VIDEO DISPLAY CORP - 10-K Annual Report

Financial Statements:

Index to Consolidated Financial Statements.

Financial Statement Schedule:

Index to Consolidated Financial Statements Schedule.

VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified in its charter)

1868 Tucker Industrial Drive, Tucker, Georgia 30084
(address of principal executive offices and zip code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) 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 ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

The aggregate market value of the voting stock held by non-affiliates of the registrant at May 13, 2002 is $17,023,000.

The number of shares outstanding of the registrant's Common Stock as of May 13, 2002 is 4,748,748.

Certain exhibits which were filed with the Securities and Exchange Commission as part of the registrant's Registration Statement on Form S-18 (Commission File No. 2-94626-A) are incorporated by reference into Part IV.

Portions of the proxy statement for the annual 2002 shareholders meeting are incorporated by reference into Part III.

Video Display Corporation (the "Company") is a leading supplier of a complete range of display products and component parts for the display industry. Its product line consists of a wide variety of electron optic parts for original equipment manufacturers ("OEMs"), cathode ray tubes ("CRTs") and monitor manufacturers. The Company manufactures monochrome and color CRTs for medical, military, industrial and television applications and high and low-end monochrome and color CRT and AMLCD monitor displays for specialty high-performance and ruggedized requirements. The Company also acts as a wholesale distributor of electronic parts and CRTs purchased from domestic and foreign manufacturers. The Company's operations are principally located in the U.S.; however, the Company does have subsidiary operations located in Mexico and the United Kingdom.

The Company began operations in 1975 in Stone Mountain, Georgia manufacturing and recycling replacement CRTs for color and black/white television sets. Beginning in 1983, with the growth of the computer industry, the Company expanded to meet the needs of the replacement market for computer monitors and other data display screens by acquiring production equipment and customers from other smaller CRT remanufacturers. Today, the Company with its plants in Louisiana, Pennsylvania, Georgia, Texas, New York, Connecticut, Florida, Massachusetts, Kentucky, California, Mexico, and Lye, U.K. combine to form an international display manufacturing and display replacement parts distribution network for military, medical, training simulation and other niche market display applications.

In November 2001, the Company acquired the Marquee™ line of CRT projectors from Christie Digital Systems Canada Inc. ("Christie"). These assets were transferred to the Company's subsidiary, VDC Display Systems ("Display Systems") of Cape Canaveral, Florida and compliment Display System's position in the simulation, virtual reality, home theater and other specialized markets.

In June 2001, the Company acquired the common stock of XKD Corporation ("XKD") of San Jose, California. XKD is a manufacturer of high-resolution displays used for training, simulation, ruggedized military/industrial, and instrumentation applications.

In May 2000, the Company acquired the common stock of Lexel Imaging Systems, Inc. ("Lexel") of Lexington, Kentucky. Lexel manufactures a wide range of CRT storage tubes and other complete visual displays for commercial and military programs.

In June 2000, the Company acquired certain assets of the Electro Optical division of Imaging and Sensing Technology ("IST") in Horseheads, New York. IST provides a product line that includes specialty CRTs and complete visual displays used to produce computer-generated graphics, high quality photography and medical diagnostic images. The acquired assets of IST were integrated into Lexel's Lexington, Kentucky facility.

In September and December 2000, the company acquired the CRT operations of the Raytheon Corporation and the assets of the former Datagraphix business unit of Anacomp, respectively. These operations were consolidated into Lexel's facility in the latter part of fiscal 2001.

During fiscal 2000, in order to support the data display segment, the Company opened offices in Cape Canaveral, Florida and Wolcott, Connecticut. The Florida location, Display Systems, provides custom CRT solutions for training rooms, board rooms, teleconferencing, flight training simulators, command and control centers, air traffic control, ship simulators, process status displays and integrated home theater. The Wolcott, Connecticut location ("VDC Wolcott") offers high-resolution monochrome displays for use in medical and military applications.

During fiscal 1999, the Company acquired the assets and assumed certain liabilities of the U.S. and U.K. Display Divisions of Aydin Corporation ("Aydin"); acquired 100% of the outstanding common stock of Mengel Industries, Inc. ("MII"); and acquired the net assets of both Wintron, Inc. ("Wintron") and MegaScan Corporation ("MegaScan"). Aydin offers a complete line of high-resolution commercial and ruggedized CRT monitors, AMLCD flat panel displays and monitors used by the public and private sector industries including medical diagnostic or treatment centers, utility and financial companies, and the military industry. MII supplies independent, OEM and hospital service personnel with CRTs, camera tubes and other components for medical imaging within the healthcare industry. Wintron manufactures high quality, custom-designed deflection components, high voltage power supplies, coils and flyback transformers and other CRT drive circuitry for airborne, commercial and military applications. MegaScan offers a specialty line of high-resolution monochrome CRT monitors to the medical display industry.

In fiscal 1996, the Company acquired the assets and assumed certain of the liabilities of Teltron Technologies, Inc. ("Teltron") and the stock of Z-Axis, Inc. ("Z-Axis"). Teltron is involved in the development and production of new and recycled camera and CRTs and special purpose sensors. Teltron's products are used in camera tube applications including nuclear inspection, UV sensing, x-ray and astronomy; military applications including avionics instrument displays, marine radar displays, helmet mounted displays, vehicular displays, and target monitoring image tubes; and in CRT applications including OEM displays, flying spot scanners, photo typesetting and electrostatic deflection tube applications. Z-Axis is involved in the design and production of color and monochrome video display monitors. Z-Axis' monitors are used in industrial control, medical instruments, test equipment, visual aid devices, on-board tracking systems, point-of-sale terminals and naval tactical displays.

The Company, through Southwest Vacuum Devices, Inc. ("Southwest Vacuum") located in Tucker, Georgia, is involved in the manufacturing, marketing and distribution of electron guns and related hardware. The electron gun is a main component of a CRT and Southwest Vacuum provides the Company the ability to supply virtually all of its internal electron gun requirements.

In the late 1980's, the Company entered the market of wholesale distribution of consumer electronic parts and consumer products and accessories with the acquisition of Fox International Ltd., Inc. ("Fox International") of Cleveland, Ohio. Fox International is involved in the wholesale distribution of consumer electronic parts for most major U.S. and foreign electronic manufacturers.

The Company continues to explore opportunities to expand the products offered in the display industry. This expansion will be achieved by adding new products to its inventory or by acquiring existing companies that would enhance the Company's position in the display industry. Research and development primarily consists of establishing the interchangeability of products from various manufacturers and, when advantageous, manufacturing products to replace original electronic parts.

This information is provided in the notes to the consolidated financial statements, Note 12.

Since its organization in 1975, Video Display Corporation has been engaged in the distribution and manufacture of CRTs using new and recycled CRT glass bulbs, primarily in the replacement market, for use in data display screens, including computer terminal monitors, medical monitoring equipment and various other data display applications and in television sets. The Company currently markets CRTs in over 3,000 types and sizes.

The Company's CRT operations are conducted at its facilities near Atlanta, Georgia, and at facilities located in White Mills, Pennsylvania (Chroma); Bossier City, Louisiana (Novatron); Monterrey, Mexico (Video Electronics); Dallas, Texas (Magna View); Lexington, Kentucky (Lexel) San Jose, California (XKD); and Lye, England (VDC, Ltd.). At each North American facility, the Company manufactures new or recycles CRTs to meet original specifications. The European location is a sales and distribution facility.

The recycling process for monochrome CRTs involves the cleaning and reconditioning of the glass bulb and the insertion of new electronic components, which are purchased from OEMs and the Company's electron gun subsidiary. The Company's Atlanta, Georgia and Monterrey, Mexico facilities also assemble monochrome CRTs using new glass bulbs obtained from suppliers in standard sizes where customer requirements warrant the higher cost of new glass. The recycling of color CRTs involves the insertion of new electronic components, while leaving the original display screen intact. All CRTs manufactured by the Company are tested for quality in accordance with standards approved by UL and are shipped to customers or warehoused to meet future customer demand. The Company provides one-year limited warranties on its computer and other data display CRTs and two-year limited warranties on its color television components. Management believes that the Company is the largest recycler of CRTs in the domestic replacement markets for both television and data display uses.

The Company also distributes new CRTs and other electronic tubes purchased from original manufacturers, both domestic and international. Some of these manufacturers offer large quantities of overstocked original manufactured tubes from time to time at significant price reductions. The Company acquires these tubes when the existing replacement market demonstrates adequate future demand and the purchase price allows a reasonable profit for the risk. However, these purchased inventories sometimes do not turn as quickly as other inventories.

The Company markets its products through approximately 200 independent wholesale electronics distributors located throughout the U.S. and sells directly to OEMs and their service organizations. The Company also supplies, under private-brand labeling, many of the replacement tubes marketed by several national brand name television manufacturers.

In addition to factors affecting the overall market for such products, the Company's sales volumes in both the color television and the data display CRT replacement markets are dependent upon the Company's ability to provide prompt response to customers' orders, while maintaining quality control and competitive pricing. While the Company's manufacturing activities are scheduled primarily around orders received, it also manufactures a wide variety of CRTs for stock inventory in anticipation of customer demand.

With its most recent acquisitions, the Company continues to position itself to compete in the design and manufacture of complete monitor units for use in the healthcare, military and industrial sectors.

The Company's monitor operations are conducted at Phelps, New York (Z-Axis); Birdsboro, Pennsylvania (Teltron); Horsham, Pennsylvania (Aydin); Billerica, Massachusetts (MegaScan); Wolcott, Connecticut (VDC Wolcott); Cape Canaveral, Florida (Display Systems), Lexington, Kentucky (Lexel); and San Jose, California (XKD).

The Company's monitor segment involves the design, engineer and manufacture of complete monochrome and color monitor units using new CRTs or flat panel displays. The Company will customize these monitors for specific applications, including ruggedization for military uses or size reduction due to space limitations in industrial and medical applications. Because of the Company's

flexible and cost efficient manufacturing, it is able to handle low volume orders that generate higher margins.

The Company, through its electron gun manufacturing subsidiary Southwest Vacuum, manufactures electron gun assemblies comprised of small metal and ceramic parts in a glass housing. The assembly process is highly labor intensive. While the particular electron guns being sold are of the Company's own design, most are replacements for electron guns previously designed for original equipment CRTs used in television sets and computer monitors. Therefore, the total amount of research and development expense is not significant and is not segregated in the consolidated financial statements, but is instead included in cost of sales. Raw materials consist of glass and metal stamped parts.

The electron gun division markets electron gun component parts to OEMs who manufacture high resolution and specialty tubes for unique applications. The majority of electron guns produced by the Company are consumed internally among the Company's own CRT manufacturing facilities. Sales to these related divisions, which have been eliminated in the consolidated financial statements, amounted to approximately $549,000, $434,000, and $483,000 for fiscal 2002, 2001 and 2000, respectively.

Electron gun sales are historically dependent upon the demand by domestic and foreign television CRT remanufacturers. The Company continues to seek alternative, growth-oriented markets to fully utilize its electron gun and component assembly facility.

The Company, through its subsidiary Wintron located in Howard, Pennsylvania, produces flyback transformers, coils and power transformers. Intercompany sales transactions were $210,000, $85,000 and $14,000 for fiscal 2002, 2002 and 2001, respectively; and may become more significant as the Company's monitor segment grows.

