-----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, UgUBiMzW7deZomeTiHViMPM4nHk5Mu3/m692UCPXNH90DuFZcAaecVeJinj6N9b6 q3HesshnU9ELWZttq3MFSQ== 0000355948-99-000008.txt : 19990415 0000355948-99-000008.hdr.sgml : 19990415 ACCESSION NUMBER: 0000355948-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: 99593281 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 February 28, 1999 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 April 12, 1999, there were outstanding 9,312,111 shares of Common Stock, $.05 par value, and 3,233,999 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 Three- and Nine-Month Periods Ended February 28, 1999 INDEX Page ---- PART I - FINANCIAL INFORMATION Consolidated Condensed Balance Sheets 3 Consolidated Condensed Income Statements 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 7 PART II - OTHER INFORMATION 12 (2) Part 1 - Financial Information Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) February 28 May 31 1999 1998 --------- --------- (Unaudited) (Audited) ASSETS - ------ Current assets: Cash and equivalents $ 8,878 $ 8,031 Receivables, less allowance of $2,492 and $2,230 67,761 63,431 Inventories 109,725 96,443 Other 11,793 9,681 --------- --------- Total current assets 198,157 177,586 Investments 2,344 2,931 Property, plant and equipment, 53,762 49,795 Less accumulated depreciation (33,760) (31,318) --------- --------- Property, plant and equipment, net 20,002 18,477 Other assets 14,785 10,706 --------- --------- Total assets $ 235,288 $ 209,700 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 19,063 $ 17,320 Accrued expenses 9,174 10,286 Notes payable and current portion of long-term debt 299 403 --------- --------- Total current liabilities 28,536 28,009 Long-term debt, less current portion 114,406 87,427 Deferred income taxes 3,136 2,679 Stockholders' equity: Common stock, $.05 par value; issued 11,314 at February 28, 1999 and 11,183 at May 31, 1998 566 561 Class B common stock, convertible, $.05 par value; issued 3,234 at February 28, 1999 and 3,239 at May 31, 1998 162 162 Additional paid-in capital 81,869 80,606 Common stock in treasury; 973 shares at cost (6,141) -- Retained earnings 21,654 16,842 Foreign currency translation adjustment (8,900) (6,586) --------- --------- Total stockholders' equity 89,210 91,585 --------- --------- Total liabilities and stockholders' Equity $ 235,288 $ 209,700 ========= ========= See notes to consolidated condensed financial statements. (3) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Income Statements For the Three- and Nine-Month Periods Ended February 28, 1999 and 1998 (in thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended February 28 February 28 -------------------- -------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net sales $ 77,092 $ 73,196 $235,362 $223,442 Cost of products sold 55,704 52,336 169,000 159,596 --------- --------- --------- --------- Gross margin 21,388 20,860 66,362 63,846 Selling, general and administrative expenses 18,331 16,009 52,226 48,525 --------- --------- --------- --------- Operating income 3,057 4,851 14,136 15,321 Other (income) expense: Interest expense 2,074 2,009 5,476 6,218 Investment income (150) (255) (383) (534) Other, net 150 5 (200) 27 --------- --------- --------- --------- 2,074 1,759 4,893 5,711 --------- --------- --------- --------- Income before income taxes 983 3,092 9,243 9,610 Income taxes 290 910 2,770 2,880 --------- --------- --------- --------- Net income $ 693 $ 2,182 $ 6,473 $ 6,730 ========= ========= ========= ========= Net income per share - basic: Net income per share $ 0.05 $ 0.18 $ 0.46 $ 0.56 ========= ========= ========= ========= Average shares outstanding 13,866 12,198 14,148 12,096 ========= ========= ========= ========= Net income per share - diluted: Net income per share $ 0.05 $ 0.17 $ 0.45 $ 0.54 ========= ========= ========= ========= Average shares outstanding 14,039 12,626 14,411 12,476 ========= ========= ========= ========= Dividends per common share $ 0.04 $ 0.04 $ 0.12 $ 0.12 ========= ========= ========= ========= See notes to consolidated condensed financial statements. (4) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Cash Flows Nine-Month Periods Ended February 28, 1999 and 1998 (Unaudited) (in thousands) Nine Months Ended February 28 ------------------------ 1999 1998 --------- --------- Operating Activities: Net income $ 6,473 $ 6,730 Non-cash charges to income: Depreciation 2,632 2,606 Amortization of intangibles and financing costs 456 366 Deferred income taxes 708 1,508 Contribution to employee stock ownership plan 485 285 --------- --------- Total non-cash charges 4,281 4,765 --------- --------- Changes in working capital, net of effects of currency translation and business acquisitions: Accounts receivable (4,234) (4,758) Inventories (12,702) (862) Other current assets (2,161) 68 Accounts payable 701 5,504 Other liabilities (1,588) (2,460) --------- --------- Net changes in working capital (19,984) (2,508) --------- --------- Net cash (used in)provided by operating activities (9,230) 8,987 --------- --------- Financing Activities: Proceeds from borrowings 28,564 14,531 Payments on debt (1,348) (15,943) Proceeds from stock 73 1,765 Purchases of common stock for treasury (6,136) -- Cash dividends (1,661) (1,416) --------- --------- Net cash provided by (used in) financing activities 19,492 (1,063) --------- --------- Investing Activities: Sales of investments 3,099 3,003 Purchase of investments (3,008) (3,432) Business