<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, 2000 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, 2000
-------------------------- ---------------------------
Common Stock, No Par Value 3,789,567
<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, 2000 and
February 29, 2000 3-4
Consolidated statements of income -
Three months ended May 31, 2000 and 1999 5
Consolidated statements of shareholders' equity -
May 31, 2000 and February 29, 2000 6
Consolidated statements of cash flows - Three months
ended May 31, 2000 and 1999 7-8
Notes to consolidated financial statements -
May 31, 2000 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon its Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
</TABLE>
2
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, February 29,
2000 2000
UNAUDITED (NOTE A)
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,627,000 $ 4,235,000
Notes and accounts receivable, less allowance for
possible losses of $277,000 and $301,000, respectively 9,037,000 8,947,000
Costs and earnings in excess of billings on contracts 591,000 131,000
Inventories (Note B) 28,031,000 25,622,000
Prepaid expenses and other 1,493,000 1,334,000
------------ ------------
Total current assets 43,779,000 40,269,000
Property, plant and equipment:
Land 600,000 540,000
Buildings 5,428,000 4,889,000
Machinery and equipment 16,928,000 15,347,000
------------ ------------
22,956,000 20,776,000
Accumulated depreciation and amortization (14,804,000) (14,572,000)
------------ ------------
8,152,000 6,204,000
Excess of cost over net assets acquired, net of
accumulated amortization of $1,890,000 and
$1,734,000 1,471,000 1,627,000
Deferred taxes 122,000 122,000
Other assets 1,141,000 1,435,000
------------ ------------
Total assets $ 54,665,000 $ 49,657,000
============ ============
</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 29,
2000 2000
UNAUDITED (NOTE A)
----------- -----------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Revolving lines of credit (Note E) $ 8,220,000 $ 6,010,000
Notes payable to banks and officers and shareholders (Note E) 5,383,000 2,400,000
Accounts payable 5,591,000 5,008,000
Accrued liabilities 2,628,000 3,482,000
Current maturities of long-term debt (Note D) 1,507,000 1,507,000
----------- -----------
Total current liabilities 23,329,000 18,407,000
Long-term debt less current maturities (Note D) 6,640,000 6,702,000
Convertible subordinated debentures 1,775,000 1,775,000
Minority interests 158,000 167,000
----------- -----------
Total liabilities 31,902,000 27,051,000
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 3,790,000 2,994,000 2,994,000
Additional paid-in capital 92,000 92,000
Retained earnings 21,161,000 20,921,000
Accumulated other comprehensive income (1,484,000) (1,401,000)
----------- -----------
Total shareholders' equity 22,763,000 22,606,000
----------- -----------
Total liabilities and shareholders' equity $54,665,000 $49,657,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended May 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net sales $16,620,000 $17,526,000
Cost of goods sold 11,455,000 11,899,000
----------- -----------
Gross profit 5,165,000 5,627,000
----------- -----------
Operating expenses
Selling and delivery 1,571,000 1,498,000
General and administrative 2,838,000 3,028,000
----------- -----------
4,409,000 4,526,000
Operating profit 756,000 1,101,000
Other income (expense)
Interest expense (359,000) (383,000)
Other, net (9,000) (77,000)
----------- -----------
(368,000) (460,000)
----------- -----------
Income before minority interest 388,000 641,000
Minority interest 1,000 (7,000)
----------- -----------
Income before income taxes 387,000 648,000
Income taxes 147,000 294,000
----------- -----------
Net income $ 240,000 $ 354,000
=========== ===========
Net income per share - basic $ 0.06 $ 0.09
=========== ===========
Net income per share - diluted $ 0.06 $ 0.09
=========== ===========
Average shares outstanding - basic 3,778,000 3,991,000
=========== ===========
Average shares outstanding - diluted 4,246,000 4,413,000
=========== ===========
</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 29, 2000 and
the Three Months Ended May 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated Current
Additional Other Year
