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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20552
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
FEBRUARY 29, 1996 0-13394
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified in 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 and zip code)
Registrant's telephone number, including area code: (770) 938-2080
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class of which registered
COMMON STOCK (NO PAR VALUE) NASDAQ/NMS
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 X No
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. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant at May 15, 1996 is $12,237,658.
The number of shares outstanding of the registrant's Common Stock as of May 15,
1996 is 3,907,413.
DOCUMENTS INCORPORATED BY REFERENCE HEREIN
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 1996 shareholders meeting are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
GENERAL
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, including computer monitors,
medical monitoring equipment, and various other data display applications. The
Company also acts as a wholesale distributor of electronic parts and CRTs
purchased from domestic and foreign manufacturers. The Company also
manufactures and distributes electron guns and associated parts which are
significant components in new and recycled CRTs.
DESCRIPTION OF PRINCIPAL BUSINESS
Video Display Corporation was incorporated in the State of Connecticut in 1975,
and through a tax free reorganization became a Georgia corporation in 1984. The
Company began its operations as a single recycling plant in Stone Mountain,
Georgia providing 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. To accomplish this objective, the Company acquired
production equipment and customers from other smaller CRT remanufacturers. The
Company and its plants in Louisiana, Pennsylvania, Georgia, Texas, California
and Monterrey, Mexico combine to form a national CRT-OEM (original equipment
manufacturer) manufacturing and distribution network with recycling
capabilities. The plants in this network have over 81 years of OEM production
experience.
In June 1986, the Company acquired Southwest Vacuum Devices, Inc. ("Southwest")
and a majority interest in English based Griftronic Emission, Ltd. (renamed
Video Display Corporation, Limited ("VDC, Ltd.") in 1991). In fiscal 1989, the
Company also completed the acquisition of a substantial majority of the
outstanding shares of Apex Electronics, Inc. ("Apex") of Passaic, New Jersey.
These companies are involved in the manufacturing, marketing and distribution of
electron guns and related hardware. The electron gun is the main component of a
CRT and the acquisition of these companies gives Video Display the ability to
supply virtually all of its electron gun requirements from these subsidiaries.
In May 1988, the Company acquired Fox International Ltd., Inc. ("Fox") of
Cleveland, Ohio and Dallas, Texas. Fox then added locations in Chicago,
Illinois, Setauket, New York and Orlando, Florida by acquiring assets and
existing leases of operating distributors. Upon acquiring these locations, Fox
increased the total inventory lines and implemented the Company's operating
policies so that all locations of Fox operate on a similar basis. Fox is
involved in the wholesale distribution of consumer electronic parts for most
major U.S. and foreign electronic manufacturers.
In December 1989, the Company incorporated Vanco International, Inc. ("Vanco").
Subsequent to that date, Vanco International, Inc. purchased substantially all
the assets and assumed the liabilities of Vanco, Inc. Vanco is primarily engaged
in the wholesale distribution of consumer electronic products and accessories.
In November 1991, the Company formed Video Electronics, S.A. de C.V. ("Video
Electronics"), a wholly owned subsidiary. Video Electronics subsequently leased
equipment and manufacturing space in Monterrey, Mexico and began production of
CRTs. The subsidiary's primary focus is in manufacturing certain monochrome CRT
types for distribution to the U.S. market. In fiscal 1993, the subsidiary
F-2
obtained the CSA (Canadian Standards Association) and UL (Underwriters
Laboratory) safety approvals for its recycled products.
Video Display Corporation continues to investigate opportunities to expand the
products offered in the replacement market. This expansion will be achieved by
adding new products to its inventory or by acquiring existing companies which
enhance the Company's position in the electronic replacement market. Research
and development primarily consists of establishing the interchangeability of
products from various manufacturers and when advantageous, manufacturing
products to replace original electronic parts.
INDUSTRY SEGMENTS
This information is provided in the notes to consolidated financial statements,
Note 8, Page F-39.
PRODUCTS
CATHODE RAY TUBES ("CRTS")
Since its organization in 1975, Video Display Corporation has been engaged in
the recycling of CRTs, and the distribution of both recycled CRTs and new CRTs,
primarily in the replacement market, for use in television sets and data display
screens, including computer terminal monitors, medical monitoring equipment and
various other data display applications. The Company currently markets CRTs in
over 3,000 types and sizes.
The Company's recycling CRT operations are conducted at its facility near
Atlanta, Georgia, and at facilities located in: White Mills, Pennsylvania
(Chroma); Bossier City, Louisiana (Novatron), Monterrey, Mexico (Video
Electronics), Commerce, California (Dunbar) and Dallas, Texas (Magna View). At
each facility, the Company acquires, primarily from its customers, used CRTs and
recycles them to meet original specifications.
The recycling process for monochrome CRTs involves the cleaning and
reconditioning of the glass tubes and the insertion of new electronic
components, which are purchased from original equipment manufacturers and the
Company's electron gun subsidiary. The Company's Atlanta 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 Underwriter's Laboratories, Inc. and 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. 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. In fiscal 1996,
distribution of new CRTs purchased from domestic and foreign manufacturers
accounted for approximately sixty-five percent (65%) of the Company's data
display CRT sales. Although the Company will continue to source CRTs from these
manufacturers, it believes that as the demand for data display CRTs increases,
the environmental concerns and the cost benefits of recycling will result in an
increasing percentage of the Company's sales from recycled CRTs.
F-3
The Company markets its products through approximately 250 independent wholesale
electronics distributors located throughout the U. S. and sells directly to
original equipment manufacturers and their service organizations. The Company
also supplies, under private-brand labeling, many of the replacement tubes
marketed by several national brand name television set manufacturers.
In late fiscal 1996, the Company obtained a contract from a prime contractor
with the United States government to provide CRT's for the AWACS military
aircraft. The Company expects revenues of approximately $1.5 million over the
next three years. Also, subsequent to February 29, 1996, the Company announced
its intentions to acquire Teltron Technologies, Inc. ("TTI") which will expand
its CRT division revenues with the U. S. government.
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
inventory in anticipation of customer demand.
During fiscal 1996, the Company's sales of recycled and new CRTs for computer
monitors, as well as medical monitoring, surveillance equipment, and other data
display uses, remained relatively flat in both unit and dollar volume. In
fiscal 1994 and 1995, unit and dollar sales had declined slightly. The Company
anticipates that this trend will show a positive reversal in fiscal 1997.
Because management believes the data display CRT replacement market has greater
growth potential than the color television tube replacement market, the Company
has placed increased emphasis on its marketing and manufacturing efforts in
serving the data display market.
Although the total market for recycled color television tubes had declined over
the past several years, 1996 saw a reversal in that trend due to increases in
export sales of television grade tubes and to the previously forecasted increase
in demand for large size direct view color tubes in domestic shipments. This
increase, which is expected to continue, is directly relational to the number of
larger and more expensive new television sets distributed by OEM's, which has
shown dramatic increases during the past 5 years. Management believes that its
market share will remain strong in future periods if the major OEM's continue to
focus their marketing and manufacturing efforts toward new television sales and
away from the replacement markets. Management believes that consumers will be
more likely to replace these tubes than buy new televisions.
ELECTRON GUNS AND COMPONENTS
The Company acquired Southwest Vacuum Devices, Inc. (Tucson, Arizona) and a
majority ownership of Griftronic Emission, Ltd. (Warwickshire, England) during
fiscal 1987. In 1989, the Company acquired the assets of Cliftronics, Inc.,
Vega Tronic, L.P., and a majority of the stock of Apex Electronics, Inc.
(Passaic, New Jersey). Cliftronics and Vega Tronic assets and production were
moved to Tucson and the locations were closed. The Company later acquired 40%
of Glowtronics PLC (Mysore, India) which was sold in February 1995 and 48% of
Electrocanones de Mexico (Mexico City, Mexico) which was shut down in fiscal
year 1994.
The manufacture of an electron gun requires an assembly of small metal and
ceramic parts in a glass housing. The 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 money expended for research and development is not significant and is not
F-4
segregated in the consolidated financial statements, but is instead included in
cost of sales. Raw materials consist of glass and metal stamped parts.
The Company, through its electron gun division, primarily markets electron gun
component parts to OEM companies who manufacture high resolution and specialty
tubes for unique applications. The major production electron gun output of this
division is 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 $660,000 and
$609,000 at cost in fiscal 1996 and 1995, respectively.
