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
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