065,000
Other income (expense)
Interest expense (230,000) (351,000)
Other, net 14,000 (4,000)
-------------- ---------------
(216,000) (355,000)
Income before minority interest 1,470,000 710,000
Minority interest (1,000) 4,000
--------------- ---------------
Income before income taxes 1,471,000 706,000
Income taxes 575,000 194,000
--------------- ---------------
Net income $ 896,000 $ 512,000
=============== ===============
Net income per share - basic $ 0.22 $ 0.13
============== ==============
Net income per share - diluted $ 0.20 $ 0.12
============== ==============
Average shares outstanding - basic 3,926,000 3,977,000
========= =========
Average shares outstanding - diluted 4,479,000 4,418,000
========= ==========
</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, 1998 and
the Three Months Ended May 31, 1998
<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 28, 1997 $ 3,529,000 $ 15,553,000 $ (1,311,000) $ 92,000 $ (120,000)
Net income for the year -- 3,541,000 -- -- --
Currency translation adjustment -- -- 12,000 -- --
Repurchase of common stock (271,000) -- -- -- --
Conversion of debt to common stock 150,000 -- -- -- --
Issuance of common stock under stock
option plan 57,000 -- -- -- --
Unrealized loss on marketable equity
securities -- -- -- -- (86,000)
------------ ------------ ------------ ------------ ------------
Balance at February 28, 1998 $ 3,465,000 $ 19,094,000 $ (1,299,000) $ 92,000 $ (206,000)
Issuance of common stock under stock
option plan 17,000 -- -- -- --
Net income for quarter -- 896,000 -- -- --
Currency translation adjumstment -- -- 15,000 -- --
Unrealized loss on marketable equity
securities -- -- -- -- (7,000)
------------ ------------ ------------ ------------ ------------
Balance at May 31, 1998 $ 3,482,000 $ 19,990,000 $ (1,284,000) $ 92,000 $ (213,000)
============ ============ ============ ============ ============
</TABLE>
6
<PAGE>
Video Display Corporation
STATEMENTS OF CASH FLOWS
For the Three months ended May 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ (176,000) $ 670,000
Investing activities
Purchase of property, plant and equipment (341,000) (140,000)
Purchase of assets of Wintron, Inc. (400,000) ---
(Increase) decrease in other assets 26,000 (21,000)
------------ ------------
Net cash used in investing activities (715,000) (161,000)
Financing activities
Proceeds from long-term debt and lines of credit 12,791,000 5,886,000
Proceeds from exercise of stock option 17,000 ---
Proceeds on note receivable 26,000 45,000
Payments on long-term debt and lines of credit (12,885,000) (6,605,000)
------------ ------------
Net cash used in financing activities (51,000) (674,000)
Effect of exchange rates on cash 15,000 58,000
------------ ------------
Net increase (decrease) in cash (927,000) (107,000)
Cash, beginning of period 2,598,000 1,043,000
------------ ------------
Cash, end of period $ 1,671,000 $ 936,000
============ ============
</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>
1998 1997
---- ----
<S> <C> <C>
Reconciliation of Net Earnings from Continuing
Operations to Net Cash Provided by (Used in)
Operating Activities
Net earnings from continuing operations $ 896,000 $ 512,000
Adjustments to reconcile net earnings to net cash provided
by operations:
Depreciation and amortization 384,000 424,000
Amortized interest on note receivable (9,000) (9,000)
Decrease in allowance for doubtful accounts 32,000 (3,000)
Changes in operating assets and liabilities net of effects
from acquisitions:
Decrease in accounts receivable 37,000 613,000
(Increase) decrease in inventory (252,000) 374,000
(Increase) decrease in prepaid expenses 97,000 (207,000)
Decrease in accounts payable and accrued expenses (1,362,000) (1,039,000)
Increase in minority interest 1,000 5,000
----------- -----------
Net cash provided by (used in) continuing operations $ (176,000) $ 670,000
=========== ===========
</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, 1998 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, 1998 and the Consolidated Statement of earnings for the three months
ended May 31, 1998 and 1997.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market.