Electron gun sales are historically dependent upon the demand of the television
CRT remanufacturers in the U.S. and internationally. The decline in sales over
the last several years has reflected the reduced demand of the U.S. television
CRT remanufacturers, as consumers in the U.S. have elected to purchase new
televisions instead of replacing the CRT in the old one. Due to this decline,
the Company elected to discontinue direct marketing of television grade electron
guns to remanufacturers during fiscal 1996. The Company continues to seek
alternative growth oriented markets to fully utilize its electron gun and
component assembly facilities.
ELECTRONIC PARTS
Fox International Ltd., Inc. ("Fox") distributes consumer electronic parts of
most major consumer electronics manufacturers, both foreign and domestic. Fox
resells these products to retail electronic repair facilities, third party
contractual repair shops and directly to consumers. In its relationship with
consumer electronic manufacturers, Fox receives the right, frequently exclusive,
to ship parts to authorized dealers. Many of the manufacturers also direct
inquiries for replacement parts to Fox. Each manufacturer requires a
distributor to stock its most popular parts and monitors the order fill ratio to
insure that their customers have access to sufficient replacement parts. Fox
maintains very high fill ratios in order to secure favored distributor status
from the manufacturers. This requires a significant investment in inventories.
The Company also imports, packages and distributes consumer electronic
accessories for mobile and home audio, video, telephone, CB radio and general
electronic usage through Vanco International, Inc. ("Vanco") of Chicago,
Illinois. Approximately 95% of the product is purchased in bulk from various
vendors in the Orient and repackaged in Vanco's warehouse for distribution.
The Company primarily markets its products to retail electronic repair
facilities, third party contractual repair shops and directly to the consumer.
Many of the Company's customers are referred by the manufacturers. The Company
also publishes a catalog which is primarily aimed at the small shop owner and
the personal consumer. Some of the Company's products are resold by other
distributors of electronic parts under the Vanco and Marmac product names.
RESEARCH AND DEVELOPMENT
The objective of the Company's research and development activities is 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. However, since the Company is essentially a recycler
and assembler of CRTs already in the marketplace, it has not incurred
significant costs for basic research or new product development. Research costs
are, therefore, not segregated as a separate item but are included in the
consolidated financial statements as a part of costs of goods sold.
F-5
EMPLOYEES
As of February 29, 1996, the Company employed a total of 476 persons on a full
time basis. Of these, 81 are employed in executive, administrative, and
clerical positions, 124 are employed in sales and distribution, and 271 are
employed in manufacturing operations. Of the Company's 476 employees, 124 are
employed at the Company's Mexican subsidiary. None of the employees are
represented by a union, and the Company believes its employee relations to be
satisfactory.
COMPETITION
Although the Company believes that it is the largest domestic recycler and
distributor of recycled CRTs in the United States CRT replacement markets, it
competes with other CRT manufacturers, as well as OEM's, many of which have
greater financial resources than the Company. The Company is the only firm 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 its 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 from customers and
others 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 in providing CRT's to the
U.S. government through its subsequent acquisition of TTI, as this operation has
over thirty years experience in providing reliable products and services to the
U.S. government.
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 feels that its service to customers and warehousing
and shipping organization give it a competitive advantage. Growth is expected
in the product lines as the Company utilizes its advantages of offering a
complete inventory of parts and service to all of its different customer groups.
ITEM 2. PROPERTIES
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 facilities. This location as
well as several others are leased from related parties at or below current
market rates. See "Item 13 - Certain Relationships and Related Transactions".
F-6
The following table details manufacturing, warehouse, and administrative
facilities:
Location Square Feet Net Lease Expires
- ------------------------------------ ----------- -----------------
CRT and Electron Gun Manufacturing
and Warehouse Facilities
- ------------------------------------
Tucker, Georgia 59,000 October 31, 1998
Stone Mountain, Georgia 51,000 February 29, 2000
Stone Mountain, Georgia 45,000 December 31, 1996
Tucker, Georgia 40,000 January 2, 2006
White Mills, Pennsylvania 110,000 Company Owned
Bossier City, Louisiana 26,000 Company Owned
Tucson, Arizona 24,000 May 31, 1996
Passaic, New Jersey 15,000 October 30, 1995
Commerce, California 14,000 March 31, 1997
Dallas, Texas 24,000 January 31, 2000
Monterry, Mexico 129,000 November 14, 1996
Warwickshire, England 4,300 March 1, 2005
Wholesale Electronic Parts Distribution
- ---------------------------------------
Solon, Ohio 19,000 November 30, 1998
Bedford Heights, Ohio 60,000 Company Owned
Richardson, Texas 10,000 May 31, 1997
Chicago, Illinois 10,000 Month to Month
Waukegan, Illinois 25,000 December 30, 2000
Setauket, New York 13,000 June 30, 1999
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently party to any litigation other than ordinary
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended February 29, 1996.
F-7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market under the
symbol VIDE.
The following table shows the range of prices for the Company's common stock as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") for each quarterly period beginning on March 1, 1994.
FOR FISCAL YEARS ENDED
------------------------------------------
FEBRUARY 29, 1996 FEBRUARY 28, 1995
------------------------------------------
QUARTER ENDED HIGH LOW HIGH LOW
------------------------------------------
May $2.750 $1.625 $3.5 00 $2.000
August 6.375 1.875 3.500 2.125
November 6.250 3.000 3.131 2.000
February 4.625 2.500 2.625 1.625
There were approximately 693 holders of record of the Company's common stock as
of May 16, 1996.
The Company has issued options to purchase shares of its common stock. For more
specific information concerning the outstanding options, see "Item 11 -
Executive Compensation" and the notes to the consolidated financial statements.
The Company has not paid dividends in the past. Payment of 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
dividends.
F-8
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data with respect to
the Company's last five fiscal years. This selected financial data should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto appearing elsewhere herein:
FOR FISCAL YEARS ENDED
------------------------------------------------------------
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29,
1996 1995 1994 1993 1992
------------------------------------------------------------
(In Thousands, Except Per Share Data)
STATEMENT OF OPERATIONS
DATA
Net sales $ 48,112 $ 48,440 $ 53,067 $ 61,017 $ 54,509
Operating profit 3,704 1,227 1,631 1,977 4,139
Net income (loss) 1,779 10 503 (796) 1,688
Net income (loss) per
common share $ 0.45 $ 0.00 $ 0.12 $ (.19) $ 0.41
===========================================================
Weighted average number of
common and common
equivalent shares
outstanding 3,968 4,129 4,134 4,120 4,121
BALANCE SHEET DATA
Total assets $ 34,419 $ 34,161 $ 38,026 $ 40,677 $ 41,344
Working capital 11,996 10,713 18,864 21,351 21,755
Long-term obligations (a) 2,340 3,717 11,129 15,156 16,252
(a) Includes convertible debentures of $420,000 in fiscal 1992.
F-9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the percentages which
selected items in the Statements of Income bear to total revenues:
1996 1995 1994
-------------------------------------------------------
(in thousands, except percentages)
Amount % Amount % Amount %
Sales:
CRT's segment
Data display CRTs $14,121 29.3% $14,387 29.7% $14,328 27.0%
Television CRTs 8,253 17.2 6,200 12.8 6,527 12.3
Electron guns 1,536 3.2 1,805 3.8 3,558 6.7
Wholesale distribution segment
Consumer electronic parts 24,202 50.3 26,048 53.7 28,654 54.0
------------------------------------------------------
$48,112 100.0% $48,440 100.0% $53,067 100.0%
======================================================
Costs and expenses:
Cost of goods sold $30,227 62.8% $32,686 67.5% $35,525 66.9%
Selling and delivery 4,614 9.6 4,765 9.8 5,013 9.4
General and administrative 9,567 19.9 9,762 20.2 10,898 20.6
-------------------------------------------------------
44,408 92.3% 47,213 97.5% 51,436 96.9%
-------------------------------------------------------
Income from operations 3,704 7.7% 1,227 2.5% 1,631 3.1%
Interest expense, net (1,144) (2.4) (1,124) (2.3) (1,043) (2.0)
Other income (expense) 145 .3 (89) (.2) 234 .4
-------------------------------------------------------
Income before income taxes 2,705 5.6 14 0.0 822 1.5
Provision for income taxes 926 1.9 4 .0 319 .6
-------------------------------------------------------
Net income $ 1,779 3.7% $ 10 0.0% $ 503 .9%
=======================================================
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
Consolidated net sales in fiscal 1996 remained relatively flat as compared to
fiscal 1995. Fiscal 1996 CRT sales increased 6.7% or $1,518,000 compared to the
same period a year ago. The consumer electronic parts distribution division had
an offsetting decline of 7.0% or $1,846,000 in fiscal 1996 as compared to fiscal
1995.
