<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, 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 November 30, 2000
-------------------------- --------------------------------
Common Stock, No Par Value 3,799,067
<PAGE>
VIDEO DISPLAY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated balance sheets - November 30, 2000 and
February 29, 2000 3-4
Consolidated statements of income -
Fiscal quarter and nine months ended November 30, 2000 and 1999 5
Consolidated statements of shareholders' equity and comprehensive income -
Twelve months ended February 29, 2000 and the nine months
ended November 30, 2000 6
Consolidated statements of cash flows - nine months
ended November 30, 2000 and November 30, 1999 7-8
Notes to consolidated financial statements -
November 30, 2000 9-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon its Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
SIGNATURES
2
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30, February 29,
2000 2000
UNAUDITED (NOTE A)
--------------------- --------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 3,610,000 $ 4,235,000
Notes and accounts receivable, less allowance for
possible losses of $258,000 and $495,000 11,370,000 8,947,000
Costs and earnings in excess of billings on contracts 641,000 131,000
Inventories (Note B) 29,823,000 25,622,000
Prepaid expenses 1,575,000 1,334,000
-------------------- -----------------
Total current assets 47,019,000 40,269,000
Property, plant and equipment:
Land 600,000 540,000
Buildings 5,435,000 4,889,000
Machinery and equipment 17,673,000 15,347,000
-------------------- -----------------
23,708,000 20,776,000
Accumulated depreciation and amortization (15,404,000) (14,572,000)
-------------------- -----------------
8,304,000 6,204,000
Excess of cost over net assets acquired, net of
accumulated amortization of $2,018,000 and $1,734,000 1,343,000 1,627,000
Deferred income taxes 122,000 122,000
Other assets 1,041,000 1,435,000
-------------------- -----------------
Total assets $ 57,829,000 $ 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>
November 30, February 29,
2000 2000
UNAUDITED (NOTE A)
-------------------- -----------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Revolving lines of credit and short-term debt (Note E) $ 11,610,000 $ 6,010,000
Notes payable to officers and shareholders (Note E) 3,763,000 2,400,000
Accounts payable 7,040,000 5,008,000
Accrued liabilities 3,179,000 3,482,000
Current maturities of long-term debt (Note D) 1,507,000 1,507,000
-------------------- -----------------
Total current liabilities 27,099,000 18,407,000
Long-term debt less current maturities (Note D) 5,574,000 6,702,000
Convertible subordinated debentures 1,775,000 1,775,000
Minority interests 154,000 167,000
-------------------- -----------------
Total liabilities 34,602,000 27,051,000
-------------------- -----------------
Commitments and contingencies --- ---
Shareholders' equity
Preferred stock, no par value - 2,000,000 shares
authorized; none issued and outstanding --- ---
Common stock, no par value - 10,000,000 shares
authorized; 3,799,000 issued and outstanding 3,034,000 2,994,000
Additional paid in capital 92,000 92,000
Retained earnings 21,619,000 20,921,000
Accumulated other comprehensive income (1,518,000) (1,401,000)
-------------------- -----------------
Total shareholders' equity 23,227,000 22,606,000
-------------------- -----------------
Total liabilities and shareholders' equity $ 57,829,000 $ 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
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended November 30, Nine Months Ended November 30,
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 18,959,000 $ 14,565,000 $ 53,640,000 $ 47,797,000
Cost of goods sold 13,664,000 10,063,000 37,472,000 32,855,000
------------ ------------ ------------- ------------
Gross profit 5,295,000 4,502,000 16,168,000 14,942,000
Operating expenses
Selling and delivery 1,606,000 814,000 4,809,000 3,764,000
General and administrative 2,967,000 3,314,000 8,652,000 9,253,000
------------ ------------ ------------- ------------
4,573,000 4,128,000 13,461,000 13,017,000
Operating profit 722,000 374,000 2,707,000 1,925,000
Other income (expense)
Interest expense (545,000) (404,000) (1,488,000) (1,161,000)
Gain on sale of subsidiary -- 436,000 -- 436,000
Other, net 95,000 33,000 (96,000) (88,000)
------------ ------------ ------------- ------------
(450,000) 65,000 (1,584,000) (813,000)
Income (loss) before minority interest 272,000 439,000 1,123,000 1,112,000
