-----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, IpZSuxsnS0PZ5bBYDt28misZTgpEFyrAbLKkGI7QD5y60W6Wfk3sCZCyVP1z84mp rVXY6jZrQKvGey1t6cKR7A== 0000355948-99-000018.txt : 19991018 0000355948-99-000018.hdr.sgml : 19991018 ACCESSION NUMBER: 0000355948-99-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991014 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: 99728395 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, 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 October 13, 1999, there were outstanding 9,398,624 shares of Common Stock, $.05 par value, and 3,233,009 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 18 pages. An exhibit index is at page 16. (1) Richardson Electronics, Ltd. and Subsidiaries Form 10-Q For the Three-Month Period Ended August 31, 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 9 PART II - OTHER INFORMATION 16 (2) Part 1 - Financial Information Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) August 31 May 31 1999 1999 --------- --------- (Unaudited) (Audited) ASSETS - ------ Current assets: Cash and equivalents $ 15,566 $ 12,569 Receivables, less allowance of $3,082 and $2,584 65,858 62,448 Inventories 108,630 107,724 Other 13,360 12,817 --------- --------- Total current assets 203,414 195,558 Property, plant and equipment, 59,251 57,543 Less accumulated depreciation (35,507) (34,496) --------- --------- Property, plant and equipment, net 23,744 23,047 Other assets 17,734 17,073 --------- --------- Total assets $ 244,892 $ 235,678 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 24,690 $ 21,829 Accrued expenses 9,592 10,259 Notes payable and current portion of long-term debt 1,679 1,830 --------- --------- Total current liabilities 35,961 33,918 Long-term debt, less current portion 117,020 113,658 Deferred income taxes 4,372 3,798 Stockholders' equity: Common stock, $.05 par value; issued 11,392 at August 31, 1999 and 11,390 at May 31, 1999 570 570 Class B common stock, convertible, $.05 par value; issued 3,233 at August 31, 1999 and at May 31, 1999 162 162 Additional paid-in capital 82,322 82,309 Common stock in treasury, at cost; 2,000 shares (11,532) (11,532) Retained earnings 25,268 23,044 Foreign currency translation adjustment (9,251) (10,249) --------- --------- Total stockholders' equity 87,539 84,304 --------- --------- Total liabilities and stockholders' equity $ 244,892 $ 235,678 ========= ========= See notes to consolidated condensed financial statements. (3) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Income For the Three-Month Periods Ended August 31, 1999 and 1998 (Unaudited) (in thousands, except per share amounts) 1999 1998 --------- --------- Net sales $ 95,564 $ 76,038 Cost of products sold 69,896 54,326 --------- --------- Gross margin 25,668 21,712 Selling, general and administrative expenses 19,587 16,606 --------- --------- Operating income 6,081 5,106 Other (income) expense: Interest expense 2,275 1,675 Investment income (127) (153) Other, net 82 13 --------- --------- 2,230 1,535 --------- --------- Income before income taxes 3,851 3,571 Income taxes 1,150 1,070 --------- --------- Net income $ 2,701 $ 2,501 ========= ========= Net income per share - basic: Net income per share $ .21 $ .17 ========= ========= Average shares outstanding 12,624 14,490 ========= ========= Net income per share - diluted: Net income per share $ .21 $ .17 ========= ========= Average shares outstanding 12,686 14,981 ========= ========= Dividends per common share $ .04 $ .04 ========= ========= Comprehensive income: Net income $ 2,701 $ 2,501 Foreign currency translation 998 (1,425) --------- --------- Comprehensive income $ 3,699 $ 1,076 ========= ========= See notes to consolidated condensed financial statements. (4) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Cash Flows For the Three-Month Periods Ended August 31, 1999 and 1998 (in thousands) (unaudited) 1999 1998 --------- --------- Operating Activities: Net income $ 2,701 $ 2,501 Non-cash charges to income: Depreciation 1,123 864 Amortization of intangibles and financing costs 198 155 Deferred income taxes 540 1,070 Contribution to employee stock ownership plan -- 485 --------- --------- Total non-cash charges 1,861 2,574 --------- --------- Changes in working capital, net of effects of currency translation: Accounts receivable (2,921) 3,241 Inventories (560) (7,526) Other current assets (503) (463) Accounts payable 2,754 982 Other liabilities (691) (3,471) --------- --------- Net changes in working capital (1,921) (7,237) --------- --------- Net cash provided by (used in) operating activities 2,641 (2,162) --------- --------- Financing Activities: Proceeds from borrowings 4,077 7,541 Payments on debt (752) (319) Proceeds from stock 8 112 Cash dividends (477) (568) --------- --------- Net cash provided by financing activities 2,856 6,766 --------- --------- Investing Activities: Capital expenditures (1,825) (1,344) Business acquisitions (400) (690) Notes receivable and other (275) (1,449) --------- --------- Net cash used in investing activities (2,500) (3,483) --------- --------- Increase in cash and equivalents 2,997 1,121 Cash and equivalents at beginning of year 12,569 8,031 --------- --------- Cash