The Company anticipates that AMLCD and Plasma Display products, due to their lower space and power requirements, will eventually become the display of choice in many new display applications. To date, this has not had a significant effect on the Company's operations due to the nature of the Company's business primarily emphasizing replacement and service parts and specialty niche markets. In anticipation of long-term trends toward flat panel display usage, the Company has focused its R&D efforts as well as its acquisition strategy toward flat panel technologies for niche market applications in the medical, simulation, training and military markets. The Company will continue to monitor these trends and continue to make adjustments to its CRT inventory levels and operating facilities to reflect these changes in demand.

Fox International distributes consumer electronic parts of most major consumer electronics manufacturers, both foreign and domestic. This subsidiary resells these products to major electronic distributors; retail electronic repair facilities; third-party contractual repair shops; and directly to consumers. In its relationship with consumer electronic manufacturers, Fox International receives the right, often exclusively, to ship parts to authorized dealers. Many of the manufacturers also direct inquiries for replacement parts to Fox International. Each manufacturer requires a distributor to stock its most popular parts and monitors the order fill ratio to ensure that their customers have access to sufficient replacement parts. Fox International maintains very high fill ratios in order to secure favored distributor status from the manufacturers, requiring a significant investment in inventories. To a limited extent, Fox International has the ability to rotate its stock with certain vendors to mitigate any risk of investment in inventories.

The Company holds certain patents with respect to some of its products and markets its services and products under various trademarks and tradenames. Additionally, in fiscal 2001 the Company began licensing certain electronic technology to other manufacturing companies, which generated royalty revenues of approximately $155,000 in fiscal 2002. Although the Company believes that the patents and trademarks owned are of value, the Company believes that success in its industry will be dependent upon new product introductions, frequent product enhancements, and customer support and service. However, the Company intends to protect its rights when, in its view, these rights are infringed upon. The Company's key patents expire in 2014.

Historically, there have not been any seasonal variations in the Company's CRT operating subsegments. The wholesale electronic parts distribution segment has experienced minimally higher sales during the Company's third quarter, which includes the impact of higher repair parts sales during the beginning of the new fall television season.

Information contained under the caption "Management's Discussion and Analysis" ("MD&A") in this Report is incorporated herein by reference in response to this item.

The Company sells to a variety of domestic and international customers on an open-unsecured account basis. These customers principally operate in the medical, military, television and avionics industries. The Company's CRT division had net sales to the U.S. government that comprised approximately 15%, 17% and 15% of CRT segment net sales and 13%, 13% and 11% of consolidated net sales in fiscal 2002, 2001 and 2000, respectively. The Company's wholesale electronic parts distributor, Fox International, had net sales to one customer that comprised approximately 20%, 22% and 19% of that subsidiary's net sales in fiscal 2002, 2001 and 2000, respectively. Other subsidiaries have a few concentrated customers and vendors that could, if lost, negatively affect sales. The Company attempts to minimize credit risk by reviewing all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information.

The Company's backlog is comprised of undelivered, firm customer orders, which are scheduled to ship within eighteen months. The Company's backlog was approximately $22,312,000 at February 28, 2002 and $25,623,000 at February 28, 2001. The Company's Lexel division comprised $15,810,000 (71%) and $16,400,000 (64%) of the February 28, 2002 and 2001 backlog, respectively. It is anticipated that more than 95% of the February 28, 2002 backlog is expected to ship during fiscal 2003.

The Company, primarily through its Aydin, Teltron, Lexel, Wolcott and Display Systems subsidiaries, had contracts with the U.S. government which generated revenues of approximately $9,098,000, $9,282,000 and $7,134,000 for the fiscal years ended 2002, 2001 and 2000, respectively. The Company's costs and earnings in excess of billings on these contracts were approximately $924,000 at February 28, 2002 and $158,000 at February 28, 2001. The Company's billings in excess of costs and earnings on these contracts were approximately $0 at February 28, 2002 and $164,000 at February 28, 2001.

The Company's operations are subject to federal, state and local laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. The costs of complying with environmental protection laws and regulations have not had a material adverse impact on the Company's financial condition or results of operations in the past and are not expected to have a material adverse impact in the foreseeable future.

The objectives of the Company's research and development activities are to increase efficiency and quality in its manufacturing and assembly operations and to enhance its products by implementing new developments in cathode ray and electron optic technology. The Company's commercial and military divisions continue their research and development in advanced infrared imaging ("FLIR"). The Company has funded additional FLIR research in partnership with the University of Rhode Island. Potential future markets for FLIR include military and security surveillance, target acquisition, fire fighting, and industrial and medical thermography. Through fiscal 2002, the Company has not incurred significant costs for basic research or new product development and, therefore, has not segregated these costs as a separate item but has included such costs in the consolidated financial statements as a part of costs of goods sold. As the Company continues to increase its development of new technology, these costs will be monitored and separately categorized, if material. Research and development costs amounted to approximately $550,000 in fiscal 2002.

As of February 28, 2002, the Company employed a total of 584 persons on a full time basis. Of these, 181 are employed in executive, administrative, and clerical positions, 63 are employed in sales and distribution, and 340 are employed in manufacturing operations. Of the Company's 584 employees, 78 are employed at the Company's Mexican subsidiary and 9 are employed at the Company's other foreign locations. A union represents 13 employees. The Company believes its employee relations to be satisfactory.

Although the Company believes that it is the largest domestic recycler and distributor of recycled CRTs in the United States CRT replacement market, it competes with other CRT manufacturers, as

well as OEMs, many of which have greater financial resources than the Company. The Company believes it is the only company that offers complete service in replacement markets with its manufacturing and recycling capabilities. As a wholesale distributor of original equipment purchased from other manufacturers, the Company also competes with numerous other distributors, as well as the manufacturers' own distribution centers, many of which are larger and have substantially greater financial resources than the Company. The Company's ability to compete effectively in this market is dependent upon its continued ability to respond promptly to customer orders and to offer competitive pricing. The Company expects that competition may increase, especially in the computer and other display replacement markets, should domestic and foreign competitors expand their presence in the domestic replacement markets.

Compared to domestic manufacturing prices on new CRTs, the Company's prices are competitive due to lower manufacturing costs associated with recycling the glass portion of previously used tubes, which the Company obtains at a fraction of the cost of new glass. The Company has to date been able to maintain competitive pricing with respect to imported CRTs because, generally, the CRT replacement market is characterized by customers requiring a variety of types of CRTs in quantities not sufficiently large enough to absorb the additional transportation costs incurred by foreign CRT manufacturers.

The Company believes it has a competitive advantage and is a sole source in providing many of its CRTs to the customer base of its Teltron and Lexel subsidiaries as these operations have been providing reliable products and services to these customers for more than 30 years.

The Company believes that it has a competitive advantage in the monitor industry due to its flexibility to handle lower volume orders as well as its ability to provide internally produced component parts. As a result, the Company can offer more customization in the design and engineering of new products.

With the Company's acquisition of Lexel and the relatively new operations of Display Systems and XKD Corp., the Company has become one of the leading suppliers within the specialty CRT and monitor markets, especially in the military and medical imaging industries.

The Company's competition in the consumer electronics parts segment comes primarily from other parts distributors. Many of these distributors are smaller than the Company but a few are of equal or greater sales size. Prices for major manufacturers' products can be directly affected by the manufacturers' suggested resale price. The Company believes that its service to customers and warehousing and shipping network give it a competitive advantage.

The Company leases its corporate headquarters at 1868 Tucker Industrial Drive in Tucker, Georgia (within the Atlanta metropolitan area) and occupies approximately 10,000 square feet of the total 59,000 square feet at this location. The remainder is utilized as warehouse and assembly facilities. This location, as well as several others, is leased from related parties at current market rates. See "Item 13—Certain Relationships and Related Transactions". The following table details manufacturing, warehouse, and administrative facilities:

Location	Square Feet	Lease Expires
CRT, Monitor and Electron Gun Manufacturing and Warehouse Facilities
Tucker, Georgia	59,000	October 31, 2003
Stone Mountain, Georgia	45,000	December 31, 2007
Tucker, Georgia	40,000	January 2, 2006
White Mills, Pennsylvania	110,000	Company Owned
Bossier City, Louisiana	26,000	Company Owned
Dallas, Texas	24,000	January 31, 2003
Monterrey, Mexico	129,000	Month to Month
Lye, England	4,800	February 28, 2003
Birdsboro, Pennsylvania	40,000	Company Owned (a)
Phelps, New York	32,000	Company Owned
Howard, Pennsylvania	19,000	Company Owned
Horsham, Pennsylvania	84,000	August 31, 2002
Billerica, Massachusetts	7,900	Month to Month
Wolcott, Connecticut	21,000	Company owned
Cape Canaveral, Florida	15,600	January 17, 2003
Lexington, Kentucky	152,000	March 31, 2005
San Jose, California	10,500	March 31, 2006
Atlanta, Georgia	500	September 30, 2002
Wholesale Electronic Parts Distribution
Bedford Heights, Ohio	60,000	Company Owned (b)
Richardson, Texas	13,000	April 30, 2007
New York, New York	—	Month to Month

The Company is involved in various legal proceedings relating to claims arising in the ordinary course of business. There are no material proceedings to which the Company is a party and management is unaware of any significant contemplated actions against the Company.

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The Company's common stock is traded on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") national market system under the symbol VIDE.

The following table shows the range of prices for the Company's common stock as reported (and as adjusted for the stock dividend discussed below) by the NASDAQ for each quarterly period beginning on March 1, 2000.

There were approximately 825 holders of record of the Company's common stock as of May 13, 2002.

The Company has not paid cash dividends in the past. Payment of cash dividends in the future will be dependent upon the earnings and financial condition of the Company and other factors which the Board of Directors may deem appropriate. The Company is restricted by certain loan agreements regarding the payout of cash dividends, as further described in the notes to the consolidated financial statements.

In March 2001, the Company's Board of Directors declared a stock dividend of 0.20 shares of common stock for each common share outstanding. The stock dividend was issued on April 16, 2001 to all common stock shareholders of record as of March 31, 2001. All per share data for all periods presented in this Report, including the consolidated financial statements, reflect the increase in the amount of common stock outstanding due to the stock dividend.

The following table sets forth certain selected financial data with respect to the Company's last five fiscal years.

Data relating to the five fiscal years ended February 28, 2002 are derived from the Consolidated Financial Statements appearing elsewhere in this Report or in previous reports, which have been audited by BDO Seidman, LLP, independent certified public accountants. The selected consolidated financial data should be read in conjunction with, and is qualified in its entirety by reference to,

management's discussion and analysis, the consolidated financial statements of the Company, the notes thereto and the report thereon included elsewhere in this Report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement under the Private Securities Litigation Reform Act: Except for the historical information contained herein, the matters discussed herein are forward-looking statements that involve risk and uncertainties, including but not limited to (i) economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and (ii) other factors discussed in the Company's filings with the Securities and Exchange Commission.

The following table sets forth, for the fiscal years indicated, the percentages which selected items in the Company's consolidated statements of income bear to total revenues:

Consolidated net sales for fiscal 2002 increased $1,560,000 or 2.2% over fiscal 2001 net sales. CRT division segment sales increased $2,652,000 or 4.7% over fiscal 2001 while the wholesale parts segment declined $1,092,000 or (7.5)%.

