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, 1995
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 or organization) (I.R.S. Employer Identification No.)
40W267 Keslinger Road, LaFox, Illinois 60147
(Address of principal executive offices and zip code)
(708) 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 9, 1995, there were outstanding 8,330,394 shares of Common
Stock, $.05 par value, and 3,247,118 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 13 pages. An exhibit index is at
page 10.
(1)
Richardson Electronics, Ltd. and Subsidiaries
Form 10-Q
For the Quarter Ended August 31, 1995
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 7
PART II - OTHER INFORMATION 10
(2)
Part I - Financial Information
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
August 31 May 31
1995 1995
--------- ---------
(Unaudited) (Audited)
ASSETS
- ------
Current assets:
Cash and equivalents $ 4,197 $ 11,151
Receivables,less allowance of $1,572 and $1,385 40,914 42,768
Inventories 87,159 81,267
Other 9,149 8,762
--------- ---------
Total current assets 141,419 143,948
Investments 3,596 7,070
Property, plant and equipment, net 16,318 16,388
Other assets 6,482 6,108
--------- ---------
Total assets $ 167,815 $ 173,514
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 12,948 $ 16,695
Accrued expenses 8,974 11,161
Current portion of long-term debt 9,857 9,857
--------- ---------
Total current liabilities 31,779 37,713
Long-term debt, less current portion 79,182 79,647
Stockholders' equity:
Common stock, $.05 par value; issued 8,330 at
August 31, 1995 and 8,225 at May 31, 1995 415 411
Class B common stock, convertible, $.05 par value;
issued 3,247 at August 31, 1995 and at May 31, 1995 162 162
Additional paid-in capital 50,515 49,989
Retained earnings 7,421 6,141
Foreign currency translation adjustment (1,819) (686)
Market appreciation on investments, net of tax 160 137
--------- ---------
Total stockholders' equity 56,854 56,154
--------- ---------
Total liabilities and stockholders' equity $ 167,815 $ 173,514
========= =========
See notes to consolidated condensed financial statements.
(3)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Income
(in thousands, except per share amounts)
Three Months Ended
August 31
---------------------------
1995 1994
--------- ---------
(Unaudited)
Net sales $ 57,201 $ 46,407
Costs and expenses:
Cost of products sold 40,063 32,904
Selling, general and
administrative expenses 13,311 10,980
--------- ---------
53,374 43,884
--------- ---------
Operating income 3,827 2,523
Other (income) expense:
Interest expense 1,504 1,549
Investment income (511) (246)
Other, net 174 6
--------- ---------
1,167 1,309
--------- ---------
Income before income taxes 2,660 1,214
Income taxes 930 430
--------- ---------
Net income $ 1,730 $ 784
========= =========
Net income per share $ .15 $ .07
========= =========
Average shares outstanding 11,710 11,428
========= =========
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
----------------------
1995 1994
--------- ---------
Operating Activities:
Net income $ 1,730 $ 784
Non-cash charges to income:
Depreciation 654 681
Amortization of intangibles and financing costs 85 86
Deferred income taxes (275) 381
Common stock awards and contribution
to employee stock ownership plan 530 505
--------- ---------
Total non-cash charges 994 1,653
--------- ---------
Net income adjusted for non-cash charges 2,724 2,437
Changes in working capital, net of effects
of currency translation:
Accounts receivable 1,344 1,182
Inventories (6,461) (3,997)
Other current assets (559) (73)
Accounts payable (3,828) 7
Other liabilities (2,084) (2,956)
--------- ---------
Net changes in working capital (11,588) (5,837)
--------- ---------
Net cash used in operating activities (8,864) (3,400)
--------- ---------
Financing Activities:
Payments on debt (465) (466)
Cash dividends (449) (445)
--------- ---------
Net cash used in financing activities (914) (911)
--------- ---------
Investing Activities:
Reduction in investments 3,514 3,347
Capital expenditures (627) (607)
Other (63) 26
--------- ---------
Net cash provided by investing activities 2,824 2,766
--------- ---------
Decrease in cash and equivalents (6,954) (1,545)
Cash and equivalents at beginning of year 11,151 9,739
--------- ---------
Cash and equivalents at end of period $ 4,197 $ 8,194
========= =========
See notes to consolidated condensed financial statements.
