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 November 30, 1996
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)
(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 January 8, 1997, there were outstanding 8,651,747 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 14 pages. An exhibit index is at
page 13.
(1)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended November 30, 1996
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II - OTHER INFORMATION 12
(2)
PART I - FINANCIAL INFORMATION
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
November 30 May 31
1996 1996
--------- ---------
(Unaudited) (Audited)
ASSETS
- ------
Current assets:
Cash and equivalents $ 8,934 $ 6,784
Receivables,less allowance of $1,338 and $1,461 49,861 48,232
Inventories 100,490 94,327
Other 9,505 8,062
--------- ---------
Total current assets 168,790 157,405
Investments 2,168 2,190
Property, plant and equipment, net 17,107 16,054
Other assets 6,360 4,509
--------- ---------
Total assets $ 194,425 $ 180,158
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 14,342 $ 14,503
Accrued expenses 11,360 9,751
--------- ---------
Total current liabilities 25,702 24,254
Long-term debt 99,699 92,025
Deferred income taxes 1,800 1,087
Stockholders' equity:
Common stock, $.05 par value; issued 8,652 shares
at November 30, 1996 and 8,562 at May 31, 1996 433 428
Class B common stock, convertible, $.05 par value;
issued 3,243 shares at November 30, 1996 and
3,244 at May 31, 1996 162 162
Additional paid-in capital 52,988 52,185
Retained earnings 14,730 12,430
Foreign currency translation adjustment (1,089) (2,413)
--------- ---------
Total stockholders' equity 67,224 62,792
--------- ---------
Total liabilities and stockholders' equity $ 194,425 $ 180,158
========= =========
See notes to consolidated condensed financial statements.
(3)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
November 30 November 30
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales $ 62,167 $ 61,669 $ 119,711 $ 118,870
Costs and expenses:
Cost of products sold 43,429 43,735 84,190 83,798
Selling, general and
administrative expenses 14,051 13,175 27,385 26,486
--------- --------- --------- ---------
57,480 56,910 111,575 110,284
--------- --------- --------- ---------
Operating income 4,687 4,759 8,136 8,586
Other (income) expense:
Interest expense 1,950 1,739 3,719 3,243
Investment income (102) (376) (167) (887)
Other, net 57 86 (91) 260
--------- --------- --------- ---------
1,905 1,449 3,461 2,616
--------- --------- --------- ---------
Income before income taxes 2,782 3,310 4,675 5,970
Income taxes 850 1,070 1,450 2,000
--------- --------- --------- ---------
Net Income $ 1,932 $ 2,240 $ 3,225 $ 3,970
========= ========= ========= =========
Net income per share $ 0.16 $ 0.19 $ 0.27 $ 0.34
========= ========= ========= =========
Average shares outstanding 12,121 11,909 12,165 11,809
========= ========= ========= =========
See notes to consolidated condensed financial statements.
(4)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)(unaudited)
Six Months Ended
November 30
------------------------
1996 1995
--------- ---------
Operating Activities:
Net income $ 3,225 $ 3,970
Non-cash charges to income:
Depreciation 1,292 1,319
Amortization of intangibles and
financing costs 219 170
Deferred income taxes 817 1,053
Contribution to employee stock ownership plan 800 500
--------- ---------
Total non-cash charges 3,128 3,042
--------- ---------
Net income adjusted for non-cash charges 6,353 7,012
Changes in working capital, net of effects
of currency translation and business
acquisitions:
Accounts receivable (335) (2,445)
Inventories (3,289) (7,872)
Other current assets (1,535) 1,350
Accounts payable (800) (5,009)
Other liabilities 1,486 (692)
--------- ---------
Net changes in working capital (4,473) (14,668)
--------- ---------
Net cash provided by (used in)
operating activities 1,880 (7,656)
--------- ---------
Financing Activities:
Proceeds from borrowings 7,674 --
Proceeds from stock options exercised 9 1,100
Payments on debt -- (929)
Cash dividends (925) (905)
--------- ---------
Net cash provided by (used in)
financing activities 6,758 (734)
--------- ---------
Investing Activities:
Sales of investments 2,240 8,325
Purchase of investments (2,200) (3,222)
Capital expenditures (2,272) (1,359)
Business acquisitions (4,181) --
Other (75) (112)
--------- ---------
Net cash provided by (used in)
investing activities (6,488) 3,632
--------- ---------
Increase (decrease) in cash and equivalents 2,150 (4,758)
Cash and equivalents at beginning of year 6,784 11,151
--------- ---------
Cash and equivalents at end of period $ 8,934 $ 6,393
========= =========
See notes to consolidated condensed financial statements.
