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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended MAY 31, 2002 Commission File Number 0-13394
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
GEORGIA 58-1217564
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1868 TUCKER INDUSTRIAL DRIVE, TUCKER, GEORGIA 30084
(Address of principal executive offices)
Registrant's telephone number including area code: 770-938-2080
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
CLASS OUTSTANDING AT MAY 31, 2002
- -------------------------- ---------------------------
Common Stock, No Par Value 4,767,133
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets -
May 31, 2002 (unaudited) and February 28, 2002 (audited) 3-4
Consolidated statements of income -
Three months ended May 31, 2002 and 2001 (unaudited) 5
Consolidated statements of shareholders' equity and comprehensive income -
Twelve months ended February 28, 2002 (audited) and the three months
ended May 31, 2002 (unaudited) 6
Consolidated statements of cash flows -
Three months ended May 31, 2002 and 2001 (unaudited) 7
Notes to consolidated financial statements -
May 31, 2002 (unaudited) 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon its Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, FEBRUARY 28,
2002 2002
(UNAUDITED) (NOTE A)
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 857,000 $ 1,615,000
Accounts receivable, less allowance for
possible losses of $429,000 and $343,000 13,510,000 12,712,000
Inventories (Notes D and G) 33,111,000 31,920,000
Prepaid expenses 2,899,000 3,276,000
------------ ------------
Total current assets 50,377,000 49,523,000
------------ ------------
Property, plant and equipment:
Land 600,000 600,000
Buildings 6,899,000 6,814,000
Machinery and equipment 19,075,000 18,845,000
------------ ------------
26,574,000 26,259,000
Accumulated depreciation and amortization (17,284,000) (16,891,000)
------------ ------------
Net property, plant, and equipment 9,290,000 9,368,000
------------ ------------
Other assets 2,533,000 2,950,000
------------ ------------
Total assets $ 62,200,000 $ 61,841,000
============ ============
The accompanying notes are an integral part of these statements.
3
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, FEBRUARY 28,
2002 2002
(UNAUDITED) (NOTE A)
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,173,000 $ 4,808,000
Accrued liabilities 4,475,000 4,800,000
Lines of credit (Note F) 3,545,000 3,779,000
Notes payable to shareholders 7,522,000 7,124,000
Current maturities of long-term debt (Note E) 2,035,000 1,443,000
------------ ------------
Total current liabilities 22,750,000 21,954,000
Convertible subordinated debentures 1,000,000 1,000,000
Lines of credit (Note F) 8,761,000 8,785,000
Long-term debt, less current maturities (Note E) 4,094,000 4,955,000
Notes payable to shareholders, less current maturities 197,000 217,000
Deferred income taxes 113,000 113,000
------------ ------------
Total liabilities 36,915,000 37,024,000
------------ ------------
Minority interests 166,000 158,000
Redeemable common stock (Note G) 100,000 --
COMMITMENTS -- --
SHAREHOLDERS' EQUITY
Preferred stock, no par value - 2,000,000 shares
authorized; none issued and outstanding -- --
Common stock, no par value - 10,000,000 shares
authorized; 4,767,000 and 4,749,000 issued and
outstanding 3,832,000 3,826,000
Additional paid in capital 92,000 92,000
Retained earnings 22,473,000 22,134,000
Accumulated other comprehensive loss (1,378,000) (1,393,000)
------------ ------------
Total shareholders' equity 25,019,000 24,659,000
------------ ------------
Total liabilities and shareholders' equity $ 62,200,000 $ 61,841,000
============ ============
The accompanying notes are an integral part of these statements.
