<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, 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 November 30, 1998
- -------------------------- --------------------------------
Common Stock, No Par Value 3,913,112
<PAGE>
VIDEO DISPLAY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - November 30, 1998 and
February 28, 1998 3-4
Consolidated statements of operations -
Fiscal quarter and nine months ended November 30, 1998 and 1997 5
Consolidated statements of shareholders' equity -
Twelve months ended February 28, 1998 and the nine months
ended November 30, 1998 6
Consolidated statements of cash flows - Nine months
ended November 30, 1998 and 1997 7-8
Notes to consolidated financial statements -
November 30, 1998 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes is Securities 16
Item 3. Defaults upon its Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and reports on Form 8-K 16
</TABLE>
SIGNATURES
2
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30, February 28,
1998 1998
UNAUDITED (NOTE A)
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (including restricted cash
of $34,000) $ 3,035,000 $ 2,598,000
Notes and accounts receivable, less allowance for
possible losses of $511,000 and $370,000 9,775,000 6,776,000
Inventories (Note B) 27,320,000 21,491,000
Prepaid expenses and deferred income taxes 1,804,000 1,710,000
------------- ------------
Total current assets 41,934,000 32,575,000
Property, plant and equipment:
Land 545,000 435,000
Buildings 4,197,000 3,449,000
Machinery and equipment 18,445,000 14,605,000
------------- ------------
23,187,000 18,489,000
Accumulated depreciation and amortization (17,293,000) (13,776,000)
------------- ------------
5,894,000 4,713,000
Excess of cost over net assets acquired, net of
accumulated amortization of $1,422,000 and
$1,207,000 2,036,000 1,832,000
Other assets 1,843,000 1,462,000
------------- ------------
Total assets $ 51,707,000 $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>
NOVEMBER 30, February 28,
1998 1998
UNAUDITED (NOTE A)
------------- -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Lines of credit (Note D) 3,499,000 $ 5,279,000
Notes payable to officers and shareholders (Note D) 2,500,000 2,900,000
Accounts payable 4,577,000 3,108,000
Accrued liabilities 2,781,000 3,872,000
Current maturities of long-term debt (Note D) 975,000 975,000
----------- -----------
Total current liabilities 14,332,000 16,134,000
Long-term debt (Note D) 11,819,000 1,016,000
Subordinated debentures 1,775,000 1,775,000
Deferred income taxes 311,000 311,000
Minority interests 188,000 200,000
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 3,913,000 3,517,000 3,465,000
Additional paid-in capital 92,000 92,000
Retained earnings 21,202,000 19,094,000
Net unrealized loss on marketable equity securities (238,000) (206,000)
Currency translation adjustments (1,291,000) (1,299,000)
----------- -----------
Total shareholders' equity 23,282,000 21,146,000
----------- -----------
Total liabilities and shareholders' equity $51,707,000 $40,582,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
VIDEO DISPLAY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended November 30, Nine Months Ended November 30,
1998 1997 1998 1997
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $13,859,000 $14,185,000 $42,660,000 $42,719,000
Cost of goods sold 9,094,000 8,622,000 26,840,000 26,742,000
----------- ----------- ----------- -----------
Gross profit 4,765,000 5,563,000 15,820,000 15,977,000
Operating expenses:
Selling and delivery 1,091,000 990,000 3,353,000 3,218,000
General and administrative 2,827,000 2,476,000 8,411,000 7,862,000
----------- ----------- ----------- -----------
3,918,000 3,466,000 11,764,000 11,080,000
Operating profit 847,000 2,097,000 4,056,000 4,897,000
Other income (expense)
Interest expense (242,000) (329,000) (686,000) (997,000)
Other, net 147,000 12,000 55,000 28,000
----------- ----------- ----------- -----------
( 95,000) (317,000) (631,000) (969,000)
Income before minority interest 752,000 1,780,000 3,425,000 3,928,000
Minority interest expense (income) (5,000) (1,000) (13,000) 5,000
----------- ----------- ----------- -----------
Income before income taxes 757,000 1,779,000 3,438,000 3,923,000
Income taxes 276,000 705,000 1,330,000 1,451,000
----------- ----------- ----------- ------------
Net Income $ 481,000 $ 1,074,000 $ 2,108,000 $ 2,472,000
=========== =========== =========== ============