Inventories consist of:
May 31, February 28,
1998 1998
---- ----
Raw materials $ 3,019,000 $ 2,925,000
Finished goods 19,028,000 18,566,000
---------- ----------
$22,047,000 $21,491,000
=========== ===========
NOTE C - ACQUISITIONS
In March 1998, the Company purchased the inventory and equipment of Wintron,
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.
<TABLE>
<CAPTION>
First Quarter Ended May 31,
1998 1997
---- ----
<S> <C> <C>
Net sales $ 15,089,000 $ 14,897,000
Earnings from operations 1,686,000 1,038,000
Net earnings 896,000 490,000
Basic earnings per share $ 0.22 $ 0.12
================ ================
Diluted earnings per share $ 0.20 $ 0.11
================ ================
</TABLE>
NOTE D - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consisted of the following: May 31, February 28,
1998 1998
------ -----
<S> <C> <C>
Term loan facility $1,000,000 $1,200,000
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 $674,000
at May 31, 1998 259,000 271,000
Note payable to industrial development authority; monthly payment of 2,800
including interest at 6.5%; collateralized by land and building with
a net book value of $424,000 at May 31, 1998 140,000 149,000
Note payable to bank; monthly principal payments of $10,000 including interest
at 8.25%; collateralized by computer equipment with a net book value of
$642,000 at May 31, 1998 377,000 329,000
Other 4,000 42,000
---------- ----------
$1,780,000 $1,991,000
Less current portion 975,000 975,000
---------- ----------
$ 805,000 $1,016,000
========== ==========
</TABLE>
10
<PAGE>
Video Display Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - LINES OF CREDIT
During early 1998, the Company refinanced its loan agreement ("Agreement") to
provide for a $4,500,000 line of credit with its primary bank and $3,500,000
with a second bank secured by substantially all assets of the Company. In
conjunction with this refinancing, the Company borrowed $2,800,000 from the CEO
to pay down the original line of credit. The line of credit had a termination
date of July 1, 1998. The line of credit bears interest at the bank's base rate
(8.5% and 8.25% as of February 28, 1998 and 1997 respectively) plus 1/2%. A
commitment fee of 1/2% is charged on the unused portion of the line of credit.
Borrowings under the line of credit are limited by eligible accounts receivable
and inventory, as defined. Total amount available under the lines of credit was
approximately $1,079,000 and $2,521,000 as of May 31, 1998 and February 28,
1998. The outstanding balance on the line was $5,279,000 as of February 28,
1998. The Agreement contains affirmative and negative covenants including
requirements related to tangible net worth, indebtedness to tangible net worth,
cash flow coverage, and restricts dividend payments, capital expenditures and
acquisitions. Substantially all of the Company's retained earnings are
restricted based upon these covenants.
Subsequent to February 28, 1998, the Company amended its line of credit with the
primary bank to extend the termination date to July 1, 2000 and to lower the
interest rate to a fixed rate of 7.25% per annum. The commitment fee of 1/2% on
the unused portion was also eliminated. All other terms remained the same as the
original line of credit. The Company does not anticipate problems renewing the
line of credit with the secondary bank.
NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION
May 31, May 31,
1998 1997
---- ----
Cash paid for:
Interest $ 230,000 $351,000
=========== ========
Income taxes, net of refunds $1,923,000 $577,000
========== ========
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, 1998
and 1997, the percentages which selected items in the Statements of Income bear
to total revenues:
<TABLE>
<CAPTION>
Fiscal Quarter Ended May 31,
1998 1997
---- ----
<S> <C> <C> <C> <C>
Sales
CRT and components $ 9,124,000 60.7% $ 7,840,000 54.7%
Wholesale electronic parts 5,915,000 39.3 6,482,000 45.3
------------ ----- ------------ -----
15,039,000 100.0% 14,322,000 100.0%
Cost and expenses
Cost of goods sold 9,481,000 63.0 9,345,000 65.2
Selling and delivery 1,141,000 7.6 1,198,000 8.5
General and administrative 2,731,000 18.2 2,714,000 18.9
------------ ----- ------------ -----
13,353,000 88.8 13,257,000 92.6
Income from Operations 1,686,000 11.2 1,065,000 7.4
Interest expense (229,000) (1.5) (351,000) (2.5)
Other income (expense) 14,000 -- (8,000) --
------------ ----- ------------ -----
Income before income taxes 1,471,000 9.7 706,000 4.9
Provision for income taxes 575,000 3.8 194,000 1.4
------------ ----- ------------ -----
Net income $ 896,000 5.9% $ 512,000 3.5%
============ ===== ============ =====
</TABLE>
Net Sales
- ---------
Consolidated net sales increased 5.0% or $717,000 for the three months ended May
31, 1998 as compared to the same period one year ago. CRT division sales were up
16.4% or $1,284,000 and the wholesale consumer electronic parts division sales
were down 8.7% or $567,000.