4
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MAY 31,
----------------------------
2002 2001
------------ ------------
Net sales $ 18,819,000 $ 17,479,000
Cost of goods sold 12,713,000 12,078,000
------------ ------------
Gross profit 6,106,000 5,401,000
------------ ------------
Operating expenses
Selling and delivery 2,027,000 1,470,000
General and administrative 3,357,000 3,055,000
------------ ------------
5,384,000 4,525,000
------------ ------------
Operating profit 722,000 876,000
------------ ------------
Other income (expense)
Interest expense (251,000) (478,000)
Other, net 108,000 (26,000)
------------ ------------
(143,000) (504,000)
------------ ------------
Income before minority interest 579,000 372,000
Minority interest expense 6,000 3,000
------------ ------------
Income before income taxes 573,000 369,000
Income tax expense 234,000 135,000
------------ ------------
Net income $ 339,000 $ 234,000
============ ============
Basic and diluted earnings per share of common stock (Note H) $ 0.07 $ 0.05
============ ============
Basic weighted average shares outstanding 4,756,000 4,556,000
============ ============
Diluted weighted average shares outstanding 5,107,000 5,047,000
============ ============
The accompanying notes are an integral part of these statements.
5
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE TWELVE MONTHS ENDED FEBRUARY 28, 2002 (AUDITED) AND
THE THREE MONTHS ENDED MAY 31, 2002 (UNAUDITED)
ACCUMULATED CURRENT
ADDITIONAL OTHER PERIOD
COMMON PAID IN COMPREHENSIVE RETAINED COMPREHENSIVE
STOCK CAPITAL INCOME EARNINGS INCOME
----- ------- ------ -------- ------
Balance at February 28, 2001 $ 3,034,000 $92,000 $(1,479,000) $20,952,000
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 at February 28, 2002 3,826,000 92,000 (1,393,000) 22,134,000
Net income for the period - - - 339,000 $ 339,000
Issuance of common stock
under stock option plan 6,000 - - - -
Unrealized loss on marketable
equity securities - - (2,000) - (2,000)
Foreign currency translation
adjustment - - 17,000 - 17,000
--------------- ----------- ----------- ----------- --------------
Balance at May 31, 2002 $3,832,000 $92,000 $(1,378,000) $22,473,000 $ 354,000
=============== =========== =========== =========== ==============
The accompanying notes are an integral part of these statements.
6
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MAY 31,
--------------------------
2002 2001
----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH
USED IN OPERATING ACTIVITIES
Net income $ 339,000 $ 234,000
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
USED IN OPERATIONS:
Depreciation and amortization 400,000 480,000
Provision for bad debts 86,000 (16,000)
CHANGES IN WORKING CAPITAL, NET OF EFFECTS
FROM ACQUISITIONS:
Accounts receivable (884,000) (6,000)
Inventories (1,092,000) (989,000)
Prepaid expenses 393,000 (853,000)
Accounts payable and accrued liabilities 44,000 20,000
Minority interests 8,000 2,000
----------- -----------
Net cash used in operating activities $ (706,000) $(1,128,000)
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (316,000) (49,000)
Other investing activities 391,000 (628,000)
----------- -----------
Net cash provided by (used in) investing activities 75,000 (677,000)
----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term debt and lines of credit 4,553,000 5,723,000
Proceeds from exercise of stock option 6,000 5,000
Payments on long-term debt and lines of credit (4,703,000) (5,900,000)
----------- -----------
Net cash used in financing activities (144,000) (172,000)
----------- -----------
Effect of exchange rates on cash 17,000 69,000
----------- -----------
Net change in cash (758,000) (1,908,000)
Cash, beginning of period 1,615,000 4,137,000
----------- -----------
Cash, end of period $ 857,000 $ 2,229,000
=========== ===========
The accompanying notes are an integral part of these statements.
7
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company and
its majority owned subsidiaries after elimination of all significant
intercompany accounts and transactions.
The balance sheet at February 28, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments "consisting of only normal accruals"
necessary to present fairly the Company's consolidated financial position as of
May 31, 2002 and the Consolidated Statement of Income for the three months ended
May 31, 2002 and 2001.
NOTE B - ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the FASB) issued SFAS
No. 141, Business Combinations, and SFAS No.142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for business
combinations initiated after June 30, 2001. This statement also requires that
the Company recognize acquired intangible assets apart from goodwill if the
acquired intangible assets meet certain criteria. SFAS No.142 requires, among
other things, that companies no longer amortize goodwill, but instead test
goodwill for impairment at least annually.