acquisitions (2,460) (6,262) Capital expenditures (3,677) (3,201) Notes receivable and other (3,369) (1,158) --------- --------- Net cash used in investing activities (9,415) (11,050) --------- --------- Increase (decrease) in cash and equivalents 847 (3,126) Cash and equivalents at beginning of year 8,031 10,012 --------- --------- Cash and equivalents at end of period $ 8,878 $ 6,886 ========= ========= See notes to consolidated condensed financial statements. (5) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three- and Nine-Month Periods Ended February 28, 1999 (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- and nine-month periods ended February 28, 1999 and 1998 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 state income taxes. Note C - Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", requires the presentation of comprehensive income (loss) as follows (in thousands). Three Months Ended Nine Months Ended February 28 February 28 -------------------- -------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net income $ 693 $ 2,182 $ 6,473 $ 6,730 Foreign currency translation (3,309) (1,313) (2,314) (2,742) --------- --------- --------- --------- Comprehensive income (loss) $ (2,616) $ 869 $ 4,159 $ 3,988 ========= ========= ========= ========= (6) Management's Discussion and Analysis of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1999 (Unaudited) Results of Operations Sales and Gross Margin Analysis Net sales for the third quarter of fiscal 1999 were $77.1 million, up 5% from last year's third quarter sales of $73.2 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 -------------------------- ---------------------------------- FY 1999 FY 1998 % FY 1999 GM% FY 1998 GM% --------- --------- ---- --------- ----- --------- ----- Third Quarter EDG $ 28,312 $ 28,115 1% $ 8,723 30.8% $ 8,893 31.6% SSC 21,957 21,427 2% 6,455 29.4% 5,932 27.7% DPG 9,040 7,394 22% 2,662 29.4% 2,565 34.7% SSD 17,783 16,260 9% 4,030 22.7% 3,721 22.9% Corporate - - (482) (251) --------- --------- --------- --------- Total $ 77,092 $ 73,196 5% $ 21,388 27.7% $ 20,860 28.5% ========= ========= ========= ========= Nine Months EDG $ 89,106 $ 86,823 3% $ 27,353 30.7% $ 27,360 31.5% SSC 67,362 64,484 4% 19,049 28.3% 18,459 28.6% DPG 28,075 22,617 24% 8,947 31.9% 7,633 33.7% SSD 50,819 49,518 3% 11,906 23.4% 11,457 23.1% Corporate - - (893) (1,063) --------- --------- --------- --------- Total $235,362 $223,442 5% $ 66,362 28.2% $ 63,846 28.6% ========= ======== ========= ========= EDG third quarter sales were essentially unchanged from fiscal 1998 levels, as a 34% growth in medical equipment and related services was offset by a 7% decline in non-medical sales. Gross margins as a percent of sales decreased to 30.8% in fiscal 1999 from 31.6% in fiscal 1998 due to changes in product mix, as medical products and services became a larger proportion of the SBU's sales. The nine-month results reflect similar trends, with a 56% increase in medical sales offset by a 9% decline in non-medical sales. Third quarter sales for SSC increased 2% from fiscal 1998 levels, reflecting growth in RF and microwave wireless components and interconnect products, offset by softness in RF power semiconductors and power conversion products. Nine month sales results reflect the same trend in product mix. Gross margins as a percent of sales increased to 29.4% in the third quarter, due to improvements in selling prices. The fiscal 1998 third quarter gross margin rate of 27.7% was unusually low, due to unfavorable manufacturing variances on value-added production. (7) Management's Discussion and Analysis of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1999 (Unaudited) Third quarter sales for DPG increased 22% in fiscal 1999 from 1998 levels, including 7% resulting from the acquisition of Eternal Graphics, Inc. in the fourth quarter of fiscal 1998. The remaining sales growth was attributable to new initiatives in both flat-panel and conventional monitor sales, as well as related systems integration revenues for medical, financial services and industrial markets. Gross margins as a percent of sales decreased to 29.4% in fiscal 1999 from 34.7% in fiscal 1998, reflecting the shift in product mix. Nine-month results reflect the same trends. SSD's third quarter sales increased 9% over the prior year as a result of the acquisition of Adler Video on December 1, 1998. Adler Video is a regional distributor of security systems located in California with historical annual sales of $8.4 million. Gross margins as a percent of sales were comparable to the prior year. Sales for the nine-month period were up 3% from the prior year due to the Adler acquisition. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by geographic area are summarized in the following table. Prior year amounts have been restated to be comparable to the current year's classifications. 