Basic earnings per share of common stock $ 0.12 $ 0.27 $ 0.54 $ 0.61
=========== =========== =========== ============
Fully diluted earnings per share of common stock $ 0.11 $ 0.25 $ 0.49 $ 0.58
=========== =========== =========== ============
Basic weighted average shares outstanding 3,940,000 4,026,000 3,940,000 4,026,000
=========== =========== =========== ============
Fully diluted weighted average shares
outstanding 4,427,000 4,418,000 4,427,000 4,438,000
=========== =========== =========== ============
</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 Nine Months Ended November 30, 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 29, 1997 $3,529,000 $15,553,000 $(1,311,000) $92,000 $(120,000)
Net income for year --- 3,541,000 --- --- ---
Currency translation adjustment --- --- 12,000 --- ---
Issuance of 30,000 shares of common stock
in conjunction with conversion of
subordinated debenture 150,000 --- --- --- ---
Repurchase of common stock (271,000) --- --- --- ---
Issuance of 5,000 shares of common stock
in conjunction with exercise of stock 57,000 --- --- --- ---
option
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)
Net income for period --- 2,108,000 8,000 --- ---
Currency translation adjustment --- --- --- --- (32,000)
Repurchase of common stock (509,000) --- --- --- ---
Issuance of stock in exchange for stock in
equity investee 93,000 --- --- --- ---
Unrealized loss on marketable equity
securities --- --- --- --- ---
Issuance of stock in conjunction with
Acquisition of MII 445,000 --- --- --- ---
Issuance of stock under stock option plan 23,000 --- --- --- ---
---------- ----------- ----------- ---------- --------------
Balance at November 30, 1998 $3,517,000 $21,202,000 $(1,291,000) $92,000 $(238,000)
========== =========== =========== ========== ==============
</TABLE>
6
<PAGE>
Video Display Corporation
STATEMENTS OF CASH FLOWS
For the Nine Months ended November 30,
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,045,000 $ 4,529,000
INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,486,000) (441,000)
Purchase of assets of Wintron, Inc. (400,000) ---
Purchase of stock of MII (50,000) ---
Purchase of Aydin Corporation assets (6,438,000) ---
Purchase of investment (4,000) (444,000)
Increase in other assets (374,000) (34,000)
------------ ------------
Net cash used in investing activities (8,752,000) (919,000)
FINANCING ACTIVITIES
Proceeds from long-term debt, lines of credit and notes 36,934,000 18,235,000
Proceeds from exercise of stock option 22,000 14,000
Repurchase of common stock (509,000) ---
Proceeds on note receivable 77,000 90,000
Payments on long-term debt and lines of credit (28,384,000) (20,929,000)
------------ ------------
Net cash provided by (used in) financing activities 8,140,000 (2,590,000)
Effect of exchange rates on cash 8,000 283,000
------------ ------------
Net increase in cash 441,000 1,303,000
Cash, beginning of period 2, 598,000 984,000
------------ ------------
Cash, end of period $ 3,039,000 $ 2,287,000
============ ============
NONCASH TRANSACTIONS
Issuance of company stock for equity investment in Infodex $ 93,000 ---
Issuance of company stock in conjunction of investment in MII 446,000 ---
------------
$ 539,000
============
</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>
1998 1997
---- ----
<S> <C> <C>
RECONCILIATION OF NET EARNINGS FROM CONTINUING
OPERATIONS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net earnings from continuing operations $ 2,108,000 $2,472,000
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH PROVIDED
BY OPERATIONS:
Depreciation and amortization 1,048,000 1,242,000
Amortized interest on note receivable (27,000) (24,000)
Increase in allowance for doubtful accounts 61,000 74,000
Loss in equity earnings of investee 5,000 ---
CHANGES IN OPERATING ASSETS AND LIABILITIES NET OF EFFECTS
FROM ACQUISITIONS:
Decrease in accounts receivable 475,000 514,000
(Increase) decrease in inventory (1,726,000) 665,000
Decrease in prepaid expenses 60,000 30,000
Decrease in accounts payable and accrued expenses (947,000) (452,000)
Increase (decrease) in minority interest (12,000) 8,000
----------- ----------
NET CASH PROVIDED BY CONTINUING OPERATIONS $ 1,045,000 $4,529,000
=========== ==========
</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
November 30, 1998 and the Consolidated Statement of income for the nine months
ended November 30, 1998 and 1997.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market.