The net increase in revenues of the CRT division is due to greater sales of data
display and television tubes. The Company's television tube sales increased
$645,000 due to the Company being awarded a significant contract to perform the
in-warranty and out-of-warranty service of replacement parts.
The decline in revenues from the wholesale consumer electronic parts segment is
attributed to a reduction in sales to major electronics distributors during the
periods compared. The Company is seeking other opportunities to increase higher
margin consumer electronic sales including a voice activated electronic parts
ordering system and implementation of a world wide web parts inquiry and order
system.
12
<PAGE>
Gross margins
- -------------
Consolidated gross profit margins increased from 34.8% to 37% for the quarter
May 31, 1997 compared to May 31, 1998. The CRT division posted an increase to
38.3% versus 34.7% while the wholesale consumer parts division remained
relatively flat.
The CRT margins are higher in the comparative quarters due to several factors
including bulk purchases, primarily television tubes at reduced prices being
sold in the current period, and higher plant utilization whereby increases in
volume did not correspondingly increase overhead rates.
Operating expenses
- ------------------
Operating expenses decreased $40,000 or 1% from a year ago. Expenses declined
1.6% as a percentage of sales.
The Company continues to seek ways to reduce expenses.
Interest expense
- ----------------
Interest expense declined $121,000 in the first quarter of 1998 compared to the
first quarter of 1997. The reduction of expense is attributed to the shift of
debt from higher rates of prime plus 1% to a fixed rate of 7.25%.
Income taxes
- ------------
The effective tax rate for the first quarter of fiscal 1998 was 39% compared to
27.5% for the same period one year ago. The major portion of this increase is
related to the elimination in the first quarter of fiscal 1998 of the nontaxable
profit contribution of the Mexican subsidiary due to the utilization of the loss
carry forward.
Foreign currencies
- ------------------
During 1998 the Company began reporting its Mexican subsidiary on the basis that
the function currency is the US dollar. Any exchange gains or losses are
reflected in the Company's income statements. There were no significant gains or
losses for the current period reported.
Liquidity and capital resources
- -------------------------------
The Company's working capital was $17,148,000 at May 31, 1998 compared to
$14,399,000 at May 31, 1997. $566,000 of the increase of $2,749,000 is due to
the acquisition of assets completed in March 1998. The balance of the increase
is related to ongoing operations increasing inventory, collecting receivables
and reducing operating liabilities without increasing lines of credit.
The Company does not anticipate significant capital expenditues for fiscal 1998.
13
<PAGE>
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing
litigation occurred during the quarter ending May 31, 1998.
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, 1998.
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
July 14, 1998 By:
-------------------------------
Ronald D. Ordway
Chief Executive Officer
By:
-------------------------------
Carol D. Franklin
Chief Financial Officer and Secretary
<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 14, 1998 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-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,671,000
<SECURITIES> 0
<RECEIVABLES> 7,107,000
<ALLOWANCES> 402,000
<INVENTORY> 22,047,000
<CURRENT-ASSETS> 32,037,000
<PP&E> 18,925,000
<DEPRECIATION> 14,084,000
<TOTAL-ASSETS> 40,048,000
<CURRENT-LIABILITIES> 14,889,000
<BONDS> 2,580,000
0
0
<COMMON> 3,482,000
<OTHER-SE> 18,585,000
<TOTAL-LIABILITY-AND-EQUITY> 40,048,000
<SALES> 15,039,000
<TOTAL-REVENUES> 15,039,000
<CGS> 9,481,000
<TOTAL-COSTS> 13,353,000
<OTHER-EXPENSES> (14,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229,000
<INCOME-PRETAX> 1,471,000
<INCOME-TAX> 575,000
<INCOME-CONTINUING> 896,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 896,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.20
</TABLE>