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 -------------------------- ---------------------------------- FY 1999 FY 1998 % FY 1999 GM% FY 1998 GM% --------- --------- ---- --------- ----- --------- ----- Third Quarter North America $ 49,302 $ 46,156 7% $ 13,264 26.9% $ 12,903 28.0% Europe 15,849 15,474 2% 4,965 31.3% 4,769 30.8% Latin America 3,610 4,317 -16% 1,014 28.1% 1,252 29.0% Asia/Pacific 6,100 4,589 33% 1,981 32.5% 1,359 29.6% Other 2,231 2,660 -16% 646 29.0% 828 31.1% Corporate - - (482) (251) --------- --------- --------- --------- Total $ 77,092 $ 73,196 5% $ 21,388 27.7% $ 20,860 28.5% ========= ========= ========= ========= Nine Months North America $150,375 $139,096 8% $ 41,030 27.3% $ 39,427 28.3% Europe 48,750 46,051 6% 15,443 31.7% 14,141 30.7% Latin America 12,856 14,518 -11% 3,614 28.1% 4,068 28.0% Asia/Pacific 15,707 15,858 -1% 4,938 31.4% 4,881 30.8% Other 7,674 7,919 -3% 2,230 29.1% 2,392 30.2% Corporate - - (893) (1,063) --------- --------- --------- --------- Total $235,362 $223,442 5% $ 66,362 28.2% $ 63,846 28.6% ========= ========= ========= ========= The Company's North American sales grew 7% in the third quarter and 8% in the first nine months, reflecting the Adler acquisition and DPG sales growth. European sales grew 2% in the third quarter and 6% in the first nine months as sales gains for SSC, SSD and DPG were offset by a decline in EDG sales. (8) Management's Discussion and Analysis of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1999 (Unaudited) Latin American sales remained soft, off 16% for the quarter and 11% for the nine-month comparisons, principally due to the economy in Brazil. The economic situation in Asia / Pacific improved significantly, as third quarter sales increased 33% from the prior year. Selling, General and Administrative Expenses During the third quarter of fiscal 1999, the Company adjusted its staffing in light of current sales levels. As a result, annual operating costs were reduced by approximately $2.5 million, beginning with the fourth fiscal quarter. Selling, general and administrative expenses in the third quarter included $236,000 for related severance costs. Selling, general and administrative costs increased to 23.8% of sales in the third quarter of 1999 from 21.9% in the prior year, reflecting staff additions, higher information systems costs and the aforementioned severance costs. Net Results Net income for the quarter was $693,000 or $.05 per share, assuming dilution, compared to $2.2 million or $.17 per share in the prior year. Net income for the nine-month period was $6.5 million or $.45 per share, assuming dilution, compared to $6.7 million or $.54 per share. Per share comparisons were affected by the increase in average shares outstanding resulting from the issuance of new shares in the fourth quarter of fiscal 1998. Liquidity and Capital Resources Cash used in operations was $9.2 million in the first nine months of fiscal 1999, compared to cash provided by operations of $9.0 million in the prior year. The Company increased its investment in working capital by $20.0 million in the current year, compared to a $2.5 million increase last year. Inventory increased $12.7 million in 1999, primarily for product line expansion, compared to an increase of $862,000 in 1998. Accounts payable increased by $5.5 million in fiscal 1998, compared to $701,000 in fiscal 1999. In 1999, the Company took advantage of certain vendor discounts for early payment which were not previously offered. In fiscal 1999, the Company's Board of Directors authorized the repurchase of up to 2.0 million shares of its common stock on the open market. The Company repurchased 548,000 shares at an average price of $6.55 per share in the second quarter, 424,600 shares at $6.00 per share in the third quarter and 1,027,400 shares at an average price of $5.25 subsequent to February 28, 1999. Capital expenditures, business acquisitions, stock repurchases and dividend payments were funded primarily by additional borrowings. Interest payments for the nine-month period were $6.7 million in fiscal 1999 and $7.5 million in 1998. (9) Management's Discussion and Analysis of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1999 (Unaudited) 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 February 28, 1999. 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 that are written using two digits rather than four to define the applicable year. The Company's current computer database correctly stores date stamps that 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 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 any 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 began 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, 2002, 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. (10) Management's Discussion and Analysis of Results of Operations and Financial Condition Three- and Nine-Month Periods Ended February 28, 1999 (Unaudited) 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 indeterminable, the Company believes that since most of its pricing is based on U.S. dollar costs, 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 these benefits cannot 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 the Arius, Inc. v. Richardson Electronics, Ltd., et. al., suit proceeding in state court in Orlando, Florida, has been settled for $30,000 and dismissed with prejudice. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 27 - Financial Data Schedule - page 14. (b) Report on Form 8-K - for press release issued on January 29, 1999 announcing that expected results for the fiscal quarter ended February 28, 1999 would be substantially below analysts' expectations. (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 April 13, 1999 By /s/ William J. Garry William J. Garry Senior Vice President and Chief Financial Officer (13) EX-27 2
5 1000 9-MOS MAY-31-1999 FEB-28-1999 8878 0 70253 2492 109725 198157 53762 33760 235288 28536 144406 0 0 566 88644 235288 235362 235362 169000 169000 0 83 5476 9243 2770 6473 0 0 0 6473 .46 .45
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