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, 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 January 9, 1998 there were outstanding 8,943,929 shares of Common Stock,
$.05 par value,and 3,242,515 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 42 pages. An exhibit index is at
page 12.
Page 1
RICHARDSON ELECTRONICS, LTD. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended November 30, 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 12
Page 2
Part I - Financial Information
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
November 30 May 31
1997 1997
--------- ---------
(Unaudited)(Audited)
ASSETS
- -------
Current assets:
Cash and equivalents $ 8,382 $ 10,012
Receivables, less allowance of $1,845 and $2,102 59,410 53,333
Inventories 92,740 92,194
Other 10,877 10,497
--------- ---------
Total current assets 171,409 166,036
Investments 2,658 2,152
Property, plant and equipment 48,094 45,969
Less accumulated depreciation (29,863) (28,443)
--------- ---------
Property, plant and equipment, net 18,231 17,526
Other assets 8,674 6,800
--------- ---------
Total assets $200,972 $192,514
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 18,360 $ 12,766
Accrued expenses 13,115 12,449
--------- ---------
Total current liabilities 31,475 25,215
Long-term debt, less current portion 104,317 107,275
Deferred income taxes 1,525 434
Stockholders' equity:
Common stock, $.05 par value; issued 8,944 at
November 30, 1997 and 8,721 at May 31, 1997 448 437
Class B common stock, convertible, $.05 par value;
issued 3,243 at November 30, 1997 and
May 31, 1997 162 162
Additional paid-in capital 55,388 53,512
Retained earnings 12,689 9,082
Foreign currency translation adjustment (5,032) (3,603)
--------- ---------
Total stockholders' equity 63,655 59,590
--------- ---------
Total liabilities and stockholders' equity $200,972 $192,514
========= =========
See notes to consolidated condensed financial statements.
Page 3
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Income
For the Three- and Six-Month Periods Ended November 30, 1997 and 1996
(in thousands, except per share amounts) (unaudited)
Three Months Six Months
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $ 78,646 $ 62,167 $150,246 $119,711
Cost of products sold 56,298 43,429 107,260 84,190
--------- --------- --------- ---------
Gross margin 22,348 18,738 42,986 35,521
Selling, general and
administrative expenses 16,706 14,051 32,516 27,385
--------- --------- --------- ---------
Operating income 5,642 4,687 10,470 8,136
Other (income) expense:
Interest expense 2,190 1,950 4,209 3,719
Investment income (195) (102) (279) (167)
Other, net (291) 57 22 (91)
--------- --------- --------- ---------
1,704 1,905 3,952 3,461
--------- --------- --------- ---------
Income before income taxes 3,938 2,782 6,518 4,675
Income taxes 1,198 850 1,970 1,450
--------- --------- --------- ---------
Net income $ 2,740 $ 1,932 $ 4,548 $ 3,225
========= ========= ========= =========
Net income per share $ .22 $ .16 $ .37 $ .27
========= ========= ========= =========
Average shares outstanding 12,575 12,121 12,401 12,165
========= ========= ========= =========
Dividends per common share $ .04 $ .04 $ .08 $ .08
========= ========= ========= =========
See notes to consolidated condensed financial statements.
Page 4
Part I - Financial Information
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
For the Six-Month Periods Ended November 30, 1997 and 1996 (unaudited)
1997 1996
--------- ---------
Operating Activities:
Net income $ 4,548 $ 3,225
Non-cash charges to income:
Depreciation 1,860 1,292
Amortization of intangibles and financing costs 181 219
Deferred income taxes 1,403 817
Contribution to employee stock ownership plan 285 800
--------- ---------
Total non-cash charges 3,729 3,128
--------- ---------
Changes in working capital, net of effects of
currency translation and business acquisitions:
Accounts receivable (4,485) (335)
Inventories 750 (3,289)
Other current assets 254 (1,535)
Accounts payable 5,516 (800)
Other liabilities 447 1,486
--------- ---------
Net changes in working capital 2,482 (4,473)
--------- ---------
Net cash provided by operating activities 10,759 1,880
--------- ---------
Financing Activities:
Proceeds from borrowings 10,531 7,674
Payments on debt (13,166) -
Proceeds from sale of common stock 1,436 9
Cash dividends (941) (925)
--------- ---------
Net cash (used in) provided by financing
activities (2,140) 6,758
--------- ---------
Investing Activities:
Sales of investments 1,872 2,240
Purchases of investments (2,378) (2,200)
Business acquisitions (6,262) (4,181)
Capital expenditures (2,454) (2,272)
Other (1,027) (75)
--------- ---------
Net cash used in investing activities (10,249) (6,488)
--------- ---------
(Decrease) increase in cash and equivalents (1,630) 2,150
Cash and equivalents at beginning of year 10,012 6,784
--------- ---------
Cash and equivalents at end of period $ 8,382 $ 8,934
========= =========
See notes to consolidated condensed financial statements.