Common Paid-In Retained Comprehensive Comprehensive
Stock Capital Earnings Income Income
------------ ---------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1999 $3,591,000 $92,000 $20,216,000 $(1,536,000) $ ---
Net income for the year --- --- 705,000 --- 705,000
Currency translation adjustment --- --- --- 13,000 13,000
Realized loss on marketable equity securities --- --- --- 100,000 100,000
Unrealized gain on marketable equity
Securities --- --- --- 22,000 22,000
Repurchase of common stock (697,000) --- --- --- ---
Issuance of common stock under stock
option plan 100,000 --- --- --- ---
---------- ------- ----------- ----------- --------
Balance at February 29, 2000 2,994,000 92,000 20,921,000 (1,401,000) 840,000
========
Net income for quarter --- --- 240,000 --- 240,000
Gain on sale of asset --- --- --- 1,000 1,000
Currency translation adjustment --- --- --- (63,000) (63,000)
Unrealized loss on marketable equity
securities --- --- --- (21,000) (21,000)
----------- ------- ----------- ----------- --------
Balance at May 31, 2000 $2,994,000 $92,000 $21,161,000 $(1,484,000) $157,000
=========== ======= =========== =========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended May 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $(1,235,000) $ 265,000
Investing activities
Purchase of property, plant and equipment (705,000) (748,000)
Purchase of common stock of Lexel Imaging Sys, Inc. (3,000,000) --
(Increase) decrease in other assets 241,000 --
----------- -----------
Net cash used in investing activities (3,464,000) (748,000)
Financing activities
Proceeds from long-term debt, notes payable and lines of credit 11,218,000 5,202,000
Proceeds from exercise of stock options --- 100,000
Proceeds from note receivable 26,000 33,000
Payments on long-term debt and lines of credit (6,089,000) (5,199,000)
----------- -----------
Net cash provided by financing activities 5,155,000 136,000
Effect of exchange rates on cash (64,000) (16,000)
----------- -----------
Net increase (decrease) in cash 392,000 (363,000)
Cash, beginning of period 4,235,000 2,150,000
----------- -----------
Cash, end of period $ 4,627,000 $ 1,787,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months ended May 31,
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Reconciliation of Net Earnings from Continuing
Operations to Net Cash Provided by (Used in)
Operating Activities
Net earnings from continuing operations $ 240,000 $ 354,000
Adjustments to reconcile net earnings to net cash provided
by operations:
Depreciation and amortization 389,000 560,000
Amortized interest on note receivable --- (9,000)
Change in allowance for doubtful accounts (24,000) 1,000
Unrealized loss on equity investment --- 71,000
Changes in operating assets and liabilities net of effects
from acquisitions:
Accounts receivable (526,000) (1,310,000)
Inventory 281,000 90,000
Prepaid expenses (159,000) 502,000
Accounts payable and accrued expenses (1,436,000) 6,000
----------- -----------
Net cash provided by (used in) continuing operations $(1,235,000) $ 265,000
=========== ===========
</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 29, 2000 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, 2000 and the Consolidated Statement of earnings for the three months
ended May 31, 2000 and 1999.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market.
Inventories consisted of:
<TABLE>
<CAPTION>
May 31, February 29,
2000 2000
----------- ------------
<S> <C> <C>
Raw materials $ 2,922,000 $ 4,262,000
Finished goods 25,109,000 21,360,000
----------- -----------
$28,031,000 $25,622,000
=========== ===========
</TABLE>
NOTE C - ACQUISITION
In May 2000, the Company acquired the common stock of Lexel Imaging Systems,
Inc. ("Lexel") of Lexington, Kentucky for a purchase price of $3,000,000. The
effective date of the transaction was March 31, 2000. The purchase price was
financed by unsecured debt with an interest rate of LIBOR plus 2%. The note is
for 120 days and is guaranteed by an officer of the Corporation.
The following table summarizes the unaudited pro forma consolidated results of
operations of the Company, assuming the acquisition 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 acquisition
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.