The CRT division revenue increases included a 1.8% or $266,000 decline in the
display grade CRT sales, a 33.1% or $2,053,000 increase in the television grade
CRT sales, and a 14.9% or $269,000 decline in electron gun sales. The display
grade CRT sales were relatively flat in both unit and volume. The Company
expects this display grade trend to positively reverse in fiscal 1997.
The increase in the television grade CRT sales is attributed to greater export
sales, larger domestic demand for large size color tubes and revenue from
businesses acquired during late fiscal 1995. The increase, as previously
forecasted, is expected to continue into fiscal 1997.
F-10
The CRT division revenues are anticipated to increase as much as 15% directly
related to the announced acquisition subsequent to February 29, 1996 of Teltron
Technologies, Inc. Teltron has been a supplier of high quality image tubes
primarily to the U.S. Government.
The consumer electronics parts division decline in revenues included declines of
approximately $3,053,000 attributed to certain consumer product manufacturers
selling parts directly to consumers, a trend which began in fiscal 1995. To
counteract this decline in revenues, the Company has established a fire and
safety product line which has produced revenues of $2,460,000 in fiscal 1996.
The Company expects to reclaim some accounts as manufacturers return to tried
and proven cost effective methods of parts distribution.
GROSS MARGINS
Consolidated gross profit margins increased to 37.2% from 32.5% a year ago.
Included in the prior year margins were adjustments, for obsolescence and other
physical adjustments which decreased margins by 2.2%. Excluding these
adjustments, the 2.5% increase in the current year is attributed to several
factors. In the display grade CRTs, there was a shift in product mix from tubes
manufactured using new glass with lower margins to tubes manufactured using
recycled glass with higher margins. In the television grade tubes, there were
increases in margins due to an impact of significant bulk tube purchases at
reduced prices and increased sales of higher margin, large size color tubes. In
the consumer electronics parts division, a few high volume low margin accounts
were replaced with low volume high margin accounts.
OPERATING EXPENSES
Operating expenses declined $346,000 or 2% compared to a year ago. Included in
the overall decline were increases to operating expenses of $406,000 for two
locations acquired on February 16, 1995 in conjunction with the settlement of
litigation last fiscal year. Overall, the Company had declines in professional
fees of $370,000 due to the settlement and to the change of accounting firms in
fiscal year 1995 that were effected in the current year. Other declines
occurred due to the successful implementation of cost containment measures by
the Company.
The Company continues to seek ways to reduce operating expenses.
INTEREST EXPENSE
Interest expense increased $20,000 in fiscal 1996 due to the higher interest
rates incurred during the current year. Borrowings declined from $14,719,000 at
February 28, 1995 to $13,030,000 at February 29,1996. Borrowings under the
Company's revolver varied from a high during the year of $9,951,000 to a low of
$8,934,000.
The Company entered into two interest rate swap agreements with a bank which
effectively fixes the Company's interest rate at 6.25% on $7,500,000 of
outstanding borrowings, adjusted upward for the excess of prime over 8%, if any.
The Company recorded a net benefit of $124,000 in fiscal 1996 on these
agreements. These agreements expire during May 1996.
INCOME TAXES
The Company's effective tax rate for fiscal 1996 was 34.2% compared to 28.6% in
fiscal 1995. See Note 7 of the consolidated financial statements for a table
indicating the items affecting the effective tax rate.
F-11
FOREIGN CURRENCIES
The Company recorded a $166,000 decrease to shareholders' equity in 1996 for
foreign currency translation adjustments related primarily to the Company's
Mexican subsidiary and the effects on its financial statements calculated using
the Mexican peso as its functional currency. The Company's Mexican subsidiary
deals almost exclusively with the Company and had on its books a substantial
payable to the parent company that is essentially long term investment in
nature. The translation adjustment occurred due to the devaluation of the
exchange rate for the Mexican peso from approximately N$5.94 to N$7.69. The
Company is monitoring the Mexican inflation rate to determine if it should be
considered highly inflationary which would require the functional currency to be
converted to US dollars and result in future currency translation gains or
losses to be reflected in the statement of operations. At this time, the
current indicators do not meet the technical definition of a highly inflationary
economy.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES
Consolidated net sales in fiscal 1995 decreased by $4,627,000 or 8.7% versus
fiscal 1994. Both the CRT division and the electronic parts distribution
division contributed to the decline in sales in approximately equal percentages
overall.
The consumer electronics division revenues decreased by $2,606,000 or 9.1% in
total. The consumer electronics parts industry experienced declining sale
trends in 1994 that continued throughout fiscal 1995. The effect of the market
softness contributed to reduced sales levels as did the loss of $1,750,000 in
revenues caused by certain consumer product manufacturers selling parts directly
to consumers. The decisions by such OEMs to circumvent their standard
distribution channels varies from year to year as their management constantly
seek new methods to reduce expenses.
The CRT and electron gun division revenues decreased by $2,021,000 or 8.3% in
total. Contributing to the decrease was a reduction in sales of television
grade CRTs of 5.0%, a decrease in electron gun sales of 49.2% and a .1% increase
in display grade CRT sales. The restructuring of the electron gun division to
redirect the focus of the Company's sales efforts generated the sales reduction
at that facility. The primary purpose of this operation is currently to
manufacture electron guns for the Company's in house use plus certain contract
manufacturing purposes.
Sales of $14,387,000 in the data display CRT division were slightly improved
versus the $14,328,000 in fiscal 1994. The primary cause of the increase was due
to heightened sales efforts in European markets.
GROSS MARGINS
Consolidated gross profit margins decreased slightly from 33.1% to 32.5%.
Reflected in cost of sales were fourth quarter adjustments to reduce the value
of obsolete inventory in the data display division as well as other physical
inventory adjustments reflected during the relocation of the New York location
of the consumer electronic parts division. These adjustments reduced gross
profit margins 2.2%.
OPERATING EXPENSES
Operating expenses decreased $1,384,000 or 8.7% from fiscal 1994. The CRT
division reflected a 23.5% reduction from fiscal 1994 and the consumer
electronics division remained constant.
F-12
Included in the reduction of the CRT division expenses is a $541,000 decrease in
professional fees related to legal services. Fiscal 1996 should reflect an
additional reduction of professional fees. Additionally, a decrease of $146,000
is reflected in fiscal 1995 resulting from the closing and consolidation of the
Van Nuys, CA facility into other Company facilities in November 1994.
The electron gun division operating expenses declined $190,000 largely as a
result of the restructuring of the electron gun division which began in fiscal
1993.
The consumer electronic parts division's operating expenses reflected a net
decline of $45,000. Increases to operating expenses during fiscal 1995 included
approximately $251,000 for catalogue and mailing expenses related to the new
fire and safety product line. During fiscal 1996 the number of catalogues
produced for this product line will be reduced. Additionally approximately
$166,000 of legal expenses were incurred during fiscal 1995 including a
settlement fee incurred regarding litigation over an employment contract. Other
expenses in the consumer electronic parts division were reduced in conjunction
with the centralization of the order and shipping departments. The New York
location went on-line with the division headquarters in October 1994 and
accordingly additional reductions in operating expenses are anticipated in
fiscal 1996.
The Company continues to seek ways to reduce operating expenses in response to
the lower sales.
INTEREST EXPENSE
Interest expense increased $81,000 in fiscal 1995 due to the higher interest
rates incurred during the current year.
The Company entered into two interest rate swap agreements with a bank which
effectively fixes the Company's interest rate at 6.25% on $7,500,000 of
outstanding borrowings, adjusted upward for the excess of prime over 8%, if any.
The Company recorded a net benefit of $86,000 in fiscal 1995 on these
agreements. These agreements expire during May 1996.
INCOME TAXES
The Company's effective tax rate for fiscal 1995 was 28.6% compared to 38.8% in
fiscal 1994. See Note 7 of the consolidated financial statements for a table
indicating the items affecting the effective tax rate.
