<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 NOVEMBER 30, 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 November 30, 1997
- -------------------------- --------------------------------
Common Stock, No Par Value 3,912,413
<PAGE>
VIDEO DISPLAY CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - November 30, 1997 and
February 28, 1997 3-4
Consolidated statements of income -
Fiscal quarter and nine months ended
November 30, 1997 and 1996 5
Consolidated statements of shareholders' equity -
Twelve months ended February 28, 1997 and the
nine months ended November 30, 1997 6
Consolidated statements of cash flows - Nine months
ended November 30, 1997 and 1996 7-8
Notes to consolidated financial statements -
November 30, 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>
NOVEMBER 30, February 28,
1997 1997
UNAUDITED (NOTE A)
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (including restricted cash
of $34,000) $ 2,287,000 $ 1,043,000
Notes and accounts receivable, less allowance for
possible losses of $315,000 and $247,000 6,894,000 7,568,000
Note receivable, net of unamortized discount of
$36,000 144,000 144,000
Inventories 21,844,000 22,534,000
Prepaid expenses 513,000 550,000
Deferred income taxes 677,000 677,000
------------ ------------
Total current assets 32,359,000 32,516,000
Property, plant and equipment:
Land 435,000 435,000
Buildings 3,910,000 3,905,000
Machinery and equipment 13,907,000 13,485,000
------------ ------------
18,252,000 17,825,000
Accumulated depreciation and amortization (13,636,000) (12,637,000)
------------ ------------
4,616,000 5,188,000
Investments 511,000 147,000
Note receivable, net of unamortized discount of
$44,000 and $146,000 and allowance for possible
losses of $221,000 590,000 686,000
Excess of cost over net assets acquired, net of
accumulated amortization of $1,096,000 and
$889,000 1,911,000 2,118,000
Other assets 231,000 232,000
------------ ------------
Total assets $ 40,218,000 $ 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>
NOVEMBER 30, February 28,
1997 1997
UNAUDITED (NOTE A)
------------- -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Note payable (Note C) $ 5,855,000 $ 9,657,000
Notes payable to officers and shareholders (Note C) 3,220,000 1,220,000
Accounts payable 3,572,000 4,328,000
Accrued liabilities 2,806,000 2,534,000
Current maturities of long-term debt (Note C) 993,000 993,000
----------- -----------
Total current liabilities 16,446,000 18,732,000
Long-term debt (Note C) 1,144,000 1,962,000
Subordinated debentures 1,775,000 2,000,000
Deferred income taxes 256,000 256,000
Minority interests 202,000 194,000
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 3,912,000 3,693,000 3,529,000
Additional paid-in capital 92,000 92,000
Retained earnings 18,025,000 15,553,000
Net unrealized loss on marketable equity securities (200,000) (120,000)
Currency translation adjustments (1,215,000) (1,311,000)
----------- -----------
Total shareholders' equity 20,395,000 17,743,000
----------- -----------
Total liabilities and shareholders' equity $40,218,000 $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 November 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $14,185,000 $13,269,000 $42,719,000 $38,328,000
Cost of goods sold 8,622,000 8,453,000 26,742,000 24,888,000
----------- ----------- ----------- -----------
Gross profit 5,563,000 4,816,000 15,977,000 13,440,000
Operating expenses:
Selling and delivery 990,000 768,000 3,218,000 2,820,000
General and administrative 2,476,000 2,868,000 7,862,000 7,676,000
----------- ----------- ----------- -----------
3,466,000 3,636,000 11,080,000 10,496,000
Operating profit 2,097,000 1,180,000 4,897,000 2,944,000
Other income (expense)
Interest expense (329,000) (317,000) (997,000) (931,000)
Other, net 12,000 6,000 28,000 15,000
----------- ----------- ----------- -----------
(317,000) (311,000) (969,000) (916,000)
Income before minority interest 1,780,000 869,000 3,928,000 2,028,000
Minority interest (1,000) 22,000 (5,000) 36,000
----------- ----------- ----------- -----------
Income before income taxes 1,779,000 847,000 3,923,000 1,992,000
Income taxes 705,000 218,000 1,451,000 536,000
----------- ----------- ----------- -----------
Net Income $ 1,074,000 $ 629,000 $2,472,000 $ 1,456,000
============ =========== ========== ===========
Basic earnings per share of common
stock $ 0.27 $ 0.16 $ 0.61 $ 0.37
============ =========== ========== ===========
Fully diluted earnings per share of
common stock $ 0.25 $ 0.14 $ 0.58 $ 0.20
============ =========== ========== ===========
Basic weighted average shares
outstanding 4,026,000 3,961,000 4,026,000 3,961,000
