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, 1997
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, 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, 1997, there were outstanding 8,841,186 shares of Common Stock,
$.05 par value,and 3,243,081 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 11.
Page 1
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended August 31, 1997
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 11
Page 2
Part 1 - Financial Information
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
August 31 May 31
1997 1997
--------- ---------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and equivalents $ 11,341 $ 10,012
Receivables, less allowance of $2,147
and $2,102 54,631 53,333
Inventories 92,466 92,194
Other 10,734 10,497
--------- ---------
Total current assets 169,172 166,036
Investments 2,621 2,152
Property, plant and equipment 46,636 45,969
Less accumulated depreciation (28,757) (28,443)
--------- ---------
Property, plant and equipment 17,879 17,526
Other assets 7,957 6,800
--------- ---------
Total assets $197,629 $192,514
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,748 $ 12,766
Accrued expenses 12,460 12,449
--------- ---------
Total current liabilities 27,208 25,215
Long-term debt, less current portion 109,761 107,275
Deferred income taxes 968 434
Stockholders' equity:
Common stock, $.05 par value; issued
8,757 at August 31, 1997 and 8,721
at May 31, 1997 438 437
Class B common stock, convertible, $.05
par value; issued 3,243 at
August 31, 1997 and May 31, 1997 162 162
Additional paid-in capital 53,805 53,512
Retained earnings 10,422 9,082
Foreign currency translation adjustment (5,135) (3,603)
--------- ---------
Total stockholders' equity 59,692 59,590
--------- ---------
Total liabilities and stockholders $197,629 $192,514
========= =========
See notes to consolidated condensed financial statements.
Page 3
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Income
(in thousands, except per share amounts)
Three Months Ended
August 31
-------------------------
1997 1996
--------- ---------
(Unaudited)
Net sales $ 71,600 $ 57,544
Cost of products sold 50,962 40,761
--------- ---------
Gross margin 20,638 16,783
Selling, general and
administrative expenses 15,810 13,334
--------- ---------
Operating income 4,828 3,449
Other (income) expense:
Interest expense 2,019 1,769
Investment income (84) (65)
Other, net 313 (148)
--------- ---------
2,248 1,556
--------- ---------
Income before income taxes 2,580 1,893
Income taxes 772 600
--------- ---------
Net income $ 1,808 $ 1,293
========= =========
Net income per share $ 0.15 $ 0.11
========= =========
Average shares outstanding 12,228 12,209
========= =========
Dividends per common share $ 0.04 $ 0.04
========= =========
See notes to consolidated condensed financial statements.
Page 4
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)(unaudited)
Three Months Ended
August 31
------------------------
1997 1996
--------- ---------
Operating Activities:
Net income $ 1,808 $ 1,293
Non-cash charges to income:
Depreciation 656 617
Amortization of intangibles and
financing costs 120 120
Deferred income taxes 470 402
Contribution to employee stock
ownership plan 285 800
--------- ---------
Total non-cash charges 1,531 1,939
--------- ---------
Changes in working capital, net of
effects of currency translation:
Accounts receivable 527 2,930
Inventories 883 (1,999)
Other current assets 760 (1,335)
Accounts payable 1,896 (2,344)
Other liabilities (169) (488)
--------- ---------
Net changes in working capital 3,897 (3,236)
--------- ---------
Net cash provided by (used in)
operating activities 7,236 (4)
--------- ---------
Financing Activities:
Proceeds from borrowings 6,486 3,582
Payments on debt (4,000) --
Cash dividends (467) (463)
--------- ---------
Net cash provided by financing
activities 2,019 3,119
--------- ---------
Investing Activities:
Sales of investments 890 1,498
Purchase of investments (1,085) (1,483)
Business acquisitions (6,262) --
Capital expenditures (907) (1,351)
Other (562) 100
--------- ---------
Net cash used in investing activities (7,926) (1,236)
--------- ---------
Increase in cash and equivalents 1,329 1,879
Cash and equivalents at beginning of year 10,012 6,784
--------- ---------
Cash and equivalents at end of period $ 11,341 $ 8,663
========= =========
See notes to consolidated condensed financial statements.
Page 5
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
First Quarter Ended August 31, 1997
(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, 1997.
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 provision for the three-month period ended August 31, 1997 is
based on the estimated effective tax rate of 30% for fiscal 1998. The effect
of expected state income taxes is offset by the utilization of foreign net
operating loss carryforwards and by U.S. foreign sales corporation tax
benefits.
The income tax provision for the three-month period ended August 31, 1996 was
based on the estimated effective tax rate of 32% for fiscal 1997. The effect of
expected state income taxes in 1997 was offset by U.S. foreign sales
corporation tax benefits.