<TABLE>
<CAPTION>
Inventories consist of:
NOVEMBER 30, February 28,
1998 1998
---- ----
<S> <C> <C>
Raw materials $ 5,588,000 $ 2,925,000
Finished goods 21,732,000 18,566,000
----------- -----------
$27,320,000 $21,491,000
=========== ===========
</TABLE>
NOTE C - ACQUISITIONS
In March 1998, the Company purchased the inventory and equipment of Wintron,
Inc, for $400,000 cash.
In June 1998, the Company Mengel Industries, Inc. for $50,000 cash and the
issuance of 44,000 shares of the Company's common stock.
In November 1998, the Company acquired the assets and assumed certain
liabilities of the USA and UK Display Divisions of Aydin Corporation,
headquartered in Horsham, Pennsylvania. The assets acquired consist of trade
receivables, inventory, fixed assets and prepaid expenses. The liabilities
assumed were trade payables and accrued liabilities. The aggregate
consideration consists of $6,438,000 in cash, which was funded through debt with
the Company's primary lender, and assumption of liabilities of $1,194,000 for a
total purchase price of $7,632,000.
9
<PAGE>
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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>
Three months ended Nine months ended
November 30, November 30,
1998 1997 1998 1997
---- ---- --- ----
<S> <C> <C> <C> <C>
Net sales $17,732,000 $19,053,000 $53,080,000 $58,708,000
Earnings from continuing operations $ 251,000 $ 1,730,000 $ 218,000 $31,210,000
Net earnings (loss) $ (115,000) $ 729,000 $(1,730,000) $ 727,000
Basic earnings (loss) per share $ (0.03) $ 0.18 $ (0.44) $ 0.18
Fully diluted earnings (loss) per
share $ (0.03) $ 0.17 $ (0.39) $ 0.16
</TABLE>
<TABLE>
<CAPTION>
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following: NOVEMBER 30, February 28,
1998 1998
---- ----
<S> <C> <C>
Revolving credit facility 3,907,000 $ ---
Term loan facility 7,500,000 ---
Term loan facility 667,000 1,200,000
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 $683,000 at
November 30, 1998. 242,000 271,000
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 $395,000 at November 30, 1998 121,000 149,000
Note payable to bank; monthly principal payments
of $7,800 including interest at 8.25%; collateralized
by computer equipment with a net book value of
$559,000 at November 30, 1998. 330,000 329,000
Other 27,000 42,000
------------ ------------
$ 12,794,000 $ 1,991,000
Less current portion 975,000 975,000
------------ ------------
$ 11,819,000 $ 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 lines of credit had a termination
date of July 1, 1998. The lines of credit bear interest at the bank's base rate
(7.75% and 8.5% as of November 30, 1998 and February 28, 1998 respectively) plus
1/2% and a commitment fee of 1/2% is charged on the unused portion of the line
of credit.
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 (therefore
reclassifying the line to long term debt) 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 line with the second bank was also extended to July 31, 1999 but
the interest and all other terms of that agreement remained the same.
Borrowings under the lines of credit are limited by eligible accounts receivable
and inventory, as defined.
Total amounts available under the lines of credit were approximately $838,000
and $2,521,000 as of November 31, 1998 and February 28, 1998. The outstanding
balance on the line was $3,907,000 with the primary bank and $3,499,000 with the
second bank as of November 30, 1998 and $1,780,000 with the primary bank and
$3,499,000 with the second bank as of February 28, 1998.
The Agreements contain 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.
During fiscal 1999 the Company has repaid $400,000 on its note payable to the
CEO of the Company.
In November 1998, the Company entered into an agreement with its primary bank to
borrow $7,500,000 for the purpose of purchasing the assets of the US and UK
divisions of Aydin Corporation. The facility has a maturity date of November
2005 and an interest rate based on a spread over LIBOR which equates to
approximately 7 1/2%. The principal is to be repaid in quarterly installments
commencing one year from the loan closing date. Interest is payable monthly.
NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NOVEMBER 30, November 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash paid for:
Interest $ 242,000 $ 686,000
Income taxes, net of refunds $3,140,000 $1,567,000
</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 nine months ended November 30, 1998
and 1997, 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,
1998 1997 1998 1997
--------- --------- ------ ------------
<S> <C> <C> <C> <C>
Sales
CRT and components 61.7% 60.8% 61.5% 58.3%
Wholesale electronic parts 38.3 39.2 38.5 41.7
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
Cost and expenses
Cost of goods sold 65.6% 60.8% 62.9% 62.6
Selling and delivery 7.9 7.0 7.9 7.5
General and administrative 20.4 17.5 19.7 18.4
----- ----- ----- -----
93.9 85.3 90.5 88.5
Income from Operations 6.1 14.7 9.5 11.5
Interest expense (1.7) (2.4) (1.6) (2.3)
Other income (expense) 1.1 0.1 0 .1 0.1
----- ----- ----- -----
Income before income taxes 5.5 12.4 8.0 9.3
Provision for income taxes 2.0 5.0 3.1 3.4
----- ----- ----- -----
Net income 3.5% 7.4% 4.9% 5.9%
===== ===== ===== =====
</TABLE>
Net Sales
- ---------
Consolidated net sales decreased $326,000 or 2.3% and $59,000 or 0.1% for the
three months and nine months ended November 30, 1998 as compared to the same
period one year ago. CRT sales decreased $73,000 or 0.1% for the three months
and increased $1,331,000 or 5.3% for the nine months comparative periods ended
November 30, 1998. The wholesale parts sales decreased $253,000 or 4.6% and
$1,389,000 or 7.8% for the same comparative periods.
The net increase in sales of the CRT division in the nine month period ended
November 30, 1998 is primarily attributable to internal growth of the Company's
newest divisions, Wintron, MII and VDC-Netherlands which added $795,000 and
$2,042,000 for the three and nine months ended November 30, 1998. These
increases for the three and nine months ended November 30, 1998 were offset by
declines of $868,000 and $711,000 in net sales in several of the segments of
the CRT division including data display, projection and television and monitor
CRT sales.
12
<PAGE>
The net decrease in sales of the wholesale electronic parts division is
primarily attributed to decreases in sales to major electronic distributors.
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 was 37.1% for the
nine month period ended November 30, 1998 as compared to 37.4% at November 30,
1997. The gross margins for the comparative quarter decreased from 39.2% to
34.4% for the comparative period ended November 30, 1998.
Operating expenses
- ------------------
Selling and general and administrative expenses increased in the three and nine
months November 30, 1998 as compared to the same periods a year ago. As a
percentage of sales the expenses increased from 24.5% of net sales to 28.3% and
from 25.9% of net sales to 27.6% for the three and nine month comparative
periods. Included in the increases were operating expenses of the recent
acquisitions that were not in the same comparative periods one year ago.
Additionally, expenses related to the start up of a new subsidiary in the
Netherlands as well as other expenses incurred in conjunction with the
acquisitions are reflected in the operating expense increases.
Interest expense
- ----------------
Interest expense decreased $87,000 for the three months and $311,000 for the
nine months ended November 30, 1998 compared to the same periods a year ago.
Although overall debt increased from $10,170,000 to $18,793,000; $7,500,000 was
not borrowed until the Aydin acquisition in mid-November 1998 and therefore has
no interest expense contribution during the comparative periods. Additionally
the interest rate on the original line with the primary bank was renegotiated to
7 1/2% down from 8 3/4%.
Income taxes
- ------------
The Company's effective tax rate for the three and nine months ended November
30, 1998 was 36.4% versus 39.6% and 38.6% versus 37% for the same periods a year
ago. The difference in the effective tax rate is attributable to the
differences in the 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 was been utilized in the first quarter of fiscal 1999 and future
earnings by the Mexican subsidiary will impact the effective tax rate.
Foreign Currency Translation
- ----------------------------
The Company's Mexican subsidiary reports on the basis of the functional currency
as being the US dollar. Any exchange gains or losses due to the actual exchange
of pesos and US dollars is currently reflected in the Company's income
statement. There were no significant gains or losses for the current fiscal
year.
13
<PAGE>
Liquidity and capital resources
- -------------------------------
The Company's working capital was $27,602,000 at November 30, 1998 as compared
to $16,441,000 at February 28, 1998. The increase in working capital includes
increases of $7,558,000 due to the acquisitions during fiscal 1999.