The net increase in CRT segment sales can be attributed to growth within the monitor subsegment, primarily at Display Systems and Lexel. These locations added $2,622,000 and $4,852,000, respectively to fiscal 2002 sales. The offsetting declines are primarily attributed to the decline in revenues in the entertainment subsegment and declines at the Aydin and Z-Axis locations. The monitor division increased $3,422,000 or 9.4%, data display CRT sales increased $552,000 or 5.3%; entertainment CRT sales decreased $986,000 or (13.1)%; and the electron gun/component parts segment decreased $336,000 or (17.3)%.

The increase in monitor division sales was impacted in several ways. The Lexel operations integrated the fiscal 2001 acquisitions of IST and Raytheon product lines, which contributed approximately $6,000,000 in additional sales in fiscal 2002, and streamlined processes to allow for better delivery times, thereby decreasing the amount of backlog. The successful integration of the acquired

product lines into the Lexel facility were not completed until late in the fourth quarter of fiscal 2001. Offsetting sales declines in the monitor division occurred at Aydin and Z-Axis in the amount of approximately $2,600,000. Aydin's government sales were down slightly due to completion of pre-existing contracts, which were not replaced at the same rate with new contracts. Commercial sales of monitors were negatively impacted as well. Certain customers had been lost during the previous year's change of production facilities from Aydin to Z-Axis. Additionally, there has been a slight impact as some commercial customers have changed to flat panel technology.

In November 2001, Displays Systems in Florida began shipping the Marquee™ product line acquired from Christie and recognized sales of $2,269,000 from this product line during the third and fourth quarters of fiscal 2002.

The Company is the primary supplier of replacement CRTs to the entertainment market. A majority of the entertainment segment's sales (41%) are to major television retailers as replacements for products sold under manufacturer and extended warranties. Due to the economics of lower retail sales prices for mid-size television sets (25" to 30"), fewer extended warranties are sold. The Company remains the primary supplier of the manufacturer's standard warranties. Growth in this division will be impacted by the timing and number of extended warranties sold for the larger, more expensive sets. Due to the fact that the Company is in the replacement market, it has the ability to track retail sales trends and accordingly, can adjust quantities of certain size CRTs carried in stock and reduce the exposure to obsolescence.

Flat panel technology has not had an impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage rather than end user consumer usage. Within the data display and monitor subsegments, there has been an impact by flat panel technology. The Company has made adjustments internally and several of the subsidiaries within these subsegments currently produce flat panel products. As noted above, being in the replacement market, the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

The decline in the wholesale consumer parts segment of $1,092,000 is attributed primarily to the decline in consumer retail sales during the comparative periods. Sales to larger distributors have declined slightly as well. General economic conditions have had a direct, negative impact on this segment. To help offset these declines, Fox International signed a distribution agreement in fiscal 2002 with Applica, Inc. ("Applica"), authorizing Fox International to distribute parts and accessories for Applica's Black & Decker Toaster Oven, Profinish, Quick & Easy, and Spacemaker product lines. Sales earned pursuant to this agreement were $718,000 in fiscal 2002.

Consolidated gross margins increased from 29.5% to 31.7% for the year ended February 28, 2002 as compared to the year ended February 28, 2001. CRT division margins increased from 28.3% to 30.2% and wholesale electronic parts division margins increased from 33.9% to 38.0% for the same comparative period.

The increase in margins within the CRT division resulted from increases in sales volume at Lexel and Display Systems while manufacturing overhead remained stable. Margins at Lexel increased from 9.9% to 16.8%, or $1,538,000. Display System's gross margins increased in dollars by $1,117,000, while its gross margin percentage remained essentially flat. Additionally, margins have improved in the data display subsegment as sales of higher margin high-resolution color tubes have increased in comparison to lower margin monochrome tubes.

Margins in the wholesale consumer parts segment have increased due primarily to higher margins obtained on Black & Decker distribution sales. Additionally, margins have improved on sales to this segment's primary electronics retailer.

Operating expenses as a percentage of sales increased from 26.0% for the year ended February 28, 2001 to 26.6% for the year ended February 28, 2002.

The CRT division operating expenses increased $297,000 for the year ended February 28, 2002 as compared to February 28, 2001. Included in these increases were expenses within the monitor subsegment for the new California operations of $318,000 that were not present in the previous year. Also, expenses increased at Display Systems by $587,000, due to the increase in business with the Christie product line. Despite its significant increase in sales volume, Lexel's operating expenses increased only $41,000, as the existing administrative infrastructure was able to absorb the increased sales volume. Included in the CRT division expenses for fiscal 2001 was a $514,000 write-down of a note receivable.

The wholesale consumer parts segment increased operating expenses $543,000, (11.2%) in the year ended February 28, 2002 as compared to a year ago. This segment incurred costs to shut down its warehouse in Solon, Ohio and to open a warehouse in New York for the Black & Decker product line. Additionally, when Fox International acquired the Black & Decker distribution agreement with Applica, there were outstanding coupon offers the Company had to honor that included free shipping. The segment's delivery expense increased $310,000 despite an overall decrease in sales. The Company believes that the majority of these coupons have been utilized and, going forward, that Fox International will be able to charge its customers for shipping costs related to this product line.

In fiscal 2003, management expects certain operating expenses to decline as a result of steps taken to reduce costs at its Mexican subsidiary. The monthly lease on the operating facility has been decreased by $20,000 per month, while anticipated headcount reductions of approximately 50 employees, once fully implemented, will provide additional savings of $40,000 per month.

Interest expense decreased $507,000 to $1,585,000 for the comparative fiscal periods due primarily to decreases in variable interest rates through fiscal 2002. A gradual decrease throughout the period at rates from 8.25% to 4.37% was realized on the Company's Primary line of credit. The notes payable to officer have interest rates of prime plus 1%, which varied from 9.5% to 5.75% during fiscal 2002, and LIBOR plus 2.4%, respectively, which varied from 7.58% to 4.37% during fiscal 2002. The Company's debt levels increased in fiscal 2002, which can be attributed primarily to the increase in the Primary line of credit from $8,500,000 to $9,285,000 and the increase in notes payable to an officer of $3,000,000 relating to the Christie product line acquisition in the third quarter of fiscal 2002.

The effective tax rate for fiscal 2002 is 45.4% as compared to 92.4% for fiscal 2001. The decrease in the effective rate is attributable to higher income before income taxes in 2002 compared to 2001, as expenses that are not deductible for tax purposes remained relatively constant. The Company had expenses of $467,000 and $438,000 that were not deductible for tax purposes in fiscal 2002 and 2001, respectively.

Consolidated net sales for fiscal 2001 increased $6,968,000 or 10.9% over fiscal 2000 net sales. CRT division segment sales increased $9,110,000 or 19.3% over fiscal 2000 while the wholesale parts segment declined $2,142,000 or 12.8%.

Within the CRT segment, data display CRT sales increased $157,000 or 1.5%; entertainment CRT sales decreased $1,806,000 or 19.3%; the electron gun/component parts segment decreased $172,000 or 8.5%; and the monitor division increased $10,931,000 or 43.0%.

The net increase in CRT division sales was primarily attributed to growth within the monitor segment. The Company's newest locations within this segment, Display Systems in Florida and Lexel in Kentucky, contributed $2,687,000 and $10,268,000, respectively, for the year ended February 28, 2001. Excluding these sales, overall CRT division sales were down $3,845,000. With data display and electron gun component parts sales being relatively flat, the decline excluding new locations was attributed primarily to the entertainment and monitor divisions.

The Company is the primary supplier of replacement CRTs to the entertainment market. Due to the continued decrease in retail sales prices of mid-size television sets (25" to 30"), declines in extended warranty sales by major television retailers continued to occur. In turn, the Company's entertainment division sales were negatively impacted as a majority of their sales within this division are for warranty related repairs. Extended warranties on the larger size television sets (32" and up) were anticipated to increase both in volume and dollars as the demand for these sets have increased and the CRT costs are more expensive than the smaller sized sets. The Company continued to supply manufacturer warranty replacements in the smaller size range (up to 25"). Additionally, being in the replacement market, the Company has the ability to track retail sales trends. Accordingly, the Company adjusted quantity levels of CRT sizes thereby reducing the impact of obsolete inventory exposure.

Flat panel technology has not had an impact on the television replacement market. Most of the flat panel units sold within the television market are for commercial usage rather than end user consumer usage. Within the data display and monitor subsegments, there was an impact by flat panel technology. The Company made adjustments internally and several of the subsidiaries within these subsegments began producing flat panel products. As noted above, being in the replacement market,

the Company has the ability to see product trends and make marketing, production and stocking decisions based on those trends.

The monitor division sales, net of sales at the newest locations, declined $2,024,000 from the same period a year ago. Sales within the monitor segment included military contracts, which vary from year to year. While the Company did not lose a military contract in the past year, the completed contracts were not immediately being replaced with new contracts. Additionally, during the transition of manufacturing processes between Aydin and Z-Axis during fiscal 2000, the Company lost business to competitors within the commercial market. The transition was done so that Aydin could focus primarily on ruggedized monitors used for military applications and Z-Axis could continue to focus on the commercial monitor market. Extended lead times during the transition period caused former Aydin commercial customers to seek other procurement alternatives. Z-Axis took steps to address these issues and was successful in reducing lead times. The Company also allocated marketing personnel to these areas in an attempt to reclaim the lost sales.

The decline in the wholesale consumer parts segment of $2,142,000 was attributed primarily to the sale of Vanco International ("Vanco") in September 1999. Vanco had sales of $2,130,000 for the year ended February 29, 2000.

Consolidated gross margins decreased from 31.8% to 29.5% for the year ended February 28, 2001 as compared to the year ended February 29, 2000. CRT division margins decreased from 30.5% to 28.2% and wholesale electronic parts division margins decreased from 35.6% to 33.9% for the same comparative period.

The 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 were lower than the other CRT division locations. Lexel's reduced margins were a reflection of higher quality requirements, including more expensive materials and increased labor demanded by the products' intended use. These uses include military applications. Also included in the reduced margins were costs incurred due to the integration of the IST business acquired in June 2000 into the Lexel facility. The Company incurred additional expenses in the fourth quarter with the incorporation of the Raytheon and Anacomp businesses into Lexel, but on a much smaller scale than the IST integration.

The wholesale consumer parts division margins were 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 volume sales to the major electronics distributor are lower than to other retail customers.

Operating expenses as a percentage of sales decreased from 27.6% for the year ended February 29, 2000 to 26.0% for the year ended February 28, 2001.

The CRT division operating expenses increased $2,217,000 for the year ended February 28, 2001 as compared to February 29, 2000. Included in these increases were expenses for the new Florida and Kentucky operations of $1,382,000 that were not present in the previous year. Additionally, included in the CRT division expenses for fiscal 2001 was a $514,000 write-down of a note receivable. The Company held an unsecured note receivable as a result of a litigation settlement. The note had an original face value of $1,500,000 due in monthly installments of $15,000 over a term of 100 months. During 2001, monthly payments on the note were delinquent and payments made were less than the required contractual amounts. Payments eventually ceased in the fourth quarter of 2001. As of February 28, 2001, the Company believed that it was probable that they would be unable to collect any

of the outstanding amounts due under the contractual terms of the loan agreement and considered the loan impaired. In accordance with SFAS No. 114, "Accounting by Creditor's of Impairment of a Loan", the Company wrote off the remaining $514,000 balance of the note.

