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 February 28, 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 April 12, 1999, there were outstanding 9,312,111 shares of Common
Stock, $.05 par value, and 3,233,999 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 12.
(1)
Richardson Electronics, Ltd. and Subsidiaries
Form 10-Q
For the Three- and Nine-Month Periods Ended February 28, 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 7
PART II - OTHER INFORMATION 12
(2)
Part 1 - Financial Information
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
February 28 May 31
1999 1998
--------- ---------
(Unaudited) (Audited)
ASSETS
- ------
Current assets:
Cash and equivalents $ 8,878 $ 8,031
Receivables, less allowance of $2,492 and
$2,230 67,761 63,431
Inventories 109,725 96,443
Other 11,793 9,681
--------- ---------
Total current assets 198,157 177,586
Investments 2,344 2,931
Property, plant and equipment, 53,762 49,795
Less accumulated depreciation (33,760) (31,318)
--------- ---------
Property, plant and equipment, net 20,002 18,477
Other assets 14,785 10,706
--------- ---------
Total assets $ 235,288 $ 209,700
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 19,063 $ 17,320
Accrued expenses 9,174 10,286
Notes payable and current portion of
long-term debt 299 403
--------- ---------
Total current liabilities 28,536 28,009
Long-term debt, less current portion 114,406 87,427
Deferred income taxes 3,136 2,679
Stockholders' equity:
Common stock, $.05 par value; issued 11,314
at February 28, 1999 and 11,183 at
May 31, 1998 566 561
Class B common stock, convertible, $.05 par
value; issued 3,234 at February 28, 1999
and 3,239 at May 31, 1998 162 162
Additional paid-in capital 81,869 80,606
Common stock in treasury; 973 shares at cost (6,141) --
Retained earnings 21,654 16,842
Foreign currency translation adjustment (8,900) (6,586)
--------- ---------
Total stockholders' equity 89,210 91,585
--------- ---------
Total liabilities and stockholders'
Equity $ 235,288 $ 209,700
========= =========
See notes to consolidated condensed financial statements.
(3)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Income Statements
For the Three- and Nine-Month Periods Ended February 28, 1999 and 1998
(in thousands, except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended
February 28 February 28
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net sales $ 77,092 $ 73,196 $235,362 $223,442
Cost of products sold 55,704 52,336 169,000 159,596
--------- --------- --------- ---------
Gross margin 21,388 20,860 66,362 63,846
Selling, general and
administrative expenses 18,331 16,009 52,226 48,525
--------- --------- --------- ---------
Operating income 3,057 4,851 14,136 15,321
Other (income) expense:
Interest expense 2,074 2,009 5,476 6,218
Investment income (150) (255) (383) (534)
Other, net 150 5 (200) 27
--------- --------- --------- ---------
2,074 1,759 4,893 5,711
--------- --------- --------- ---------
Income before income taxes 983 3,092 9,243 9,610
Income taxes 290 910 2,770 2,880
--------- --------- --------- ---------
Net income $ 693 $ 2,182 $ 6,473 $ 6,730
========= ========= ========= =========
Net income per share - basic:
Net income per share $ 0.05 $ 0.18 $ 0.46 $ 0.56
========= ========= ========= =========
Average shares outstanding 13,866 12,198 14,148 12,096
========= ========= ========= =========
Net income per share - diluted:
Net income per share $ 0.05 $ 0.17 $ 0.45 $ 0.54
========= ========= ========= =========
Average shares outstanding 14,039 12,626 14,411 12,476
========= ========= ========= =========
Dividends per common share $ 0.04 $ 0.04 $ 0.12 $ 0.12
========= ========= ========= =========
See notes to consolidated condensed financial statements.