Page 6
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
First Quarter Ended August 31, 1997
(unaudited)
Note C - Security Service International, Inc. Acquisition
Effective August 14, 1997, the Company acquired the assets and liabilities of
Security Service International, Inc. (SSI), a Canadian distributor of security
systems with annual sales of $20.0 million. The acquisition was accounted for
by the purchase method, and accordingly, the results of operations of SSI since
the date of acquisition have been included in the Consolidated Condensed
Statement of Income.
Note D - Earnings per Share
The Financial Accounting Standards Board issued SFAS No. 128, Earnings per
Share, which establishes new guidelines for the calculation and presentation of
earnings per share data, but prohibits use of the new guidelines prior to
December 15, 1997. The purpose of the new rule is to make reporting in the
United States consistent with international practices. Under SFAS 128, net
income per share as currently reported will be replaced by two disclosures:
basic earnings per share, which excludes all common stock equivalents, and
diluted earnings per share, which includes all dilutive common stock
equivalents. Earnings per share for the first quarter of fiscal 1998 using
these guidelines do not differ from amounts presented in the accompanying
Consolidated Condensed Statements of Income.
Page 7
Management's Discussion and Analysis
of Results of Operations and Financial Condition
First Quarter Ended August 31, 1997
Results of Operations
Net sales for the first quarter of fiscal 1998 were $71.6 million, up 24% from
last year's first quarter of $57.5 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
----------------------- ---------------------------------
1998 1997 % 1998 GM% 1997 GM%
-------- -------- ---- -------- ----- -------- -----
EDG $29,025 $27,401 6% $ 9,222 31.8% $ 7,970 29.1%
SSC 20,560 15,383 34% 6,162 30.0% 4,758 30.9%
DPG 7,642 7,584 1% 2,447 32.0% 2,703 35.6%
SSD 14,373 7,176 100% 3,350 23.3% 1,464 20.4%
Corporate -- -- (543) (112)
-------- --------- -------- --------
Total $71,600 $57,544 24% $20,638 28.8% $16,783 29.2%
======== ======== ======== ========
Sales growth was led by SSD and SSC. SSD doubled its sales to $14.4 million
and SSC realized a 34% gain in sales to $20.6 million. Both business units
benefited from strategic acquisitions made following the end of last year's
first quarter. Without the contribution from these acquisitions, growth was 22%
and 19% for SSD and SSC, respectively. EDG's sales increased 6%, primarily in
the medical x-ray imaging replacement market.
Gross margin as a percent of sales for EDG improved from 29.1% to 31.8%,
reflecting pricing policy changes, product mix, and tube reloading
efficiencies. Gross margins for SSD improved from 20.4% to 23.3%, primarily due
to the acquisition of Burtek Systems Inc. in the third quarter of fiscal 1997.
Gross margins for DPG declined from 35.6% to 32.0% due to competitive pressures
in the industry.
Page 8
Management's Discussion and Analysis
of Results of Operations and Financial Condition
First Quarter Ended August 31, 1997
On a geographic basis, the Company achieved sales growth of 31% in North
America, 15% in Europe, and 16% in the Rest of World area. Excluding the effect
of the aforementioned acquisitions, North America achieved internally generated
sales growth of 11%. Sales, percentage change from the prior year, gross
margins and gross margin percent of sales by area are summarized in the
following table. Provisions for LIFO, manufacturing charges and other costs are
included under the caption "Corporate" (in thousands).
Sales Gross Margin
----------------------- ---------------------------------
1998 1997 % 1998 GM% 1997 GM%
-------- -------- ---- -------- ----- -------- -----
North America $43,664 $33,291 31% $12,789 29.3% $ 9,599 28.8%
Europe 15,708 13,679 15% 4,782 30.4% 4,329 31.6%
Rest of World 12,228 10,574 16% 3,610 29.5% 2,967 28.1%
Corporate -- (543) (112)
-------- -------- -------- --------
Total $71,600 $57,544 24% $20,638 28.8% $16,783 29.2%
======== ======== ======== ========
Overall gross margins for the first quarter were 28.8%, compared to 29.2% in
the prior year. Gross margin comparisons were most significantly affected by
changes in product mix, particularly SSD's larger contribution to total sales.
Non-operating expenses increased by $692,000 as a result of higher interest
expense and foreign exchange losses. The interest expense increase of $249,000
reflects higher borrowing levels due to business acquisitions. Foreign exchange
losses were $340,000, compared to a gain of $87,000 in the prior year. The
exchange losses were primarily due to a decline in the value of several
European currencies relative to the English pound sterling, and, to a lesser
extent, the devaluation of several Southeast Asian currencies.