The wholesale consumer parts division reduced operating expenses $1,426,000 in the year ended February 28, 2001 as compared to a year ago. Included in this reduction was the elimination of operating expenses from Vanco of $866,000. Additionally, Fox International reduced its operating expenses by approximately $334,000 by eliminating two locations and reducing personnel at its headquarter location in Cleveland, Ohio. Also, reductions in delivery expense of $148,000 incurred as a result of more cost effective packaging and a switch by Fox International to a more cost competitive shipping provider.

Interest expense increased $577,000 to $2,092,000 for the comparative fiscal period due to increases in overall debt and changes in variable interest rates through fiscal 2001. The increase in debt can be attributed primarily to the increase in the Primary line of credit from $3,040,000 to $5,500,000; the $3,000,000 loan in conjunction with the Lexel acquisition; and the increase in notes payable to an officer of $1,400,000 relating to the IST acquisition. The Primary line was a gradual increase throughout the period at a fixed rate of 7.25%. The Lexel acquisition loan was funded in May 2000 and has an interest rate based on LIBOR plus up to 2%. During the ten months outstanding in fiscal 2001, the Lexel loan's interest rate fluctuated from 9.0% at inception to 9.5% in November 2000 and to 8.5% by February 28, 2001. The note payable to officer has an interest rate of prime plus 1%, which varied from 9.5% at its June 2000 inception to 8.5% by February 28, 2001.

The effective tax rate for fiscal 2001 was 92.4% as compared to 31.5% for fiscal 2000. The increase in the effective rate was attributable to the non-deductibility of amortization on certain intangible assets combined with lower income before income taxes. Also, the fiscal 2000 rate was positively impacted by foreign effective rates in the amount of $80,000.

As of February 28, 2002, the Company had total cash and cash equivalents of $1,615,000. The Company's working capital was $27,569,000 and $26,311,000 at February 28, 2002 and 2001, respectively. The increase in working capital can be attributed primarily to the purchase of Christie's Marquee™ projector product line and the acquisition of 100% of the common stock of XKD Corporation. In the XKD acquisition, net current assets of $403,000 were acquired and long-term debt of $702,000 was assumed. In conjunction with the $3,700,000 Christie product line purchase, debt financing was used to obtain the assets, of which approximately $1,500,000 have maturities in excess of one year.

Cash used in operations for fiscal 2002 was $2,544,000 as compared to cash provided by operations of $973,000 in fiscal 2001. Fiscal 2002 net income adjusted for non-cash items provided cash of $3,798,000. Increases in accounts receivable, inventories and prepaid expenses and decreases in customer advances used cash of $6,980,000. The changes in working capital exclude the effects of the assets purchased and liabilities assumed related to the XKD acquisition in fiscal 2002. During fiscal 2001, operating cash flows were provided primarily by net income adjusted for non-cash items of $2,314,000, and an increase in customer advances of $1,652,000. Offsetting increases in accounts receivable, inventories, prepaid expenses, and other assets, and declines in accounts payable used cash of $2,993,000.

The increase in accounts receivable of $2,349,000 during 2002 was due primarily to an 11% increase in sales in the fourth quarter of fiscal 2002 as compared to the same period in fiscal 2001. Fourth quarter sales benefited from the late third quarter purchase of the Marquee™ product line. The increase in inventories of $2,092,000 was also primarily attributable to the purchase of the Marquee™ product line from Christie. Inventory purchased from Christie amounted to approximately $2,500,000 at the end of the third quarter of fiscal 2002. Absent the current year Christie purchase and XKD acquisition, there was an overall slowdown in purchasing, as existing stock levels were being utilized. Increases in prepaid expenses and other assets were primarily attributed to an increase in costs in excess of billings of $765,000 over the same period a year ago. This increase is attributable to the contractual timing of customer billings. Decreases in customer advances received in the prior fiscal year accounted for a reduction in cash of $1,408,000 as a significant portion of the related CRTs were manufactured and shipped to customers in fiscal 2002. The decrease in accounts payable and accrued liabilities was due to a reduction in trade accounts payable in the comparative periods, due primarily to a reduction in fourth quarter purchasing. The acquisition of the Christie product line included significant materials used in fourth quarter shipments, which reduced purchasing requirements and corresponding accounts payable. Additionally, fourth quarter shipments of Christie product generated cash that was used to pay down trade payables. The Christie acquisition was funded by new debt.

Investing activities used cash of $3,441,000 and $6,686,000 in fiscal 2002 and 2001, respectively. Amounts paid for capital expenditures were $3,156,000 in fiscal 2002 as compared to $1,466,000 in fiscal 2001. The new addition to the facility in Birdsboro, PA was $1,334,000, which was financed with a construction loan of $509,000 with the remainder paid in cash. The Company purchased fixed assets and intangible assets in the amount of $1,248,000 from Christie to assist in the integration of the projector line and to acquire the Marquee™ trademark.

Financing activities provided $3,375,000 and $5,664,000 in fiscal 2002 and 2001, respectively. During fiscal 2002, the Company paid cash for the Christie Marquee™ product line. The purchase was funded by short-term debt with the Company's CEO at an interest rate of LIBOR plus 2.4%. In fiscal 2001, the Company borrowed $3,000,000 from a bank to finance the Lexel acquisition. That note was consolidated into the Company's $10,000,000 credit facility with the same bank in May 2001. The credit facility bears interest at a floating rate of LIBOR based on a debt to EBITDA ratio, as defined. Depending on the ratio, the LIBOR adjustment can fluctuate from 1.5% (for a ratio less than 1.75) to 3.0% (for a ratio greater than 4.25). The note matures on July 1, 2003. The amount of credit available for advance was reduced by $500,000 on July 1, 2001, and will be reduced by an additional $500,000 on July 1, 2002. During fiscal 2002, the Company increased its borrowings under its revolving credit facility to fund operations. In both fiscal years 2002 and 2001, the Company paid $1,250,000 of principal payments on the Aydin loan in accordance with its terms.

The Company established a stock repurchase program, pursuant to which it is authorized to repurchase up to 462,500 shares of the Company's common stock in the open market. No shares were repurchased in fiscal 2002 and 2001.

Transactions with Related Parties, Contractual Obligations and Commitments

At February 28, 2000 the Company had outstanding borrowings in the form of a demand note from its CEO in the amount of $2,200,000. In June 2000, the Company borrowed an additional $1,400,000 from the CEO to assist with the acquisition of certain assets of the electro optics division of IST. This borrowing was combined with the existing demand note and, as of February 28, 2001, the outstanding balance was $3,600,000. During 2002, the Company borrowed an additional $3,000,000 from the CEO to finance the product line acquisition from Christie. This borrowing is a one-year agreement with interest due monthly based on LIBOR (1.9% at February 28, 2002) plus 2.4%. Additionally, the Company borrowed $500,000 from the CEO during 2002 for short-term financing purposes. As of February 28, 2002, the cumulative outstanding balance due the CEO was $7,100,000.

Subsequent to year-end, the Company borrowed an additional $740,000 and repaid $340,000 from the CEO of the Company for short-term operating purposes, increasing the balance due the CEO to $7,500,000.

During fiscal 2002, the Company borrowed an additional $98,000 from a Director, resulting in a balance of $241,000 at February 28, 2002. Yearly principal payments of $24,000 are payable through 2007 with a final payment of $121,000 due in 2008. These borrowings bear interest at 10%.

The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in fiscal 1997. The debentures are convertible at the holder's option into common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During fiscal 2002, $775,000 of debentures plus accrued interest were converted into 186,068 common shares. In May 2001, the Company's CEO, in accordance with the provisions of the subordinated debt agreement, elected to extend the maturity date of his remaining $1,000,000 debentures to May 31, 2003.

Future maturities of long-term debt and future minimum rental payments due under operating leases are as follows (in thousands):

Included in the above operating lease commitments are leases for four of the Company's manufacturing facilities and certain warehouse space from shareholders and officers. Future minimum rental payments due under these leases with related parties are as follows (in thousands):

	Years
	Footnote Ref.
	Total		1		2	3		4		5	>5
Related party leases	$	1,569		$	488	$	401		$	240	$	220	$	120	$	100	14

Historically, the Company has not relied upon off-balance sheet arrangements (such as sale-leasebacks), transactions or relationships that would materially affect liquidity or the availability of, or requirements for, capital resources.

Management's Discussion and Analysis of Results of Operations and Financial Condition are based upon the Company's consolidated financial statements. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, the allowance for bad debts and warranty reserves. The company uses the following methods and assumptions in determining its estimates:

Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company's investment in inventories for declines in value and establishes reserves when it is apparent that the expected realizable value of the inventory falls below its original cost. The age of the inventory is not as significant as is the projected demand for CRTs. Management is able to identify consumer buying trends, such as size and application, well in advance of supplying replacement CRTs. Thus, the Company is able to adjust inventory-stocking levels according to the projected demand. The average life of a CRT is five to seven years, at which time the Company's replacement market develops. Management is also able to observe the production trends of the OEMs and the new products that are being promoted.

The allowance is determined by reviewing known customer exposures and applying historical credit loss experience to the current receivable portfolio with consideration given to the current condition of the economy, assessment of the financial position of the creditors and overall trends in past due accounts compared to established thresholds. The company monitors credit exposure and assesses the adequacy of the allowance for bad debts on a regular basis.

The warranty reserve is determined by recording a specific reserve for known warranty issues and a general reserve based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.

The company incorporates many years of historical data into the determination of each of these estimates. The company has a proven history of using accurate estimates and sound assumptions to calculate and record appropriate reserves. Actual results may differ from these estimates under different assumptions or conditions.

Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third parties.

Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements.

Policies related to revenue recognition and impairment of long-lived assets require difficult judgments on matters that are often subject to multiple sources of authoritative accounting guidance. See also Note 1 to the consolidated financial statements, Summary of Significant Accounting Policies, which discusses accounting policies that must be selected by management when there are acceptable alternatives.

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.

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supersedes Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations," and eliminates the pooling-of-interest method of accounting for business combinations. SFAS No. 141 also changes the criteria for recognizing intangible assets apart from goodwill and states the following criteria should be considered in determining the recognition of intangible assets: (1) whether the intangible asset arises from contractual or other rights, or (2) whether the intangible asset is separable or divisible from the acquired entity and capable of being sold, transferred, licensed, returned or exchanged.

SFAS No. 142, generally effective January 1, 2002, supersedes APB No. 17, "Intangible Assets," and requires goodwill and other acquired intangible assets that have an indefinite useful life to no longer be amortized; however, these assets must be reviewed at least annually for impairment. The Company currently amortizes goodwill over its estimated useful life of five to fifteen years. The Company recorded $320,000, or $0.07 per share on a pre-tax basis, of goodwill amortization in 2002. The Company's management is currently evaluating the impact the adoption of this statement will have on the financial statements.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 30, 2002. The Company does not anticipate the adoption of this statement will have a material impact on the financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. However, SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for: (1) recognition and measurement of the impairment of long-lived assets to be held and used and (2) measurement of long-lived assets to be disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after

December 15, 2001. The Company does not anticipate the adoption of this standard will have a material impact on the financial statements.

Inflation has not had a material effect on the Company's results of operations to date.

The Company's primary market risks include fluctuations in interest rates and variability in interest rate spread relationships, such as prime to LIBOR spreads. Approximately $25,228,000 of outstanding debt at February 28, 2002 related to long-term indebtedness under variable rate debt. Interest on the outstanding balance of this debt will be charged based on a variable rate related to the prime rate or the LIBOR rate. Both rate bases are incremented for margins specified in their agreements. Thus, the Company's interest rate is subject to market risk in the form of fluctuations in interest rates. The effect of a hypothetical one percentage point increase across all maturities of variable rate debt would result in an decrease of approximately $252,000 in pre-tax net income assuming no further changes in the amount of borrowings subject to variable rate interest from amounts outstanding at February 28, 2002. The Company does not trade in derivative financial instruments.