and equivalents at end of period $ 15,566 $ 9,152 ========= ========= See notes to consolidated condensed financial statements. (5) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three -Month Periods Ended August 31, 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, 1999. Note B -- Income Taxes The income tax provisions for the three-month periods ended August 31, 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 - Industry and Market Information The marketing and sales structure of the Company is organized into four strategic business units (SBU's): Electron Device Group (EDG), Solid State and Components (SSC), Display Products Group (DPG) and Security Systems Division (SSD). EDG's principal products, electron tubes, are used to control, switch, oscillate or amplify electrical power. This technology had been used for more than 80 years throughout the industrialized world. EDG serves a multitude of industries including automotive, avionics, communications, marine, plastics, rubber, steel, textile, medical imaging and wafer fabrication for semiconductors. EDG's products are largely for replacement markets. SSC's products include radio frequency and microwave components and power semiconductors. These products are used in wireless communication and industrial applications, serving many of the same customers and industries as EDG. SSC's products are in most cases used in original equipment applications. (6) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three -Month Periods Ended August 31, 1999 (Unaudited) DPG's products include cathode ray tubes, monitors and related systems integration. Large computer systems using multiple data display terminals represent the largest market served by DPG. Typical users include hospitals, airports, brokerage offices, financial institutions, television studios, utilities and assembly lines. DPG's products are largely for replacement applications and system upgrades. SSD serves the commercial security and surveillance industry, with emphasis on closed circuit television systems, components and related design and integration services. SSD's customer base includes industrial end-users and system installers. Each SBU is directed by a Vice President and General Manager who reports to the President and Chief Operating Officer. The President evaluates performance and allocates resources, in part, based on the direct operating contribution of each SBU. Direct operating contribution is defined as gross margin less product management and direct selling expenses. In North America and Europe, the sales force is organized by SBU and, accordingly, these costs are included in direct expenses. In Latin America, Asia / Pacific and the rest of the world, the regional sales force is shared and, accordingly, is not included in direct expenses. Intersegment sales are not significant. Accounts receivable, inventory, goodwill and certain notes receivable are identified by SBU. Cash, net property and other assets are not identifiable by SBU. Accordingly, depreciation, amortization expense and financing costs are not identifiable by SBU. Operating results for the three months ended August 31, 1999 and 1998 by SBU are summarized in the following table: EDG SSC DPG SSD Total -------- -------- -------- -------- -------- 1999 Sales $ 31,345 $ 29,389 $ 14,224 $ 20,606 $ 95,564 Gross margin 9,402 8,200 3,663 4,881 26,146 Contribution 6,866 5,121 2,526 2,489 17,002 Assets 73,149 55,274 22,635 29,491 180,549 1998 Sales $ 28,628 $ 22,182 $ 9,191 $ 16,037 $ 76,038 Gross margin 8,944 6,138 3,022 3,793 21,897 Contribution 6,591 3,636 2,202 1,700 14,129 Assets 74,962 48,068 19,791 30,685 173,506 (7) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three -Month Periods Ended August 31, 1999 (Unaudited) A reconciliation of gross margin, direct operating contribution and assets to the relevant consolidated amounts is as follows. (Other assets not identified includes miscellaneous receivables, manufacturing inventories and sundry assets.) 1999 1998 -------- -------- Gross margin - segments total $ 26,146 $ 21,897 Manufacturing variances and other costs (478) (185) -------- -------- Gross margin $ 25,668 $ 21,712 ======== ======== Segment profit contribution $ 17,002 $ 14,129 Manufacturing variances and other costs (478) (185) Regional selling expenses (3,513) (3,187) Administrative expenses (6,930) (5,651) -------- -------- Operating income $ 6,081 $ 5,106 ======== ======== Segment assets $180,549 $173,506 Cash and equivalents 15,566 9,152 Other current assets 13,360 10,119 Net property 24,130 19,432 Other assets not identified 11,673 4,824 -------- -------- Total assets $245,278 $217,033 ======== ======== The Company sells its products to companies in diversified industries and performs periodic credit evaluations of its customers' financial condition. Terms are generally on open account, payable net 30 days in North America and Latin America, and vary throughout Europe and the Far East. Estimates of credit losses are recorded in the financial statements based on periodic reviews of outstanding accounts and actual losses have been consistently within management's estimates. (8) Management's Discussion and Analysis of Results of Operations and Financial Condition Three-Month Periods Ended August 31, 1999 (Unaudited) Results of Operations Sales and Gross Margin Net sales for the quarter ended August 31, 1999 were $95.6 million, up 25.7% from last year's comparable quarter sales of $76.0 million. The Company accounts for its results of operations on a 52/53-week period ending on the Saturday nearest May 31 each year. Quarterly results for the periods ended August 31, 1999 and 1998 are for 14 and 13 weeks, respectively. Excluding the effect of the additional week in the current quarter, sales increased by 18.0%. 