Net income for the quarter was $1.8 million or $.15 per share, compared to $1.3
million or $.11 per share in the prior year.
Page 9
Management's Discussion and Analysis
of Results of Operations and Financial Condition
First Quarter Ended August 31, 1997
Liquidity and Capital Resources
Cash provided by operations, was $7.2 million in the first quarter of fiscal
1998, contrasted to the first quarter last year when operating cash flow was
break-even. Working capital changes provided $4.0 million in the first quarter
of 1998, compared to cash usage of $3.2 million last year. Accounts payable
increased $1.9 million in 1998 and declined $2.3 million in 1997, reflecting
the timing of inventory purchases. Business acquisitions, capital expenditures
and dividend payments were funded primarily by cash generated by operations and
additional borrowings. Interest payments for the first quarter were $3.2
million in fiscal 1998 and $3.0 million in 1997.
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, 1997.
In August 1997, the Company acquired substantially all of the assets of SSI, a
Canadian distributor of security products. To complete the acquisition of SSI,
the Company's Canadian subsidiary amended its revolving credit and term loan
agreement from $6 million to $12.4 million.
In addition, certain of the current agreements contain restrictions relating to
the purchase by the Company of treasury stock or the payment of cash dividends.
At August 31, 1997, $19.9 million was available for such transactions. 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.
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.
Page 10
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, 1997.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) At the Annual Meeting of Stockholders held October 7,
1997, the following directors were elected.
Number of
Affirmative Withheld
Name Votes Authority
---------------------- ------------ ---------
Edward. J. Richardson 40,351,185 151,475
Scott Hodes 40,345,685 156,975
Samuel Rubinovitz 40,343,545 159,115
Arnold R. Allen 40,338,283 164,377
Kenneth J. Douglas 40,343,465 159,195
Jacques Bouyer 40,345,043 157,617
William J. Garry 40,347,185 155,475
Harold L. Purkey 40,347,185 155,475
Ad Ketelaars 40,346,763 155,897
Bruce W. Johnson 40,343,885 158,775
ITEM 5. OTHER INFORMATION
None.
Page 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10 - Second Amending Agreement made as of
August 22, 1997 between Burtek Systems Inc. as
Borrower and First Chicago NBD Bank, Canada as
Lender and Richardson Electronics, Ltd. as
Guarantor. page 13
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 14 , 1997 By _/s/ William J. Garry
William J. Garry
Vice President and
Chief Financial Officer
Page 12
SECOND AMENDING AGREEMENT
Made as of August 22, 1997
Between
BURTEK SYSTEMS INC.
as Borrower
and
FIRST CHICAGO NBD BANK, CANADA
as Lender
and
RICHARDSON ELECTRONICS, LTD.
as Guarantor
BAKER & MCKENZIE
BCE Place
181 Bay Street, Suite 2100
P.O. Box 874
Toronto, Ontario
M5J 2T3
<PAGE>
SECOND AMENDING AGREEMENT
This Agreement is made as of August 22, 1997
B E T W E E N:
BURTEK SYSTEMS INC.
as Borrower
and
FIRST CHICAGO NBD BANK, CANADA
as Lender
and
RICHARDSON ELECTRONICS, LTD.
as Guarantor
WHEREAS:
A. First Chicago NBD Bank, Canada (the "Lender"), entered into
a credit agreement made as of February 18, 1997 (the "Credit
Agreement") with Richardson Electronics Acquisition Corp.,
the partial purpose of which was to finance the acquisition
by Richardson Electronics Acquisition Corp. of all the
capital stock of Burtek Systems Inc.
B. Subsequent to the execution of the Credit Agreement,
Richardson Acquisition Corp. acquired all the capital stock
of Burtek Systems Inc. By Articles of Amalgamation filed
effective May 31, 1997, Richardson Electronics Acquisition
Corp. amalgamated with Burtek Systems Inc. to continue as
Burtek Systems Inc. (the "Borrower").
C. The Lender and the Borrower entered into a first amending
agreement made as of August 14, 1997 (the "First Amending
Agreement") amending the terms of the Credit Agreement.
D. The Lender and the Borrower have agreed to enter into this
Amending Agreement to amend the terms of the First Amending
Agreement as hereinafter set forth.
NOW THEREFORE, for value received the parties agree as follows:
SECTION 1- INTERPRETATION
1.1 Definitions. Capitalized terms used and not defined in this
Amending Agreement shall have the meanings given to them in the
Credit Agreement.