The Company reports its Mexican subsidiary on the basis of the functional currency being the U.S. dollar as over 90% of the subsidiary's sales and purchases are with the parent with accounts receivable and accounts payable settled in U.S. dollars. Additionally, the subsidiary leases its facilities and incurs rent based upon U.S. dollars. Any exchange gains or losses due to the actual exchange of pesos and U.S. dollars are minimal. The Company also has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency. Due to its limited operations outside of the U.S., the Company's exposure to changes in foreign currency exchange rates between the U.S. dollar and foreign currencies or to weakening economic conditions in foreign markets is not expected to significantly effect the Company's financial position.

The financial statements listed on page F-1 of this Report are filed as part of this Report on the pages indicated.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to directors and executive officers of the Company, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to executive compensation and transactions, is incorporated herein by reference in response to this item. In no event shall the information contained in Video Display Corporation's Proxy Statement under the heading "Compensation and Stock Option Committee Report" or under the heading "Performance Graph" be incorporated herein by reference.

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item.

The information contained in Video Display Corporation's Proxy Statement to be filed within 120 days of the Company's 2002 fiscal year end, with respect to certain relationships and related transactions, is incorporated herein by reference in response to this item.

Exhibit Number		Exhibit Description
*3(a	)	Articles of Incorporation of the Company.
*3(b	)	By-Laws of the Company.
*10(f	)	Employee Stock Option Plan. **
*10(i	)	Lease dated January 1, 1992 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4601 Lewis Road, Stone Mountain, Georgia.
*10(j	)	Lease dated November 1, 1993 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia.
*10(k	)	Lease dated January 1, 1996 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 4701 Granite Drive, Tucker, Georgia.
10(l	)	$10,000,000 amended and restated promissory note dated May 4, 2001 between Registrant (Maker) and SouthTrust Bank (Holder).
21		Subsidiary companies—see page F-30 herein.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Know all men by these presents, that each person whose signature appears below constitutes and appoints Ronald D. Ordway as attorney-in-fact, with power of substitution, for him in any and all capacity, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature—Name	Capacity	Date

/s/ RONALD D. ORDWAY Ronald D. Ordway	Chief Executive Officer, Treasurer and Director	May 28, 2002
/s/ ERV KUCZOGI Erv Kuczogi	President and Director	May 28, 2002
/s/ MURRAY FOX Murray Fox	Director	May 28, 2002
/s/ CARLETON E. SAWYER Carleton E. Sawyer	Director	May 28, 2002
/s/ RONALD G. MOYER Ronald G. Moyer	Director	May 28, 2002
Carolyn Howard	Director	May , 2002
/s/ CAROL D. FRANKLIN Carol D. Franklin	Chief Financial Officer, and Secretary	May 28, 2002

Video Display Corporation and Subsidiaries

Index to Consolidated Financial Statements

Board of Directors and Shareholders of
Video Display Corporation
Tucker, Georgia

We have audited the accompanying consolidated balance sheets of Video Display Corporation and subsidiaries as of February 28, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and comprehensive income and cash flows for each of the three years in the period ended February 28, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Video Display Corporation and subsidiaries as of February 28, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2002, in conformity with accounting principles generally accepted in the United States of America.

Video Display Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity
and Comprehensive Income (Loss)

Video Display Corporation and Subsidiaries

Consolidated Statements of Cash Flows

Video Display Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Video Display Corporation (the "Company") principally manufactures and distributes cathode ray tubes ("CRTs") in the worldwide replacement market for use in television sets and data display screens for medical, military and industrial monitoring systems as well as manufacturing and distributing electron optic parts, which are significant components in new and recycled CRTs and monitors. The Company also manufactures low and high-end monochrome and color CRT and AMLCD monitor displays for use in specialty high performance and ruggedized applications. The Company also acts as a wholesale distributor of electronic parts and CRTs purchased from domestic and foreign manufacturers. The Company's operations are principally located in the U.S.; however, the Company does have subsidiary operations located in the U.K. and Mexico.

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of all intercompany accounts and transactions.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Examples include provisions for returns, bad debts, inventory reserves, valuations on deferred tax assets and the length of product life cycles and fixed asset lives. Actual results could vary from these estimates.

Revenue from product sales is recognized when goods are shipped. The Company does not offer rights of return to customers; however, it does offer one-year and two-year limited warranties on certain products. Warranty expense is not material to the Company's consolidated financial statements.

Revenue from contracts that are long-term in nature at the Company's Aydin subsidiary is recognized by the percentage of completion method. Profit estimates are revised periodically based upon changes in facts. Any losses identified on contracts are recognized immediately. Revenue related to all other contracts is recognized upon shipment of product.

In the consolidated income statements, revenues from shipping and handling fees charged to customers are included under the caption "Net sales" and shipping costs incurred are included under the caption "Selling and delivery."

Cash and cash equivalents include cash on account, demand deposits and certificates of deposit with maturities of less than three months.

Fair values of cash and cash equivalents, accounts receivable, short-term investments and short-term debt approximate cost due to the short period of time to maturity. The recorded amounts of long-term debt and convertible debentures are considered to approximate fair value due to either rates which fluctuate with the market or are otherwise commensurate with the current market. Fair values of investments are based on quoted market prices or pricing models using current market rates, which approximate carrying value.

Inventories consist primarily of CRTs, electron guns, monitors and electronic parts. Inventories are stated at the lower of cost (first-in, first-out) or market.

Property, plant and equipment are stated at cost. Depreciation and amortization are computed principally by the straight-line method for financial reporting purposes over the following estimated useful lives: Buildings — ten to twenty-five years; Machinery and Equipment — five to ten years. Depreciation expense totaled approximately $1,240,000, $1,079,000 and $1,056,000 for the three years ended 2002, 2001 and 2000, respectively. Substantial betterments to property, plant and equipment are capitalized and routine repairs and maintenance are expensed as incurred.

Management reviews and assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, management estimates the future cash flows expected to result from the use of the asset. If the sum of the undiscounted expected cash flows is less than the carrying amount of the asset, an impairment loss is recognized based upon the estimated fair value of the asset.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method. Goodwill is amortized on a straight-line basis over the periods benefited, principally five to fifteen years. Goodwill amounted to $1,227,000 and $1,547,000 at February 28, 2002 and 2001, respectively, net of accumulated amortization of $2,376,000 and $1,814,000, respectively. Goodwill is included in the consolidated balance sheets under the caption "Other assets." Goodwill amortization expense was $320,000, $318,000 and $310,000 for the years ended 2002, 2001 and 2000, respectively. Total amortization expense, including goodwill, was $420,000, $395,000 and $382,000 for the years ended 2002, 2001 and 2000, respectively,

The Company's operational policy for the assessment and measurement of any impairment in goodwill which is other than temporary is to evaluate the recoverability and remaining life and determine whether it should be completely written off or the amortization period accelerated. The Company will recognize an impairment if undiscounted estimated future operating cash flows of the acquired business are determined to be less than the carrying amount. The amount of impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds.

The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment date.

The Company owns certain marketable equity securities which are recorded at fair value based upon quoted market prices and classified as available-for-sale securities under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Changes in fair value of these marketable equity securities are reflected in the accompanying statements of shareholders' equity. Investments are included under the captions "Prepaid expenses and other" and "Other assets" in the accompanying balance sheets.

Assets and liabilities of foreign subsidiaries are translated using the exchange rate in effect at the end of the year. Revenues and expenses are translated using the average of the exchange rates in effect during the year. Translation adjustments and transaction gains and losses related to long-term intercompany transactions are accumulated as a separate component of shareholders' equity. The Company reports its Mexican subsidiary on the basis of the functional currency being the U.S. dollar as over 90% of the subsidiary's sales and purchases are with the parent with accounts receivable and accounts payable settled in U.S. dollars. Additionally, the subsidiary leases its facilities and incurs rent based upon U.S. dollars. Any exchange gains or losses due to the actual exchange of pesos and U.S. dollars are minimal. The Company also has a subsidiary in the U.K., which is not material, but uses the British pound as its functional currency.

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of shares outstanding during each year. Shares issued during the year are weighted for the portion of the year that they were outstanding. Diluted earnings per share is calculated in a manner consistent with that of basic earnings per share while giving effect to all dilutive potential common shares that were outstanding during the period.

In March 2001, the Company's Board of Directors declared a stock dividend of 0.20 shares of common stock for each common share outstanding. The stock dividend was issued on April 16, 2001 to all common stock shareholders of record as of March 31, 2001. In accordance with SFAS No. 128, "Earnings per Share," all per share data for all periods presented in the consolidated financial statements reflect the increase in the amount of common stock outstanding resulting from the stock dividend. Additionally, information regarding the Company's stock option plan includes the effect of the dividend (see Note 10).

The following is a reconciliation from basic earnings per share to diluted earnings per share for each of the last three years.

Stock options in the amount of 20,000, 23,000 and 94,000 shares for the years ended 2002, 2001 and 2000, respectively, were excluded from the diluted earnings per share calculation due to their anti-dilutive effect. Also, convertible debentures in the amount of 479,000 shares were excluded from the 2001 diluted earnings per share calculation due to their anti-dilutive effect.

The Company applies SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" to report information about operating segments in annual and interim financial reports. An operating segment is defined as a component that engages in business activities, whose operating results are reviewed by the executive officers in order to make decisions about allocating resources, and for which discrete financial information is available (see Note 12).

or divisible from the acquired entity and capable of being sold, transferred, licensed, returned or exchanged.

SFAS No. 142, generally effective March 1, 2002, supersedes APB No. 17, "Intangible Assets," and requires goodwill and other acquired intangible assets that have an indefinite useful life to no longer be amortized; however, these assets must be reviewed at least annually for impairment. The Company currently amortizes goodwill over its estimated useful life of five to fifteen years. The Company's management is currently evaluating the impact the adoption of this standard will have on the financial statements.

The Company recorded $320,000, or $0.07 per share on a pre-tax basis, of goodwill amortization in 2002.

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 30, 2002. The Company does not anticipate the adoption of this standard will have a material impact on the financial statements.

All references herein to "2002", "2001" and "2000" mean the fiscal years ended February 28, 2002, February 28, 2001 and February 29, 2000, respectively.

Certain balances have been reclassified in the 2001 and 2000 consolidated financial statements to conform to the 2002 presentation.

In June 2001, the Company acquired the outstanding common stock of XKD Corporation ("XKD"), a manufacturer of high-resolution displays used in training, simulation, ruggedized military and industrial applications. The Company acquired assets of $968,000 and assumed liabilities of $968,000; accordingly, no goodwill was recognized from the acquisition. The transaction was accounted for under the purchase method of accounting and the results of operations of XKD since its acquisition date have been included in the Company's consolidated financial statements. The purchase agreement includes potential royalty payments of up to $2,000,000 based on specific future revenues of XKD, options to acquire 10,000 shares of the Company's common stock, and the release of corporate indemnification of the seller of certain personal obligations.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in connection with the XKD acquisition:

Accounts receivable		$	130,000
Inventory			400,000
Property and equipment			100,000
Prepaid expenses			139,000
Other assets			199,000

	Total assets acquired		968,000

Accounts payable and other accrued expenses			(266,000	)
Note payable			(702,000	)

	Total liabilities assumed		(968,000	)

	Net assets acquired	$	—

In May 2000, the Company purchased the common stock of Lexel Imaging Systems, Inc. ("Lexel") located in Lexington, Kentucky. Lexel has developed specialized processes used in manufacturing a wide range of monochrome CRTs for commercial and military programs. The Company paid $3,000,000, financed by short-term debt. The transaction was accounted for under the purchase method of accounting and the results of operations of Lexel since its acquisition date have been included in the Company's consolidated financial statements.