FOREIGN CURRENCIES
The Company recorded a $931,000 reduction to shareholders' equity for foreign
currency translation adjustments related primarily to the substantial
devaluation of the Mexican peso during the fourth quarter of fiscal 1995. The
translation adjustment occurred when the exchange rate for the Mexico pesos was
devalued from approximately N$3.5 (pesos) per US$ to N$5.94. The Company's
Mexican subsidiary deals almost exclusively with the Company and had on its
books a substantial payable to the parent company that is essentially long term
in nature.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $11,996,000 and $10,713,000 at February 29,
1996 and February 28, 1995, respectively. The increase in working capital is
attributed to cash provided from operations of $2,625,000. Cash from operations
increased by $2,151,000 over 1995. This is a direct reflection of the
$1,779,000 in earnings reported for fiscal 1996. Cash provided from operations
was $474,000 in fiscal 1995.
F-13
In August 1994, the Company entered into a new loan agreement with a bank that
provided a $4,000,000 five year term loan and a one year $10,000,000 revolving
line of credit. The revolver has been renewed through August 31, 1996 and the
Company will be required to seek renewal of this facility in fiscal 1997. The
Company does not anticipate problems in the renegotiation of the debt. As in
the prior year the Company is negotiating or bidding on sales contracts for
additional revenues which could impact its working capital requirements. The
intent is to finance short term requirements through existing bank borrowing
relationships; however, longer term sources of more permanent capital may be
required if certain larger contracts are awarded to the Company.
During the first quarter of fiscal 1997, the Company relocated its electron gun
facility from Tucson, AZ to Tucker, Georgia. The impact to consolidated sales
during the transition time is expected to be minimal. Cash outlay for the
relocation, the majority of which are capital improvements to an existing leased
facility in Tucker, Georgia, are estimated to be $250,000. All other capital
expenditures for fiscal 1997 are anticipated to be insignificant.
SUBSEQUENT BUSINESS ACQUISITION
Subsequent to year end, the Company announced that it exercised its option to
purchase 100% of the outstanding common stock of TTI. TTI was fully owned by
the Company's CEO and principal shareholder. It is anticipated that the Company
will acquire the net assets of TTI for a total purchase price of $962,497,
consisting of $62,497 in cash and $900,000 in a demand note payable. The
transaction will be accounted for by the purchase method of accounting.
MANAGEMENT ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles necessitates the use of management estimates. Management
has estimated reserves for inventory obsolescence and uncollectible accounts
receivable based upon historical and developing trends, aging of items, and
other information it deems pertinent to estimate collectibility and
realizability. It is possible that these reserves will change within a year,
and the effect of the change could be material to the Company's consolidated
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Stock-Based Compensation: The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes financial and reporting standards
for stock-based employee compensation plans. The Company intends to adopt this
statement during its year ending February 28, 1997. Other than additional
disclosures in the financial statements regarding stock options granted pursuant
to the Company's Incentive Stock Option Plan, this statement will not have an
effect on the Company's consolidated financial statements. The Company does not
intend to adopt the expense recognition provision of SFAS 123.
Impairment of Long-Lived Assets: The Financial Accounting Standards Board has
issued a Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"), which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company intends to adopt this statement during the
year ending February 28, 1997. Management does not believe this statement will
have a material impact on the Company's consolidated financial statements during
the year ending February 28, 1997.
F-14
IMPACT OF INFLATION
Inflation has not had a material effect on the Company's results of operations
to date except for that discussed in the foreign currency section above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON FINANCIAL AND ACCOUNTING DISCLOSURES
The Audit Committee of the Company approved and recommended to the Board of
Directors and the Board of Directors approved that the firm of BDO Seidman, LLP
be selected as the Company's independent auditors for the fiscal year ending
February 28, 1995. The firm of Ernst & Young LLP (Ernst & Young) served as the
Company's independent auditors for the fiscal year ended February 28, 1994 and
served during the interim period of March 1, 1994 to January 20, 1995, the date
of dismissal.
For the fiscal year ended February 28, 1994, Ernst & Young issued a qualified
opinion regarding the valuation of certain receivables and investments reflected
in the Company's financial statements. The Company was involved in litigation
relating to its investment in Summit Organization Ltd., Inc. (Summit) and a
proposed transaction with Global Products, Inc. (Global), a wholly owned
subsidiary of Summit. The Company had not reduced its carrying value of its
investment in Summit nor the amount shown as a receivable from Global resulting
from excess assets obtained by Global as a result of an interim asset
distribution ordered by the Court. In Ernst & Young's opinion, the realizable
value of the assets had been significantly reduced due to the dispute involving
the Company's ownership interest, inability to obtain financial information, and
the continued litigation with respect to these matters and certain adjustments
should have been made to the Company's financial statements. Ernst & Young's
opinion on the 1994 financial statements was also modified for an uncertainty
related to litigation.
The Company believes there were no disagreements with Ernst & Young within the
meaning of Instruction 4 of Item 304 of Regulation S-K on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure in connection with the audits of the Company's financial
statements for the fiscal year ended February 28, 1994 or for any subsequent
interim period, except for the item discussed above. The audit committee met
with Ernst & Young and discussed the difference of opinion. The Company
authorized Ernst & Young to respond fully to the inquiries of BDO Seidman, LLP
concerning the above disagreement.
Ernst & Young advised the Company of two reportable conditions which represent
material weaknesses in the internal control structure. One of these is
discussed above and the second relates to transactions with related parties.
During fiscal 1994, the Company entered into transactions with a related party
which were not supported by evidential matter on a timely basis to substantiate
the Company's position that these were on terms equivalent to arms-length
transactions. Ernst & Young advised the Company that as a publicly-held entity,
it should fully review and consider the implications of any transaction. Ernst
& Young stated that controls should be put in place to ensure that such a review
is performed by a member of senior management or the Board of Directors who is
independent of the transactions being reviewed and the Company should ensure
that sufficient evidential matter to support the propriety of such transactions
is maintained and adequately documented.
F-15
During the two most recent fiscal years there have been no other reportable
events (as defined in item 304 of Regulation S-K) with the Company's auditors.
The Company has not consulted with BDO Seidman, LLP regarding the application of
accounting principles to a specified transaction or the type of audit opinion
that might be rendered on the Registrant's financial statements during the
fiscal year ended February 28, 1994.
F-16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in Video Display Corporation's Proxy Statement to be
filed within 120 days of the Company's 1996 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.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in Video Display Corporation's Proxy Statement to be
filed within 120 days of the Company's 1996 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in Video Display Corporation's Proxy Statement to be
filed within 120 days of the Company's 1996 fiscal year end, with respect to
security ownership of certain beneficial owners and management, is incorporated
herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in Video Display Corporation's Proxy Statement to be
filed within 120 days of the Company's 1996 fiscal year end, with respect to
certain relationships and related transactions, is incorporated herein by
reference in response to this item.
F-17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
The response to this portion of Item 14 is submitted as a separate
section of this report.
2. Financial Statement Schedule:
The response to this portion of Item 14 is submitted as a separate
section of this report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this Report.
(c) Exhibits
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.
21 Subsidiary companies
* Incorporated by reference to other documents on file with the Securities
and Exchange Commission which were previously filed.
** Indicates executive compensation plans and arrangements.
F-18
SIGNATURES
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.
Date: VIDEO DISPLAY CORPORATION
May 29, 1996 By: /s/ Ronald D. Ordway
-------------------- -----------------------------
Ronald D. Ordway
Chairman of the Board and
Chief Executive Officer
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 Chief Executive May 29, 1996
- ------------------------
Ronald D. Ordway Officer, & Director
/s/ A. J. Kenerleber President & Director May 29, 1996
- ------------------------
A. J. Kenerleber
/s/ John McQueen Director May 29, 1996
- ------------------------
John McQueen
/s/ Murray Fox Director May 29, 1996
- ------------------------
Murray Fox
/s/ Carleton E. Sawyer Director May 29, 1996
- ------------------------
Carleton E. Sawyer
/s/ Carol D. Franklin Chief Financial Officer May 29, 1996
- ------------------------
Carol D. Franklin
F-19
CONTENTS
Report of Independent Certified Public Accountants
Consolidated Financial Statements
Consolidated Balance Sheets as of February 29, 1996 and February 28, 1995
Consolidated Statements of Income for the three years
ended February 29, 1996 and February 28, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the three
years ended February 29, 1996 and February 28, 1995 and 1994
Consolidated Statements of Cash Flows for the three years
ended February 29, 1996 and February 28, 1995 and 1994
Notes to Consolidated Financial Statements
F-20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Video Display Corporation
We have audited the consolidated balance sheets of Video Display Corporation and
subsidiaries as of February 29, 1996 and February 28, 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. 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 generally accepted auditing
standards. 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 29, 1996 and February 28, 1995, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
May 20, 1996
F-21
Report of Independent Auditors
Shareholders and Board of Directors
Video Display Corporation
We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Video Display Corporation for the year ended February 28,
1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we perform and plan 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 audit provides a reasonable basis for our opinion.