Minority interest expense (income) (1,000) (2,000) (3,000) (13,000)
------------ ------------ ------------- ------------
Income before income taxes 273,000 441,000 1,126,000 1,125,000
Income tax expense (benefit) 117,000 12,000 428,000 251,000
------------ ------------ ------------- ------------
Net Income $ 156,000 $ 429,000 $ 698,000 $ 874,000
============ ============ ============= ============
Basic earnings per share of common stock $ 0.04 $ 0.11 $ 0.19 $ 0.22
============ ============ ============= ============
Diluted earnings per share of common stock $ 0.04 $ 0.11 $ 0.18 $ 0.22
============ ============ ============= ============
Basic weighted average shares outstanding 3,695,000 3,969,000 3,695,000 3,969,000
============ ============ ============= ============
Diluted weighted average shares outstanding 4,162,000 4,392,000 4,162,000 4,392,000
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
For the Twelve Months Ended February 29, 2000 and
the Nine Months Ended November 30, 2000
<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, 1999 $3,591,000 $20,216,000 $(1,536,000) $ 92,000 $ ---
Net income for the year --- 705,000 --- --- 705,000
Unrealized gain on marketable equity
securities --- --- 22,000 --- 22,000
Realized loss on marketable equity
securities --- --- 100,000 --- 100,000
Currency translation adjustment --- --- 13,000 --- 13,000
Issuance of common stock under stock
option plan 100,000 --- --- --- ---
Repurchase of common stock (697,000) --- --- --- ---
---------- ----------- ----------- --------- --------------
Balance at February 29, 2000 $2,994,000 $20,921,000 $(1,401,000) $ 92,000 $ 840,000
Net income for the period --- 698,000 --- --- 698,000
Issuance of common stock under stock
option plan 40,000
Currency translation adjustment --- --- (87,000) --- (87,000)
Unrealized loss on marketable equity
securities --- --- (30,000) --- (30,000)
---------- ----------- ----------- --------- --------------
Balance at November 30, 2000 $3,034,000 $21,619,000 $(1,518,000) $ 92,000 $ 581,000
========== =========== =========== ========= ==============
</TABLE>
6
<PAGE>
Video Display Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine months ended November 30,
<TABLE>
<CAPTION>
2000 1999
------------------- ----------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (450,000) $ 1,989,000
------------------- ----------------
Investing activities
Purchase of property, plant, and equipment (1,238,000) (897,000)
Purchase of stock of Lexel Imaging Systems, Inc. (3,000,000) --
Purchase of assets of IST (1,598,000) --
Purchase of assets of Raytheon, Inc. (560,000) --
Increase in other assets 394,000 18,000
------------------- ----------------
Net cash used in investing activities (6,002,000) (879,000)
------------------- ----------------
Financing activities
Proceeds from long-term debt and lines of credit 28,064,000 5,308,000
Proceeds from exercise of stock option 41,000 100,000
Proceeds on note receivable 68,000 29,000
Payments on long-term debt and lines of credit (22,229,000) (5,692,000)
------------------- ----------------
Net cash provided (used) in financing activities 5,944,000 (255,000)
------------------- ----------------
Effect of exchange rates on cash (117,000) 11,000
------------------- ----------------
Net increase (decrease) in cash (625,000) 866,000
Cash, beginning of period 4,235,000 2,150,000
------------------- ----------------
Cash, end of period $ 3,610,000 $ 3,016,000
=================== ================
</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 Nine Months ended November 30,
<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 $ 698,000 $ 445,000
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation and amortization 1,116,000 762,000
Amortized interest on note receivable --- (18,000)
Decrease in allowance for doubtful accounts (237,000) 2,000
Unrealized loss on equity investment --- 103,000
Changes in working capital, net of effects
from acquisitions:
Accounts receivable (1,966,000) (1,137,000)
Inventories 253,000 1,581,000
Prepaid expenses (241,000) 396,000
Accounts payable and accrued expenses (60,000) (145,000)
Minority interests (13,000) ---
------------------- -----------------
Net cash provided by (used in) continuing operations $ (450,000) $ 1,989,000
=================== =================
</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
November 30, 2000 and the Consolidated Statement of Earnings for the nine months
ended November 30, 2000 and 1999.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market.