(5)
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
Three Months Ended August 31, 1995
(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, 1995.
The Company accounts for its results of operations on a 52/53 week period
ending on the Saturday nearest May 31 in each year. Quarterly results for the
periods ended August 31, 1995 and August 31, 1994 are for 14 and 13 weeks,
respectively.
Note B -- Income Taxes
The income tax provision of $930,000 for the three months ended August 31, 1995
is based on the estimated effective tax rate of 35% for fiscal 1996 income. The
income tax provision for first quarter of fiscal 1995 was also based on a 35%
estimated effective tax rate. In both years, the rate differs from the
applicable federal statutory rate of 34% principally as a result of state
income taxes, partially offset by a foreign sales corporation tax benefit.
(6)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three Months Ended August 31, 1995
(Unaudited)
Results of Operations
Net sales for the quarter ended August 31, 1995 were $57.2 million, compared to
last year's first quarter of $46.4 million. Sales and gross margin by the
Company's strategic business units (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
----------------- ------------------
Quarter ended August 31 1995 1994 1995 1994
------- ------- ------- -------
Electron Device Group $26,809 $23,865 $ 8,217 $ 7,054
Solid State & Components 15,943 11,318 4,971 3,668
Display Products Group 8,872 8,596 3,188 2,748
Security Systems Division 5,577 2,628 1,163 620
Corporate - - (401) (587)
------- ------- ------- -------
Consolidated $57,201 $46,407 $17,138 $13,503
======= ======= ======= =======
Sales and product margin by geographic area are summarized in the following
table. Product margins exclude inventory and manufacturing provisions, which
are not practical to identify by geographic area (in thousands).
Sales Product Margin
----------------- ------------------
Quarter ended August 31 1995 1994 1995 1994
------- ------- -------- -------
North America $34,279 $27,388 $10,422 $ 8,457
Europe 13,027 10,167 4,586 3,240
Rest of World 9,895 8,852 2,941 2,684
------- ------- -------- -------
Consolidated $57,201 $46,407 $17,949 $14,381
======= ======= ======= =======
Sales, margin and expense comparisons are affected by the Company's accounting
calendar, which included 14 weeks in the quarter ended August 31, 1995 and 13
weeks in the quarter ended August 31, 1994. Gross margins for the current year
first quarter were 30.0%, compared to 29.1% in the prior year, reflecting
higher product margins and lower manufacturing inefficiencies. Product margins
were 31.4%, compared to 31.0% in the prior year. Manufacturing variances
(7)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three Months Ended August 31, 1995
(Unaudited)
included in the determination of operating results in the first quarter were
insignificant, compared to $.3 million the prior year.
Selling, general, and administrative expenses for the first quarter of fiscal
1996 were $13.3 million, an increase of $2.3 million from the prior year, as a
result of sales staff additions, incentive payments on increased gross margins
and the Company's accounting calendar. Selling, general and administrative
expense as a percent of sales improved, declining to 23.3% from 23.7%.
Investment income of $.5 million in the current year quarter compared to $.2
million in the prior comparable period reflects higher realized capital gains.
Net income was $1.7 million or $.15 per share, compared to $.8 million or $.07
per share in the prior year first quarter.
Liquidity and Capital Resources
Cash provided by operations, exclusive of working capital requirements, was
$2.7 million in the first quarter of fiscal 1996, compared to $2.4 million for
the first quarter last year. Higher working capital requirements of $11.6
million in the current quarter and $5.8 million last year, debt service and
dividend payments were met from cash generated by operations and by liquidation
of investments. Quarterly working capital requirements are affected by the
timing of semi-annual interest payments under the Company's long-term debt
agreements. First quarter interest payments were $2.9 million in each of fiscal
1996 and 1995.