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 -------------------------- ---------------------------------- % GM % of GM % of 1999 1998 Change 1999 Sales 1998 Sales -------- -------- ------ -------- ------ -------- ------ EDG $ 31,345 $ 28,628 9.5% $ 9,402 30.0% $ 8,944 31.2% SSC 29,389 22,182 32.5% 8,200 27.9% 6,138 27.7% DPG 14,224 9,191 54.8% 3,663 25.8% 3,022 32.9% SSD 20,606 16,037 28.5% 4,881 23.7% 3,793 23.7% Corporate - - (478) (185) -------- -------- -------- -------- Total $ 95,564 $ 76,038 25.7% $ 25,668 26.9% $ 21,712 28.6% ======== ======== ======== ======== EDG sales increased 9.5% from 1998 levels, reflecting strong growth in industrial microwave products. Gross margins as a percent of sales decreased to 30.0% in 1999 from 31.2% in 1998 due to competitive pressures in markets for medical and broadcast products. SSC sales increased 32.5% from 1998 levels, reflecting growth in RF and microwave wireless components and interconnect products. A global distribution agreement with Motorola, announced August 15, 1999, was not a factor in the current quarter's results. DPG sales increased 54.8% from 1998 levels, in part due to two individually large sales for $1.6 million and $1.3 million, respectively. Additional sales gains were 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 25.8% in 1999 from 32.9% in 1998, reflecting the shift in product mix and the lower margins realized on the two sales transactions discussed above. (9) Management's Discussion and Analysis of Results of Operations and Financial Condition Three-Month Periods Ended August 31, 1999 (Unaudited) SSD sales increased 28.5% over the prior year in part due to the acquisition of Adler Video in the second half of the prior year. Adler Video is a regional distributor of security systems located in California with historical annual sales of $8.4 million. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by geographic 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 -------------------------- ---------------------------------- % GM % of GM % of 1999 1998 Change 1999 Sales 1998 Sales -------- -------- ------ -------- ------ -------- ------ North America $ 62,775 $ 49,558 26.7% $ 16,309 26.0% $ 13,726 27.7% Europe 17,815 15,188 17.3% 5,354 30.1% 4,921 32.4% Asia/Pacific 7,190 4,601 56.3% 2,266 31.5% 1,346 29.3% Latin America 4,972 4,363 14.0% 1,462 29.4% 1,205 27.6% Other 2,812 2,328 20.8% 755 26.8% 705 30.3% Corporate - - (478) (191) -------- -------- -------- -------- Total $ 95,564 $ 76,038 25.7% $ 25,668 26.9% $ 21,712 28.6% ======== ======== ======== ======== The Company's North American sales grew 26.7%, reflecting the Adler acquisition and strong sales growth for SSC, DPG and EDG's industrial microwave products. European sales grew 17.3%, reflecting strong sales gains for SSC and the $1.3 million sale for DPG. Asia / Pacific sales grew 56.3%, reflecting the continued economic recovery in this region. Sales of SSC products increased by $1.7 million or 107.0%. Latin American sales recovered significantly, gaining 14.0%, but are still affected by the economic slowdown in Brazil and neighboring countries. Selling, General and Administrative and Other Expenses Selling, general and administrative costs improved to 20.5% of sales from 21.8% in the prior year. In absolute terms, SG&A increased by 18.0% reflecting the additional week in the current quarter, acquisitions and staff additions made during the prior year and higher incentive payments. Interest expense increased 35.8% due to higher debt levels resulting from the purchase of 2.0 million shares of the Company's Common Stock in the second half of the prior year. (10) Management's Discussion and Analysis of Results of Operations and Financial Condition Three-Month Periods Ended August 31, 1999 (Unaudited) Net Results Net income for the quarter was $2.7 million or $.21 per share, assuming dilution, compared to $2.5 million or $.17 per share in the prior year. Per share comparisons are favorably affected by the reduction in average shares outstanding (See "Liquidity and Capital Resources"). Liquidity and Capital Resources Cash provided by operations was $2.6 million in the current quarter, compared to cash used in operations of $2.2 million in the first quarter last year. The Company increased its investment in working capital by $1.9 million in the current quarter, compared to a $7.2 million increase last year. Asset utilization improved, with accounts receivable days sales outstanding reduced to 58.6 days from 69.0 in the prior year. Inventory turnover improved to 2.43 from 2.04 in the prior year. In the prior year, the Company repurchased 2.0 million shares of its common stock on the open market at an average cost of $5.76 per share. Interest payments for the quarter were $3.4 million in the current period and $3.0 million in the prior year. 