Inventories consist of:
November 30, February 29,
2000 2000
------------- ------------
Raw materials $ 4,642,000 $ 4,262,000
Finished goods 25,181,000 21,360,000
------------- ------------
$ 29,823,000 $ 25,622,000
============= ============
NOTE C - ACQUISITIONS
In May 2000, the Company purchased the common stock of Lexel Imaging Systems,
Inc. ("Lexel") and in June 2000 the Company purchased certain assets and assumed
certain liabilities of the electro optical division of Imaging and Sensing
Technology ("IST"). The Company paid $3,000,000 and $1,598,000 for Lexel and
IST, respectively. The purchase price for Lexel was financed by short-term,
unsecured debt, guaranteed by an officer of the Corporation with a stated
interest rate of LIBOR plus 2%. The IST purchase price was financed by a demand
note payable with an officer of the Corporation with a stated interest rate of
prime plus 1%. Both of these notes were entered into with the intent to be
consolidated into one facility at the time of the Primary line of credit
refinancing.
9
<PAGE>
Video Display Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In September 2000, the Company acquired, through its Lexel subsidiary, the
cathode ray tube manufacturing operations of Raytheon Company. The operations
are being consolidated into the Lexel facility based in Lexington, KY. The
Company paid cash consideration from its Primary Line in the amount of $560,000.
The purchase price includes a four year declining royalty payment based on net
revenues collected during that period.
All of the above transactions have been accounted for under the purchase method
of accounting and the results of operations of the acquired businesses since
their acquisition dates have been included in the consolidated financial
statements.
The following table summarizes the unaudited pro forma consolidated results of
operations of the Company, assuming the acquisitions had occurred at the
beginning of the following fiscal periods. 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,
2000 1999 2000 1999
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 18,959,000 $ 16,385,000 $ 53,669,000 $ 55,187,000
Earnings from continuing operations 722,000 931,000 2,988,000 2,881,000
Net earnings $ 156,000 $ 991,000 $ 982,000 $ 1,836,000
============ ============= ============ ============
Basic earnings per share $ .04 $ 0.25 $ .27 $ 0.46
============ ============= ============ ============
Diluted earnings per share $ .04 $ 0.23 $ .25 $ 0.42
============ ============= ============ ============
</TABLE>
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
November 30, February 29,
2000 2000
----------------- --------------
<S> <C> <C>
Term loan facility; floating interest rate based on an adjusted LIBOR
rate (9.5% as of November 2000), quarterly principal payments
commencing November 1999 and maturing November 2005;
collateralized by assets of Aydin Display, Inc. $ 5,938,000 $ 6,875,000
Mortgage payable to bank; monthly principal payments of $13,000
plus interest not to exceed 7.5% and maturing December 2003;
collateralized by land and building. 682,000 715,000
Other 461,000 619,000
----------------- --------------
$ 7,081,000 $ 8,209,000
Less current portion 1,507,000 $ 1,507,000
----------------- --------------
$ 5,574,000 $ 6,702,000
================= ==============
</TABLE>
10
<PAGE>
NOTE E - LINES OF CREDIT AND SHORT-TERM DEBT
During early 1998, the Company refinanced its loan agreement ("Agreement") to
provide for a $4,500,000 (increased to $5,500,000 in May 1999) 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 February 1,
2001 and to lower the interest rate to a fixed rate of 7.25% per annum. The
commitment fee of 0.5% 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 December 29, 2000
with the interest rate and all other terms remaining the same, including a
commitment fee of 0.5% charged on the unused portion. Borrowings under the Lines
are limited by eligible accounts receivable and inventory, as defined. As of
November 30, 2000, the outstanding balances on the Primary Line and Secondary
Line were $5,266,000 and $3,120,000, respectively. The additional availability
under the Primary and Secondary Lines were $234,000 and $226,000, respectively,
as of November 30, 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, dividend payments,
capital expenditures and acquisitions have certain restrictions. Subsequent to
November 30, 2000, the Company has renegotiated its Secondary Line to extend the
loan until July 31, 2001. Advance rates were lowered 5% for both receivables and
inventory. The maximum loan amount remains the same. Under the new terms, the
maximum available to borrow remains at $3,500,000.
In May 2000, the Company entered into a $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 (6.5% as of November 30, 2000) plus
2%. The note is guaranteed by the CEO of the Company. The note was extended to
February 1, 2001.
In June 2000, the Company borrowed an additional $1,400,000 from the CEO to
assist with the acquisition of the electro optics division of IST. As of
November 30, 2000, the Company owes the CEO $3,600,000. During the second
quarter of fiscal 2001, the Company repaid $17,000 on a note payable to a
Director, leaving a balance of $183,000 at November 30, 2000.
