-----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, KcwtlPM5l9A5kpOUoLeqxvaZCUB+B8dHTMoLODKAhxJTOpUy6LG8tpAIVhorzw96 1j8IKOg6YbZ74xhlOgU3sg== 0000355948-98-000020.txt : 19981014 0000355948-98-000020.hdr.sgml : 19981014 ACCESSION NUMBER: 0000355948-98-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981013 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RICHARDSON ELECTRONICS LTD/DE CENTRAL INDEX KEY: 0000355948 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 362096643 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12906 FILM NUMBER: 98724698 BUSINESS ADDRESS: STREET 1: 40W267 KESLINGER RD CITY: LAFOX STATE: IL ZIP: 60147 BUSINESS PHONE: 7082082200 MAIL ADDRESS: STREET 1: 40W267 KESLINGER ROAD CITY: LAFOX STATE: IL ZIP: 60147 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12906 RICHARDSON ELECTRONICS, LTD. (Exact name of registrant as specified in its charter) Delaware 36-2096643 (State of incorporation) (I.R.S. Employer Identification No.) 40W267 Keslinger Road, PO Box 393,LaFox, Illinois 60147 (Address of principal executive offices and zip code) (630) 208-2200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of October 8, 1998, there were outstanding 10,827,540 shares of Common Stock, $.05 par value, and 3,235,346 shares of Class B Common Stock, $.05 par value, which are convertible into Common Stock on a share-for-share basis. This Quarterly Report on Form 10-Q contains 14 pages. An exhibit index is at page 12. (1) RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES FORM 10-Q For the Quarter Ended August 31, 1998 INDEX Page ---- PART I - FINANCIAL INFORMATION Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Income 4 Consolidated Condensed Statements of Cash Flows 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 8 PART II - OTHER INFORMATION 12 (2) Part 1 - Financial Information Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) August 31 May 31 1998 1998 --------- --------- (Unaudited) (Audited) ASSETS ------- Current assets: Cash and equivalents $ 9,152 $ 8,031 Receivables, less allowance of $2,438 and $2,230 59,194 63,431 Inventories 103,735 96,443 Other 10,119 9,681 --------- --------- Total current assets 182,200 177,586 Investments 2,351 2,931 Property, plant and equipment 51,529 49,795 Less accumulated depreciation (32,097) (31,318) --------- --------- Property, plant and equipment, net 19,432 18,477 Other assets 13,050 10,706 --------- --------- Total assets $ 217,033 $ 209,700 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ----------------------------------- Current liabilities: Accounts payable $ 18,650 $ 17,320 Accrued expenses 7,370 10,689 --------- --------- Total current liabilities 26,020 28,009 Long-term debt, less current portion 94,179 87,427 Deferred income taxes 3,515 2,679 Stockholders' equity: Common stock, $.05 par value; issued 11,288 at August 31, 1998 and 11,183 at May 31, 1998 564 561 Class B common stock, convertible, $.05 par value; issued 3,236 at August 31, 1998 and 3,239 at May 31, 1997 162 162 Additional paid-in capital 81,830 80,606 Retained earnings 18,774 16,842 Foreign currency translation adjustment (8,011) (6,586) --------- --------- Total stockholders' equity 93,319 91,585 --------- --------- Total liabilities and stockholders' equity $ 217,033 $ 209,700 ========= ========= See notes to consolidated condensed financial statements. (3) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Income (in thousands, except per share amounts) (Unaudited) Three Months Ended August 31 --------------------------- 1998 1997 --------- -------- Net sales $ 76,038 $ 71,600 Cost of products sold 54,326 50,962 --------- --------- Gross margin 21,712 20,638 Selling, general and administrative expenses 16,606 15,810 --------- --------- Operating income 5,106 4,828 Other (income) expense: Interest expense 1,675 2,019 Investment income (153) (84) Other, net 13 313 --------- --------- 1,535 2,248 --------- --------- Income before income taxes 3,571 2,580 Income taxes 1,070 772 --------- --------- Net income $ 2,501 $ 1,808 ========= ========= Net income per share - basic: Net income per share $ 0.17 $ 0.15 ========= ========= Average shares outstanding 14,490 11,984 ========= ========= Net income per share - diluted: Net income per share $ 0.17 $ 0.15 ========= ========= Average shares outstanding 14,981 12,228 ========= ========= Dividends per common share $ 