In addition, SFAS No. 142 requires that the Company identify reporting units for
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized finite-lived intangible assets, and
cease amortization of intangible assets with an indefinite useful life. An
intangible asset with an indefinite useful life should be tested for impairment
in accordance with the guidance in SFAS No. 142. This statement is required to
be applied in fiscal years beginning after December 15, 2001, to all goodwill
and other intangible assets recognized at that date, regardless of when those
assets were initially recognized. SFAS No. 142 requires the Company to complete
a transitional goodwill impairment test within six months from the date of
adoption and reassess the useful lives of other intangible assets within the
first interim quarter after adoption. The Company adopted SFAS Nos. 141 and 142
on March 1, 2002, and accordingly, ceased amortization of goodwill at that time.
At present, the Company is currently assessing, but has not yet determined, the
complete impact the adoption of SFAS No. 141 and SFAS No. 142 will have on its
financial position and results of operations. At May 31, 2002, the net book
value recorded for goodwill was $1,132,000.
NOTE C - ACCOUNTING STANDARDS NOT YET ADOPTED
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 covers all legally enforceable obligations associated
with the retirement of tangible long-lived assets and provides the accounting
and reporting requirements for such obligations. SFAS No. 143 is effective for
the Company beginning March 1, 2003. The Company has not assessed the impact of
this new statement on its financial position or results of operations.
8
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D - INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or market.
Inventories consist of:
MAY 31, FEBRUARY 28,
2002 2002
------------ ------------
Raw materials and work-in-process $ 12,234,000 $ 14,478,000
Finished goods 22,676,000 19,082,000
------------ ------------
34,910,000 33,560,000
Reserves for obsolescence (1,799,000) (1,640,000)
------------ ------------
$ 33,111,000 $ 31,920,000
============ ============
NOTE E - LONG-TERM DEBT
Long-term debt consisted of the following:
MAY 31, FEBRUARY 28,
2002 2002
---------- ----------
Term loan facility; floating interest rate based on an adjusted LIBOR rate
(4.34% as of May 31, 2002), quarterly principal payments commenced November
1999 and maturing November 2005; collateralized by assets of Aydin Display, Inc. $4,063,000 $4,375,000
Note payable to bank; interest rate of prime (4.75% as of May 31, 2002) plus
1.5% monthly principal payments of $9,000 payable through May 2010;
collateralized by assets of XKD Corporation 641,000 656,000
Mortgage payable to bank; interest not to exceed 7.5% and maturing December
2003; collateralized by land and building of Fox International, Inc.
616,000 627,000
Mortgage payable to bank; interest rate of prime plus 0.5%; monthly principal
and interest payments of $5,000 commenced in May 2002 and payable through
October 2021; collateralized by land and building of Teltron Technologies, Inc. 598,000 509,000
Other 211,000 231,000
---------- ----------
6,129,000 6,398,000
Less current portion 2,035,000 1,443,000
---------- ----------
$4,094,000 $4,955,000
========== ==========
9
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE F - LINES OF CREDIT AND SHORT-TERM DEBT
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 May 31, 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. 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 May 31, 2002, the outstanding balance on the Primary Line was $9,261,000,
of which $500,000 is classified as current, and the outstanding balance on the
Secondary Line (all of which is classified as current) was $3,045,000.
The interest rate on the amended Primary Line is based on a floating LIBOR rate
(4.34% at May 31, 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 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.
NOTE G - SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS
ENDED
-------------------
MAY 31, MAY 31,
2002 2001
-------- --------
Cash Paid for:
Interest $331,000 $478,000
======== ========
Income taxes, net of refunds $499,000 $229,000
======== ========
Non-cash Transactions:
Issuance of redeemable common stock
for purchase of inventory $100,000 $ --
======== ========
Conversion of convertible debentures to common stock $ -- $775,000
======== ========
10
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE H - STOCK DIVIDEND AND EARNINGS PER SHARE
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.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding during each
period. Shares issued during the period are weighted for the portion of the
period 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.
The following is a reconciliation from basic earnings per share to diluted
earnings per share for each of the periods presented.