In September 2000, the Company signed a letter of intent with its primary bank
to consolidate its existing Primary Line and the $3,000,000 Lexel acquisition
loan into one $10,000,000 credit facility. The interest rate will be based on a
floating LIBOR rate based on a debt to EBITDA ratio. The effective rate at the
date of commitment was 9.375%. The note will mature July 1, 2003. The principal
balance will be reduced by $500,000 on July 1, 2001 and $500,000 on July 1,
2002. Advance rates will remain the same as under the previous line and included
is a commitment fee for the unused portion of 0.25%. The Company does not
anticipate any problems in closing this transaction.
11
<PAGE>
Video Display Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION
November 30, February 29,
2000 2000
-------------- -------------
Cash paid for:
Interest $ 1,488,000 $ 1,426,000
============== =============
Income taxes, net of refunds $ 1,306,000 $ (121,000)
============== =============
NOTE G - SUBSEQUENT EVENT
In December 2000, the Company announced that it had reached an agreement to
acquire the cathode ray tube ("CRT") operations of the former Datagraphix
business unit of Anacomp. The equipment, inventories, and other assets of the
CRT division will be integrated into the Company's Lexington, KY location, Lexel
Imaging Systems.
The Company paid cash consideration of $200,000 funded by its Primary Line.
12
<PAGE>
Video Display Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 and nine months ended
November 30, 2000 and 1999, the percentages which selected items in the
Statements of Income bear to total revenues:
Fiscal Quarter Nine Months
Ended November 30, Ended November 30,
2000 1999 2000 1999
---------------------------------------
Sales
CRT and components 81.5% 74.5% 79.4% 73.3%
Wholesale electronic parts 18.5 25.5 20.6 26.7
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
Costs and expenses
Cost of goods sold 72.1% 69.1% 69.9% 68.7%
Selling and delivery 8.5 5.6 9.0 7.9
General and administrative 15.6 22.8 16.1 19.4
------ ------ ------ ------
96.2 97.5 95.0 96.0
Income from Operations 3.8 2.5 5.0 4.0
Interest expense (2.9) (2.7) (2.8) (2.4)
Other income (expense) 0.5 3.2 (0.2) 0.8
------ ------ ------ ------
Income before income taxes 1.4 3.0 2.0 2.4
Provision for income taxes (0.6) 0.1 0.7 0.6
------ ------ ------ ------
Net income 0.8% 2.9% 1.3% 1.8%
====== ====== ====== ======
Net Sales
---------
Consolidated net sales increased $4,394,000 or 30.2% and $5,843,000 or 12.2% for
the three and nine months ended November 30, 2000 as compared to the same
periods ended November 30, 1999. CRT division sales were up $4,592,000 or 42.3%
and $7,541,000 or 21.5% for the three and nine month comparative periods. The
wholesale consumer electronic parts division sales were down $198,000 or 5.3%
and $1,698,000 or 13.3% for the same comparative periods.
13
<PAGE>
The net increase in CRT division sales is primarily attributed to growth within
the display and monitor segments. The Company's newest locations within these
segments, Display Systems in Florida and Lexel Imaging Systems in Kentucky added
$3,921,000 and $9,268,000 for the three and nine months ended November 30, 2000.
Additional increases for the quarter ended November 30, 2000 as compared to
November 30, 1999 included contributions from other locations within the display
and monitor segments of $172,000 and $1,020,000, respectively. Offsetting
decreases were realized by the entertainment and component parts segments of
$400,000 and $111,000, respectively. The nine month comparative figures for the
CRT division includes offsetting declines, excluding the Florida and Kentucky
operations, of $1,719,000. The entertainment segment comprises the majority of
this balance with $1,437,000 fewer revenues reported for the nine months ended
November 30, 2000 as compared to the same period a year ago. This decline
reflects the decline in sales to major television retailers. Television retail
sales, particularly extended warranty sales to end user consumers as well as the
size of sets sold, negatively impacted the entertainment division sales.
The decline in the wholesale consumer parts segment of $198,000 and $1,698,000
for the three and nine month comparative periods ended November 30, 2000 versus
November 30, 1999 is attributed primarily to the sale of Vanco International,
Inc. ("Vanco"), a former subsidiary, in September 1999. The impact on sales is a
decline of $295,000 and $2,120,000 for the three month and nine month periods
ended November 30, 2000 as compared to November 30, 1999. Offsetting net
increases of $97,000 and $432,000 were recognized by the Fox International Ltd.,
Inc. subsidiary. Included in these increases for the three and nine month
comparative periods is $412,000 and $1,036,000 of sales to a major electronics
distributor. The offsetting decreases of $315,000 and $604,000 for the three and
nine months ended November 30, 2000 as compared to one year ago are a result of
a slow down in sales to smaller distributers and end user consumers.