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, 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- (11) Management's Discussion and Analysis of Results of Operations and Financial Condition Three-Month Periods Ended August 31, 1999 (Unaudited) 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 sales or any vendor which accounts for more than 9% of 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. 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. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Prospective investors should consider carefully the following risk factors, in addition to the other information included and incorporated by reference in this quarterly report on Form 10-Q. All statements other than statements of historical facts included in this report are statements that constitute "forward-looking statements" within the meaning of Section 27A of the securities act and Section 21E of the securities ex-change act of 1934 (the "Exchange Act"). The words "expect," "estimate," "anticipate," "predict," "believe" and (12) Management's Discussion and Analysis of Results of Operations and Financial Condition Three-Month Periods Ended August 31, 1999 (Unaudited) similar expressions and variations thereof are intended to identify forward- looking statements. Such statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations; (ii) the Company's financing plans; (iii) the Company's business and growth strategies, including potential acquisitions; and (iv) other plans and objectives for future operations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those predicted in the forward-looking statements, as a result of various factors. The accompanying information contained in this report, including the information set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as information contained in the Company's other filings with the Securities and Exchange Commission, identify important factors that could cause such differences. Competition and Inventory Risks Each of the Company's SBUs faces substantial competition in its respective markets. Many of the Company's competitors have significantly greater resources and broader name recognition than the Company. Richardson faces competition mainly from original equipment manufacturers in the after-market for replacement of parts and from hundreds of electronic component distributors of various sizes, locations and market focuses. Engineering capability, vendor representation and product diversity create segmentation among distributors. Richardson believes that the key competitive factors in its markets are the ability to provide engineered solutions, inventory availability, quality, reliable delivery and price. There can be no assurance that the Company will be able to continue to compete effectively with existing or potential competitors. A portion of the business of its EDG strategic business unit is trailing edge technology in which some manufacturers are exiting the business. Richardson occasionally makes last time inventory purchases from exiting manufacturers and there can be no assurance that the Company will be able to dispose of all of such inventory. Relations with Vendors and Customers The Company's future success will depend, in large part, on maintaining current vendor relationships and developing new relationships. The loss of, or significant disruptions in the relationship with, several principal vendors could have a material adverse effect on Richardson. The inability of suppliers to provide the Company with the required quantity or quality of products could have a material adverse effect on the Company's business until such time as an alternate source of supply for such products is found. Each of the Company's SBUs has one or several key customers that account for a meaningful share of its sales though no single customer accounted for more than 2% of the Company's sales in fiscal 1999. The loss of several of the Company's largest customers, or (13) Management's Discussion and Analysis of Results of Operations and Financial Condition Three-Month Periods Ended August 31, 1999 (Unaudited) their substantial reduction in level of purchases, or the failure of several of such customers to pay for their purchases from the Company on a timely basis, could have a material adverse effect on the Company. Control by Principal Stockholder Edward J. Richardson, Chairman of the Board and Chief Executive Officer, owns a 26.5% economic share and a 74.5% voting share of the Company. The Company's certificate of incorporation does not provide for cumulative voting. As a result, Mr. Richardson effectively is able to control the Company, including the election of directors, and a sale of the Company could not be effected without his approval. The Company's $50.0 million revolving credit facility contains provisions which would result in a default thereunder if Mr. Richardson owns fewer shares of the Company's voting stock than is required to