<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, 1999 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, 1999
- --------------------------- ---------------------------
Common Stock, No Par Value 3,991,232
<PAGE>
VIDEO DISPLAY CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - May 31, 1999 and
February 28, 1999 3-4
Consolidated statements of income -
Three months ended May 31, 1999 and 1998 5
Consolidated statements of shareholders' equity -
May 31, 1999 and February 28, 1999 6
Consolidated statements of cash flows - Three months
ended May 31, 1999 and 1998 7-8
Notes to consolidated financial statements -
May 31, 1999 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
2
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, February 28,
1999 1999
UNAUDITED (NOTE A)
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (including restricted cash
of $34,000) $ 1,787,000 $ 2,150,000
Notes and accounts receivable, less allowance for
possible losses of $361,000 and $360,000, respectively 8,995,000 8,022,000
Costs and earnings in excess of billings on contracts 1,317,000 952,000
Inventories (Note B) 28,376,000 28,467,000
Prepaid expenses and other 1,661,000 1,976,000
------------- ------------
Total current assets 42,136,000 41,567,000
Property, plant and equipment:
Land 540,000 540,000
Buildings 4,815,000 4,696,000
Machinery and equipment 16,081,000 15,453,000
------------- ------------
21,436,000 20,689,000
Accumulated depreciation and amortization (14,813,000) (14,336,000)
------------- ------------
6,623,000 6,353,000
Excess of cost over net assets acquired, net of
accumulated amortization of $1,574,000 and $1,493,000 2,111,000 2,193,000
Other assets 1,227,000 1,528,000
------------- ------------
Total assets $ 52,097,000 $ 51,641,000
============ ============
</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,
1999 1999
UNAUDITED (NOTE A)
------------ -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Revolving lines of credit (Note E) 2,970,000 $ 2,970,000
Notes payable to officers and shareholders (Note E) 2,400,000 2,500,000
Accounts payable 4,954,000 4,875,000
Accrued liabilities 2,442,000 2,982,000
Current maturities of long-term debt (Note D) 1,677,000 1,676,000
----------- -----------
Total current liabilities 14,443,000 15,003,000
Revolving line of credit (Note E) 4,839,000 4,500,000
Long-term debt less current maturities (Note D) 7,543,000 7,712,000
Convertible subordinated debentures 1,775,000 1,775,000
Deferred income taxes 528,000 102,000
Minority interests 177,000 186,000
----------- -----------
Total liabilities 29,305,000 29,278,000
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 3,991,000 3,692,000 3,591,000
Additional paid-in capital 92,000 92,000
Retained earnings 20,570,000 20,216,000
Accumulated other comprehensive income (1,562,000) (1,536,000)
----------- -----------
Total shareholders' equity 22,792,000 22,363,000
----------- -----------
Total liabilities and shareholders' equity $52,097,000 $51,641,000
=========== ===========
</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>
1999 1998
------------ ------------
<S> <C> <C>
Net sales $17,526,000 $15,039,000
Cost of goods sold 11,899,000 9,481,000
----------- -----------
Gross profit 5,627,000 5,558,000
Operating expenses
Selling and delivery 1,498,000 1,141,000
General and administrative 3,028,000 2,731,000
----------- -----------
4,526,000 3,872,000
Operating profit 1,101,000 1,686,000
Other income (expense)
Interest expense (383,000) (230,000)
Other, net (77,000) 14,000
----------- -----------
(460,000) (216,000)
Income before minority interest 641,000 1,470,000
Minority interest (7,000) (1,000)
----------- -----------
Income before income taxes 648,000 1,471,000
Income taxes 294,000 575,000
----------- -----------
Net income $ 354,000 $ 896,000
=========== ===========
Net income per share - basic $ 0.09 $ 0.22
=========== ===========
Net income per share - diluted $ 0.09 $ 0.20
=========== ===========
Average shares outstanding - basic 3,991,000 3,926,000
=========== ===========
Average shares outstanding - diluted 4,413,000 4,479,000
=========== ===========
</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, 1999 and
the Three Months Ended May 31, 1999