Gross margins
-------------
Consolidated gross margins decreased from 31.3% to 30.1% for the nine months
ended November 30, 2000 as compared to the nine months ended November 30, 1999.
CRT division margins decreased from 29.6% to 29.2% and wholesale electronic
parts division margins decreased from 35.9% to 33.7% for the same comparative
periods.
The slight decline in margins within the CRT division resulted from the
increases in the monitor segment due to the Company's recent acquisition, Lexel,
whose gross margin rates are lower than the other CRT division locations. Also
included in the reduced margins are costs incurred due to the incorporation and
consolidation of the IST business acquired in June into the Lexington, KY
facility. The Company will have additional expenses in the fourth quarter with
the incorporation of the Raytheon and Anacomp businesses but with much less
anticipated impact.
The wholesale consumer parts division margins are down in part due to the
exclusion of Vanco in fiscal 2001. Additionally, there were declines in margins
realized on the fire and safety product line as selling prices were reduced to
move some older, slower moving merchandise. Lastly, margins on the increased
sales to the major electronics distributor are lower than to other retail
customers.
Operating expenses
------------------
Operating expenses as a percentage of sales decreased from 28.4% to 24.1% and
from 27.3% to 25.1% for the three and nine month comparative periods ended
November 30, 2000.
14
<PAGE>
The CRT division operating expenses increased $1,769,000 for the nine months
ended November 30, 2000 as compared to November 30, 1999. Included in these
increases were expenses for the Florida and Kentucky operations of $1,041,000
that were not present in the previous year.
The wholesale consumer parts division reduced operating expenses $1,325,000 in
the nine month comparative period ended November 30, 2000 as compared to a year
ago. Included in this reduction is the elimination of operating expenses from
Vanco of $866,000. Additionally, the remaining subsidiary within the division
has eliminated two locations and reduced personnel at the home office.
Interest expense
----------------
Interest expense increased $141,000 and $327,000 for the three and nine month
comparative periods ended November 30, 2000 as compared to November 30, 1999.
The majority of the increase is attributed to the increase in debt for the two
comparative periods of $4,896,000 as well as the increase in interest rates. The
increases in debt are attributed to the recent business acquisitions.
Income taxes
------------
The effective tax rate for the nine months ended November 30, 2000 was 38% as
compared to 22.3% for the same period one year ago. There was a tax benefit of
10.9% reflected in the nine months ended November 30, 1999 attributed to a
capital loss carry forward that was applied to offset the $432,000 capital gain
realized on the sale of the Company's subsidiary, Vanco, in that year.
Additional benefits from foreign operation losses were also reflected in the
prior year's effective 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 are currently reflected in the Company's income
statement. There were no significant gains or losses for the current fiscal
year.
Liquidity and capital resources
-------------------------------
Working capital declined from $21,862,000 at February 29, 2000 to $19,920,000 at
November 30, 2000. The majority of the impact results from the use of short term
debt used to finance recent business acquisitions.
The Company entered into short-term debt arrangements in order to complete the
recent acquisitions of Lexel and IST with the intent to consolidate these notes
during the renewal of the Company's existing Primary Line during the second
quarter of fiscal 2001. The short-term notes and Primary Line were extended to
February 1, 2001 in order to complete the renewal with the Company's primary
bank. In September 2000, the Company reached an agreement to increase its
current line to $10,000,000 at a floating interest rate based on LIBOR. The
effective rate will be 9.375% based on LIBOR at the date of commitment. The note
will mature on July 1, 2003, and has a decreasing principal of $500,000 on July
1, 2001 and $500,000 on July 1, 2002. The note includes advance rates based on
available eligible receivables and inventory as well as the collateral of
certain real estate and equipment. Included in the agreement is an unused
commitment fee of 0.25% payable quarterly. The Secondary Line was extended to
December 29, 2000, and then subsequently to July 31, 2001.
15
<PAGE>
The Company does not anticipate any significant capital investments for the
balance of fiscal 2001.
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 listed from time to time in
the Company's reports filed with the Commission.
16
<PAGE>
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing
litigation occurred during the quarter ended November 30, 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 did not file any reports on Form 8-K during the
quarter ended November 30, 2000.
17
<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 11, 2001 By: /s/ Ronald D. Ordway
-------------------------------
Ronald D. Ordway
Chief Executive Officer
By: /s/ Carol D. Franklin
-------------------------------
Carol D. Franklin
Chief Financial Officer and Secretary