(5)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three- and Six-Month Periods Ended November 30, 1996
(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, 1996.
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 six-month periods ended November
30, 1996 are based on the estimated effective tax rate of 31% for fiscal 1997
income. 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 six-month period ended November 30, 1995 was
based on the estimated effective tax rate of 34% for fiscal 1995 income. The
effect of expected state income taxes in 1996 was offset by U.S. foreign sales
corporation tax benefits. The second quarter tax rate in fiscal 1995 was 32%.
Note C - Long-Term Debt
On December 18, 1996 the Company offered to exchange a minimum of $25
million and up to $40 million (subject to waiver by the Company) of new 8 1/4%
(6)
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Three- and Six-Month Periods Ended November 30, 1996
(Unaudited)
convertible debentures for its outstanding 7 1/4% convertible debentures. The
new debentures would be payable at maturity in June 2006. The new debentures
would be convertible to common stock at $18.00 per share, compared to $21.14
for the old debentures. The offer will expire on midnight, January 31, 1997. If
less than the amount tendered is accepted for exchange, the amount of
debentures accepted will be exchanged on a pro-rata basis.
(7)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six-Month Periods ended November 30,1996
(Unaudited)
Results of Operations
- ---------------------
Net sales for the second quarter of fiscal 1997 were $62.2 million, up 1% from
last year's second quarter of $61.7 million. Sales for the six-month period
were $119.7 million, a 1% increase from $118.9 million in the prior year.
Adjusting for the effect of the Company's fiscal calendar, which included 14
weeks in the first quarter of fiscal 1996, but only 13 weeks in the first
quarter of fiscal 1997, sales increased in the current six-month period
compared to the prior year by 5%.
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
--------------------------- ----------------------------------
1997 1996 % 1997 GM% 1996 GM%
--------- --------- ---- -------- ----- -------- -----
Second Quarter
EDG $ 28,779 $ 28,421 1% $ 8,617 29.9% $ 8,430 29.7%
SSC 18,380 17,834 3% 5,672 30.9% 5,440 30.5%
DPG 7,593 8,730 -13% 2,611 34.4% 3,252 37.3%
SSD 7,415 6,684 11% 1,547 20.9% 1,412 21.1%
Corporate - - - 291 (600)
--------- --------- ---- -------- ----- -------- -----
Total $ 62,167 $ 61,669 1% $ 18,738 30.1% $ 17,934 29.1%
========= ========= ======== ========
Six Months
EDG $ 56,180 $ 55,230 2% $ 16,587 29.5% $ 16,647 30.1%
SSC 33,763 33,777 0% 10,430 30.9% 10,411 30.8%
DPG 15,177 17,602 -14% 5,314 35.0% 6,440 36.6%
SSD 14,591 12,261 19% 3,011 20.6% 2,575 21.0%
Corporate - - 179 (1,001)
--------- --------- ---- -------- ----- -------- -----
Total $ 119,711 $ 118,870 1% $ 35,521 29.7% $ 35,072 29.5%
========= ========= ======== ========
In November, 1995, a major semiconductor supplier disengaged SSC's North
American franchise. Comparisons of current to prior year quarter and six-month
revenues were affected by this event, amounting to $3.0 million and $5.5
million, respectively in lost product sales. Adjusted to exclude this
disengaged franchise from reported results, SSC's revenues grew 27% and 23% in
the quarter and six-month comparisons. Development of new and expansion of
existing franchises, including agreements with Ericsson Components AB, Siemens
(8)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six-Month Periods ended November 30,1996
(Unaudited)
and M/A-Com, have substantially replaced the lost revenues. DPG's sales were
affected by temporary supply shortages for several types of color CRT's and the
loss of one major customer in Europe.
On a geographic basis, the Company achieved sales growth of 4% in North America
and 9% in the Rest of World area during the second quarter. Sales declined 13%
in Europe in the second quarter, reflecting the DPG supply shortages and lost
customer described above, as well as competitive conditions in EDG markets.
