-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mg8Pe34/WEuEmHNB16/CResjRd9vknFVppOMn5CDe88e+VRsxtYm8YLBSmynQSaG cMdgs5eJznQ25Ad+zjrDmg== 0000931763-96-000240.txt : 19960605 0000931763-96-000240.hdr.sgml : 19960605 ACCESSION NUMBER: 0000931763-96-000240 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960604 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIDEO DISPLAY CORP CENTRAL INDEX KEY: 0000758743 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 581217564 STATE OF INCORPORATION: GA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13394 FILM NUMBER: 96576716 BUSINESS ADDRESS: STREET 1: 1868 TUCKER INDUSTRIAL DR CITY: TUCKER STATE: GA ZIP: 30084 BUSINESS PHONE: 4049382080 MAIL ADDRESS: STREET 2: 1868 TUCKER INDUSTRIAL DR CITY: TUCKER STATE: GA ZIP: 30084 10-K 1 FORM 10-K 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 EX-10.K 2 LEASE COMMERCIAL LEASE AGREEMENT This lease is made by and among Ronald D. Ordway (hereinafter called "Landlord") and Video Display Corporation (hereinafter called "Tenant"). WITNESSETH PREMISES 1. Landlord, for and in consideration of the rents, covenants, agreements, and stipulations hereinafter mentioned, provided for and contained herein to be paid, kept and performed by Tenant, leases and rents unto Tenant, and Tenant hereby leases and takes upon the terms and conditions which hereinafter appear, the following 40,000 SQUARE FOOT WAREHOUSE/OFFICE FACILITY and being known as 4701 Granite Drive, Tucker, GA. No easement for light or air is included in the Premises. TERM 2. The Tenant shall have and hold the Premises for a term of 10 years beginning on the 1st day of January, 1996 and ending on the 31st day of December, 2005 at midnight, unless sooner terminated as hereinafter provided.2 RENTAL 3. Tenant agrees to pay to Landlord or at the address of Landlord or as stated in this Lease, without demand, deduction or set off, an annual rental of $120,000 payable in equal monthly installments of $10,000 in advance on the first day of each calendar month during the term hereof. Upon execution of this Lease, Tenant shall pay to Landlord the first full month's rent due hereunder. Rental for any period during the term hereof which is for less than one month shall be a prorated portion of the monthly rental due. Annual rental to be amended based upon annual cost of living increases effective on each anniversary. Tenant to pay all taxes, insurance and maintenance. LATE CHARGES 4. If Landlord fails to receive all or any portion of a rent payment within ten (10) after it becomes due, tenant shall pay Landlord, as additional rental, a late charge equal to ten percent (10%) of the overdue amount. The parties agree that such late charge represent a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment. SECURITY DEPOSIT 5. Tenant shall deposit with Landlord upon execution of this Lease $ (None) as a security deposit. UTILITY BILLS 6. Tenant shall pay all utility bills, including, but not limited to water, sewer, gas, electricity, fuel, light and heat bills for the Premises, and Tenant shall pay all charges for garbage collection or other sanitary, services. COMMON AREA COSTS; RULES AND REGULATIONS 7. If the Premises are part of a larger building or group of buildings, Tenant shall pay as additional rental monthly, in advance, its pro rata share of common area maintenance costs as hereinafter more particularly set forth in the Special Stipulations. The Rules and Regulations attached hereto are made a part of this Lease. Tenant agrees to perform and abide by those Rules and Regulations and such other Rules and Regulations as may be made from time to time by Landlord. USE OF PREMISES 8. the Premises shall be used for warehousing purposes only and no other. The Premises shall not be used for any illegal purposes, nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance or increase the rate of insurance on the Premises. ABANDONMENT OF THE PREMISES 9. Tenant agrees not to abandon or vacate the Premises during the term of this Lease and agrees to use the Premises for the purposes herein leased until the expiration hereof. TAX AND INSURANCE ESCALATION 10. Tenant shall pay upon demand by landlord as additional rental during the term of this Lease, any extension or renewal thereof, the amount by which all taxes (including but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises for each tax year exceed all taxes on the Premises for the tax year 1996. In the event the Premises are less than the entire property assessed for such taxes for any such tax year, then the tax for any such year applicable to the Premises shall be determined by proration on the basis that the rentable floor area of the Premises bears to the rentable floor area of the entire property assessed. If the final year of the Lease term fails to coincide with the tax year, then any excess for the tax year during which the term ends shall be