-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AyTRsiPn5UF861zLOXbcURGDG6/i2oVYJdh1TGTqeO85IQk1EIWFXcR7xsr7e1b9 bqSQVDKe8Cz103zJ6DhusA== 0001021408-99-000045.txt : 19990118 0001021408-99-000045.hdr.sgml : 19990118 ACCESSION NUMBER: 0001021408-99-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIDEO DISPLAY CORP CENTRAL INDEX KEY: 0000758743 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 581217564 STATE OF INCORPORATION: GA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13394 FILM NUMBER: 99507078 BUSINESS ADDRESS: STREET 1: 1868 TUCKER INDUSTRIAL DR CITY: TUCKER STATE: GA ZIP: 30084 BUSINESS PHONE: 4049382080 MAIL ADDRESS: STREET 1: 1868 TUCKER INDUSTRIAL DR STREET 2: 1868 TUCKER INDUSTRIAL DR CITY: TUCKER STATE: GA ZIP: 30084 10-Q 1 FROM 10-Q 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 VIDEO DISPLAY CORPORATION INDEX
Page 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
SIGNATURES 2 VIDEO DISPLAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
November 30, February 28, 1998 1998 UNAUDITED (NOTE A) ------------ -------------- 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 ============= ============
The accompanying notes are an integral part of these statements. 3 VIDEO DISPLAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED LIABILITIES AND SHAREHOLDERS' EQUITY
NOVEMBER 30, February 28, 1998 1998 UNAUDITED (NOTE A) ------------- ------------- 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 =========== ===========
The accompanying notes are an integral part of these statements. 4 VIDEO DISPLAY CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarter Ended November 30, Nine Months Ended November 30, 1998 1997 1998 1997 ------------- ------------- --------------- --------------- 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 =========== =========== =========== ============
The accompanying notes are an integral part of these statements. 5 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
Net Unrealized Loss on Foreign Noncurrent Currency Additional Marketable Common Retained Translation Paid In Equity Stock Earnings Adjustments Capital Securities ------------ ----------- ------------ ---------- --------------- 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) ========== =========== =========== ========== ==============
6 Video Display Corporation STATEMENTS OF CASH FLOWS For the Nine Months ended November 30,
1998 1997 ------------- ------------- 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 ============
The accompanying notes are an integral part of these statements. 7 VIDEO DISPLAY CORPORATION STATEMENTS OF CASH FLOWS For the Nine Months ended November 30,
1998 1997 ---- ---- 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 =========== ==========
The accompanying notes are an integral part of these statements. 8 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.
Inventories consist of: NOVEMBER 30, February 28, 1998 1998 ---- ---- Raw materials $ 5,588,000 $ 2,925,000 Finished goods 21,732,000 18,566,000 ----------- ----------- $27,320,000 $21,491,000 =========== ===========
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 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.
Three months ended Nine months ended November 30, November 30, 1998 1997 1998 1997 ---- ---- --- ---- 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
NOTE D - LONG-TERM DEBT Long-term debt consisted of the following: NOVEMBER 30, February 28, 1998 1998 ---- ---- 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 ============ ============
10 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
NOVEMBER 30, November 30, 1998 1997 ------------ ------------ Cash paid for: Interest $ 242,000 $ 686,000 Income taxes, net of refunds $3,140,000 $1,567,000
11 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:
Fiscal Quarter Nine Months Ended November 30, Ended November 30, 1998 1997 1998 1997 --------- --------- ------ ------------ 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% ===== ===== ===== =====
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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS FEB-28-1999 MAR-01-1998 NOV-30-1998 3,035,000 0 10,286,000 551,000 27,320,000 41,934,000 23,187,000 17,293,000 51,707,000 14,332,000 13,594,000 0 0 3,517,000 19,765,000 51,707,000 42,660,000 42,660,000 26,840,000 38,604,000 (42,000) 0 686,000 3,438,000 1,330,000 1,330,000 0 0 0 1,330,000 $0.54 $0.49
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