WEIGHTED
AVERAGE SHARES EARNINGS PER
NET INCOME OUTSTANDING SHARE
---------- -------------- ------------
Quarter ended May 31, 2002
Basic $ 339,000 4,756,000 $ 0.07
Effect of dilution:
Options -- 111,000
Convertible debt 12,000 240,000
--------- --------- ------
Diluted $ 351,000 5,107,000 $ 0.07
========= ========= ======
Quarter ended May 31, 2001
Basic $ 234,000 4,556,000 $ 0.05
Effect of dilution:
Options -- 48,000
Convertible debt 22,000 443,000
--------- --------- ------
Diluted $ 256,000 5,047,000 $ 0.05
========= ========= ======
11
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the attached interim
consolidated financial statements and with the Company's 2002 Annual Report to
Stockholders, which included audited financial statements and notes thereto for
the fiscal year ended February 28, 2002, as well as Management's Discussion and
Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the three months ended May 31, 2002 and
2001, the percentages which selected items in the Statements of Income bear to
total sales:
THREE MONTHS ENDED
MAY 31,
2002 2001
------- -------
Sales
CRT Segment
Data Display CRT's 12.5% 18.0%
Entertainment CRT's 9.3 9.4
Electron Guns and Components 1.6 2.2
Monitors 56.6 49.8
Wholesale Consumer Parts Segment 20.0 20.6
----- ------
100.0% 100.0%
Costs and expenses
Cost of goods sold 67.6% 69.1%
Selling and delivery 10.7 8.4
General and administrative 17.7 17.5
----- ------
96.0% 95.0%
Income from Operations 4.0 5.0
Interest expense (1.4) (2.7)
Other income (expense) 0.4 (0.2)
----- ------
Income before income taxes 3.0 2.1
Provision for income taxes (1.2) (0.8)
----- ------
Net income 1.8% 1.3%
===== ======
NET SALES
Consolidated net sales increased $1,340,000 for the quarter ended May 31, 2002
as compared to the quarter ended May 31, 2001. CRT division sales increased
$1,163,000 and wholesale division sales increased $177,000 for the comparative
periods.
12
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
CRT segment sales included increases within the monitor and entertainment
divisions of $1,920,000 and $110,000 respectively for the comparative periods.
Offsetting declines were posted to the data display and component parts
divisions of $777,000 and $89,000 respectively for the same comparative periods.
The increase in monitor division sales includes $245,000 related to the
acquisition of XKD Corporation in June 2001. Additionally, the monitor division
posted sales increases at the Display Systems and Lexel Imaging locations of
$865,000 and $1,322,000 respectively. These increases reflect the effects of
additions of product lines, including projection simulation, through
acquisitions over the past 24 months.
The slight increase within the entertainment division sales is primarily
attributed to increased revenues in projection tube sales. The decline in sales
within the data display and component parts divisions is primarily a result of
declines in the international market.
The increase in sales in the wholesale parts segment of $177,000 includes an
increase of approximately $879,000 posted as a result of the distribution
agreement with Applica Incorporated signed in the second quarter of fiscal 2002
whereby Fox International is authorized to distribute parts and accessories for
the Black & Decker, Toaster Oven, Profinish, Quick and Easy, and Spacemaker
product lines. The Company has also reached an agreement with Norelco, but the
revenue impact was minimal in the first quarter of fiscal year 2003. The
offsetting declines of approximately $700,000 are attributed to declines with
major distributors and retail consumers, which is related to the effects of the
economic downturn experienced in the U.S. during the last nine months.
GROSS MARGINS
Consolidated gross profit margins increased slightly to 32.4% from 30.9% for the
quarter ended May 31, 2002 as compared to May 31, 2001. CRT segment margins
remained relatively flat at 29.5% while the wholesale consumer parts segment
increased to 44.0% from 35.1% for the comparable periods.
Wholesale parts segment margins increased primarily due to the Applica
Incorporated distribution agreement. Those revenues include a handling charge
and shipping revenue, which accounts for approximately 70% profit margin before
the effects of offsetting expenses reflected in operating expenses. Excluding
the effects of the Applica profits, gross margins for this segment would be
36.2% as compared to 35.1% for the comparative periods ended May 31, 2002 and
2001, respectively.