============ =========== ========== ===========
Fully diluted weighted average shares
outstanding 4,418,000 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 Nine Months Ended November 30, 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 --- 2,472,000 --- --- ---
Currency translation adjustment --- --- 96,000 --- ---
Issuance of 30,000 shares of common stock
in conjunction with conversion of
subordinated debenture 150,000 --- --- --- ---
Issuance of 5,000 shares of common stock
in conjunction with exercise of stock 14,000 --- --- --- ---
option
Unrealized loss on marketable
equity securities --- --- --- --- (80,000)
----------- ----------- ----------- ---------- --------------
Balance at November 30, 1997 $3,693,000 $18,025,000 $(1,215,000) $92,000 $(200,000)
=========== =========== =========== ========== ==============
</TABLE>
6
<PAGE>
VIDEO DISPLAY CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Months ended November 30,
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
- -
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 4,529,000 $ 704,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment (441,000) (434,000)
Cash received in Z-Axis, Inc. acquisition --- 150,000
Teltron acquisition --- (40,000)
Purchase of investment (444,000) (12,000)
Increase in other assets (34,000) (95,000)
------------ ------------
Net cash used in investing activities (919,000) (431,000)
FINANCING ACTIVITIES
Proceeds from long-term debt and lines of credit 18,235,000 15,703,000
Proceeds from stock option exercise 14,000 ---
Proceeds on note receivable 90,000 135,000
Payments on long-term debt and lines of credit (20,929,000) (15,457,000)
------------ ------------
Net cash provided (used in) by financing activities (2,590,000) 381,000
Effect of exchange rates on cash 283,000 26,000
------------ ------------
Net increase in cash 1,303,000 680,000
Cash, beginning of period 984,000 1,057,000
------------ ------------
Cash, end of period $ 2,287,000 $ 1,737,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
VIDEO DISPLAY CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Months ended November 30,
<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 $2,472,000 $ 1,456,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATIONS:
Depreciation and amortization 1,242,000 997,000
Amortized interest on note receivable (24,000) (27,000)
Increase in allowance for doubtful accounts 74,000 ---
CHANGES IN OPERATING ASSETS AND LIABILITIES NET OF EFFECTS
FROM ACQUISITIONS:
(Increase) decrease in accounts receivable 514,000 (85,000)
(Increase) decrease in inventory 665,000 (2,427,000)
(Increase) decrease in prepaid expenses 30,000 (89,000)
Increase (decrease) in accounts payable and accrued expenses (452,000) 834,000
Increase in minority interest 8,000 45,000
---------- -----------
NET CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS $4,529,000 $ 704,000
========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES
Demand note payable issued in conjunction with
Teltron acquisition --- 900,000
Convertible debentures issued in conjunction
with Z-Axis acquisition --- 2,000,000
</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
November 30, 1997 and the Consolidated Statement of income for the nine months
ended November 30, 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 November
30, 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>
Nine months ended November 30,
1997 1996
----------- -----------
<S> <C> <C>
Net sales $42,719,000 $39,386,000
Earnings from continuing operations 4,897,000 3,829,000
Net earnings $ 2,472,000 $ 2,005,000
=========== ===========
Basic earnings per share $ 0.61 $ 0.51
=========== ===========
Fully diluted earnings per share $ 0.58 $ 0.50
=========== ===========
</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: NOVEMBER 30, February 28,
1997 1997
------------ ------------
<S> <C> <C>
Term loan facility. $1,400,000 $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 $712,000 at
November 30, 1997. 239,000 317,000
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 $454,000 at November 30, 1997 158,000 184,000
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
$687,000 at November 30, 1997. 335,000 402,000
Other 5,000 52,000
---------- ----------
$2,137,000 $2,955,000
Less current portion 993,000 993,000
---------- ----------
$1,144,000 $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 three months and the nine months
ended November 30, 1997 and 1996, the percentages which selected items in the
Statements of Income bear to total revenues:
<TABLE>
<CAPTION>
Fiscal Quarter Nine Months
Ended November 30, Ended November 30,
1997 1996 1997 1996