The following tables summarize the fair values of the assets acquired, liabilities assumed and consideration paid in connection with the Lexel acquisition:

The following table summarizes the unaudited pro forma consolidated results of operations of the Company for 2001 and 2000, assuming the Lexel acquisition had occurred at the beginning of the fiscal periods. The pro forma financial information is not necessarily indicative of what would have occurred had the acquisition been made as of those dates, 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, depreciation, interest expense and income taxes.

	2001		2000
	(unaudited)		(unaudited)
Pro forma net sales	$	71,767,000	$	73,131,000
Pro forma income from operations		2,656,000		3,567,000
Pro forma net income		286,000		1,571,000
Pro forma basic earnings per share	$	0.06	$	0.33
Pro forma diluted earnings per share	$	0.06	$	0.32

In June 2000, the Company purchased certain assets of the electro optical division of Imaging and Sensing Technology ("IST") in Horseheads, New York. The Company paid $1,598,000 financed by a demand note payable to the CEO of the Corporation with a stated interest rate of prime plus 1.0%. IST provides a product line that includes specially CRTs used to produce computer generated graphics, high quality photography and medical diagnostic images. The acquired assets of IST were integrated into the Lexel facility in Lexington, Kentucky.

Also in 2001, the Company acquired certain assets, principally inventory, of two CRT operations for cash consideration of $759,000, funded by its Primary line of credit. These operations were also integrated into the Lexel facility. These acquisitions were accounted for under the purchase method of accounting and the results of operations of these entities since their acquisition dates have been included in the Company's consolidated financial statements. No goodwill resulted from these transactions.

	2002			2001
Costs incurred to date on uncompleted contracts	$	2,949,000		$	4,600,000
Estimated earnings recognized to date on these contracts		2,239,000			2,573,000

		5,188,000			7,173,000
Billings to date		(4,264,000	)		(7,179,000	)

Costs and earnings in excess of billings, net	$	924,000		$	(6,000	)

Costs and earnings in excess of billings	$	924,000		$	158,000
Billings in excess of costs and earnings		—			(164,000	)

	$	924,000		$	(6,000	)

Costs and earnings in excess of billings are classified in the consolidated balance sheets under the caption "Prepaid expenses and other" while billings in excess of costs and earnings are included under the caption "Accrued liabilities."

	2002			2001
Raw materials and work-in-process	$	14,478,000		$	13,299,000
Finished goods		19,082,000			18,122,000

		33,560,000			31,421,000
Reserves for obsolescence		(1,640,000	)		(1,643,000	)

	$	31,920,000		$	29,778,000

The Company holds an unsecured note receivable as a result of a litigation settlement. The note had an original face value of $1,500,000 due in monthly installments of $15,000 over a term of 100 months. The note was non-interest bearing for the first 50 payments and interest bearing, at prime (8.5% at February 28, 2001) plus 1%, over the remaining 50 payments. During 2001, monthly payments on the note were delinquent and payments made were less than the required contractual amounts.

Payments eventually ceased in the fourth quarter of 2001. As of February 28, 2001, the Company believed that it was probable that they would be unable to collect any of the outstanding amounts due under the contractual terms of the loan agreement and considered the loan impaired. In accordance with SFAS No. 114, "Accounting by Creditor's of Impairment of a Loan", the Company wrote off the remaining $514,000 balance of the note.

	2002			2001
Term loan facility; floating interest rate based on an adjusted LIBOR rate (4.4% as of February 28, 2002); quarterly principal payments of $313,000 payable through November 2005; collateralized by assets of Aydin Displays, Inc.	$	4,375,000		$	5,625,000
Note payable to bank; interest rate of prime (4.75% as of February 28, 2002) plus 1.5%; monthly principal payments of $9,000 payable through May 2010; collateralized by assets of XKD Corporation		656,000			—
Mortgage payable to bank; interest not to exceed 7.5%; monthly principal and interest payments of $4,000 payable through December 2003 with a final principal payment of $539,000 in December 2003; collateralized by land and building of Fox International, Inc.		627,000			671,000
Mortgage payable to bank; interest rate of prime plus 0.5%; monthly principal and interest payments of $5,000 commencing in May 2002 and payable through October 2021; collateralized by land and building of Teltron Technologies, Inc.		509,000			—
Other		231,000			694,000

		6,398,000			6,990,000
Less current maturities		(1,443,000	)		(1,470,000	)

	$	4,955,000		$	5,520,000

At February 28, 2001, the Company had a $5,500,000 primary line of credit (the "Primary Line") and a $3,500,000 secondary line of credit (the "Secondary Line") secured by substantially all of the assets of the Company. The Primary Line's interest rate was at a fixed rate of 7.25% and the Secondary Line's interest rate is at Prime (4.75% as of February 28, 2002) plus one percent. Both lines were secured by substantially all of the assets of the Company and were limited by eligible accounts receivable and inventory, as defined by the agreements. As of February 28, 2001 the outstanding balances on the Primary and Secondary lines was $5,500,000 and $3,017,000, respectively.

In May 2000, the Company entered into a $3,000,000 note payable (the "Lexel note") with its primary bank to finance the acquisition of Lexel. The note bore interest at LIBOR plus 2% and was guaranteed by the CEO of the Company.

In May 2001, the Company and its primary bank agreed to consolidate the existing Primary Line and the $3,000,000 Lexel note into a $10,000,000 credit facility (the "amended Primary Line"). Accordingly, the combined outstanding amount of $8,500,000 related to the Primary Line ($5,500,000) and the Lexel note ($3,000,000) was classified as long-term as of February 28, 2001 in the accompanying consolidated balance sheet. The Secondary Line was to expire on December 31, 2001. On February 28, 2002, the Company negotiated an amendment to the Secondary Line. The term was extended until July 31, 2002 with principal reductions to $3,150,000 on March 31, 2002 and additional monthly principal payments of $100,000 from April through July 2002. The interest rate is based on the prime rate plus 2%. All other terms of the agreement remain essentially the same.

As of February 28, 2002, the outstanding balance on the Primary Line was $9,285,000, of which $500,000 is classified as current, and the outstanding balance on the Secondary Line (all of which is classified as current) was $3,279,000.

The interest rate on the amended Primary Line is based on a floating LIBOR rate (4.4% at February 28, 2002), based on a ratio of debt to EBITDA, as defined. The note matures on July 1, 2003. The amount of credit available for advance was reduced by $500,000 on July 1, 2001 and will be reduced by an additional $500,000 on July 1, 2002. Advance rates remain the same as under the previous line, including a commitment fee of 0.25% for the unused portion. The new agreement contains affirmative and negative covenants, including requirements related to tangible net worth and debt service coverage. Additionally, dividend payments, capital expenditures and acquisitions have certain restrictions. Substantially all of the Company's retained earnings are restricted based upon these covenants.

At February 28, 2000 the Company had outstanding borrowings in the form of a demand note from its CEO in the amount of $2,200,000. In June 2000, the Company borrowed an additional $1,400,000 from the CEO to assist with the acquisition of certain assets of the electro optics division of IST. This borrowing was combined with the existing demand note and, as of February 28, 2001, the outstanding balance was $3,600,000. During 2002, the Company borrowed an additional $3,000,000 from the CEO to finance the product line acquisition from Christie Digital. This borrowing is a one-year agreement with interest due monthly based on LIBOR (1.9% at February 28, 2002) plus 2.4%. Additionally, the Company borrowed $500,000 from the CEO during 2002 for short-term financing purposes. As of February 28, 2002, the aggregate outstanding balance due the CEO was $7,100,000.

Subsequent to year-end, the Company borrowed an additional $740,000 and repaid $340,000 from the CEO of the Company for short-term operating purposes.

The Company issued $2,000,000 in face value, 8% five-year convertible subordinated debentures in payment of the acquisition of the stock of Z-Axis in fiscal 1997. The debentures are convertible at the holder's option into common shares based upon a conversion rate of $4.17 per share, as adjusted for the April 2001 stock dividend. During fiscal 2002, $775,000 of debentures plus accrued interest were converted into 186,068 common shares. In May 2001, the Company's CEO, the holder of the remaining debentures, in accordance with the provisions of the subordinated debt agreement, elected to extend the maturity date of his remaining $1,000,000 debentures to May 31, 2003.

The Company has an incentive stock option plan whereby total options to purchase 600,000 shares may be granted to key employees at a price not less than fair market value at the time the options are granted and are exercisable beginning on the first anniversary of the grant date for a period not to exceed ten years. The stock option plan stipulates that, in the event of a stock dividend, all outstanding grants will be proportionally adjusted both in number of options and exercise price. Information

regarding the stock option plan is as follows, which includes the effect of the 20% stock dividend issued on April 16, 2001 for all periods presented:

		Number of Shares		Weighted Average Exercise Price
Outstanding at February 28, 1999		264,000		$	3.29
	Granted	6,000			3.96
	Exercised	(60,000	)		1.67
	Forfeited or expired	(24,000	)		4.07

Outstanding at February 29, 2000		186,000		$	3.74
	Granted	6,000			5.31
	Exercised	(12,000	)		3.48
	Forfeited or expired	—			—

Outstanding at February 28, 2001		180,000		$	3.81
	Granted	42,000			4.65
	Exercised	—			—
	Forfeited or expired	(2,000	)		7.40

Outstanding at February 28, 2002		220,000		$	3.93

Options exercisable	Number of Shares	Weighted Average Exercise Price
February 28, 2002	220,000	$	3.93
February 28, 2001	162,000		3.58
February 29, 2000	174,000		3.56

The weighted average fair value of options, calculated using the Black-Scholes option pricing model, granted during the years 2002, 2001 and 2000 was $4.33, $1.17 and $0.14, respectively. The weighted average remaining life of options outstanding at February 28, 2002, 2001 and February 29, 2000 was 5.3, 5.7 and 6.6 years, respectively. At February 28, 2002 and 2001, the Company had approximately 298,000 and 338,000 shares, respectively, available for the granting of options under the stock option plan.

The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for stock options granted. Had compensation cost been determined based on the fair value at the grant date for awards in 2002, 2001 and 2000, consistent with the provisions of the Standard, the Company's net earnings and earnings per share would have changed as indicated by the pro forma amounts below:

	Fiscal Year Ended
	2002		2001		2000
Net income—as reported	$	1,182,000	$	31,000	$	705,000
Net income—pro forma		1,156,000		24,000		704,000
Basic earnings per common share—as reported		$0.25		$0.01		$0.15
Basic earnings per common share—pro forma		$0.25		$0.01		$0.15
Diluted earning per common share—as reported		$0.24		$0.01		$0.15
Diluted earning per common share—pro forma		$0.24		$0.01		$0.15

The fair value of stock options used to compute pro forma net income applicable to common shareholders and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 2002, 2001 and 2000, respectively: expected volatility of 60%, 50% and 35%; a risk-free interest rate of 4.50%, 6.50% and 5.65%; expected lives of 3.5, 2.0 and 5.0 years; and dividend yield of 0.00% for all years.