elect a majority of the Company's Board of Directors and control any amendment to its by-laws. Dependence Upon Key And Technical Personnel The recent success of the Company has been largely dependent upon the efforts and abilities of certain key members of its senior management, including Edward J. Richardson, Chairman of the Board and Chief Executive Officer, and Bruce W. Johnson, President and Chief Operating Officer. The loss of their services for any reason could have a material adverse effect on the Company. In addition, the Company's success is dependent upon its ability to recruit and retain qualified personnel, including technical and engineering personnel. Competition for such personnel is intense, and there can be no assurance that Richardson will be successful in attracting or retaining such personnel. The failure to attract or retain such persons could have a material adverse effect on the Company. International Trade and Exchange Rate Fluctuations A significant portion of the Company's sales and purchases of products are made outside the United States. International trade is subject to numerous risks, including labor strikes, shipping costs and delays, political or economic instability, trade restrictions, export controls, customs regulations, tariff and import duties, foreign exchange rate fluctuations or restrictions, changes in taxation or international tax treaties, other government regulation, military action and other hostilities and confiscation of property. Such risks could result in substantial increases in costs, reduction of profit, inability to do business and other adverse effects. Risks of Business Acquisitions Richardson's growth strategy includes expansion through acquisitions. There can be no assurance that the Company will be able to successfully negotiate with potential acquisition candidates, secure acquisition financing on acceptable terms, complete acquisitions, integrate acquired operations and management into existing operations or expand into new markets. There can be no assurance that acquisitions will not have an adverse effect on the Company's operating results, particularly in the periods following the completion of such acquisitions while the management and operations of the acquired business are being integrated into Richardson's operations. Market Conditions, Possible Volatility of Stock Price From time to time, there may be significant volatility in the market price for the Common Stock. Factors such as new distribution franchise announcements by the Company, quarterly fluctuations in the Company's operating results and general conditions in the securities markets may have a significant impact on the market price of the Common Stock. These fluctuations may be compounded by the historically low trading volume in the Common Stock. In addition, in recent years the U. S. stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance. Continuation of Dividends There can be no assurance that Richardson will continue to pay cash dividends on its Common Stock. The Company may decide that cash otherwise available for dividends needs to be retained for various reasons. Also, the Company's convertible debentures and other borrowing arrangements contain restrictions on the payment of cash dividends. Shares Eligible for Future Sale The Company has reserved 9.8 million shares of Common Stock for future issuance upon conversion of convertible debentures, conversion of Class B Common Stock and issuance of stock options or awards. All such shares of Common Stock either have been registered on previously filed and currently effective registration statements or do not require registration and as such will be freely tradable without restriction under the Securities Act upon issuance unless held by affiliates of the Company. The Company makes no prediction as to the effect, if any, that future sales of shares or the availability of shares for future sale will have on the prevailing market price of the Common Stock. Sales of substantial amounts of Common Stock in the public market or the perception that such sales could occur could have an adverse effect on the prevailing market price of the Common Stock. Impact of Anti-Takeover Measures Certain provisions of the Company's certificate of incorporation and bylaws and the Delaware General Corporation Law may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock (15) 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, 1999. 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 12, 1999, the management slate of directors ran unopposed and was elected. The Company's 1999 Stock Purchase Plan was approved as proposed in the proxy statement dated September 3, 1999 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 18. (b) Reports on Form 8-K - none 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 13, 1999 By /s/ William J. Garry William J. Garry Senior Vice President and Chief Financial Officer EX-27 2
5 1,000 3-MOS MAY-31-2000 AUG-31-1999 15,566 0 68,940 3,082 108,630 203,414 59,251 35,507 244,892 35,961 117,020 0 0 570 86,969 244,892 95,564 95,564 69,896 69,896 0 500 2,275 3,851 1,150 2,701 0 0 0 2,701 .21 .21
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