The Company has not reduced the recorded values of its receivables from and
investment in Summit Organizations Ltd. Inc. (Summit) and Global Products
(Global) as of February 28, 1994 which in our opinion should be reduced in order
to conform to generally accepted accounting principles. Generally accepted
accounting principles require that receivables should be carried at their
present cash realizable values and that investments accounted for under the cost
method of accounting should be written down when there are indications that a
decrease in value has occurred which is other than temporary. We believe the
Company's ownership interest which is being legally disputed, inability to
obtain financial information with respect to the investment and collectibility
of amounts due, and continued litigation with respect to these matters indicates
that the realizable value of these assets have been substantially reduced and
that these reductions should be recognized in the Company's financial statements
for the year ended February 28, 1994. If these amounts were recorded at a net
realizable value of zero at February 28, 1994, receivables from affiliates would
be decreased by $1,423,000, investments would be decreased by $817,000, deferred
income tax assets would be increased by $464,000, accounts payable to affiliate
would be decreased by $202,000 and retained earnings would be decreased by
$1,574,000, respectively, as of February 28, 1994. Net income would be
decreased by $1,574,000 and earnings per share would be decreased by $.38 per
share in the accompanying consolidated statement of operations for the year then
ended. Corresponding changes in the accompanying consolidated statements of
shareholders equity and cash flows for the year ended would also be required.
F-22
In our opinion, based on our audit, except for the effects of not reducing the
recorded value for receivables and investments as discussed in the preceding
paragraph, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Video Display Corporation for the year ended February 28, 1994, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
May 27, 1994
F-23
Video Display Corporation and Subsidiaries
Consolidated Balance Sheets
FEBRUARY 29, February 28,
1996 1995
------------ ------------
ASSETS (Note 4)
Current assets:
Cash and cash equivalents (including
restricted cash of $72,000 and $63,000) $ 1,057,000 $ 104,000
Accounts receivable, less allowance
for possible losses of $139,000
and $196,000, respectively 5,039,000 5,537,000
Receivables from affiliates (Note 9) 558,000 163,000
Note receivable, net of unamortized
discount of $36,000 and $33,000 (Note 2) 144,000 132,000
Inventories 19,450,000 18,444,000
Prepaid expenses 276,000 373,000
Deferred income taxes (Note 7) 497,000 668,000
----------- -----------
Total current assets 27,021,000 25,421,000
----------- -----------
Property, plant and equipment:
Land 355,000 209,000
Buildings 3,606,000 3,759,000
Machinery and equipment 11,862,000 11,760,000
----------- -----------
15,823,000 15,728,000
Accumulated depreciation and
amortization 11,307,000 9,878,000
----------- -----------
4,516,000 5,850,000
Investments (Note 3) 622,000 281,000
Note receivable, net of unamortized
discount of $104,000 and $146,000,
respectively, and allowance for
possible losses of $321,000 (Note 2) 730,000 868,000
Goodwill, net of accumulated
amortization of $727,000 and $601,000 1,369,000 1,526,000
Other assets 161,000 215,000
----------- -----------
Total assets $34,419,000 $34,161,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-24
FEBRUARY 29, February 28,
1996 1995
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loan (Note 4) $ 9,089,000 $ 9,388,000
Note payable to shareholder (Note 9) 220,000 300,000
Accounts payable 2,457,000 2,606,000
Accrued liabilities 1,878,000 1,100,000
Current maturities of long-term debt
(Note 4) 1,381,000 1,314,000
----------- -----------
Total current liabilities 15,025,000 14,708,000
Long-term debt (Note 4) 2,340,000 3,717,000
Deferred income taxes (Note 7) 403,000 808,000
Minority interests 372,000 332,000
----------- -----------
Total liabilities 18,140,000 19,565,000
----------- -----------
COMMITMENTS (Note 5)
SHAREHOLDER S' EQUITY (Note 6):
Preferred stock, no par value - shares
authorized 2,000,000; none issued and
outstanding - -
Common stock, no par value - 10,000,000
shares authorized; 3,907,000 and 4,075,000
shares issued and outstanding 3,529,000 3,821,000
Additional paid-in capital 81,000 -
Retained earnings 13,655,000 11,876,000
Net unrealized gain (loss) on marketable
equity securities 200,000 (81,000)
Currency translation adjustments (1,186,000) (1,020,000)
----------- -----------
Total shareholders' equity 16,279,000 14,596,000
----------- -----------
Total liabilities and shareholders'
equity $34,419,000 $34,161,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-25
FEBRUARY 29, February 28, February 28,
YEAR ENDED 1996 1995 1994
- ---------- ----------- ------------ ------------
Net sales $48,112,000 $ 48,440,000 $ 53,067,000
Cost of goods sold 30,227,000 32,686,000 35,525,000
----------- ------------ ------------
Gross profit 17,885,000 15,754,000 17,542,000
----------- ------------ ------------
Operating expenses:
Selling and delivery 4,614,000 4,765,000 5,013,000
General and administrative 9,567,000 9,762,000 10,898,000
----------- ------------ ------------
14,181,000 14,527,000 15,911,000
----------- ------------ ------------
Operating profit 3,704,000 1,227,000 1,631,000
----------- ------------ ------------
Other income (expense):
Interest expense (1,144,000) (1,124,000) (1,043,000)
Loss on settlement of litigation (Note 2) - (182,000) -
Gain on investments (Note 3) 43,000 28,000 134,000
Other, net 135,000 69,000 100,000
----------- ------------ ------------
(966,000) (1,209,000) (809,000)
----------- ------------ ------------
Income before minority interest and
income taxes 2,738,000 18,000 822,000
Minority interest 33,000 4,000 -
----------- ------------ ------------
Income before income taxes 2,705,000 14,000 822,000
Income taxes (Note 7) 926,000 4,000 319,000
----------- ------------ ------------
Net income $ 1,779,000 $ 10,000 $ 503,000
=========== ============ ============
Earnings per share of common stock 0.45 0.00 0.12
=========== ============ ============
Weighted average shares outstanding 3,968,000 4,129,000 4,134,000
=========== ============ ============
See accompanying notes to consolidated financial statements.
F-26
NET UNREALIZED
ADDITIONAL GAIN (LOSS)ON CURRENCY
COMMON PAID-IN RETAINED MARKETABLE TRANSLATION TREASURY
STOCK CAPITAL EARNINGS EQUITY SECURITIES ADJUSTMENTS STOCK
----------- ---------- --------- ----------------- ----------- ---------
Balance, February 28, 1993 $4,312,000 $ - $11,363,000 $ - $ (61,000) $(216,000)
Issuance of 5,000 shares
under employment contract 22,000 - - - - -
Purchase and retirement
of 3,000 shares under
employment contract (18,000) - - - - -
Currency translation
adjustment - - - - (28,000) -
Retirement of 40,000
shares held in treasury (216,000) - - - - 216,000
Net income for the year - - 503,000 - -
---------- -------- ----------- ---------- ----------- ----------
Balance, February 28, 1994 4,100,000 - 11,866,000 - (89,000) -
Purchase and retirement of
82,306 shares related to
settlement of litigation
(Note 2) (250,000) - - - - -
Unrealized loss on
marketable equity
securities (Note 3) - - - (81,000) - -
Currency translation
adjustment - - - - (931,000) -
Purchase and retirement
of 15,000 shares (29,000) - - - - -
Net income for the year - - 10,000 - - -
---------- -------- ----------- ---------- ----------- ----------
Balance, February 28, 1995 3,821,000 - 11,876,000 (81,000) (1,020,000) -
Net unrealized gain on
marketable equity
securities (Note 3) - - - 281,000 - -
Currency translation
adjustment - - - - (166,000) -
Contribution of capital
from gain realized on
sale ofstock by officer - 81,000 - - - -
Purchase and retirement
of 168,000 shares (292,000) - - - - -
Net income for the year - - 1,779,000 - - -
---------- -------- ----------- --------- ----------- -----------
Balance, February 29, 1996 $3,529,000 $81,000 $13,655,000 $200,000 $(1,186,000) $ -
========== ======== =========== ========= =========== ===========
See accompanying notes to consolidated financial statements.