(4)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Nine-Month Periods Ended February 28, 1999 and 1998 (Unaudited)
(in thousands)
Nine Months Ended
February 28
------------------------
1999 1998
--------- ---------
Operating Activities:
Net income $ 6,473 $ 6,730
Non-cash charges to income:
Depreciation 2,632 2,606
Amortization of intangibles and financing costs 456 366
Deferred income taxes 708 1,508
Contribution to employee stock ownership plan 485 285
--------- ---------
Total non-cash charges 4,281 4,765
--------- ---------
Changes in working capital, net of effects of
currency translation and business acquisitions:
Accounts receivable (4,234) (4,758)
Inventories (12,702) (862)
Other current assets (2,161) 68
Accounts payable 701 5,504
Other liabilities (1,588) (2,460)
--------- ---------
Net changes in working capital (19,984) (2,508)
--------- ---------
Net cash (used in)provided by operating
activities (9,230) 8,987
--------- ---------
Financing Activities:
Proceeds from borrowings 28,564 14,531
Payments on debt (1,348) (15,943)
Proceeds from stock 73 1,765
Purchases of common stock for treasury (6,136) --
Cash dividends (1,661) (1,416)
--------- ---------
Net cash provided by (used in) financing
activities 19,492 (1,063)
--------- ---------
Investing Activities:
Sales of investments 3,099 3,003
Purchase of investments (3,008) (3,432)
Business acquisitions (2,460) (6,262)
Capital expenditures (3,677) (3,201)
Notes receivable and other (3,369) (1,158)
--------- ---------
Net cash used in investing activities (9,415) (11,050)
--------- ---------
Increase (decrease) in cash and equivalents 847 (3,126)
Cash and equivalents at beginning of year 8,031 10,012
--------- ---------
Cash and equivalents at end of period $ 8,878 $ 6,886
========= =========
See notes to consolidated condensed financial statements.
(5)
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
Three- and Nine-Month Periods Ended February 28, 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, 1998.
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 nine-month periods ended February
28, 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 - Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", requires the presentation of comprehensive income (loss) as follows
(in thousands).
Three Months Ended Nine Months Ended
February 28 February 28
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net income $ 693 $ 2,182 $ 6,473 $ 6,730
Foreign currency translation (3,309) (1,313) (2,314) (2,742)
--------- --------- --------- ---------
Comprehensive income (loss) $ (2,616) $ 869 $ 4,159 $ 3,988
========= ========= ========= =========
(6)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three- and Nine-Month Periods Ended February 28, 1999
(Unaudited)
Results of Operations
Sales and Gross Margin Analysis
Net sales for the third quarter of fiscal 1999 were $77.1 million, up 5% from
last year's third quarter sales of $73.2 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 1999 FY 1998 % FY 1999 GM% FY 1998 GM%
--------- --------- ---- --------- ----- --------- -----
Third Quarter
EDG $ 28,312 $ 28,115 1% $ 8,723 30.8% $ 8,893 31.6%
SSC 21,957 21,427 2% 6,455 29.4% 5,932 27.7%
DPG 9,040 7,394 22% 2,662 29.4% 2,565 34.7%
SSD 17,783 16,260 9% 4,030 22.7% 3,721 22.9%
Corporate - - (482) (251)
--------- --------- --------- ---------
Total $ 77,092 $ 73,196 5% $ 21,388 27.7% $ 20,860 28.5%
========= ========= ========= =========
Nine Months
EDG $ 89,106 $ 86,823 3% $ 27,353 30.7% $ 27,360 31.5%
SSC 67,362 64,484 4% 19,049 28.3% 18,459 28.6%
DPG 28,075 22,617 24% 8,947 31.9% 7,633 33.7%
SSD 50,819 49,518 3% 11,906 23.4% 11,457 23.1%
Corporate - - (893) (1,063)
--------- --------- --------- ---------
Total $235,362 $223,442 5% $ 66,362 28.2% $ 63,846 28.6%
========= ======== ========= =========
EDG third quarter sales were essentially unchanged from fiscal 1998 levels, as
a 34% growth in medical equipment and related services was offset by a 7%
decline in non-medical sales. Gross margins as a percent of sales decreased
to 30.8% in fiscal 1999 from 31.6% in fiscal 1998 due to changes in product
mix, as medical products and services became a larger proportion of the SBU's
sales. The nine-month results reflect similar trends, with a 56% increase in
medical sales offset by a 9% decline in non-medical sales.
Third quarter sales for SSC increased 2% from fiscal 1998 levels, reflecting
growth in RF and microwave wireless components and interconnect products,
offset by softness in RF power semiconductors and power conversion products.