9
<PAGE>
Video Display Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - ACQUISITION (Continued)
<TABLE>
<CAPTION>
First Quarter Ended May 31,
2000 1999
------------- -------------
<S> <C> <C>
Net sales $17,581,000 $20,383,000
Earnings from operations 922,000 1,366,000
Net earnings 408,000 628,000
Basic earnings per share $ 0.11 $ 0.16
=========== ===========
Diluted earnings per share $ 0.10 $ 0.15
=========== ===========
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following: May 31, February 29,
2000 2000
---------- ------------
Term loan facility; floating interest rate based on an
adjusted LIBOR rate (9.00% as of May 31, 2000),
quarterly principal payments commencing November 1999
and maturing November 2005; collateralized by assets of
Aydin Displays, Inc. $ 6,875,000 $ 6,875,000
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. 704,000 774,000
Other 568,000 560,000
----------- -----------
$ 8,147,000 $ 8,209,000
Less current portion 1,507,000 1,507,000
----------- -----------
$ 6,640,000 $ 6,702,000
=========== ===========
</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 September 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. In May 1999, the
Company increased the Primary Line by $1,000,000 to $5,500,000. The Secondary
Line was extended to July 31, 2000 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, 2000, the outstanding balances on the
Primary Line and Secondary Line were $5,100,000 and $3,120,000, respectively.
The additional availability under the Primary and Secondary Lines were $400,000
and $151,000, respectively, as of May 31, 2000. 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, there are certain restrictions relating to dividend payments,
capital expenditures and acquisitions.
In May 2000, the Company entered into $3,000,000 note payable with its primary
bank to finance the acquisition of Lexel as discussed in Note C above. The 120
day note has a stated interest rate of LIBOR (7.50%) plus 2%. The note is
guaranteed by the CEO of the Company.
The Company is in the process of renegotiating the debt with its primary bank.
The intent is to consolidate its current operating line of credit and the newest
acquisition line of credit into one line of credit. The Company does not
anticipate problems renewing the lines of credit with its banks.
NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
May 31, May 31,
2000 1999
-------- --------
<S> <C> <C>
Cash paid for:
Interest $359,000 $383,000
======== ========
Income taxes, net of refunds $466,000 $285,000
======== ========
</TABLE>
NOTE G - SUBSEQUENT EVENTS
In June 2000, the Company acquired the assets and assumed certain liabilities of
the Electro Optical division of Imaging and Sensing Technology of Horseheads,
New York. The purchase price was $1,478,000 and was primarily funded by debt
from the CEO of the Company at an interest rate of Prime (9.5%) plus 1%.
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, 2000 and
1999, the percentages which selected items in the Statements of Income bear to
total revenues:
Three Months Ended May 31,
2000 1999
---- ----
Sales
CRT and components $12,661,000 76.2% $12,870,000 73.4%
Wholesale electronic parts 3,959,000 23.8 4,656,000 26.6
----------- ----- ----------- -----
16,620,000 100.0% 17,526,000 100.0%
----------- ----- ----------- -----
Cost and expenses
Cost of goods sold 11,455,000 68.9 11,899,000 67.9
Selling and delivery 1,571,000 9.5 1,498,000 8.5
General and administrative 2,838,000 17.1 3,028,000 17.3
----------- ----- ----------- -----
15,864,000 95.5 16,425,000 93.7
Income from Operations 756,000 4.5 1,101,000 6.3
Interest expense (359,000) (2.2) (383,000) (2.2)
Other income (expense) (10,000) (--) (70,000) (0.4)
----------- ----- ----------- -----
Income before income taxes 387,000 2.3 648,000 3.7
Provision for income taxes 147,000 0.9 294,000 1.7
----------- ----- ----------- -----
Net income $ 240,000 1.4% $ 354,000 2.0%
=========== ===== =========== =====
Net Sales
---------
Consolidated net sales decreased 5.2% or $906,000 for the three months ended May
31, 2000 as compared to the same period one year ago. CRT division sales were
down 1.6% or $209,000 and the wholesale consumer electronic parts division sales
were down 15.0% or $697,000.