F-27
FEBRUARY 29, February 28, February 28,
Year ended 1996 1995 1994
------------- ------------ ------------
OPERATING ACTIVITIES
Net income $ 1,779,000 $ 10,000 $ 503,000
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 1,615,000 1,590,000 1,752,000
Amortization of discount on
note receivable (39,000) - -
Employee stock bonus and
compensation - - 22,000
Increase in allowance for doubtful
accounts 47,000 57,000 9,000
Deferred income taxes (234,000) (38,000) (171,000)
Gain on sale of investments (43,000) (28,000) (134,000)
Loss on settlement of litigation - 182,000 -
Equity in earnings of affiliates - - (68,000)
Changes in operating assets
and liabilities:
Accounts receivable (155,000) 379,000 318,000
Inventories (1,153,000) 798,000 1,905,000
Prepaid expenses 90,000 (92,000) 10,000
Accounts payable and
accrued liabilities 685,000 (2,392,000) (784,000)
Minority interests 33,000 8,000 -
------------ ------------ ------------
Net cash provided by operating
activities 2,625,000 474,000 3,362,000
------------ ------------ ------------
INVESTING ACTIVITIES
Capital expenditures (215,000) (515,000) (673,000)
Proceeds from sale of investments 141,000 161,000 24,000
Purchases of investments (162,000) - (35,000)
Other assets 19,000 (48,000) 13,000
Proceeds from note receivable 165,000 - -
------------ ------------ ------------
Net cash used by investing activities (52,000) (402,000) (671,000)
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
F-28
Video Display Corporation and Subsidiaries
Consolidated Statements of Cash Flows
FEBRUARY 29, February 28, February 28,
Year ended 1996 1995 1994
------------- ------------ ------------
FINANCING ACTIVITIES
Proceeds from long-term debt and
lines of credit 30,422,000 42,218,000 20,487,000
Proceeds from notes payable to
shareholders 200,000 140,000 1,179,000
Payments on long-term debt and
lines of credit (32,031,000) (41,573,000) (23,480,000)
Payments on notes payable to
shareholders (280,000) (1,335,000) (624,000)
Purchases and retirements of
common stock (292,000) (29,000) (18,000)
Proceeds from capital contribution 81,000 - -
------------ ------------ ------------
Net cash used by financing activities (1,900,000) (579,000) (2,456,000)
------------ ------------ ------------
Effect of exchange rates on cash 280,000 (365,000) (28,000)
------------ ------------ ------------
Net increase (decrease) in cash 953,000 (872,000) 207,000
Cash and cash equivalents, 104,000 976,000 769,000
beginning of year ------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,057,000 $ 104,000 $ 976,000
============ ============ ============
See accompanying notes to consolidated financial statements.
F-29
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
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, including computer monitors,
medical monitoring equipment, and various other data display applications. The
Company also manufactures and distributes electron guns and associated parts
which are significant components in new and recycled CRTs. 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 UK. The Mexican operations consist principally of purchasing monochrome
CRTs from the Company, and recycling and selling the CRTs back to the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries after elimination of all significant
intercompany accounts and transactions.
Investments in 50% or less owned affiliated companies are accounted for on the
equity method. During 1994, the Company's 50% investment in Summit Organization,
Ltd. was accounted for by the cost method due to the Company's inability to
obtain financial information with respect to the results of operations of that
company. As discussed in Note 2, pursuant to a February 1995 settlement
agreement, the Summit investment has been liquidated.
CONCENTRATIONS OF RISK
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. During 1996, the
Company's sales to any one customer did not exceed 10% of the total sales. Also,
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.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist of:
1995 1994
----------- -----------
Raw materials $ 3,272,000 $ 3,140,000
Finished goods 16,178,000 15,304,000
----------- -----------
$19,450,000 $18,444,000
=========== ===========
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are computed principally by the straight line method for financial reporting
purposes. Depreciation expense totalled approximately $1,504,000, $1,570,000 and
$1,539,000 in 1996, 1995 and 1994, respectively.
F-30
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
MARKETABLE EQUITY SECURITIES AND INVESTMENTS
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), effective for fiscal years beginning
after December 15, 1993. The Company adopted the new rules effective March 1,
1994.
Under SFAS 115, investments in marketable equity securities are classified as
either trading securities or available-for-sale securities. For trading
securities, unrealized gains or losses are recorded in the consolidated
statements of income. For available-for-sale securities, unrealized gains or
losses are reflected as adjustments to shareholders' equity.
GOODWILL
Goodwill is being amortized using the straight line method over periods ranging
from five to thirty years.
The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other than temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if undiscounted estimated future operating cash flows
of the acquired business are determined to be less than the carrying amount of
goodwill. If the Company determines that goodwill has been impaired, the
measurement of the impairment will be equal to the excess of the carrying amount
of the goodwill over the amount of the undiscounted estimated operating cash
flows. If an impairment of goodwill were to occur, the Company would reflect the
impairment through a reduction in the carrying value of goodwill.
FOREIGN CURRENCY TRANSLATION
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.
During fiscal 1995, the Mexican peso experienced a major devaluation, resulting
in a significant adjustment to the aforementioned separate component of
shareholders' equity.
EARNINGS PER SHARE
The weighted average number of shares outstanding is adjusted to recognize the
dilutive effect, if any, of outstanding stock options in calculating earnings
per share.
F-31
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
REVENUE RECOGNITION
Revenues from product sales are recognized when goods are shipped. During the
year ended February 28, 1994, a customer of the electronic distribution segment
(Note 8) accounted for 12% of consolidated net sales.
FINANCIAL INSTRUMENTS
The Company's financial instruments primarily consist of cash equivalents,
investments, notes receivable and notes payable. Investments are recorded at
fair value. Management believes the carrying values of the other financial
instruments approximate fair value.
MANAGEMENT ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles necessitates the use of management estimates. Management
has estimated reserves for inventory obsolescence and uncollectible accounts
receivable based upon historical and developing trends, aging of items, and
other information it deems pertinent to estimate collectibility and
realizability. It is possible that these reserves will change within a year, and
the effect of the change could be material to the Company's consolidated
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Stock-Based Compensation: The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes financial and reporting standards
for stock-based employee compensation plans. The Company intends to adopt this
statement during its year ending February 28, 1997. Other than additional
disclosures in the financial statements regarding stock options granted pursuant
to the Company's Incentive Stock Option Plan, this statement will not have an
effect on the Company's consolidated financial statements. The Company does not
intend to adopt the expense recognition provision of SFAS 123.
Impairment of Long-Lived Assets: The Financial Accounting Standards Board has
issued a Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), which requires that long-lived assets and certain intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company intends to adopt this statement during the year
ending February 28, 1997. Management does not believe this statement will have a
material impact on the Company's consolidated financial statements during the
year ending February 28, 1997.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on account, demand deposits and short-
term investments with maturities of less than three months and excludes
outstanding checks which are classified as current liabilities.
RECLASSIFICATION
Certain balances have been reclassified in the 1995 consolidated financial
statements to conform with the 1996 presentation.
F-32
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 2. SETTLEMENT OF LITIGATION
The Company and Global Products, Inc. ("Global") entered into a settlement
agreement ("Settlement"), effective February 16, 1995 in which both parties
agreed to dismiss all litigation, claims and counter claims related to the
dispute between the two parties. The settlement contained provisions whereby
certain assets, previously owned by Summit Organization, Ltd. ("Summit"), Global
and its affiliates, were transferred to the Company.
These assets consisted primarily of a 75% percent equity interest in Magna View,
Inc. and 82,306 shares of the Company's common stock. The 82,306 shares of the
Company's common stock were initially contributed by the Company as a portion of
its investment in Summit.
The Company also received an unsecured note receivable with a face value of
$1,500,000 due in monthly installments of $15,000 over a term of 100 months. The
note is non-interest bearing for the first 50 payments and interest bearing, at
prime plus 1%, over the remaining 50 payments. As of February 29, 1996, the note
is recorded at a total of $874,000, net of its discount and allowance.