Provisions for federal, state and foreign income taxes in the consolidated statements of income consisted of the following components:

Income before taxes and minority interests on income consisted of the following:

The effective income tax rate differed from the statutory federal income tax rate as follows:

Deferred income taxes as of February 28, 2002 and 2001 reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards.

The sources of the temporary differences and their effect on the net deferred tax asset consisted of the following:

		2002			2001
Deferred tax assets:
	Investment capital loss carryforwards	$	240,000		$	240,000
	Foreign net operating loss carryforwards		470,000			400,000
	Uniform capitalization costs		382,000			333,000
	Inventory reserve		391,000			606,000
	Accrued vacation		71,000			102,000
	Allowance for doubtful accounts		122,000			103,000
	Other		34,000			107,000

			1,710,000			1,891,000
	Valuation allowance		(240,000	)		(240,000	)
Deferred tax liabilities:
	Basis difference of property, plant and equipment		(363,000	)		(218,000	)
	Other		(45,000	)		(48,000	)

Net deferred tax assets		$	1,062,000		$	1,385,000

Current			1,175,000			1,164,000
Non-current			(113,000	)		221,000

		$	1,062,000		$	1,385,000

Current deferred tax assets are included in the consolidated balance sheets under the caption "Prepaid expenses and other." As of February 28, 2001, non-current deferred tax assets are included under the caption "Other assets." Investment loss carryforwards consist primarily of investment losses, which may be utilized to offset any future taxable gains on the sale of investments. The investment loss carryforwards expire in 2005. The Company has provided a valuation allowance on these loss carryforwards, as realization of these assets is not considered likely. The foreign net operating loss carryforwards expire at various times through 2016.

Undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in their financial statements. The standard defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker aggregates operating segments based on the type of products produced by the segment. Based on the quantitative thresholds specified in SFAS 131, the Company has determined that it has two reportable segments with subsegments within one of the main segments. The two reportable segments are as follows: (1) the manufacture and distribution of cathode ray tubes and electron guns in the replacement market and (2) the distribution of electronic parts from foreign and domestic manufacturers. The subsegments within the CRT segment consists of data display CRTs, entertainment (television and projection) CRTs, monitors and component parts. Foreign operations account for less than 10% of consolidated sales and consolidated assets.

The accounting policies of the operating segments are the same as those described in Summary of Significant Accounting Policies. Segment amounts disclosed reflect elimination entries made in consolidation. The chief operating decision maker evaluates performance of the segments based on operating income. Costs excluded from this profit measure primarily consist of interest expense and income taxes.

The following table sets forth net sales, operating profit, depreciation and amortization, capital expenditures, and identifiable assets for each industry segment and applicable subsegments:

The Company has a defined contribution plan that covers substantially all U.S. employees. Employees may contribute up to 15% of their compensation, as allowed by IRS regulations. At the Company's discretion, employee contributions of up to 4% of their compensation can be matched at 50% by the Company. The Company's contributions to the Plan amounted to $98,000 and $100,000 in 2001 and 2000, respectively. No contributions were made in 2002.

The Company leases various manufacturing facilities and transportation equipment under leases classified as operating leases. These leases provide that the Company pays taxes, insurance and other expenses on the leased property and equipment. Rent expense under these leases was approximately $2,340,000, $2,546,000 and $2,109,000 in 2002, 2001 and 2000, respectively.

The Company leases four of its manufacturing facilities and certain warehouse space from shareholders and officers under net operating leases expiring at various dates through 2006. Rent expense under these leases totaled approximately $491,000, $439,000 and $597,000 in 2002, 2001 and 2000, respectively.

Future minimum rental payments due under these leases with related parties are as follows:

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. At times, such cash in banks are in excess of the FDIC insurance limit.

The Company's CRT segment had net sales to the U.S. government that comprised approximately 15% and 17% of CRT segment net sales and 13% of consolidated net sales both in fiscal 2002 and 2001, respectively. The Company's wholesale electronic parts distributor had net sales to one customer

that comprised approximately 20%, 22% and 19% of that subsidiary's net sales in 2002, 2001 and 2000, respectively. Other subsidiaries have a few concentrated customers and vendors that could, if lost, negatively affect sales. The Company attempts to minimize credit risk by reviewing all customers' credit history before extending credit, and by monitoring customers' credit exposure on a daily basis. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific customers, historical trends and other information.

During 2002, three holders of subordinated debentures converted $775,000 into 186,068 shares of the Company's common stock.

During 2002, the Company acquired $960,000 of assets and assumed $960,000 of liabilities in the acquisition of the outstanding common stock of XKD, Corp. No cash was exchanged in this transaction.

The following table sets forth selected quarterly consolidated financial data for the years ended February 28, 2002 and 2001, respectively. The summation of quarterly earnings per share may not agree with annual earnings per share.

	2002
	First Quarter		Second Quarter		Third Quarter	Fourth Quarter
	(in thousands, except per share amounts)
Net Sales	$	17,479		$	18,821	$	17,034	$	19,032
Gross profit		5,401			5,809		5,786		5,916
Net income		234			352		453		143
Basic and diluted earnings per share	$	0.05		$	0.07	$	0.10	$	0.03

	2001
	First Quarter		Second Quarter(a)		Third Quarter	Fourth Quarter(b)
	(in thousands, except per share amounts)
Net Sales	$	16,620		$	18,061	$	18,959	$	17,166
Gross profit		5,165			5,707		5,295		4,716
Net income (loss)		240			302		156		(667	)
Basic and diluted earnings (loss) per share	$	0.05		$	0.07	$	0.03	$	(0.15	)

Video Display Corporation and Subsidiaries

Index to Consolidated Financial Statements Schedule

The audits referred to in our report dated May 17, 2002 relating to the consolidated financial statements of Video Display Corporation and subsidiaries, which are contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying schedule. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits.

In our opinion, such schedule presents fairly, in all material respects, the information set forth therein.

VIDEO DISPLAY CORPORATION AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

Georgia		58-1217564
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class		Name of each exchange of which registered
Common stock (no par value)		NASDAQ/NMS

	For Fiscal Years Ended
	February 28, 2002				February 28, 2001
Quarter Ended	February 28, 2002				February 28, 2001
Quarter Ended	High		Low		High		Low
May	$	8.250	$	4.600	$	9.583	$	3.229
August		5.950		4.050		6.458		4.479
November		6.000		4.700		7.136		5.313
February		6.150		4.400		6.979		5.052

	For Fiscal Years Ended
	Feb. 28, 2002 (b)		Feb. 28, 2001 (b)		Feb. 29, 2000 (b)		Feb. 28, 1999		Feb. 28, 1998
	(In Thousands, Except Per Share Data)
Income Statement Data
Net sales	$	72,366	$	70,806	$	63,838	$	58,889	$	57,913
Gross profit		22,912		20,883		20,316		19,992		21,962
Goodwill amortization expense		320		318		310		240		278
Operating profit		3,651		2,489		2,713		3,594		6,941
Net income		1,182		31		705		1,122		3,541

Net income per share—basic (a)	$	0.25	$	0.01	$	0.15	$	0.24	$	0.75
Net income per share—diluted (a)	$	0.24	$	0.01	$	0.15	$	0.23	$	0.68
Average number of shares outstanding— basic (a)		4,701		4,552		4,708		4,729		4,705
Average number of shares outstanding— diluted (a)		5,073		4,639		5,233		5,337		5,346
Cash dividends	$	—	$	—	$	—	$	—	$	—
Balance Sheet Data (at year end)
Total assets	$	61,841	$	56,882	$	49,851	$	51,641	$	40,582
Working capital		27,569		26,311		21,862		26,564		16,441
Long-term obligations		14,957		14,020		8,644		13,987		2,791

		2002					2001					2000
		Amount			%		Amount			%		Amount			%
		(in thousands, except percentages)
Sales:
CRT segment
	Data display CRTs	$	11,028		15.2	%	$	10,476		14.8	%	$	10,319		16.2	%
	Entertainment CRTs		6,558		9.1			7,544		10.6			9,350		14.6
	Electron guns and components		1,607		2.2			1,943		2.7			2,029		3.2
	Monitors		39,697		54.9			36,275		51.3			25,430		39.8

Total CRT Segment			58,890		81.4			56,238		79.4			47,128		73.8
Wholesale distribution segment
	Consumer electronic parts		13,476		18.6			14,568		20.6			16,710		26.2

			72,366		100.0			70,806		100.0			63,838		100.0

Costs and expenses:
Cost of goods sold			49,454		68.3			49,923		70.5			43,522		68.2
Selling and delivery			6,109		8.4			6,314		8.9			5,058		7.9
General and administrative			13,152		18.2			12,080		17.1			12,545		19.6

			68,715		94.9			68,317		96.5			61,125		95.7

Operating profit			3,651		5.1			2,489		3.5			2,713		4.3
Interest expense			(1,585	)	(2.2	)		(2,092	)	(2.9	)		(1,515	)	(2.4	)
Other income (expense), net			104		0.1			(73	)	(0.1	)		(178	)	(0.3	)

Income before taxes on income			2,170		3.0			324		0.5			1,020		1.6
Taxes on income			988		1.4			293		0.4			315		0.5

Net income		$	1,182		1.6	%	$	31		0.1	%	$	705		1.1	%

Date:		VIDEO DISPLAY CORPORATION
May 28, 2002		By:		/s/ RONALD D. ORDWAY Ronald D. Ordway Chairman of the Board and Chief Executive Officer

Report of Independent Certified Public Accountants		F-2
Consolidated Balance Sheets as of February 28, 2002 and 2001		F-3
Consolidated Statements of Income for the years ended February 28, 2002, February 28, 2001 and February 29, 2000		F-5
Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss) for the years ended February 28, 2002, February 28, 2001 and February 29, 2000		F-6
Consolidated Statements of Cash Flows for the years ended February 28, 2002, February 28, 2001 and February 29, 2000		F-7
Notes to Consolidated Financial Statements		F-8

		February 28, 2002			February 28, 2001
Assets (Notes 6 and 7)
Current
	Cash and cash equivalents	$	1,615,000		$	4,137,000
	Accounts receivable, net of allowance of $343,000 and $289,000 (Note 5)		12,712,000			10,511,000
	Inventories, net of reserves of $1,640,000 and $1,643,000 (Note 4)		31,920,000			29,778,000
	Prepaid expenses and other (Notes 3 and 11)		3,276,000			1,995,000

Total current assets			49,523,000			46,421,000

Property, plant and equipment
	Land		600,000			600,000
	Buildings		6,814,000			5,453,000
	Machinery and equipment		18,845,000			17,850,000

			26,259,000			23,903,000
	Accumulated depreciation		(16,891,000	)		(15,651,000	)

Net property, plant and equipment			9,368,000			8,252,000

Other assets (Notes 2, 5 and 11)			2,950,000			2,209,000

		$	61,841,000		$	56,882,000

		February 28, 2002			February 28, 2001
Liabilities and Shareholders' Equity
Current liabilities
	Accounts payable	$	4,808,000		$	5,252,000
	Accrued liabilities		4,556,000			3,208,000
	Customer advances		244,000			1,652,000
	Lines of credit (Note 7)		3,779,000			3,017,000
	Notes payable to shareholders (Note 8)		7,124,000			3,736,000
	Current maturities of long-term debt (Note 6)		1,443,000			1,470,000
	Convertible subordinated debentures (Note 9)		—			1,775,000