First quarter working capital requirements also include additional inventory
investments of $6.5 million in fiscal 1996 and $4.0 million in fiscal 1995 to
support sales growth in the SSC, DPG, and SSD business units. Working capital
requirements in fiscal 1996 include a $1.1 million payment related to the
settlement of audits of the Company's fiscal 1991 and 1992 federal income tax
returns. Subsequent to August 31, 1995, the Company received $2.7 million in
federal and state tax refunds.
(8)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three Months Ended August 31, 1995
(Unaudited)
Certain of 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, 1995.
The $8 million short-term bank loan due August 31, 1995 was extended to
November 30, 1995. The Company is negotiating a $25 million revolving credit
facility to consolidate an existing $10.2 million long-term loan and the $8
million short-term loan and to provide an additional $6.8 million for working
capital.
In addition, certain of the current agreements contain restrictions on the
Company relating to the purchase of treasury stock or the payment of cash
dividends. At August 31, 1995, $4.7 million was available for such
transactions. Payment of dividends will be considered quarterly based upon
corporate performance.
At August 31, 1995, the market value of the Company's non-current investment
portfolio totaled $3.6 million. Included in the portfolio are high-yield
investments for which management periodically evaluates the associated market
risk. The investments are being maintained for corporate purposes which may
include short-term operating needs and the evaluation of opportunities for the
Company's expansion. 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.
(9)
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, 1995.
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 10 - $8,000,000 Promissory note dated August 31,
1995 delivered to American National Bank. - page 12
Exhibit 27 - Financial Data Schedule - page 13.
(b) Reports on Form 8-K - None
(10)
PART II - OTHER INFORMATION
SIGNATURES
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 12 , 1995 By /s/ William J. Garry
William J. Garry
Vice President and
Chief Financial Officer
(11)
EXHIBIT 10
PROMISSORY NOTE (UNSECURED)
$8,000,000.00 Chicago.Illinois August 31, 1995
Due November 30, 1995
FOR VALUE RECEIVED, the undersigned (jointly and severally if
more than one) ("Borrower"), promises to pay to the order of
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO ("Bank"), at
its principal place of business in Chicago, Illinois or such other
place as Bank may designate from time to time hereafter, the
principal sum of Eight Million and no/100 Dollars, or such lesser
principal sum as may then be owed by Borrower to Bank hereunder.
Borrowers obligations and liabilities to Bank under this Note
("Borrowers Liabilities") shall be due and payable on November 30,
1995.
The unpaid principal balance of Borrowers Liabilities due
hereunder shall bear interest from the date hereof until paid,
computed as follows (delete inapplicable provisions): (ii) at a
daily rate equal to the daily rate equivalent of 0**% per annum
(computed on the basis of a 360-day year and actual days elapsed)
in excess of the rate of interest announced or published publicly
from time to time by Bank as its prime or base rate of interest
(the "Base Rate"); provided, however, that in the event that any of
Borrower's Liabilities are not paid when due, the unpaid amount of
Borrower's Liabilities shall bear interest after the due date until
paid at a rate equal to the sum of (a) the rate in effect prior to
the due date and (b) 3%.
If the rate of interest to be charged by Bank to Borrower
hereunder is that specified in clause (ii), such rate shall
fluctuate hereafter from time to time concurrently with, and in an
amount equal to, each increase or decrease in the Base Rate,
whichever is applicable.
Accrued interest shall be payable by Borrower to Bank with
each principal installment of Borrowers Liabilities due hereunder,
or as billed by Bank to Borrower, at Bank's principal place of
business, or at such other place as Bank may designate from time to
time hereafter.
Borrower warrants and represents to Bank that Borrower shall
use the proceeds represented by this Note solely for proper
business purposes, and consistently with all applicable laws and
statutes.