Sales, percentage change from the prior year, gross margins and gross margin
percent of sales by SBU 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
--------------------------- ----------------------------------
1997 1996 % 1997 GM% 1996 GM%
--------- --------- ---- -------- ----- -------- -----
Second Quarter
North America $ 36,466 $ 34,913 4% $ 10,737 29.4% $ 10,303 29.5%
Europe 13,750 15,776 -13% 4,369 31.8% 5,190 32.9%
Rest of World 11,951 10,980 9% 3,341 28.0% 3,041 27.7%
Corporate 291 (600)
--------- --------- ---- -------- ----- -------- -----
Total $ 62,167 $ 61,669 1% $ 18,738 30.1% $ 17,934 29.1%
========= ========= ======== ========
Six Months
North America $ 69,757 $ 69,192 1% $ 20,336 29.2% $ 20,487 29.6%
Europe 27,429 28,803 -5% 8,698 31.7% 9,678 33.6%
Rest of World 22,525 20,875 8% 6,308 28.0% 5,908 28.3%
Corporate 179 (1,001)
--------- --------- ---- -------- ----- -------- -----
Total $ 119,711 $ 118,870 1% $ 35,521 29.7% $ 35,072 29.5%
========= ========= ======== ========
Gross margins for the second quarter were 30.1%, compared to 29.1% in the prior
year, reflecting lower inventory provision requirements, improved manufacturing
production performance and lower warranty claims.
Selling, general and administrative expenses increased $876 or 7% as the
Company invested in additional sales staff to capitalize on growth
opportunities for SSC, SSD and the EDG medical market. The Company also opened
new sales offices in Thailand, Korea and Vietnam.
Non-operating expenses increased by $456 as higher interest expense and lower
investment income were partially offset by foreign exchange gains. Higher net
(9)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six-Month Periods ended November 30,1996
(Unaudited)
interest costs were attributable to additional borrowings needed to finance
working capital growth and several business acquisitions.
Net income for the second quarter was $1.9 million or $.16 per share, compared
to $2.2 million or $.19 per share in the prior year. For the six-month period,
net income was $3.2 million or $.27 per share compared to the prior year net
income of $4.0 million or $.34 per share.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations, exclusive of working capital requirements, was
$6.4 million in the first half of fiscal 1997, compared to $7.0 million for the
first half of last year. Investments in the first six months in additional
working capital of $4.5 million and $14.7 million in 1997 and 1996,
respectively, capital expenditures, business acquisitions and dividend payments
were funded primarily by cash generated by operations and additional
borrowings. Interest payments for the first half of fiscal 1997 were $3.4
million and $3.1 million in 1996.
Working capital requirements include inventory investments of $3.3 million in
fiscal 1997 and $7.9 million in fiscal 1996. Accounts payable increased $.8
million in 1997 and $5.0 million in 1996, reflecting the timing of inventory
purchases.
Investment activity in the current year second quarter included the acquisition
of Compucon Distributors, a distributor of interconnect devices operating in
the Northeastern United States, as well as the acquisition of two smaller
companies operating in the wireless communications and medical diagnostic
imaging markets.
In the first quarter the Company amended its $25 million senior revolving
credit note agreement due November 30, 1998 to increase the credit line to $35
million. The loan bears interest at 100 basis points over LIBOR, which at
November 30 resulted in a weighted average rate of 6.6%. The Company borrowed
an additional $4.0 million for business acquisitions and working capital in the
second quarter of fiscal 1997. $6.2 million was available at November 30, 1996
(10)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six-Month Periods ended November 30,1996
(Unaudited)
under this agreement for future working capital or other corporate
requirements.
On December 18, 1996, the Company announced an offer to exchange $25 million to
$40 million of new 8 1/4% convertible debentures for its outstanding 7 1/4%
convertible debentures (see Note C). The principal purpose of the offer is to
improve the Company's future liquidity and capital position by substantially
reducing sinking fund payments on the old debentures.
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 November 30, 1996.
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 November 30, 1996, $14.5 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.
(11)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three- and Six-Month Periods ended November 30,1996
(Unaudited)
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, 1996.
ITEM 2. CHANGES IN SECURITIES
On December 18, 1996 the Company offered to exchange a minimum of $25
million up to $40 million of new 8 1/4% convertible debentures for its
outstanding 7 1/4% convertible debentures. The new debentures would be payable
at maturity in June 2006. The new debentures would be convertible to common
stock at $18.00 per share, compared to $21.14 for the old debentures. The offer
will expire on midnight, January 31, 1997. If less than the amount tendered is
accepted for exchange, the amount of debentures accepted will be exchanged on a
pro-rata basis. The principal purpose of the offer is to improve the Company's
future liquidity and capital position by substantially reducing sinking fund
payments on the old debentures.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
(12)
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule - page 14.
(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: January 13 , 1997 By: \s\ William J. Garry
--------------------
William J. Garry
Vice President and
Chief Financial Officer
(13)
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