<TABLE>
<CAPTION>
Accumulated Current
Other Additional Year
Common Retained Comprehensive Paid In Comprehensive
Stock Earnings Income Capital Income
------------ ----------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1998 $3,465,000 $19,094,000 $(1,505,000) $92,000
Net income for the year --- 1,122,000 --- --- $1,122,000
Currency translation adjustment --- --- 2,000 --- 2,000
Repurchase of common stock (508,000) --- --- --- ---
Issuance of common stock for business
acquisitions 612,000 --- --- --- ---
Issuance of common stock under stock
option plan 22,000 --- --- ---
Unrealized loss on marketable equity
Securities --- --- (33,000) --- (33,000)
--------- ----------- ------------ ------- ----------
Balance at February 28, 1999 $3,591,000 $20,216,000 $(1,536,000) $92,000 $1,091,000
========== =========== ============ ======= ==========
Issuance of common stock under stock
option plan 101,000 --- --- ---
Net income for quarter --- 354,000 --- --- $ 354,000
Currency translation adjustment --- --- (15,000) --- (15,000)
Unrealized loss on marketable equity
Securities --- --- (11,000) --- (12,000)
--------- ----------- ------------ ------- ----------
Balance at May 31, 1999 $3,692,000 $20,570,000 $(1,562,000) $92,000 $ 327,000
========== =========== =========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Video Display Corporation
STATEMENTS OF CASH FLOWS
For the Three months ended May 31,
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 265,000 $ (176,000)
Investing activities
Purchase of property, plant and equipment (748,000) (341,000)
Purchase of assets of Wintron, Inc. -- (400,000)
(Increase) decrease in other assets -- 26,000
----------- ------------
Net cash used in investing activities (748,000) (715,000)
Financing activities
Proceeds from long-term debt and lines of credit 5,202,000 12,791,000
Proceeds from exercise of stock option 100,000 17,000
Proceeds on note receivable 33,000 26,000
Payments on long-term debt and lines of credit (5,199,000) (12,885,000)
----------- ------------
Net cash used in financing activities 136,000 (51,000)
Effect of exchange rates on cash (16,000) 15,000
----------- ------------
Net increase (decrease) in cash (363,000) (927,000)
Cash, beginning of period 2,150,000 2,598,000
----------- ------------
Cash, end of period $ 1,787,000 $ 1,671,000
=========== ============
</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>
1999 1998
------------ ------------
<S> <C> <C>
Reconciliation of Net Earnings from Continuing
Operations to Net Cash Provided by (Used in)
Operating Activities
Net earnings from continuing operations $ 354,000 $ 896,000
Adjustments to reconcile net earnings to net cash provided
by operations:
Depreciation and amortization 560,000 384,000
Amortized interest on note receivable (9,000) (9,000)
Decrease in allowance for doubtful accounts 1,000 32,000
Unrealized loss on equity investment 71,000 --
Changes in operating assets and liabilities net of effects
from acquisitions:
Decrease in accounts receivable (1,310,000) 37,000
(Increase) decrease in inventory 90,000 (252,000)
(Increase) decrease in prepaid expenses 502,000 97,000)
Decrease in accounts payable and accrued expenses 6,000 (1,362,000)
Increase in minority interest -- 1,000
----------- -----------
Net cash provided by (used in) continuing operations $ 265,000 $ (176,000)
=========== ===========
</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, 1999 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, 1999 and the Consolidated Statement of earnings for the three months
ended May 31, 1999 and 1998.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market.
<TABLE>
<CAPTION>
Inventories consist of:
May 31, February 28,
1999 1999
----------- -----------
<S> <C> <C>
Raw materials $ 5,560,000 $ 6,136,000
Finished goods 22,816,000 22,331,000
----------- -----------
$28,376,000 $28,467,000
=========== ===========
</TABLE>
NOTE C - ACQUISITIONS
In June 1998, the Company purchased the common stock of MII and in November
1998, the Company acquired the assets and assumed certain liabilities of the
displays division of Aydin, Inc., and in February 1999 the Company acquired the
assets of the MegaScan division of Access Radiology.