Capital expenditures for fiscal 1999 include costs of expansion. The Company is
constructing a facility in Phelps, NY and has purchased additional land in
Birdsboro, PA and in Bossier City, LA. As of November 1998, $600,000 has been
spent on expansion and an additional $600,000 is estimated to be spent by fiscal
year end. Other capital outlays include approximately $150,000 in computer
equipment and software.
The Company has lines of credit and term loan facilities. The lines are used as
necessary to fund current operations. In the third quarter the Company entered
into an additional borrowing agreement for the acquisition of the assets of the
Display's Division of Aydin Corporation. In addition to the $6,483,000 paid for
the Aydin Display Division assets, the Company paid $400,000 for its acquisition
of Wintron assets, and $50,000 for its acquisition of MII.
The Company will continue to look for opportunities for investment in companies
with products that enhance the Company's existing products and customer base.
During fiscal year 1999, the Company has paid $509,000 to repurchase shares of
its own stock. The buy back program was approved by the Board and as the market
price dictates and funds are available shares are repurchased.
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.
Year 2000 Disclosure
- --------------------
The "Year 2000" issue arose as a result of computer programs that use only the
last two digits, rather than four, to refer to a year. Therefore, if not
corrected, many computer applications could fail or produce erroneous
information.
As a result of this issue, the Company has taken steps to assess at Corporate as
well as subsidiary and branch locations, all existing hardware and software
applications, computerized or date encoded production equipment and other non-
technological systems including but not limited to heating and air conditioning
systems, telephone, voice mail and security systems. The Company has also
surveyed critical suppliers and is in the process of surveying critical
customers.
The assessment stage has been completed within the Company and a determination
of non compliant systems has been made. At this point all hardware and software
has been categorized as critical or noncritical. All critical hardware and
operating systems are compliant, on order, or are up for board
14
<PAGE>
approval for replacement (as is the case for our newest acquisitions in November
1998 and our Fox subsidiary). All non critical hardware and software will be
phased out or replaced by July 1, 1999. Nontechnological systems are compliant
with the exception of certain voice mail systems which will be compliant by
April 1999.
The costs to be incurred by the Company for the upgrades of hardware and
software are estimated to be $345,000 of which $150,000 will be incurred in
fiscal 1998 and the balance in fiscal 1999. Other time for the labor and
management of the project are not tracked separately, but are not estimated to
be material to the profits for the year. A part of these projected costs would
have been incurred regardless of the Year 2000 issue as a part of normal
technological enhancements.
The Company's risks associated with the Year 2000 issue and any potential impact
on future earnings may be affected by our customers' and suppliers' readiness to
meet Year 2000 requirements. The Company has surveyed its critical vendors and
while the responses are still being tallied, it does not appear that there are
any significant Year 2000 issues with these parties. We are still polling our
major customers and will assess those responses by April 1, 1999 though the
Company does not anticipate significant Year 2000 issues with our customers.
Based on the assessments completed this far, the Company expects that should any
of our suppliers and vendors fail to meet Year 2000 requirements, the financial
impact and any resulting liabilities would be minimal. While the Company
expects to be completely compliant by July 1, 1999, it is still in the
development states of its contingency plans should it fail to meet its
requirements.
Forward-looking Information
- ---------------------------
This report contains forward-looking statements and information that is based on
management's beliefs, as well as assumptions made by, and information currently
available to management. When used in this document, the words "anticipate",
"believe", "estimate", "intends", "will", and "expect" and similar expressions
are intended to identify forward-looking statements. Such statements involve a
number of risks and uncertainties. Among the factors that could cause actual
results to differ materially are the following: business conditions, rapid or
unexpected technological changes, product development, inventory risks due to
shifts in product demand, competition, domestic and foreign government
relations, fluctuations in foreign exchange rates, rising costs for components
or unavailability of components, the timing of orders booked, lender
relationships and the risk factors listing from time to time in the Company's
reports filed with the Commission.
Impact of Inflation
- -------------------
Inflation has not had a material effect on the Company's results of operations
to date except for that discussed in the foreign currency section above.
15
<PAGE>
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing litigation
occurred during the quarter ending November 30, 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 filed a report on Form 8-K on December 2, 1998 regarding
the Aydin Displays acquisition. An amended Form 8-K is anticipated for
filing at the end of January 1999 when audited proforma information
will be included on the acquisition.
16
<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 15, 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
17
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<PERIOD-START> MAR-01-1998
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