reduced by the pro rata part of such tax year beyond the Lease term. If such taxes for the year in which the Lease terminates are not ascertainable before payment of the last month's rental, then the amount of such taxes assessed against the Property for the previous tax year shall be used as a basis for determining the pro rata share, if any, to be paid by Tenant for the portion of the last Lease year. Tenant shall further pay, upon demand, its insurance on the building over the cost for the first year of the Lease term for each subsequent year during the term of this Lease. Tenant's pro rata portion of increased taxes or share of excess cost of fire and extended coverage and liability insurance, as provided herein, shall be payable within fifteen (15) days after receipt of notice from Landlord as to the amount due. INDEMNITY; INSURANCE 11. Tenant agrees to and hereby does indemnify and save Landlord harmless against all claims for damages to persons or property by reason of Tenant's use or occupancy of the Premises, and all expenses incurred by Landlord because thereof, including attorney's fees and court costs. Supplementing the foregoing and in addition thereto, Tenant shall during the term of this Lease and any extension or renewal thereof, and at Tenant's expense, maintain in full force and effect comprehensive general liability insurance with limits of $500,000.00 per person and $1,000,000.00 per incident, and property damage limits of $100,000.00, which insurance shall contain a special endorsement recognizing and insuring any liability accruing to Tenant under the first sentence of this paragraph 11, and naming Landlord as additional insured. Tenant shall provide evidence of such insurance to Landlord prior to the commencement of the term of this Lease. Landlord and Tenant each hereby release and relieve the other, and waive its right of recovery, for loss or damage rising out of or incident to the perils insured against which perils occur in, on or about the Premises, whether due to the negligence of Landlord or Tenant or their Brokers, employees, contractors and/or invitees, to the extent that such loss or damage is within the policy limits of said comprehensive general liability insurance. Landlord and Tenant shall, upon obtaining the policies of insurance required, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. REPAIRS BY LANDLORD 12. Landlord agrees to keep in good repair the roof, foundations and exterior walls of the Premises (exclusive of all glass and exclusive of all exterior doors) and underground utility and sewer pipes outside the exterior walls of the building, except repairs rendered necessary by the negligence or intentional wrongful acts of Tenant, its brokers, employees or invitees. If the Premises are part of a larger building or group of buildings, then to the extent that the grounds are common areas, Landlord shall maintain the grounds surrounding the building, including paving, the mowing of grass, care of shrubs and general landscaping. Tenant shall promptly report in writing to Landlord any defective condition known to it which Landlord is required to repair and failure so to report such conditions shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such conditions. REPAIRS BY TENANT 13. Tenant accepts the Premises in their present condition and as suited for the uses intended by Tenant. Tenant shall, throughout the initial term of this Lease, and any extension or renewal thereof, at its expense, maintain in good order and repair the Premises, including the building, heating and air conditioning equipment (including but not limited to replacement of parts, compressors, air handling units and heating units) and other improvements located thereon, except those repairs expressly required to be made by Landlord hereunder. Unless the grounds are common areas of a building(s) larger than the Premises, Tenant further agrees to care for the grounds around the building, including paving, the mowing of grass, care of shrubs and general landscaping. Tenant agrees to return the Premises to Landlord at the expiration, or prior to termination of this Lease, in as good condition and repair as when first received, natural wear and tear, damage by storm, fire, lightning, earthquake or other casualty alone excepted. ALTERATIONS 14. Tenant shall not make any alternations, additions, or improvements to the Premises without Landlord's prior written consent. Tenant shall promptly remove any alternations, additions, or improvements constructed in violation of this Paragraph 14 upon Landlord's written request. All approved alterations, additions, and improvements will be accomplished in a good and workmanlike manner, in conformity with all applicable laws and regulations, and by a contractor approved by landlord, free of any liens or encumbrances. Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent) at the termination of this Lease and to restore the Premises to its prior condition, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the termination of this Lease, except that Tenant may remove any of Tenant's machinery or equipment which can be removed without material damage to the Premises. Tenant shall repair, at Tenant's expense, any damage to the Premises caused by the removal of any such machinery or equipment. REMOVAL OF FIXTURES 15. Tenant may (if not in default hereunder) prior to the expiration of this Lease, or any extension or renewal thereof, remove all fixtures and equipment which it has placed in the Premises, provided Tenant repairs all damage to the Premises caused by such removal. DESTRUCTION OF OR DAMAGE TO PREMISES 16. If the Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this Lease shall terminate as of the date of such destruction and rental shall be accounted for as between Landlord and Tenant as of that date. If the Premises are damaged but not wholly destroyed by any such casualties, rental shall abate in such proportion as use of the Premises has been destroyed and Landlord shall restore the Premises to substantially the same condition as before damage as speedily as is practicable, whereupon full rental shall recommence. GOVERNMENTAL ORDERS 17. Tenant agrees, at its own expense, to comply promptly with all requirements of any legally constituted public authority made necessary by reason of Tenant's occupancy of the Premises. Landlord agrees to comply promptly with any such requirements if not made necessary by reason of Tenant's occupancy. It is mutually agreed, however, between Landlord and Tenant, that if in order to comply with such requirements, the cost to Landlord or Tenant, as the case may be, shall exceed a sum equal to one year's rent, then Landlord or Tenant who is obligated to comply with such requirements may terminate this Lease by giving written notice of termination to the other party by certified mail, which termination shall become effective sixty (60) days after receipt of such notice and which notice shall eliminate the necessity of compliance with such requirements by giving such notice unless the party giving such notice of termination shall, before termination becomes effective, pay to the party giving notice all cost of compliance in excess of one year's rent, or secure payment of said sum in manner satisfactory of the party giving notice. CONDEMNATION 18. If the whole of the Premises, or such portion thereof as will make the Premises unusable for the purposes herein leased, are condemned by any legally constituted authority for any public use or purposes, then in either of said events the term hereby granted shall cease from the date when possession thereof is taken by public authorities, and rental shall be accounted for as between landlord and Tenant as of said date. Such termination, however, shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by condemnation from the condemnor. It is further understood and agreed that neither the Tenant nor Landlord shall have any rights in any award made to the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. Broker may become a party to the condemnation proceeding for the purpose of enforcing his rights under this paragraph. ASSIGNMENT AND SUBLETTING 19. Tenant shall not, without the prior written consent of Landlord, which shall not be unreasonably withheld, assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than the Tenant. Consent to any assignment or sublease shall not impair this provision and all later assignments or sublease shall be made likewise only on the prior written consent of Landlord. The assignee of Tenant, at the option of Landlord, shall become liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. EVENTS OF DEFAULT 20. The happening of any one or more of the following events (hereinafter any one of which may be referred to as an "Event of Default") during the term of this Lease, or any renewal or extension thereof, shall constitute a breach of this Lease on the part of the Tenant: (A) Tenant fails to pay the rental as provided for herein; (B) Tenant abandons or vacates the Premises; (C) Tenant fails to comply with or abide by and perform any other obligation imposed upon Tenant under this Lease; (D) Tenant is adjudicated bankrupt; (E) a permanent receiver is appointed for Tenant's property and such receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain such removal; (F) Tenant, either voluntarily or involuntarily, takes advantage of any debt or relief proceedings under the present or future law, whereby the rent or any part thereof is, or is proposed of be reduced or payment thereof deferred; (G) Tenant makes an assignment for benefit of creditors; or (H) Tenant's effects are levied upon or attached under process against Tenant, which is not satisfied or dissolved within thirty (30) days after written notice form Landlord to Tenant to obtain