CRT division sales included an increase of $1,304,000 over the three month
period a year ago due to the acquisition of Lexel Imaging Systems, Inc.
Offsetting declines of $1,513,000 includes declines in Data Display sales of
$122,000; Entertainment sales of $621,000; and Monitors of $978,000; with an
increase in Component Parts of $208,000.
The decline in Entertainment sales continues to reflect the decline in sales to
major television retailers. The television retailer sales, particularly the
extended warranty sales, as well as tube size, directly impact the Entertainment
division sales.
12
<PAGE>
The decline in the Monitor segment of $978,000 is primarily attributed to a
decrease of $952,000 in revenues of commercial monitors due to extended lead
times incurred during the internal manufacturing reorganization subsequent to
the Aydin acquisition. These lead times have been reduced during the third and
fourth quarters of fiscal 2000 and it is anticipated that these revenues will
return to normal levels in the latter half of fiscal 2001.
The decline in wholesale Consumer Parts segment is attributed to the sale of the
Vanco International, Inc. subsidiary in September 1999. Offsetting increases in
revenues of $255,000 are attributed to increased sales in the Fire and Safety
product line.
Gross margins
-------------
Consolidated gross profit margins decreased from 32.1% to 31.1% for the quarter
May 31, 2000 compared to May 31, 1999. The CRT division posted an increase from
29.6% to 31.2% while the wholesale consumer parts division decreased from 39.1%
to 30.7% for the comparable periods.
CRT division margins reflect a reduction of overhead costs within the Monitor
segment due to the consolidation of manufacturing facilities after the Aydin
acquisition in the third quarter of fiscal 1999.
Wholesale Consumer Parts margins were lower due to lower margins realized on the
Fire & Safety product line sales and due to an increase of sales to
distributors.
Operating expenses
------------------
Operating expenses decreased $117,000 or 2.6% from a year ago. Included in the
operating expenses were expenses incurred by the new locations of $331,000 and
reductions of expenses due to the Vanco sale of $337,000.
Interest expense
----------------
Interest expense decreased $24,000 in the first quarter of fiscal 2001 compared
to the first quarter of fiscal 2000. Overall, outstanding debt is higher as of
May 31, 2000 by $2,321,000 over May 31, 1999 balances. However, included in
this amount is $3,000,000 that was not borrowed until late in the first quarter
for the Lexel acquisition. The offsetting decline in other debt of $679,000
accounts for the remaining decrease.
Income taxes
------------
The effective tax rate for the first quarter of fiscal 2001 was 38% compared to
45% for the same period one year ago. The major portion of this decrease is
related to the losses incurred in the first quarter of fiscal 2000 by the
Company's European subsidiaries for which a benefit had not been reflected.
Foreign currencies
------------------
During 1998 the Company began reporting its Mexican subsidiary on the basis that
the functional currency is the U.S. 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.
13
<PAGE>
Liquidity and capital resources
-------------------------------
The Company's working capital was $20,450,000 at May 31, 2000 compared to
$27,693,000 at May 31, 1999. $8,100,000 of the decrease of $7,272,000 is due to
the reclassification of the company's line of credit which matures in July 2000.
Additionally, the Company increased its working capital $1,836,000 through the
acquisition of Lexel Imaging Systems, Inc. The balance of the decrease 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 expenditures, excluding
acquisitions, for fiscal 2001.
14
<PAGE>
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing litigation
occurred during the quarter ended May 31, 2000.
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 May 17, 2000 regarding the
acquisition of Lexel Imaging Systems, Inc. An amended Form 8-K will be
filed, which will include audited proforma information, when applicable
financial information is gathered.
15
<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 17, 2000 By: /s/ Ronald D. Ordway
__________________________________
Ronald D. Ordway
Chief Executive Officer
By: /s/ Carol D. Franklin
__________________________________
Carol D. Franklin
Chief Financial Officer and Secretary