Page 5
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
Three- and Six-Month Periods Ended November 30, 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 provisions for the quarter and six-month periods ended November
30, 1997 and November 30, 1996 are based on the estimated effective tax rates
of 30% for fiscal 1998 and 31% for fiscal 1997. The estimated effective tax
rates are lower than the statutory rate of 34% as a result of U.S. foreign
sales corporation benefits, partially offset by expected state income taxes.
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.
Page 6
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
Three- and Six-Month Periods Ended November 30, 1997
(unaudited)
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 two quarters of fiscal 1998 using
these guidelines do not differ significantly from amounts presented in the
accompanying Consolidated Condensed Statements of Income.
Page 7
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three- and Six-Month Periods Ended November 30, 1997
(unaudited)
Results of Operations
Net sales for the second quarter of fiscal 1998 were $78.6 million, up 27% from
last year's second quarter of $62.2 million. Sales, percentage change from the
prior year, gross margins and gross margin percent of sales by SBU are
summarized in the following table. Gross margins for each SBU include
provisions for returns and overstock. Provisions for LIFO, manufacturing
charges and other costs are included under the caption "Corporate" (in
thousands).
Sales Gross Margin
------------------------- ---------------------------------
FY 1998 FY 1997 % FY 1998 GM% FY 1997 GM%
--------- --------- ---- --------- ----- --------- -----
Second Quarter
EDG $ 29,683 $ 28,779 3% $ 9,245 31.1% $ 8,617 29.9%
SSC 22,497 18,380 22% 6,365 28.3% 5,672 30.9%
DPG 7,581 7,593 0% 2,621 34.6% 2,611 34.4%
SSD 18,885 7,415 155% 4,386 23.2% 1,547 20.9%
Corporate - - (269) 291
--------- --------- --------- ---------
Total $ 78,646 $ 62,167 27% $ 22,348 28.4% $ 18,738 30.1%
========= ========= ========= =========
Six Months
EDG $ 58,708 $ 56,180 4% $ 18,467 31.5% $ 16,587 29.5%
SSC 43,057 33,763 28% 12,527 29.1% 10,430 30.9%
DPG 15,223 15,177 0% 5,068 33.3% 5,314 35.0%
SSD 33,258 14,591 128% 7,736 23.3% 3,011 20.6%
Corporate - - (812) 179
--------- --------- --------- ---------
Total $150,246 $119,711 26% $ 42,986 28.6% $ 35,521 29.7%
========= ========== ========= =========
Sales growth was led by SSD, with increases of 155% for the second quarter and
128% for the first half. SSD's sales growth includes the acquisition of Burtek
Systems Inc. in the third quarter of fiscal 1997 and Security Service
International, Inc. in August, 1997. Without the contribution from these
acquisitions, SSD's internally generated sales growth was 27% in the second
quarter and 25% for the first half. Gross margin as a percent of sales improved
to 23.2% for the quarter and 23.3% for the first half, up 2.3 and 2.7
percentage points, respectively. This strong improvement is largely due to the
higher margins of acquired operations and the overall focus on improving levels
of profitability.
SSC sales increased 22% in the second quarter and 28% for the first half.
Excluding the effect of a September, 1997 acquisition, sales gains were 19% for
the quarter and 20% for the first half. Gross margins as a percent of sales
were 28.3% for the quarter and 29.1% for the first half, compared to 30.9% for
both periods last year. The margin change is primarily due to product mix and
competitive pressures.
Page 8
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three- and Six-Month Periods Ended November 30, 1997
(unaudited)
EDG sales increased 3% for the second quarter and 4% for the first half,
primarily due to medical products sales gains. Gross margin as a percent of
sales improved from 29.9% to 31.1% for the quarter and from 29.5% to 31.5% for
the first half, reflecting pricing policy changes, product mix, and higher tube
reloading efficiencies.