satisfaction thereof. REMEDIES UPON DEFAULT 21. Upon the occurrence of an Event of Default, Landlord, in addition to any and all other rights or remedies it may have at law or in equity, shall have the option of pursuing any one or more of the following remedies: (A) Landlord may terminate this Lease by giving notice of termination, in which event this Lease shall expire and terminate on the date specified in such notice of termination, with the same force and effect as though the date so specified were the date herein originally fixed as the termination date of the term of this Lease, and all rights of tenant under this Lease and in and to the Premises shall expire and terminate, and Tenant shall remain liable for all obligations under this Lease arising up to the date of such termination and Tenant shall surrender the Premises to Landlord on the date specified in such notice; (B) Landlord may terminate this Lease as provided in paragraph 21 (A) hereof and recover from Tenant all damages Landlord may incur by reason of Tenant's default, including, without limitation, a sum which, at the date of such termination, represents the then value of the excess, if any, of (i) the monthly rental and additional rent for the period commencing with the day following the date of such termination and ending with the date hereinbefore set for the expiration of the full term hereby granted, or (ii) the aggregate reasonable rental value of the Premises (less reasonable brokerage commissions, attorneys' fees and other costs relating to the reletting of the Premises) for the same period, all of which excess sum shall be deemed immediately due and payable; (C) Landlord may, without termination this Lease, declare immediately due and payable all monthly rental and additional rent due and coming due under this Lease for the entire remaining term hereof, together with all other amounts previously due, at once; provided, however, that such payment shall not be deemed a penalty or liquidated damages but shall merely constitute payment in advance of rent for the remainder of said term; upon making such payment, Tenant shall be entitled to receive from Landlord all rents received by Landlord from other assignees, tenants and subtenants on account of the Premises during the term of this Lease, Provided that the monies to which Tenant shall so become entitled shall in no event exceed the entire amount actually paid by Tenant to Landlord pursuant to this clause (C) less all costs, expenses and attorneys' fees of Landlord incurred in connection with the reletting of the Premises; or (D) Landlord may, from time to time without terminating this Lease, and without releasing Tenant in whole or in part from Tenant's obligation pay monthly rental and additional rent and perform all of the covenants, conditions and agreements to be performed by Tenant as provided in this Lease, make such alterations and repairs as may be necessary in order to relet the Premises, and, after making such alterations and repairs, Landlord may, but shall not be obligated to, relet the Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) as such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable or acceptable; upon each reletting, all rentals received by Landlord from such reletting shall be applied first, to the payment of any indebtedness other than rent due hereunder from Tenant to landlord, second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorneys' fees, and of costs of such alterations and repairs, third, to the payment of the monthly rental and additional rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied against payments of future monthly rental and additional rent as the same may become due and payable hereunder; in no event shall Tenant be entitled to any excess rental received by Landlord over and above charges that Tenant is obligated to pay hereunder, including monthly rental and additional rent; if such rentals received from such reletting during any month are less than those to be paid during the month by Tenant hereunder, including monthly rental and additional rent, Tenant shall pay any such deficiency to Landlord, which deficiency shall be calculated and paid monthly; Tenant shall also pay Landlord as soon as ascertained and upon demand all costs and expenses incurred by Landlord in connection with such reletting and in making any alterations and repairs which are not covered by the rentals received from such reletting; notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Tenant acknowledges that the Premises are to be used for commercial purposes, and Tenant expressly waives the protections and rights set forth in Official Code of Georgia Annotated Section 44-7-52. EXTERIOR SIGNS 22. Tenant shall place no signs upon the outside walls or roof of the Premises except with the written consent of the Landlord. Any and all signs placed on the Premises by Tenant shall be