------------------------------- -------------------------
<S> <C> <C> <C> <C>
Sales
CRT and components 60.8% 51.2% 58.3% 50.2%
Wholesale electronic parts 39.2 48.8 41.7 49.8
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
Cost and expenses
Cost of goods sold 60.8% 63.7% 62.6% 64.9
Selling and delivery 7.0 5.8 7.5 7.4
General and administrative 17.5 21.6 18.4 20.0
----- ----- ----- -----
85.3 91.1 88.5 92.3
Income from Operations 14.7 8.9 11.5 7.7
Interest expense (2.4) (2.4) (2.3) (2.4)
Other income (expense) 0.1 (0.1) 0 .1 (0.1)
----- ----- ----- -----
Income before income taxes 12.4 6.4 9.3 5.2
Provision for income taxes 5.0 1.6 3.4 1.4
----- ----- ----- -----
Net income 7.4% 4.8% 5.9% 3.8%
===== ===== ===== =====
</TABLE>
Net Sales
- ---------
Consolidated net sales increased $916,000 or 6.9% and $4,391,000 or 11.5% for
the three months and nine months ended November 30, 1997 as compared to the same
period one year ago. CRT sales increased $1,834,000 or 27.0% and $5,663,000 or
29.5% for the three and nine months ended November 30, 1997. The wholesale
parts sales decreased $919,000 or 14% and $1,273,000 or 6.7% 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 $453,000 and $3,274,000 for the three and nine months
ended November 30, 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
$307,000 year to date in fiscal 1998. 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 36.3%
for the quarter ended November 30, 1996 to 39.2% for the quarter ended November
30, 1997. Gross margins increased 35.1% to 37.4% for the same comparative nine
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 nine months ended November 30, 1997.
Those sales are at considerably lower margins and were partially 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 decreased in the three month and
increased slightly in the nine month comparative periods in dollar amounts, but
decreased as a percentage of sales from 27.4% to 24.5% and 27.4% to 25.9% for
the three and nine months ended November 30, 1997 and 1996. The nine month
comparison includes selling expenses of the newest acquisitions in the first
quarter of fiscal 1998 that were not included in the first quarter of 1997.
The Company has implemented a cost reduction program in the wholesale parts
division. The Company continues to seek ways to reduce costs.
Interest expense
- ----------------
Interest expense increased $12,000 for the three months and $66,000 for the nine
months ended November 30, 1997 compared to the same periods a year ago.
Income taxes
- ------------
The Company's effective tax rate for the three and nine months ended November
30, 1997 was 39.6% versus 25.7% and 36.9% versus 26.9% for the same periods a
year ago. The difference in the effective tax rate is attributable to the
decreased ratio of earnings 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 in the first quarter of fiscal 1998 and future earnings by the Mexican
subsidiary will reflect the effective tax rate.
Liquidity and capital resources
- -------------------------------
The Company's working capital was $15,914,000 at November 30, 1997 as compared
to $13,784,000 at February 28, 1997. The increase in working capital includes
increases of $1,423,000 due to the acquisitions of Z-Axis and Teltron. The
offsetting decline reflects decreases in receivables, inventory and accounts
payable.
12
<PAGE>
Net cash provided by operating activities for the nine months ended November 30,
1997 was $4,529,000 compared to $704,000 a year ago.
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%. 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. July 31, 1997,
the Company renewed the two agreements for one year.
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 November 30, 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 November 30, 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
January 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> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 2,287,000
<SECURITIES> 0
<RECEIVABLES> 7,353,000
<ALLOWANCES> 315,000
<INVENTORY> 21,844,000
<CURRENT-ASSETS> 32,359,000
<PP&E> 18,252,000
<DEPRECIATION> 13,636,000
<TOTAL-ASSETS> 40,218,000
<CURRENT-LIABILITIES> 16,446,000
<BONDS> 2,919,000
3,693,000
0
<COMMON> 0
<OTHER-SE> 16,702,000
<TOTAL-LIABILITY-AND-EQUITY> 40,218,000
<SALES> 42,719,000
<TOTAL-REVENUES> 42,719,000
<CGS> 26,742,000
<TOTAL-COSTS> 37,822,000
<OTHER-EXPENSES> (28,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 997,000
<INCOME-PRETAX> 3,923,000
<INCOME-TAX> 1,451,000
<INCOME-CONTINUING> 2,472,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,472,000
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.58
</TABLE>