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Video Display Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: July 15, 2011 11:28AM

Video Display Corp. (VIDE) filed Quarterly Report for the period ended 2011-05-31. Video Display Corp. has a market cap of $32 million; its shares were traded at around $4.2 with a P/E ratio of 21.1 and P/S ratio of 0.5. Video Display Corp. had an annual average earning growth of 1.1% over the past 5 years.

Highlight of Business Operations:

The increase in the Monitor division was lead by the Company’s Z-Axis subsidiary, which more than doubled its sales for the three-month period ending May 31, 2011, compared to the three months ending May 31, 2010, from $1.8 million to $3.9 million. The robust sales increase was a result of an increase in its power supply business and its custom manufacturing business. The Company’s Aydin subsidiary increased its sales by 57.5% for the three-month comparable period ending May 31, 2011, from $4.2 million to $6.5 million. The increase was primarily due to shipments on long-term military contracts. Display Systems was down 5.2% due to lost business on Marquee Projector sales and Lexel Imaging was down due primarily to reduced requirements for spare CRTs for their foreign military customers. Display Systems is replacing the Marque Projectors with new digital projectors and Lexel has received additional orders from their foreign military customers, so that business should increase in the coming quarters. The Data Display division increase was primarily in flight simulation. We expect this business to remain steady throughout the year. A significant portion of the entertainment division’s sales are to television retailers as replacements for products sold under manufacturer and extended warranties. The Company remains the primary supplier of product to meet manufacturers’ standard warranties. This division is being phased out as it has been negatively impacted by the increasing demand for flat screen televisions. The Company’s Chroma subsidiary is being closed in the next quarter.

On December 23, 2010, the Company and its subsidiaries executed a new Credit Agreement with RBC Bank and Community & Southern Bank (collectively, the “Banks”) to provide new financing to the Company to replace the existing credit agreement with RBC Bank that terminated in conjunction with this Agreement. The new Agreement provided for a line of credit of up to $17.5 million and two term loans of $3.5 million and $3.0 million. The outstanding balance of the line of credit at May 31, 2011 was $12.6 million and the balances of the term loans were $3.2 million and $2.9 million, respectively. A copy of the new Credit Agreement was filed in an 8-K document with the Securities and Exchange Commission on December 30, 2010. These loans are secured by all assets and personal property of the Company and a limited guarantee of the Chief Executive Officer of $3.0 million. The $3.0 million term loan is secured by real estate property of the Company and a building owned by the Company’s Chief Executive Officer through Southeastern Metro Savings, LLC. The building will continue to be in the collateral pool until such time as the note is sufficiently paid down or it is replaced by other collateral.

Cash provided by operations for the three months ended May 31, 2011 was $0.5 million. Net income from operations provided $1.2 million, and adjustments to reconcile net income to net cash were $0.8 million including depreciation and reserves. Changes in working capital used $1.5 million, primarily due to an increase in inventory of $1.3 million, an increase in costs on uncompleted contracts of $1.2 million, a decrease in accounts payable of $0.3 million offset by the decrease in accounts receivable of $0.8 million and a decrease in refundable taxes of $0.5 million. Cash provided by operations for the three months ended May 31, 2010 was $0.6 million.

Investing activities provided cash of $1.3 million from a letter of credit of $1.4 million, proceeds from the sale of the Company’s Fox International Ltd. subsidiary of $0.1 and the purchase of equipment for $0.2 million during the three months ended May 31, 2011, compared to cash used of $0.2 million during the three months ended May 31, 2010 from the purchase of equipment.

On March 1, 2011, the Company sold its Fox International Ltd., Inc. subsidiary to FI Acquisitions, a company majority owned by the Company’s Chief Executive Officer. The Company put its Fox International Ltd. subsidiary up for auction on January 15, 2011, and gave all interested parties a thirty-day due diligence period that was later extended until March 23, 2011, to give any potential bidders more time. FI Acquisitions was the only bidder and paid the net book value, approximately $3.5 million, for Fox International Ltd. in a stock sale, satisfied by the Company’s Chief Executive Officer exchanging 800,000 shares of the Company’s stock valued at approximately $3.3 million, approximately $50 thousand in cash and a reduction in notes payable to officers and directors of approximately $200 thousand. As the sale was at net book value, no gain or loss was recorded by the Company.

During 2007, the Company acquired the Cathode Ray Tube Manufacturing and Distribution Business and certain other assets of Clinton Electronics Corp. (“Clinton”), including inventory, fixed assets, for a total purchase price of $2.55 million, pursuant to an Asset Purchase Agreement between the parties (the “APA”). The form of consideration for the assets acquired included: (i) a $1.0 million face value Convertible Note; (ii) an agreement to deliver a stock certificate representing Company Common Shares having a $1,125,000 in market value of the Company’s common stock in January of 2008; and (iii) an agreement to deliver a stock certificate representing Company Common Shares having a $0.5 million in market value of the Company’s common stock in January of 2009. The Company has paid the $1.0 million Note Payable. The Company is disputing certain representations made by Clinton in the APA including but not limited to representations concerning revenue, expenses, and inventory. As a result of this dispute, the Company has not issued the stock certificates scheduled for delivery January of 2008 and January of 2009. As such, the Company has accrued a potential liability of $1.63 million and this accrued liability is reflected in the Company’s current Balance Sheet.

Read the The complete Report

Stocks Discussed: VIDE,
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