maintained in compliance with governmental rules and regulations governing such signs, and Tenant shall be responsible to Landlord for any damage caused by installation, use or maintenance of said signs, and all damage incident to such removal. LANDLORD'S ENTRY OF PREMISES 23. Landlord may card the Premises "For Rent" or "For Sale" ninety (90) days before the termination of this Lease. Landlord may enter the Premises at reasonable hours to exhibit the Premises to prospective purchasers or tenants, to inspect the Premises to see that Tenant is complying with all of its obligations hereunder, and to make repairs required of Landlord under the terms hereof or to make repairs to Landlord's adjoining property, if any. EFFECT OF TERMINATION OF LEASE 24. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall effect Landlord's right to collect rent for the period prior to termination thereof. SUBORDINATION 25. At the option of Landlord, Tenant agrees that this Lease shall remain subject and subordinate to all present and future mortgages, deeds to secure debt or other security instruments (the "Security Deeds") affecting the Building or the Premises, and Tenant shall promptly execute and deliver to landlord such certificate or certificates in writing as Landlord may request, showing the subordination of the Lease to such Security Deeds, and in default of Tenant so doing, Landlord shall be and is hereby authorized and empowered to execute such certificate in the name of and as the act and deed of Tenant, this authority being hereby declared to be coupled with an interest and to be irrevocable. Tenant shall upon request from Landlord at any time and from time to time execute, acknowledge and deliver to Landlord a written statement certifying as follows: (A) that this Lease is unmodified and in full force and effect (or if there has been modification thereof, that the same is in full force and effect as modified and stating the name thereof); (B) that to the best of its knowledge there are no uncured defaults on the part of Landlord (or if any such default exists, the specified nature and extent thereof); (D) the date to which any rent and other charges have been paid in advance, if any; and (D) such other matters as Landlord may reasonably request. Tenant irrevocably appoints Landlord as its attorney-in-fact, coupled with an interest, to execute and deliver, for and in the name of Tenant, any document or instrument provided for in this paragraph. QUIET ENJOYMENT 26. So long as Tenant observes and performs the covenants and agreements contained herein, it shall at all times during the Lease term peacefully and quietly have and enjoy possession of the Premises, but always subject to the terms hereof. NO ESTATE IN LAND 27. This Lease shall create the relationship of Landlord and Tenant between the parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct not subject to levy and sale, and not assignable by Tenant except by Landlord's consent. HOLDING OVER 28. If Tenant remains in possession of the Premises after expiration of the term hereof, with Landlord's acquiescence and without any express agreement of the parties, Tenant shall be a tenant at will at the rental rate which is in effect at end of this Lease and there shall be no renewal of this Lease by operation of law. If Tenant remains in possession of the Premises after expiration of the term hereof without Landlord's acquiescence, Tenant shall be a tenant at sufferance and commencing on the date following the date of such expiration, the monthly rental payable under Paragraph 3 above shall for each month, or fraction thereof during which Tenant so remains in possession of the Premises, be twice the monthly rental otherwise payable under Paragraph 3 above. ATTORNEY'S FEES 29. In the event that any action or proceeding is brought to enforce any term, covenant or condition of this Lease on the part of Landlord or Tenant, the prevailing party in such litigation shall be entitled to recover reasonable attorney's fees to be fixed by the court in such action or proceeding, in an amount at least equal to fifteen percent of any damages due from the non- prevailing party. Furthermore, Landlord and Tenant agree to pay the attorney's fees and expenses of (A) the other party of this Lease (either Landlord or Tenant) if it is made a party to litigation because of its being a party to this Lease and when it has not engaged in any wrongful conduct itself, ad (B) Broker if Broker is made a party to litigation because of its being a party to this Lease and when Broker has not engaged in any wrongful conduct itself. RIGHTS CUMULATIVE 30. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative and not restrictive of those given by law. WAIVER OF RIGHTS 31. No failure of Landlord to exercise any power given Landlord hereunder or to insist upon strict compliances by Tenant of its obligations hereunder and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. AGENCY DISCLOSURE 32. Landlord and Tenant hereby acknowledge that Broker has acted as an agent for ___________________________ in this transaction and will be paid a real estate commission by Landlord and that _________________________ has acted as an agent for________________________ in this transaction and will be paid a real estate commission by ________________________ . BROKER'S COMMISSION 33. Broker has rendered valuable service by assisting in the creation of the landlord-tenant relationship hereunder. The commission to be paid in conjunction with the creation of the relationship by this Lease has been negotiated between Landlord and Broker and Landlord hereby agrees to pay Broker as compensation for Broker's services in procuring this Lease and creating the aforesaid landlord-tenant relationship (___) pursuant to a separate commission agreement, or (___) as follows: Broker's commission shall not apply to any "additional rental" as that term is used in this Lease. Any separate commission agreement is hereby incorporated as a part of this Lease by reference and any third party assuming the rights and obligations of Landlord under this Lease shall be obligated to perform all of Landlord's obligations to Broker under said separate commission agreement. If the Tenant becomes a tenant at will or at sufferance pursuant to Paragraph 28 above, of if the term of this Lease is extended or if this Lease is renewed or if a new lease is entered into between Landlord and Tenant covering either the Premises or any part thereof, or covering any other premises as an expansion of, addition to, or substitution for the Premises, regardless of whether such premises are located adjacent to or in the vicinity of the Premises, landlord, in consideration of Broker's having assisted in the creation of the landlord- tenant relationship, agrees to pay Broker additional commissions as set forth below, it being the intention of the parties that Broker shall continue to be compensated so long as the parties hereto, their successors and/or assigns continue the relationship of landlord and tenant which initially resulted from the efforts of Broker, whether relative to the Premises or any expansion thereof, or relative to any other premises leased by Landlord to Tenant from time to time, whether the rental therefor is paid under this Lease or otherwise. Broker agrees that, in the event landlord sells the Premises, and upon landlord's furnishing Broker with an agreement signed by the purchaser assuming Landlord's obligations to Broker under this Lease, Broker will release the original Landlord from any further obligations to Broker hereunder. If the purchaser of the Premises does not agree in writing to assume Landlord's obligations to Broker under this Lease, landlord shall remain obligated to pay Broker the commissions described in this Paragraph 33 even after the expiration of the original term of this Lease if the purchase (A) extends the term of this Lease; (B) renews this Lease; or (C) enters into a new lease with Tenant covering either the Premises or any part thereof, or covering any other premises as an expansion of, addition to, or substitution for the Premises, regardless of whether such premises are located adjacent to or in the vicinity of the Premises. Voluntary cancellation of this Lease shall not nullify Broker's right to collect the commission due for the remaining term of this Lease and the provision contained hereinabove relative to additional commissions shall survive any cancellation or termination of this Lease. In the event that the Premises are condemned or sold under threat of and in lieu of condemnation, Landlord shall, on the date of receipt by Landlord of the condemnation award or sale proceeds, pay to Broker the commission, reduced to its present cash value at the existing legal rate of interest which would otherwise be due to the end of the term contracted for under Paragraph 2 above. LIMITATION OF BROKER'S SERVICES AND DISCLAIMER 34. Broker is a party to this Lease for the purpose of enforcing its right under Paragraph 33 above. Tenant must look solely to Landlord as regards to all covenants, agreements and warranties herein contained, and Broker shall never be liable to Tenant in regard to any matter which may arise by virtue of this Lease. It is understood and agreed that the commissions payable to Broker under Paragraph 33 above are compensation solely for Broker's services in assisting in the creation of the landlord-tenant relationship hereunder; accordingly, Broker is not obligated hereunder on account of payment of such commissions to furnish any management services for the Premises. Landlord and Tenant acknowledge that the Greater Atlanta Commercial Board of REALTORS, Inc. has furnished this Commercial Lease Agreement form to its members as a service and that it makes no representation or warranty as