1.2 References. Unless otherwise specified, all references to
Sections are to Sections of this Amending Agreement. The words
"hereto", "herein", "hereof", "hereunder" and similar expressions
refer to this Amending Agreement and not to any particular
Section or other provision of this Amending Agreement.
1.3 Number and Gender. Unless otherwise specified, words
importing the singular include the plural and vice versa and
words importing gender include all genders.
1.4 Headings. The insertion of headings is for convenience of
reference only and shall not affect the construction or
interpretation of this Amending Agreement.
1.5 Governing Law. This Amending Agreement shall be governed by
and construed and interpreted in accordance with the laws of the
Province of Ontario and Canada applicable therein.
1.6 Severability. Any provision of this Amending Agreement
which is illegal, invalid or unenforceable in any jurisdiction
shall not affect the legality, validity or enforceability of the
remaining provisions and any such illegality, invalidity or
unenforceability in any jurisdiction shall not affect the
legality, validity or enforceability of such provision in any
other jurisdiction.
1.7 Currency. Unless otherwise specified, all amounts are
stated in Canadian Dollars.
1.8 Time. Time shall be of the essence in all provisions of
this Amending Agreement.
SECTION 2 - AMENDMENTS TO CREDIT AGREEMENT
2.1 Section 2.12 of the First Amending Agreement is deleted and
the following substituted therefor:
"The following new Section 2.1(n) shall be added to the
Credit Agreement:
(n) Security Service International SSI Inc. The Borrower
shall not assume any liabilities of Security Service
International SSI Inc. or of Security Service International
SSI Group Inc. and all assets of Security Service
International SSI Inc. and Security Service International
SSI Group Inc. it acquires shall be free and clear of any
Liens. The Borrower will acquire such assets of Security
Service International SSI Inc. and Security Service
International SSI Group Inc. in accordance with the
provisions of the order dated August 21, 1997 of Mr. Justice
Benjamin J. Greenberg of the Superior Court of the District
of Montreal sitting in bankruptcy matters providing for the
sale of such assets to the Borrower. "
SECTION 3 - GENERAL
3.1 Enurement. This Amending Agreement shall be binding upon
the Borrower and its successors and assigns and shall enure to
the benefit of the Lender and its successors and assigns.
3.2 Further Assurances. Upon the request of the Lender, the
Borrower shall from time to time make, do, execute or cause to be
made, done or executed, all such further and other lawful acts,
deeds, things, devices, conveyances and assurances whatsoever in
order to give effect to the provisions, purpose and intent of
this Amending Agreement and to complete the transactions
contemplated by this Amending Agreement.
3.3 Counterparts. This Amending Agreement may be executed in
any number of counterparts, each of which shall be an original
and all of which shall constitute one and the same agreement.
3.4 First Amending Agreement and Credit Agreement. Except as
amended by this Amending Agreement, all terms and conditions of
the First Amending Agreement shall remain in full force and
effect and are hereby ratified and confirmed in every respect.
For greater certainty, the Credit Agreement, the First Amending
Agreement and this Amending Agreement shall all be read together
and shall have effect, so far as practicable, as if all the
provisions in such agreements were contained in one instrument.
IN WITNESS WHEREOF the parties hereto have executed this Amending
Agreement as of the day and year first above written.
THE BORROWER: BURTEK SYSTEMS INC.
Address:40W267 Keslinger Rd. BY: /s/ Edward J. Richardson
La Fox, Illinois 60147 Name: Edward J. Richardson
U.S.A. Title: Chairman
Fax: (630) 208-2950 By: /s/William J. Garry
Name: William J. Garry
Phone: (630) 208-2200 Title: CFO
THE LENDER: FIRST CHICAGO NBD BANK,
CANADA
Address:First Chicago NBD Bank, By: /s/ Colleen H. Delaney
Canada Name: Colleen H. Delaney
161 Bay Street, Suite 4240 Title:Assistant Vice President
Toronto, Ontario
M5J 2S1
By: /s/ Jeremiah A. Hynes III
Name: Jeremiah A. Hynes III
Fax: (416) 363-7574 Title: First Vice President
Phone: (416) 365-5259
The foregoing Second Amending Agreement is acknowledged and
consented to by the undersigned as of the date first written
above. The undersigned further agrees that the foregoing Second
Amending Agreement shall not alter its obligations under, or
release the undersigned from, the terms of a Guaranty executed by
the undersigned in favour of the Lender dated February 28, 1997.
The undersigned confirms that it remains fully liable to the
Lender under the terms of the said Guaranty.
RICHARDSON ELECTRONICS, LTD.
By: /s/ Bruce W. Johnson
Name: Bruce W. Johnson
Title: President
By: /s/ William G. Seils
Name: William G. Seils
Title: Secretary
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