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,
1999 1998
------------- -------------
<S> <C> <C>
Net sales $17,526,000 $20,019,000
Earnings from operations 1,101,000 646,000
Net earnings 354,000 (144,000)
Basic earnings per share $ 0.09 $ (0.04)
=========== ===========
Diluted earnings per share $ 0.09 $ (0.03)
=========== ===========
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following:
May 31, February 28,
1999 1999
----------- ------------
<S> <C> <C>
Term loan facility; floating interest rate based on an
adjusted LIBOR rate (7.45% as of May 31, 1999),
quarterly principal payments commencing November 1999
and maturing November 2005; collateralized by assets of
Aydin Displays, Inc. $7,500,000 $7,500,000
Mortgage payable to bank; monthly principal payments
of $13,000 plus interest not to exceed 7.5%, maturing December
2003; collateralized by land and building. 774,000 774,000
Term loan facility with bank; monthly payments of $67,000
Including interest at 7.25%, maturing August 1999,
collateralized by certain equipment. 200,000 400,000
Other 746,000 714,000
---------- ----------
$9,220,000 $9,388,000
Less current portion 1,677,000 1,676,000
---------- ----------
$7,543,000 $7,712,000
========== ==========
</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 Company amended its Primary Line
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 of the Primary line was also eliminated. All other terms of the Primary
Line remained the same as the original line of credit. The Secondary Line was
extended to July 31, 1999 with the interest rate and all other terms remaining
the same, including a commitment fee of 1/2% charged on the unused portion.
Borrowings under the Lines are limited by eligible accounts receivable and
inventory, as defined. As of May 31, 1999, the outstanding balances on the
Primary Line and Secondary Line were $4,839,000 and $2,970,000, respectively.
The additional availability under the Primary and Secondary Lines were $661,000
and $59,000, respectively as of May 31, 1999. The Line agreements contain
affirmative and negative covenants including requirements related to tangible
net worth, indebtedness to tangible net worth and cash flow coverage.
Additionally, dividend payments, capital expenditures and acquisitions have
certain restrictions.
In May 1999, the Company increased the Primary Line by $1,000,000 to $5,500,000.
The Company does not anticipate problems renewing the line of credit with the
second bank.
NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
May 31, May 31,
1999 1998
--------- ----------
<S> <C> <C>
Cash paid for:
Interest $383,000 $ 230,000
======== ==========
Income taxes, net of refunds $285,000 $1,923,000
======== ==========
</TABLE>
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, 1999 and
1998, the percentages which selected items in the Statements of Income bear to
total revenues:
<TABLE>
<CAPTION>
Fiscal Quarter Ended May 31,
1999 1998
---- ----
<S> <C> <C> <C> <C>
Sales
CRT and components $12,870,000 73.4% $ 9,124,000 60.7%
Wholesale electronic parts 4,656,000 26.6 5,915,000 39.3
----------- ----- ----------- -----
17,526,000 100.0% 15,039,000 100.0%
Cost and expenses
Cost of goods sold 11,899,000 67.9 9,481,000 63.0
Selling and delivery 1,498,000 8.5 1,141,000 7.6
General and administrative 3,028,000 17.3 2,731,000 18.2
----------- ----- ----------- -----
16,425,000 93.7 13,353,000 88.8
Income from Operations 1,101,000 6.3 1,686,000 11.2
Interest expense (383,000) (2.2) (229,000) (1.5)
Other income (expense) (70,000) (0.4) 14,000 ---
----------- ----- ----------- -----
Income before income taxes 648,000 3.7 1,471,000 9.7
Provision for income taxes 294,000 1.7 575,000 3.8
----------- ----- ----------- -----
Net income $ 354,000 2.0% $ 896,000 5.9%
=========== ===== =========== =====
</TABLE>
Net Sales
- ---------
Consolidated net sales increased 16.5% or $2,487,000 for the three months ended
May 31, 1999 as compared to the same period one year ago. CRT division sales
were up 41.1% or $3,746,000 and the wholesale consumer electronic parts division
sales were down 21.3% or $1,259,000.