As a result of the settlement, Summit was formally dissolved, the Company wrote
off its net receivable from Global amounting to $1,252,000 at February 16, 1995,
and recorded a loss on settlement of litigation amounting to $182,000 for the
year ended February 28, 1995.
NOTE 3. MARKETABLE EQUITY SECURITIES AND INVESTMENTS
The Company owns 266,000 shares of MicroTel International, Inc. ("MOL"),
formerly CXR, Inc. ("CXR"), which it accounts for as an available-for-sale
security. As of February 29, 1996 and February 28, 1995, MicroTel had a market
value of $1 3/4 and $3/4, respectively. As of February 29, 1996, in accordance
with SFAS 115, the Company has reflected unrealized gains on the MicroTel shares
as a separate component of shareholders' equity.
During fiscal year 1995, the Company sold its 40% interest in Glowtronics Ltd.
of Mysore, India and recorded a gain of $28,000 on the transaction.
Sales to unconsolidated affiliates, which as of February 28, 1995 the Company no
longer retains an ownership interest, were $566,000 during fiscal 1994.
F-33
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
----------- ----------
Term loan facility with bank; monthly payments of $67,000
including interest at prime (8.25% as of February 29, 1996)
plus .5%, maturing August 1999, collateralized by all assets
of the Company. $ 2,800,000 $3,600,000
Note payable to bank; quarterly principal payments of $10,000 plus
interest at 86% of prime (8.25% as of February 29, 1996);
collateralized by land, building and equipment with a net book value
of $717,000 as of February 29, 1996. 69,000 109,000
Mortgage payable to bank; monthly principal payments of $5,000 plus
interest at prime plus 1%; balloon payment of outstanding principal
due October 1, 1996; collateralized by land and building with a net
book value of $679,000 as of February 29, 1996. 269,000 329,000
Note payable to industrial development authority; monthly payment of
$4,000 including interest at 6.5%; collateralized by land and
building with a net book value of $557,000 as of February 29, 1996. 217,000 247,000
Note payable to bank; monthly principal payments of $24,000 including
interest at 9%; collateralized by computer equipment with a net book
value of $544,000 as of February 29, 1996. 154,000 425,000
Note payable to bank; monthly payments of $8,000 plus interest at
prime plus 1%; collateralized by machinery and equipment with a net
book value of $419,000 as of February 29, 1996. 53,000 143,000
Note payable to bank; monthly payments of $2,000 plus interest at
prime plus 1%; collateralized by land and buildings with a net book
value of $183,000 as of February 29, 1996. 111,000 146,000
Other 48,000 32,000
----------- ----------
3,721,000 5,031,000
Less current maturities 1,381,000 1,314,000
----------- ----------
$2,340,000 $3,717,000
=========== ===========
Future maturities of long-term debt are as follows:
Year Amount
---- ------
1997 $1,381,000
1998 933,000
1999 873,000
2000 462,000
2001 42,000
Thereafter 30,000
----------
$3,721,000
F-34
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On August 24, 1994, the Company entered into a new loan agreement ("Agreement")
with a bank. The Agreement provides for a $4,000,000 term loan and a $10,000,000
revolving line of credit secured by substantially all assets of the Company. The
line of credit had a one year term but has been extended through August 30,
1996. The Company will be required to seek renewal of this facility in fiscal
1997. The Agreement also provides for a letter of credit facility amounting to
$1,000,000. Borrowings under the letter of credit facility are guaranteed by an
officer of the Company. There were $307,000 in outstanding letters of credit
under this facility as of February 29, 1996.
The revolving credit facility, term loan and letter of credit facility bear
interest at the bank's base rate (8.25% and 9% as of February 29, 1996 and
February 28, 1995, respectively) plus 1/2 of 1%. A commitment fee of 1/2 of 1%
is charged on the unused portion of the revolving credit facility. Borrowings
under the revolving credit facility are limited by eligible accounts receivable
and inventory, as defined. Total availability under the revolving credit
facility was $9,925,000 as of February 29, 1996. The Agreement contains
affirmative and negative covenants including requirements related to tangible
net worth, indebtedness to tangible net worth, cash flow coverage, and restricts
dividend payments, capital expenditures and acquisitions. Substantially all of
the Company's retained earnings are restricted based upon these covenants.
The Company entered into an interest rate swap agreement with a bank, dated
September 1993, to effectively fix the interest rate on $7,500,000 of the
Company's debt at 6.25% through September 1995. During May 1994, the Company
effectively extended this agreement and sold an interest rate cap agreement to
the bank which limits the bank's exposure relative to upward interest rate
movements in conjunction with the swap agreement to 8% on the principal amount
of $7,500,000. The effect of the second agreement is to increase the Company's
borrowing rate to 6.25% plus the excess, if any, of prime over 8% on $7,500,000
in borrowings through May 1996. The Company received a payment amounting to
$105,000 as consideration for this interest rate cap and is recognizing this
amount over the term of the agreement. The Company recognized net amounts of
$124,000 and $42,000 in income related to these agreements in 1996 and 1995,
respectively. These agreements subject the Company to market risks associated
with upward movements in interest rates. The impact of upward movements in
interest rates and the excess of the $7,500,000 notional amount over borrowed
amounts has not been material.
NOTE 5. OPERATING LEASES
The Company leases various manufacturing facilities and transportation equipment
under leases classified as operating leases. These leases provide that the
Company pay taxes, insurance and other expenses on the leased property and
equipment. Rent expense under these leases was approximately $1,364,000,
$1,402,000 and $1,437,000 in 1996, 1995 and 1994, respectively.
Future minimum rental payments due under these leases are as follows:
Year Amount
------ ------
1997 $1,118,000
1998 928,000
1999 817,000
2000 481,000
2001 317,000
Thereafter 782,000
-----------
$4,443,000
===========
F-35
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The Company leases five of its manufacturing facilities and certain warehouse
space from shareholders and officers under net operating leases expiring at
various dates through 2001. Rent expense under these leases totaled
approximately $562,000, $617,000 and $679,000 in 1996, 1995 and 1994,
respectively.
Future minimum rental payments due under these leases with related parties are
as follows:
Year Amount
---- ------
1997 $ 584,000
1998 489,000
1999 431,000
2000 312,000
2001 317,000
Thereafter 782,000
-----------
$2,915,000
===========
NOTE 6. STOCK OPTIONS
The Company has established a stock option plan as a performance incentive
program. The options may be granted to key employees at a price not less than
the fair market value at the time the options are granted and are exercisable
beginning on the first anniversary of the grant for a period not to exceed ten
years from the date of grant. Information regarding the option plan is as
follows:
Option
Shares Price Range
------------ ---------------
Outstanding as of February 28, 1993 110,000 $3.30 - $10.50
Granted 27,000 3.00 - 7.00
Expired (9,000) 10.00
-----------
Outstanding as of February 28, 1994 128,000 3.00 - 10.50
Granted 22,000 1.94 - 3.00
Expired (9,000) 9.50
Cancelled (10,000) 3.50 - 7.50
-----------
Outstanding as of February 28, 1995 131,000 1.94 - 10.50
Granted 123,000 1.94 - 5.13
Expired (9,000) 7.50
Cancelled (9,000) 6.00
-----------
Outstanding as of February 29, 1996 236,000 1.94 - 10.50
===========
As of February 29, 1996, the Company had reserved 400,000 shares of common stock
for issuance in connection with the stock option plan. As of February 29, 1996
and February 28, 1995, options for 101,000 and 86,000 shares, respectively, were
exercisable.
F-36
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 7. INCOME TAXES
The components of the provision for income taxes are as follows:
1996 1995 1994
---- ---- ----
Current:
Federal $ 920,000 $ (14,000) $ 342,000
State 241,000 56,000 148,000
--------------------- ----------- ---------------------
1,160,000 42,000 490,000
--------------------- ----------- ---------------------
Deferred:
Federal (212,000) (34,000) (133,000)
State (22,000) (4,000) (38,000)
--------------------- ----------- ---------------------
(234,000) (38,000) (171,000)
--------------------- ----------- --------------------
Total $ 926,000 $ 4,000 $ 319,000
===================== =========== =====================
Income before income taxes consists of the following
1996 1995 1994
--------------------- ----------- ---------------------
U.S. operations $1,952,000 $ (59,000) $ 757,000
Foreign operations 753,000 73,000 65,000
--------------------- ----------- ---------------------
$2,705,000 $ 14,000 $ 822,000
===================== =========== =====================
The components of deferred tax assets and liabilities are as follows:
1996 1995
---- ----
Deferred tax assets:
Foreign operating loss carryforwards $ 1,160,000 $ 1,444,000
Uniform capitalization costs 267,000 409,000
Inventory obsolescence reserve 71,000 71,000
Accrued vacation expenses 45,000 49,000
Allowance for possible losses 50,000 73,000
Other 64,000 66,000
(1,160,000) (1,444,000)
Valuation allowance ----------- ---------------------
Total deferred tax assets $ 497,000 $ 668,000
=========== =====================
Deferred tax liabilities:
Tax over book depreciation $ 381,000 $ 782,000
Other 22,000 26,000
----------- ---------------------
Total deferred tax liabilities $ 403,000 $ 808,000
=========== =====================
Except for foreign net operating loss carryforwards, management considers the
realization of deferred tax assets to be more likely than not as the reversal
of these temporary differences is expected to occur in the near future.