0.04 $ 0.04 ========= ========= See notes to consolidated condensed financial statements. (4) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Cash Flows (in thousands)(unaudited) Three Months Ended August 31 ------------------------ 1998 1997 --------- --------- Operating Activities: Net income $ 2,501 $ 1,808 Non-cash charges to income: Depreciation 864 656 Amortization of intangibles and financing costs 155 120 Deferred income taxes 1,070 470 Contribution to employee stock ownership plan 485 285 --------- --------- Total non-cash charges 2,574 1,531 --------- --------- Changes in working capital, net of effects of currency translation: Accounts receivable 3,241 527 Inventories (7,526) 883 Other current assets (463) 760 Accounts payable 982 1,896 Other liabilities (3,471) (169) --------- --------- Net changes in working capital (7,237) 3,897 --------- --------- Net cash provided by (used in) operating activities (2,162) 7,236 --------- --------- Financing Activities: Proceeds from borrowings 7,541 6,486 Payments on debt (319) (4,000) Proceeds from stock 112 -- Cash dividends (568) (467) --------- --------- Net cash provided by financing activities 6,766 2,019 --------- --------- Investing Activities: Sales of investments 746 890 Purchase of investments (767) (1,085) Business acquisitions (690) (6,262) Capital expenditures (1,344) (907) Other (1,428) (562) --------- --------- Net cash used in investing activities (3,483) (7,926) --------- --------- Increase in cash and equivalents 1,121 1,329 Cash and equivalents at beginning of year 8,031 10,012 --------- --------- Cash and equivalents at end of period $ 9,152 $ 11,341 ========= ========= See notes to consolidated condensed financial statements. (5) RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Three Months Ended August 31, 1998 (Unaudited) Note A -- Basis of Presentation The accompanying unaudited Consolidated Condensed Financial Statements (Statements) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods covered have been reflected in the Statements. Certain information and footnotes necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles have been omitted in accordance with the aforementioned instructions. It is suggested that the Statements be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended May 31, 1998. The marketing and sales operations of the Company are organized in four strategic business units (SBUs): Electronic Device Group (EDG), Solid State and Components (SSC), Display Products Group (DPG) and Security Systems Division (SSD). References hereinafter are to the acronyms noted parenthetically. Note B -- Income Taxes The income tax provisions for the three-month periods ended August 31, 1998 and August 31, 1997 are based on the estimated annual effective tax rate of 30%. The effective rate is less than the statutory rate of 34% due to U.S. foreign sales corporation tax benefits, partially offset by expected state income taxes. (6) RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Three Months Ended August 31, 1998 (Unaudited) Note C - Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", requires the presentation of comprehensive income as follows (in thousands). Three Months Ended August 31, 1998 1997 -------- -------- Net Income $ 2,501 $ 1,808 Foreign currency translation & other (1,425) (1,532) -------- -------- Comprehensive income $ 1,076 $ 276 ======== ======== (7) MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended August 31, 1998 (Unaudited) Results of Operations Net sales for the first quarter of fiscal 1999 were $76.0 million, up 6.2% from last year's first quarter of $71.6 million. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by SBU are summarized in the following table. Gross margins for each SBU include provisions for returns and overstock. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands). Sales Gross Margin ------------------------- ---------------------------------- 1999 1998 % 1999 GM% 1998 GM% -------- -------- ---- -------- ----- -------- ----- EDG $ 28,628 $ 29,025 -1% $ 8,951 31.3% $ 9,222 31.8% SSC 22,182 20,560 8% 6,137 27.7% 6,162 30.0% DPG 9,191 7,642 20% 3,022 32.9% 2,447 32.0% SSD 16,037 14,373 12% 3,793 23.7% 3,350 23.3% Corporate - - (191) (543) -------- -------- ---- -------- ----- -------- ----- Total $ 76,038 $ 71,600 6% $ 21,712 28.6% $ 20,638 28.8% ======== ======== ======== ======== EDG sales declined 1% from fiscal 1998 levels. Gross margins as a percent of sales decreased to 31.3% in fiscal 1999 from 31.8% in fiscal 1998 due to changes in product mix, as sales shifted from higher-margin industrial and microwave products toward lower-margin medical products. Sales for SSC increased 8% from fiscal 1998 levels, reflecting an increase in wireless product sales. Gross margins as a percent of sales decreased to 27.7% in fiscal 1999 from 30.0% in fiscal 1998 due to changes in product mix and increasing competitive pressures, primarily for RF products. Sales for DPG increased 20% in fiscal 1999 from 1988 levels, primarily due to new initiatives in monitor sales and related systems integration revenues. Gross margins as a percent of sales increased to 32.9% in fiscal 1999 from 32.0% in fiscal 1998. SSD sales increased 12% primarily due to the acquisition of Security Service Corporation, Inc. (SSI), a Canadian distributor of security systems with annual (8) MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended August 31, 1998 (Unaudited) sales of $20.0 million on August 14, 1997. Gross margins as a percent of sales increased from 23.3% in fiscal 1998 to 23.7% in fiscal 1999, reflecting higher margins on acquired product lines. On a geographic basis, the Company achieved sales growth of 13% in North America, reflecting internal growth and the acquisition of SSI near the end of the first quarter last year. The global economic slowdown affected sales in Asia / Pacific, which declined by 21%, and in Latin America, where sales slipped by 8%. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by area are summarized in the following table. The caption, "other", includes sales to export distributors and to countries where the Company does not have offices, including Eastern Europe and the Middle East. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands). Sales Gross Margin ------------------------- ---------------------------------- 1999 1998 % 1999 GM% 1998 GM% -------- -------- ---- -------- ----- -------- ----- North America $ 49,558 $ 43,664 13% $ 13,726 27.7% $ 12,789 29.3% Europe 15,188 14,726 3% 4,921 32.4% 4,459 30.3% Latin America 4,363 4,734 -8% 1,205 27.6% 1,308 27.6% Asia/Pacific 4,601 5,821 -21% 1,346 29.3% 1,810 31.1% Other 2,328 2,655 -12% 705 30.3% 815 30.7% Corporate - - (191) (543) -------- -------- ---- -------- ----- -------- ----- Total $ 76,038 $ 71,600 6% $ 21,712 28.6% $ 20,638 28.8% ======== ======== ======== ======== Overall gross margins for the first quarter were 28.6%, compared to 28.8% in the prior year. Gross margin comparisons were most significantly affected by changes in product mix, particularly SSD's larger contribution to total sales. Selling, general and administrative expenses, as a percent of sales, were reduced to 21.8 percent in 1999 compared to 22.1 percent in the prior year first quarter. Net results also benefited from lower non-operating expenses, primarily interest costs, as debt levels were reduced by the proceeds from the Company's common stock offering in the fourth quarter of fiscal 1998. (9) MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended August 31, 1998 (Unaudited) Net income for the quarter was $2.5 million or $.17 per share, compared to $1.8 million or $.15 per share in the prior year. Liquidity and Capital Resources Cash used in operations was $2.2 million in the first quarter of fiscal 1999, compared to $7.2 million cash provided by operations in the first quarter last year. Although cash provided by net income and non-cash adjustments improved, the Company increased its investment in working capital by $7.2 million in the first quarter of fiscal 1999, compared to a $3.9 million reduction last year. Accounts receivable decreased $3.2 million in 1999 and $.5 million in 1998. Inventory increased $7.5 million in 1999, primarily for product line expansion, compared to a reduction of $883,000 in 1998. Capital expenditures and dividend payments were funded primarily by cash generated by operations and additional borrowings. Interest payments for the first quarter were $2.8 million in fiscal 1999 and $3.2 million in 1998. The Company's loan agreements contain various financial and operating covenants which set benchmark levels for tangible net worth, debt / tangible net worth ratio and annual debt service coverage. The Company was in compliance with these