to the enforceability of this Commercial Lease Agreement form. PURCHASE OF PROPERTY BY TENANT 35. In the event that Tenant acquires title of the Premises or any part thereof, or any premises as an expansion of, addition to or substitution for the Premises at any time during the term of this Lease, or any renewals thereof, or within six (6) months after the expiration of the term hereof or the extended term hereof, Landlord shall pay Broker a commission on the sale of the Premises in lieu of any further commission which otherwise would have been due under this Lease. Such commission, as negotiated between the parties, shall be ______% of the gross sales price, payable in full at closing. ENVIRONMENTAL LAWS 36. Landlord represents to the best of its knowledge and belief, (A) the Premises are in compliance with all applicable environmental laws, and (B) there are not excessive levels (as defined by the Environmental Protection Agency) of radon, toxic waste or hazardous substances on the Premises. Tenant represents and warrants that Tenant shall comply with all applicable environmental laws and that Tenant shall not permit any of his employees, brokers, contractors or subcontractors, or any person present on the Premises to generate, manufacture, store, dispose of release on, about, or under the Premises any toxic waste or hazardous substances which would result in the Premises not complying with any applicable environmental laws. TIME OF ESSENCE 37. Time is of the essence of this Lease. DEFINITIONS 38. "Landlord" as used in this Lease shall include the undersigned, its heirs, representatives, assigns and successors in title to the Premises, "Tenant" shall include the undersigned and its heirs, representatives, assigns, and successors, and if this Lease shall be validly assigned or sublet, shall include also Tenant's assignees or subtenants as to the Premises covered by such assignment or sublease. "Broker" shall include the undersigned, its successors, assigns, heirs and representatives. "Landlord", "Tenant" and "Broker" include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. NOTICES 39. All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by U.S. Certified Mail, return receipt requested, postage prepaid. Broker shall be copied with all required or permitted notices. Notices to Tenant shall be delivered or sent to the address shown below, except that upon Tenant's taking possession of the Premises, then the Premises shall be Tenant's address for notice purposes. Notices to Landlord and Broker shall be delivered or sent to the address hereinafter stated, to wit: Landlord: Tenant: Broker: All notices shall be effective upon delivery. Any party may change his notice address upon written notice to the other parties. ENTIRE AGREEMENT 40. This Lease contains the entire agreement of the parties hereto, and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein, shall be of any force or effect. No subsequent alteration, amendment, change or addition to this Lease, except as to changes or additions to the Rules and Regulations described in paragraph 7, shall be binding upon Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant. SPECIAL STIPULATIONS 41. Any special stipulations are set forth in the attached Exhibit ____. Insofar as said Special Stipulations conflict with any of the foregoing provisions, said Special Stipulations shall control. Tenant acknowledges that Tenant has read and understands the terms of this Lease and has received a copy of it. IN WITNESS WHEREOF, the parties herein have hereunto set forth their hands and seals, in triplicate. (SEAL) LANDLORD: /s/ Ronald D. Ordway ----------------------------------- Date and time executed by Landlord: January 2, 1996 3:00 PM ------------------------ TENANT: Video Display Corporation ------------------------- (SEAL) Ronald D. Ordway, CEO --------------------- (SEAL) Date and time executed by Tenant: January 2, 1996 3:00 PM ------------------------- EX-21 3 SUBSIDIARY COMPANIES Exhibit 21 Video Display Corporation Subsidiary Companies Apex Electronics, Inc. 100 Eighth Street Passaic, New Jersey Fox International Ltd., Inc. 23600 Aurora Road Bedford Heights, Ohio Southwest Vacuum Devices, Inc. 4210 North Sullinger Avenue Tucson, Arizona Vanco International, Inc. 1565 Shields Drive Waukegan, Illinois Video Display Corporation, Limited Unit 2 Avenue Farm Industrial Estate Warwickshire, CV37 OHU, England Video Electronics, S.A. de C.V. Calle Zinc Sin No. Garza Garcia N.L. Mexico Magna View, Inc. 1240 Profit Drive Dallas, Texas 75241 EX-27 4 FDS
5 12-MOS FEB-29-1996 MAR-01-1995 FEB-29-1996 1,057,000 0 5,736,000 139,000 19,450,000 27,021,000 15,823,000 11,307,000 34,419,000 15,025,000 2,340,000 0 0 3,529,000 12,750,000 34,419,000 48,112,000 48,112,000 30,227,000 44,408,000 145,000 0 1,144,000 2,705,000 926,000 1,779,000 0 0 0 1,779,000 0.45 0.45
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