On a geographic basis, the Company achieved sales growth of 35% in North
America, 20% in Europe, and 8% in the Rest of World for the second quarter.
Excluding the effect of the aforementioned acquisitions, North America achieved
internally generated sales growth of 15%. 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
------------------------- --------------------------------
FY 1998 FY 1997 % FY 1998 GM% FY 1997 GM%
--------- --------- ---- --------- ----- --------- -----
Second Quarter
North America $ 49,255 $ 36,466 35% $ 13,775 28.0% $ 10,737 29.4%
Europe 16,453 13,750 20% 5,048 30.7% 4,369 31.8%
Rest of World 12,938 11,951 8% 3,794 29.4% 3,341 28.0%
Corporate - - (269) 291
--------- --------- --------- ---------
Total $ 78,646 $ 62,167 27% $ 22,348 28.4% $ 18,738 30.1%
========= ========= ========= =========
Six Months
North America $ 92,919 $69,757 33% $ 26,564 28.6% $ 20,336 29.2%
Europe 32,161 27,429 17% 9,830 30.6% 8,698 31.7%
Rest of World 25,166 22,525 12% 7,404 29.4% 6,308 28.0%
Corporate - - (812) 179
--------- --------- --------- ---------
Total $150,246 $119,711 26% $ 42,986 28.6% $ 35,521 29.7%
========= ========= ========= =========
Overall gross margins for the second quarter were 28.4%, compared to 30.1% in
the prior year. Gross margin comparisons were most significantly affected by
changes in product mix, particularly SSD's larger contribution to total sales.
Higher corporate provisions for customer returns, warranty costs, and LIFO
reduced margins by approximately 0.9%.
Page 9
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three- and Six-Month Periods Ended November 30, 1997
(unaudited)
Selling, general and administrative (S,G&A) expenses for the second quarter
increased 19% to $16,706, primarily for operating expenses of recent
acquisitions. As a percentage of sales, S,G&A reduced to 21.2% from 22.6%,
reflecting management's continuing initiatives to contain costs. The six-month
results reflect similar trends.
Non-operating expenses for the second quarter decreased by $201,000, as foreign
exchange gains offset higher interest expense. Higher interest expense reflects
increased borrowing levels due to business acquisitions. Foreign exchange gains
were $197,000, compared to a loss of $58,000 in the prior year. Non-operating
expenses for the first half increased $491,000, due to higher interest expense.
Net income for the second quarter was $2.7 million or $.22 per share, compared
to $1.9 million or $.16 per share in the prior year. Net income for the first
half was $4.5 million, or $.37 per share, compared to $3.2 million, or $.27 per
share in the prior year period.
Liquidity and Capital Resources
Cash provided by operations for the first half was $10.8 million in fiscal
1998, compared to $1.9 million in 1997. Working capital changes provided $2.5
million, compared to cash usage of $4.5 million last year. Accounts payable
increased $5.5 million in 1998 and declined $0.8 million in 1997, reflecting
the timing of inventory purchases. Accounts receivable increased $4.5 million
in the current year, as a result of higher sales levels. Business acquisitions,
capital expenditures and dividend payments were funded primarily by cash
generated by operations. Interest payments for the first half were $4.1 million
in fiscal 1998 and $3.4 million in 1997.
In August 1997, the Company acquired substantially all of the assets of SSI, a
Canadian distributor of security products. To complete the acquisition, the
Company's Canadian subsidiary amended its revolving credit and term loan
agreement from $6.0 million to $12.4 million.
Page 10
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Three- and Six-Month Periods Ended November 30, 1997
(unaudited)
In November, 1997, the Company amended its floating-rate bank term loan,
originally due in November, 1998, extending the maturity to November, 1999.
The Company's loan agreements contain various financial and operating covenants
which place restrictions on dividends and 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, 1997. The
Company's 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 11
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the matters reported
under the category "Legal Proceedings" in the Registrant's Report
on Form 10-K for the fiscal year ended May 31, 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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10 - Second Amended Agreement made as of
November 28, 1997 between Richardson Electronics,
Ltd. as Borrower and American National Bank and
Trust Company as Lender. - page 14
Exhibit 27 - Financial Data Schedule - page 41
.
(b) Reports on Form 8-K - None
Page 12
Part II - Other Information
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD.
Date January 13 , 1998 By /S/
William J. Garry
Vice President and
Chief Financial Officer