covenants at August 31, 1998. Cash reserves, investments, funds from operations and credit lines are expected to be adequate to meet the operational needs and future dividends of the Company. The policy regarding payment of dividends is reviewed periodically by the Board of Directors in light of the Company's operating needs and capital structure. Impact of Year 2000 The year 2000 issue is the result of computer programs which are written using two digits rather than four to define the applicable year. The Company's current computer database correctly stores date stamps which include four digit years. The Company sets standard configuration guidelines for personal computer systems used within the Company which are year 2000 compliant. Based on a recent (10) MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Three Months Ended August 31, 1998 (Unaudited) assessment, the Company anticipates its systems will function properly with respect to dates in the year 2000 and thereafter. Future operating results may also be affected by the readiness of the Company's trading partners to meet year 2000 requirements. The Company is in the process of surveying its vendors of products with embedded chips or date-sensitive systems concerning their year 2000 readiness. The use of electronic data interchanges by the Company is limited to a few vendors and customers and the Company does not anticipate significant year 2000 issues relating to interface systems with these parties. The Company has no single customer which accounts for more than 2% of its sales or vendor which accounts for more than 9% of its purchases. Based upon the foregoing, the Company believes that its risk of significant financial impact resulting from the inability of its trading partners to meet year 2000 requirements is minimal. Euro Currency Conversion On January 1, 1999, eleven member states of the European Union will begin conversion to a common currency, the euro. From January 1, 1999 until January 1, 2002, companies operating in Europe must be able to process business transactions either in legacy currencies or in euros. After January 1, 2001, all transactions will be processed only in euros. These changes could have significant impacts on transaction processing costs, pricing policies and foreign currency exchange risk management. The Company has verified that its transaction processing systems can accommodate the euro currency and dual currency processing requirements without significant additional costs. While the exact impact on pricing is impossible to ascertain, the Company believes that most of its pricing is based on U.S. dollar costs and the effect of conversion to the Euro will not be significant. The Company expects to adopt the euro as the functional currency for each of its subsidiaries within the European Union. While it is possible that this change may result in reduced volatility of foreign exchange results and lower foreign exchange risk management costs, these benefits can not be quantified at this time. (11) PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No material developments have occurred in the matters reported Under the category "Legal Proceedings" in the Registrant's Report on Form 10-K for the fiscal year ended May 31, 1998, except that Arius has filed a notice of appeal with respect to the order of July 14, 1998 denying its motion to penalize the Company for having made sales to alleged Arius customers subsequent to the date Arius filed its bankruptcy petition. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Stockholders held October 6, 1998, the management slate of directors ran unopposed and was elected. The Company's 1998 Incentive Compensation Plan was approved as proposed in the proxy statement dated September 3, 1998 to announce the meeting. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule - page 12. (b) Reports on Form 8-K - None (12) PART II - OTHER INFORMATION SIGNATURE Pursuant to the requirements 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. RICHARDSON ELECTRONICS, LTD. Date October 8 , 1998 By /s/ William J. Garry Senior Vice President and Chief Financial Officer (13) EX-27 2
5 1000 3-MOS MAY-31-1999 AUG-31-1999 9152 0 61632 2438 103735 182200 51529 (32097) 217033 26020 94179 0 0 564 92755 217033 76038 76038 54326 54326 0 2 1675 3571 1070 2501 0 0 0 2501 .17 .17
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