OPERATING EXPENSES
Operating expenses as a percentage of sales increased to 28.4% for the quarter
ended May 31, 2002 as compared to 25.9% for May 31, 2001. CRT segment operating
expenses increased $425,000 or 1% as compared to net sales and the wholesale
segment expenses increased $434,000 or 4.4% as compared to the net sales of the
comparative period a year ago.
CRT expenses increased $100,000 due to the XKD Corporation acquisition and
$400,000 due to increases at the Display Systems location as a result of
additional costs associated with the acquired projection simulation product
lines.
Wholesale segment expenses include increases of $315,000 in delivery expense as
well as increases to warehousing rent and labor costs resulting from the
additional costs associated with the Applica distribution agreement.
13
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
INTEREST EXPENSE
Interest expense decreased $227,000 in the first quarter of fiscal 2003 as
compared to the first quarter of fiscal 2002. The Company maintains various debt
agreements with different interest rates, most of which are based on the prime
rate or LIBOR. These rates are lower for the comparative periods.
INCOME TAXES
The effective tax rate for the quarter ended May 31, 2002 is 40.8% as compared
to 36.6% a year ago.
FOREIGN CURRENCY TRANSLATION
The Company's Mexican subsidiary reports on the basis of the functional currency
as being the US dollar. Any exchange gains or losses due to the actual exchange
of pesos and US dollars are currently reflected in the Company's income
statements. There were no significant gains or losses for the current period
reported.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 2002, the Company had total cash and cash equivalents of $857,000.
The Company's working capital was $27,627,000 and $27,569,000 at May 31, 2002
and February 28, 2002. The slight increase in working capital can be attributed
primarily to the purchase of inventory with long term financing resources.
Cash used in operations for the period ended May 31, 2002 was $706,000 as
compared to cash used in operations of $1,128,000 in the same period a year ago.
Net income for the first quarter ended May 31, 2002 adjusted for non-cash items
provided cash of $825,000. Increases in accounts receivable and inventories used
cash of $1,976,000 for the quarter ended May 31, 2002. During the quarter ended
May 31, 2001, operating cash flows were provided primarily by net income
adjusted for non-cash items of $698,000. Offsetting increases in accounts
receivable, inventories, prepaid expenses, and other assets, and declines in
accounts payable used cash of $1,826,000.
The increase in accounts receivable of $884,000 during the first quarter of
fiscal 2003 was due primarily to increased sales in the first quarter of fiscal
2003. The increase in inventories of $1,092,000 was primarily attributable to
the purchase of inventory to support the new projection simulator product line
in the Florida location as well as increased inventory requirements at the Lexel
operation to support revenue growth. The decrease in prepaid expenses and
increase in accounts payable and accrued liabilities reflects the net effects of
tax payments in the first quarter of fiscal 2003.
Investing activities provided $75,000 in the first quarter of fiscal 2003.
Included in this were acquisitions of property plant and equipment of $316,000.
Financing activities used $144,000 in the first quarter of fiscal 2003. There
were no new debt agreements entered into in the first quarter of fiscal 2003.
Available funds under current lines of credit and borrowings from the CEO
provided cash used in operations. Additionally operations generated cash to pay
down debt $149,000 during the first quarter of fiscal 2003.
Subsequent to quarter end the Company repurchased 7,300 shares of common stock
under its stock repurchase program.
FORWARD-LOOKING INFORMATION
14
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
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 $26,131,000 of outstanding debt at May 31, 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 $261,000 in pre-tax net
income assuming no further changes in the amount of borrowings subject to
variable rate interest from amounts outstanding at May 31, 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.
15
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
PART II
Item 1. Legal Proceedings
No new legal proceedings or material changes in existing litigation
occurred during the quarter ended May 31, 2002.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended May 31, 2002.
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
VIDEO DISPLAY CORPORATION
July 16, 2002 By: /s/ Ronald D. Ordway
-------------------------
Ronald D. Ordway
Chief Executive Officer
By: /s/ Carol D. Franklin
-------------------------
Carol D. Franklin
Chief Financial Officer and Secretary
17