The net increase in revenues of the CRT division is attributed to the Company's
acquisitions and start up locations transacted subsequent to the first quarter
of fiscal 1999. The new facilities added $4,998,000 to CRT sales in the first
quarter of fiscal 2000 over the same period a year ago. There were offsetting
declines within the data display, television, monitor and electron gun and
component segments. These declines are due to several factors including the
completion of a large data display military contract in the first quarter of
fiscal 1999. Fiscal 1999 included a higher volume of sales to one television
customer due to a high fill rate of backorders. Fiscal 2000 reflects a return
to normal sales levels for that customer. Monitor sales, excluding
acquisitions, were down slightly in the first quarter of fiscal 2000 as Z-Axis
completed its move into its newly constructed facility.
12
<PAGE>
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.
Gross margins
- -------------
Consolidated gross profit margins decreased from 37% to 32.1% for the quarter
May 31, 1998 compared to May 31, 1999. The CRT division posted an decrease from
38.3% to 29.6% while the wholesale consumer parts division increased from 34.5%
to 39.1% for the comparable periods.
The CRT margins are lower in the comparative quarters primarily due to the
addition of the new locations, most of whom operated at lower margins than the
CRT division has typically incurred. These margins should begin to improve as
the Company allocates resources and eliminates duplicate overhead.
Operating expenses
- ------------------
Operating expenses increased $654,000 or 16.9% from a year ago, but as a
percentage of sales the remained flat. Excluding the operating expenses
incurred by the new locations, expenses would have reflected a decline of
$445,000.
Interest expense
- ----------------
Interest expense increased $154,000 in the first quarter of fiscal 2000 compared
to the first quarter of fiscal 1999. The increase of expense is attributed to
the increased borrowings incurred as the result of the Company's acquisitions in
the 4th quarter of fiscal 1999.
Income taxes
- ------------
The effective tax rate for the first quarter of fiscal 2000 was 45% compared to
39.1% for the same period one year ago. The major portion of this increase is
related to the losses incurred in the first quarter of fiscal 2000 of the
Company's European subsidiaries for which a benefit has not been reflected.
Foreign currencies
- ------------------
During 1998 the Company began reporting its Mexican subsidiary on the basis that
the functional 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 $27,477,000 at May 31, 1999 compared to
$17,148,000 at May 31, 1998. $7,556,000 of the increase of $10,329,000 is due
to the acquisition of assets completed in the third quarter of fiscal 1999. 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 2000.
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, 1999.
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 filed a report on Form 8-K on December 2, 1998 regarding
the acquisition of Aydin Displays. An amended Form 8-K will be filed,
which will include audited proforma information, when applicable
financial information is gathered.
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, 1999 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-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 1,787,000
<SECURITIES> 0
<RECEIVABLES> 9,356,000
<ALLOWANCES> 361,000
<INVENTORY> 28,376,000
<CURRENT-ASSETS> 42,136,000
<PP&E> 21,436,000
<DEPRECIATION> 14,813,000
<TOTAL-ASSETS> 52,097,000
<CURRENT-LIABILITIES> 14,443,000
<BONDS> 14,157,000
0
0
<COMMON> 3,692,000
<OTHER-SE> 19,100,000
<TOTAL-LIABILITY-AND-EQUITY> 52,097,000
<SALES> 17,526,000
<TOTAL-REVENUES> 17,526,000
<CGS> 11,899,000
<TOTAL-COSTS> 16,425,000
<OTHER-EXPENSES> 70,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383,000
<INCOME-PRETAX> 648,000
<INCOME-TAX> 294,000
<INCOME-CONTINUING> 354,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,000
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