The occurrence of any one of the following events shall constitute
a default by the Borrower ("Event of Default") under this Note (a)
if Borrower fails to pay any of Borrower's Liabilities when due and
payable: (b) if Borrower fails to perform, keep or observe any
term, provision, condition, covenant, warranty or representation
contained in this Note which is required to be performed, kept, or
observed by Borrower: (c) occurrence of a default or an event of
default under any agreement, instrument or document heretofore, now
or at any time hereafter delivered by or on behalf of Borrower to
Bank; (d) occurrence of a default or an event of default under any
agreement, instrument or document heretofore, now or at any time
hereafter delivered to Bank by any guarantor or Borrowers
Liabilities; (e) if any of Borrower's assets are attached, seized,
subjected to a writ of distress warrant, or are levied upon or
become subject to any lien or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of
creditors: (f) if Borrower or any guarantor of Borrower's
Liabilities becomes insolvent or generally fails to pay, or admits
in writing its inability to pay, debts as they become due, if a
petition under any section or chapter of the Bankruptcy Reform Act
of 1978 or any similar law or regulation is filed by or against
Borrower or any such guarantor, if Borrower or any such guarantor
shall make an assignment for the benefit of creditors, if any case
or proceeding is filed by or against Borrower or any such guarantor
for its dissolution or liquidation, or upon the death or
incompetency of Borrower or any such guarantor, or the appointment
of a conservator for all or any portion of Borrower's assets; or
(g) if a contribution failure occurs with respect to any pension
plan maintained by Borrower or any corporation, trade or business
that is, along with Borrower, a member of a controlled group of
corporations or a controlled group of trades or businesses (as
described in Sections 414(b) and (c) of the Internal Revenue Code
of 1986 or Section 4001 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) sufficient to give rise to a
lien under Section 302(f) of ERISA; or (h) if Bank is reasonably
insecure.
Upon the occurrence of an Event of Default, at Bank's option,
without notice by Bank to or demand by Bank of Borrower, all of
Borrowers Liabilities shall be due and payable forthwith.
All of Bank's rights and remedies under this Note are
cumulative and non-exclusive. The acceptance by Bank of any
partial payment made hereunder after the time when any of
Borrower's Liabilities become due and payable will not establish a
custom, or waive any rights of Bank to enforce prompt payment
hereof. Bank's failure to require strict performance by Borrower
of any provision of this Note shall not waive, affect or diminish
any right of Bank thereafter to demand strict compliance and
performance therewith. Any waiver of an Event of Default hereunder
shall not suspend. waive or affect any other Event of Default
hereunder. Borrower and every endorser waive presentment, demand
and protest and notice of presentment. protest, default
non-payment, maturity, release, compromise, settlement, extension
or renewal of this Note, and hereby ratify and confirm whatever
Bank may do in this regard. Borrower further waives any and all
notice or demand to which Borrower might be entitled with respect
to this Note by virtue of any applicable statute or law (to the
extent permitted by law).
Borrower agrees to pay, upon Bank's demand therefor, any and
all costs, fees and expenses (including attorneys fees, costs and
expenses) incurred by Bank (i) in enforcing any of Bank's rights
hereunder, and (ii) in representing Bank in any litigation,
contest, suit or dispute or to commence, defend or intervene or to
take any action with respect to any litigation, contests suit or
dispute (whether instituted by Bank, Borrower or any other person)
in any way relating to this Note or Borrower's Liabilities, and to
the extent not paid the same shall become part of Borrower's
Liabilities hereunder.
This Note shall be deemed to have been submitted by Borrower
to Bank at Bank's principal place of business and shall be deemed
to have been made thereat. This Note shall be governed and
controlled by the laws of the State of Illinois as to
interpretation, enforcement. validity, construction, effect, choice
of law and in all other respects.
TO INDUCE BANK TO ACCEPT THIS NOTE, BORROWER, IRREVOCABLY,
AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT
OF OR FROM OR RELATED TO THIS NOTE SHALL BE LITIGATED IN COURTS
HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE.
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE
THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN
ACCORDANCE WITH THIS PARAGRAPH.
BORROWER IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING (i) TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR
IN CONNECTION WITH THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT
OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH, OR (ii) ARISING FROM ANY DISPUTE OR
CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS NOTE OR ANY SUCH
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
**BORROWER MAY SELECT LIBOR RATE OPTION (Plus Spread of 1.50).
40W267 Keslinger road RICHARDSON ELECTRONICS, LTD.
LaFox, IL 60147 By: /s/ William J. Garry
VP Finance
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