Total current liabilities			21,954,000			20,110,000
Lines of credit (Note 7)			8,785,000			8,500,000
Long-term debt, less current maturities (Note 6)			4,955,000			5,520,000
Notes payable to shareholders, less current maturities (Note 8)			217,000			—
Convertible subordinated debentures (Note 9)			1,000,000			—
Deferred income taxes (Note 11)			113,000			—

Total liabilities			37,024,000			34,130,000

Minority interests			158,000			153,000

Commitments (Notes 13 and 14)
Shareholders' equity (Notes 7 and 10)
Preferred stock; no par value—2,000,000 shares authorized, none issued and outstanding			—			—
Common stock; no par value—10,000,000 shares authorized; 4,749,000 and 4,559,000 shares issued and outstanding			3,826,000			3,034,000
Additional paid-in capital			92,000			92,000
Retained earnings			22,134,000			20,952,000
Accumulated other comprehensive income (loss)			(1,393,000	)		(1,479,000	)

Total shareholders' equity			24,659,000			22,599,000

		$	61,841,000		$	56,882,000

		Fiscal Year Ended
		February 28, 2002			February 28, 2001			February 29, 2000
Net sales (Note 15)		$	72,366,000		$	70,806,000		$	63,838,000
Cost of goods sold			49,454,000			49,923,000			43,522,000

Gross profit			22,912,000			20,883,000			20,316,000

Operating expenses
Selling and delivery			6,109,000			6,314,000			5,058,000
General and administrative			12,874,000			11,495,000			12,241,000
Provision for losses on accounts and notes receivable (Note 5)			278,000			585,000			304,000

			19,261,000			18,394,000			17,603,000

Operating profit			3,651,000			2,489,000			2,713,000

Other income (expense)
	Interest expense		(1,585,000	)		(2,092,000	)		(1,515,000	)
	Gain on sale of subsidiary		—			—			433,000
	Loss on investment in equity investee		—			—			(482,000	)
	Other, net		109,000			(80,000	)		(148,000	)

			(1,476,000	)		(2,172,000	)		(1,712,000	)

Income before income taxes and minority interests			2,175,000			317,000			1,001,000
Taxes on income (Note 11)			988,000			293,000			315,000

Income before minority interests			1,187,000			24,000			686,000
Minority interests			(5,000	)		7,000			19,000

Net income		$	1,182,000		$	31,000		$	705,000

Net income per share—basic		$	0.25		$	0.01		$	0.15

Net income per share—diluted		$	0.24		$	0.01		$	0.15

Average shares outstanding—basic			4,701,000			4,552,000			4,708,000

Average shares outstanding—diluted			5,073,000			4,639,000			5,233,000

			Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Current Year Comprehensive Income (Loss)
Balance, February 28, 1999			$	3,591,000		$	92,000	$	20,216,000	$	(1,536,000	)
	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
	Foreign currency translation adjustment			—			—		—		13,000			13,000

		Total comprehensive income											$	840,000

	Issuance of common stock under stock option plan			100,000			—		—		—
Repurchase of common stock				(697,000	)		—		—		—

Balance, February 29, 2000				2,994,000			92,000		20,921,000		(1,401,000	)
	Net income for the year			—			—		31,000		—		$	31,000
	Unrealized loss on marketable equity securities			—			—		—		(29,000	)		(29,000	)
	Foreign currency translation adjustment			—			—		—		(49,000	)		(49,000	)

		Total comprehensive loss											$	(47,000	)

	Issuance of common stock under stock option plan			40,000			—		—		—

Balance, February 28, 2001				3,034,000			92,000		20,952,000		(1,479,000	)
	Net income for the year			—			—		1,182,000		—		$	1,182,000
	Unrealized loss on marketable equity securities			—			—		—		(2,000	)		(2,000	)
	Foreign currency translation adjustment			—			—		—		88,000			88,000

		Total comprehensive income											$	1,268,000

	Issuance of common stock under stock option plan			17,000			—		—		—
	Conversion of subordinated debentures to common stock			775,000			—		—		—

Balance, February 28, 2002			$	3,826,000		$	92,000	$	22,134,000	$	(1,393,000	)

*Year ended*			February 28, 2002			February 28, 2001			February 29, 2000
Operating Activities
Net income			$	1,182,000		$	31,000		$	705,000
Adjustments to reconcile net income to net cash (used in) provided by operating activities
	Depreciation and amortization			1,660,000			1,474,000			1,438,000
	Provision for losses on accounts and notes receivable			278,000			585,000			304,000
	Provision for inventory reserves			350,000			438,000			909,000
	Deferred income taxes			323,000			(140,000	)		(355,000	)
	Net income (loss) allocated to minority interests			5,000			(7,000	)		(19,000	)
	Net (gains) losses in investing activities			—			(67,000	)		143,000
	Changes in working capital items, net of effect of acquisitions:
		Accounts receivable		(2,349,000	)		(1,441,000	)		(654,000	)
		Inventories		(2,092,000	)		(65,000	)		1,040,000
		Prepaid expenses and other assets		(1,131,000	)		(196,000	)		463,000
		Accounts payable and accrued liabilities		638,000			(1,291,000	)		726,000
		Customer advances		(1,408,000	)		1,652,000			—

Net cash (used in) provided by operating activities				(2,544,000	)		973,000			4,700,000

Investing Activities
	Capital expenditures			(3,156,000	)		(1,466,000	)		(1,374,000	)
	Disposal of fixed assets			—			100,000			274,000
	Net cash paid for acquisitions			—			(5,357,000	)		—
	Proceeds from sale of subsidiary			—			—			1,784,000
	Other investing activities			(285,000	)		37,000			24,000

Net cash (used in) provided by investing activities				(3,441,000	)		(6,686,000	)		708,000

Financing Activities
	Proceeds from long-term debt and lines of credit			27,303,000			32,714,000			23,493,000
	Repayments of long-term debt and lines of credit			(23,945,000	)		(27,090,000	)		(26,232,000	)
	Proceeds from stock option exercises			17,000			40,000			100,000
	Purchases and retirements of common stock			—			—			(697,000	)

Net cash provided by (used in) financing activities				3,375,000			5,664,000			(3,336,000	)

Effect of exchange rates on cash				88,000			(49,000	)		13,000

Net change in cash and cash equivalents (Note 16)				(2,522,000	)		(98,000	)		2,085,000
Cash and cash equivalents, beginning of year				4,137,000			4,235,000			2,150,000

Cash and cash equivalents, end of year			$	1,615,000		$	4,137,000		$	4,235,000

		Net Income		Weighted Average Shares Outstanding	Earnings Per Share
2002
Basic		$	1,182,000	4,701,000	$	0.25
Effect of dilution:
	Options		—	71,000
	Convertible debt		59,000	301,000

Diluted		$	1,241,000	5,073,000	$	0.24

2001
Basic		$	31,000	4,552,000	$	0.01
Effect of dilution:
	Options		—	87,000

Diluted		$	31,000	4,639,000	$	0.01

2000
Basic		$	705,000	4,708,000	$	0.15
Effect of dilution:
	Options		—	32,000
	Convertible debt		88,000	493,000

Diluted		$	793,000	5,233,000	$	0.15

Inventory		$	2,690,000
Property and equipment			1,474,000
Accounts payable and accrued expenses			(760,000	)
Other liabilities			(404,000	)

	Cash paid	$	3,000,000

Year	Amount
2003	$	1,443,000
2004		1,988,000
2005		1,386,000
2006		754,000
2007		99,000
Thereafter		728,000

	$	6,398,000

		Fiscal Year Ended
		2002			2001			2000
Current:
	Federal	$	560,000		$	361,000		$	781,000
	State		105,000			72,000			134,000
	Foreign		—			—			(245,000	)

			665,000			433,000			670,000

Deferred:
	Federal		369,000			(24,000	)		(57,000	)
	State		24,000			(4,000	)		(10,000	)
	Foreign		(70,000	)		(112,000	)		(288,000	)

			323,000			(140,000	)		(355,000	)

Total		$	988,000		$	293,000		$	315,000

Operating Profit (Loss)
CRT segment
	Data display	$	(2,272	)	$	(2,105	)	$	(2,110	)
	Entertainment		2,088			2,814			4,306
	Monitors		4,326			1,884			1,194
	Component parts		(46	)		(48	)		(211	)

			4,096			2,545			3,179
Wholesale Distribution segment			(445	)		(56	)		(466	)

		$	3,651		$	2,489		$	2,713

Depreciation and Amortization
CRT segment
	Data display	$	338		$	228		$	238
	Entertainment		150			151			166
	Monitors		691			553			417
	Component parts		72			76			86

			1,251			1,008			907
Wholesale Distribution segment			409			466			531

		$	1,660		$	1,474		$	1,438

Capital Expenditures**
CRT segment
	Data display	$	120		$	117		$	351
	Entertainment		—			4			28
	Monitors		3,033			2,421			588
	Component parts		16			31			34

			3,169			2,573			1,001
Wholesale Distribution segment			87			43			181

		$	3,256		$	2,616		$	1,182

Identifiable Assets
CRT segment
	Data display	$	20,854		$	18,926		$	17,824
	Entertainment		3,305			3,679			4,445

Fiscal Year	Amount
2003	$	1,838,000
2004		1,401,000
2005		1,240,000
2006		584,000
2007		424,000
Thereafter		131,000

	$	5,618,000

	Options Outstanding and Exercisable
Range of Exercise Prices	Number Outstanding and Exercisable at February 28, 2002	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
	(in years)
$2.29–3.96	151,000	4.5	$	3.13
4.40–5.50	48,000	7.6		4.73
7.29–8.44	21,000	5.2		8.00

	220,000	5.3	$	3.93

	2002			2001			2000
U.S. operations	$	2,359,000		$	598,000		$	2,153,000
Foreign operations		(184,000	)		(281,000	)		(1,152,000	)

	$	2,175,000		$	317,000		$	1,001,000

Fiscal Year	Amount
2003	$	488,000
2004		401,000
2005		240,000
2006		220,000
2007		120,000
Thereafter		100,000

	$	1,569,000

		2002		2001		2000
Cash paid (received) for:
	Interest	$	1,852,000	$	2,146,000	$	1,426,000

	Income taxes, net of refunds	$	464,000	$	1,470,000	$	(121,000	)

Report of Independent Certified Public Accountants on Financial Statement Schedule		F-26
Schedule II—Valuation and Qualifying Accounts		F-27

Column A		Column B			Column C				Column D			Column E
					Additions
Description		Balance at Beginning of Period			Charged to Costs and Expenses		Charged to Other Accounts		Deductions			Balance at End of Period
Allowance for doubtful accounts:
	February 28, 2002	$	289,000		$	278,000	$	—	$	224,000		$	343,000
	February 28, 2001	$	522,000	(b)	$	585,000	$	—	$	818,000	(a)	$	289,000
	February 29, 2000	$	581,000	(b)	$	304,000	$	—	$	363,000	(a)	$	522,000	(b)
Reserves for inventory:
	February 28, 2002	$	1,643,000		$	350,000	$	—	$	353,000		$	1,640,000
	February 28, 2001	$	1,337,000		$	438,000	$	—	$	132,000	(c)	$	1,643,000
	February 29, 2000	$	713,000		$	909,000	$	—	$	285,000	(c)	$	1,337,000