F-37
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The effective income tax rate differed from the statutory federal income tax
rate as follows:
1996 1995 1994
---- ----- ----
Taxes at statutory federal income tax rate $ 920,000 $ 5,000 $ 280,000
State income taxes, net federal benefit 159,000 18,000 73,000
Amortization of intangibles from acquisition 48,000 48,000 53,000
of businesses
Reversal of valution allowance for foreign
operating (284,000) (25,000) (22,000)
losses
Realized benefit on loss on sale of investment - - (48,000)
Loss on settlement of litigation - 40,000 -
Realized benefit on recognized
loss of foreign subsidiary - (100,000) -
(Income) loss of unconsolidated equity - - (23,000)
investees
Other 83,000 18,000 6,000
---------- ----------- -----------
Taxes at effective income tax rate $ 926,000 $ 4,000 $ 319,000
========== =========== ===========
NOTE 8. INDUSTRY SEGMENTS
The Company has two industry segments: (a) the manufacture and distribution of
cathode ray tubes and electron guns in the replacement market and (b) the
distribution of electronic parts from foreign and domestic manufacturers.
Identifiable assets by industry segment are those assets that are used in the
Company's operations in each industry.
F-38
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
The following table sets forth net sales, operating profit, identifiable assets,
capital expenditures, and depreciation and amortization for each industry
segment:
1996 1995 1994
(In Thousands)
NET SALES
CRT's $ 23,910 $ 22,392 $ 24,413
Wholesale Distribution 24,202 26,048 28,654
---------- --------- --------
$ 48,112 $ 48,440 $ 53,067
========== ========= ========
OPERATING PROFIT
CRT's $ 3,814 $ 1,500 $ 908
Wholesale Distribution (110) (273) 722
---------- --------- --------
$ 3,704 $ 1,227 $ 1,630
========== ========= ========
IDENTIFIABLE ASSETS
CRT's $ 23,953 $ 23,479 $ 25,428
Wholesale Distribution 10,466 10,682 12,598
---------- -------- --------
$ 34,419 $ 34,161 $ 38,026
========== ========= ========
CAPITAL EXPENDITURES
CRT's $ 156 $ 72 $ 114
Wholesale Distribution 59 403 559
---------- --------- --------
$ 215 475 $ 673
========== ========= ========
DEPRECIATION AND AMORTIZATION
CRT's $ 1,032 $ 936 $ 982
Wholesale Distribution 583 654 770
---------- --------- ---------
$ 1,615 $ 1,590 $ 1,752
========== ========= =========
NOTE 9. RELATED PARTY TRANSACTIONS
TELTRON TECHNOLOGIES, INC.
During fiscal 1994, the Chief Executive Officer ("CEO") and principal
shareholder of the Company incorporated a new company known as Teltron
Technologies, Inc. ("TTI"). TTI is 100% owned by the CEO. In August 1993, TTI
purchased from Meridien Bank the outstanding secured indebtedness of Teltron,
Inc., an insolvent customer of the Company, which gave effective control of
Teltron, Inc.'s assets to TTI.
The Company had sales to TTI of $299,000, $195,000 and $112,000 for fiscal years
ended February 29, 1996 and February 28, 1995 and 1994, which generated gross
profits of approximately $117,000, $61,000 and $35,000, respectively. In
addition, the Company advanced funds for operating expenses to TTI for fiscal
years ended 1996 and 1995 of $184,000 and $26,000, respectively. The balances
owed by TTI to the Company were $558,000 and $59,000 as of February 29, 1996 and
February 28, 1995, respectively.
The Company also sold its 15% ownership of CRT Scientific, Inc., a privately
held company, to TTI in August 1993 for which it received a promise to pay of
$140,000, and recorded a gain of $130,000. The promise to pay was collected
during fiscal 1995.
F-39
Video Display Corporation and Subsidiaries
Notes to Consolidated Financial Statements
OFFICERS AND SHAREHOLDERS
During 1996, the Company borrowed and repaid $200,000 from the CEO. During
fiscal year ended 1995, the Company repaid its $1,200,000 note due to the
Chairman of the Board and CEO. The borrowings were under the terms of an
unsecured demand note bearing interest at prime plus 1%.
The Company has a subordinated debenture payable to a shareholder and officer
with an original balance of $340,000 payable in monthly installments of $10,000
bearing interest at prime plus 1%. During 1994, this debenture was converted
into an unsecured demand note bearing interest at prime plus 1%. As of February
29, 1996, there was $220,000 outstanding under this note.
During 1995 and 1994, the Company borrowed $140,000 and $75,000, respectively
from this shareholder and repaid $80,000 and $135,000 in 1996 and 1995,
respectively. The balance owed this shareholder was $80,000 as of February 28,
1995.
As mentioned in Note 5, the Company leases certain of its manufacturing
facilities and warehouse space from shareholders and officers.
NOTE 10. SUBSEQUENT EVENT
On April 19, 1996, the Company announced that it exercised its option to
purchase 100% of the outstanding common stock of Teltron Technologies, Inc.
(TTI). As discussed in Note 9, TTI is fully owned by the Company's CEO and
principal shareholder. It is anticipated that the Company will acquire the net
assets of TTI for a total purchase price of $962,497, consisting of $62,497 in
cash and $900,000 in a demand note payable. The transaction will be accounted
for by the purchase method of accounting.
NOTE 11. BENEFIT PLAN
During 1992, the Company adopted a defined contribution plan that covers
substantially all employees. Employees may contribute up to 15% of their
compensation, as allowed by IRS regulations. At the Company's discretion,
employee contributions up to 4% of their compensation, are matched at 50% by the
Company. The Company elected to match 50% of the first 2% of compensation, or
$32,000, in fiscal 1996. The Company elected not to match contributions during
1995 or 1994.
NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION
1996 1995 1994
---- ---- ----
Cash paid for:
Interest $1,313,000 $ 1,092,000 $1,072,000
========== =========== ===========
Income taxes 332,000 540,000 180,000
========== =========== ===========
F-40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULE
To the Shareholders and Board of Directors
Video Display Corporation
The audits referred to in our report dated May 20, 1996 relating to the
consolidated financial statements of Video Display Corporation and subsidiaries
which is contained in Item 8 of this Form 10-K, included the audit of the 1996
and 1995 amounts in the financial statement schedule listed under Item 14(a)(2).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion this financial statement schedule presents fairly, in all
material respects, the 1996 and 1995 information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
May 20, 1996
F-41
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
Video Display Corporation
The audit referred to in our report dated May 27, 1994 relating to the
consolidated financial statements of Video Display Corporation and subsidiaries
which is contained in Item 8 of this Form 10-K, included the audit of the 1994
amounts in the financial statement schedule listed under Item 14(a)(2). This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based upon our audit.
In our opinion this financial statement schedule presents fairly, in all
material respects, the 1994 information set forth therein.
Ernst & Young LLP
Atlanta, Georgia
May 27, 1994
F-42
VIDEO DISPLAY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounting Deduction Period
- ---------------------------------------------------------------------------------------------
Allowance for
doubtful
accounts
1996 $517,000 $ 47,000 $ - $104,000 (a) $460,000
1995 190,000 378,000 - 51,000 (a) 517,000
1994 181,000 135,000 - 126,000 (a) 190,000
Allowance for
inventory
obsolescence
1996 $188,000 $ 78,000 $ - $ - $266,000
1995 188,000 - - - 188,000
1994 88,000 222,000 - 122,000 188,000
(a) Uncollectible accounts written off, net of recoveries.
F-43