Nine month sales results reflect the same trend in product mix. Gross margins
as a percent of sales increased to 29.4% in the third quarter, due to
improvements in selling prices. The fiscal 1998 third quarter gross margin
rate of 27.7% was unusually low, due to unfavorable manufacturing variances
on value-added production.
(7)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three- and Nine-Month Periods Ended February 28, 1999
(Unaudited)
Third quarter sales for DPG increased 22% in fiscal 1999 from 1998 levels,
including 7% resulting from the acquisition of Eternal Graphics, Inc. in the
fourth quarter of fiscal 1998. The remaining sales growth was 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 29.4% in
fiscal 1999 from 34.7% in fiscal 1998, reflecting the shift in product mix.
Nine-month results reflect the same trends.
SSD's third quarter sales increased 9% over the prior year as a result of the
acquisition of Adler Video on December 1, 1998. Adler Video is a regional
distributor of security systems located in California with historical annual
sales of $8.4 million. Gross margins as a percent of sales were comparable to
the prior year. Sales for the nine-month period were up 3% from the prior year
due to the Adler acquisition.
Sales, percentage change from the prior year, gross margins and gross margin
percent of sales by geographic area are summarized in the following table.
Prior year amounts have been restated to be comparable to the current year's
classifications. 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
-------------------------- ----------------------------------
FY 1999 FY 1998 % FY 1999 GM% FY 1998 GM%
--------- --------- ---- --------- ----- --------- -----
Third Quarter
North America $ 49,302 $ 46,156 7% $ 13,264 26.9% $ 12,903 28.0%
Europe 15,849 15,474 2% 4,965 31.3% 4,769 30.8%
Latin America 3,610 4,317 -16% 1,014 28.1% 1,252 29.0%
Asia/Pacific 6,100 4,589 33% 1,981 32.5% 1,359 29.6%
Other 2,231 2,660 -16% 646 29.0% 828 31.1%
Corporate - - (482) (251)
--------- --------- --------- ---------
Total $ 77,092 $ 73,196 5% $ 21,388 27.7% $ 20,860 28.5%
========= ========= ========= =========
Nine Months
North America $150,375 $139,096 8% $ 41,030 27.3% $ 39,427 28.3%
Europe 48,750 46,051 6% 15,443 31.7% 14,141 30.7%
Latin America 12,856 14,518 -11% 3,614 28.1% 4,068 28.0%
Asia/Pacific 15,707 15,858 -1% 4,938 31.4% 4,881 30.8%
Other 7,674 7,919 -3% 2,230 29.1% 2,392 30.2%
Corporate - - (893) (1,063)
--------- --------- --------- ---------
Total $235,362 $223,442 5% $ 66,362 28.2% $ 63,846 28.6%
========= ========= ========= =========
The Company's North American sales grew 7% in the third quarter and 8% in the
first nine months, reflecting the Adler acquisition and DPG sales growth.
European sales grew 2% in the third quarter and 6% in the first nine months as
sales gains for SSC, SSD and DPG were offset by a decline in EDG sales.
(8)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three- and Nine-Month Periods Ended February 28, 1999
(Unaudited)
Latin American sales remained soft, off 16% for the quarter and 11% for the
nine-month comparisons, principally due to the economy in Brazil. The economic
situation in Asia / Pacific improved significantly, as third quarter sales
increased 33% from the prior year.
Selling, General and Administrative Expenses
During the third quarter of fiscal 1999, the Company adjusted its staffing in
light of current sales levels. As a result, annual operating costs were reduced
by approximately $2.5 million, beginning with the fourth fiscal quarter.
Selling, general and administrative expenses in the third quarter included
$236,000 for related severance costs. Selling, general and administrative costs
increased to 23.8% of sales in the third quarter of 1999 from 21.9% in the
prior year, reflecting staff additions, higher information systems costs and
the aforementioned severance costs.
Net Results
Net income for the quarter was $693,000 or $.05 per share, assuming dilution,
compared to $2.2 million or $.17 per share in the prior year. Net income for
the nine-month period was $6.5 million or $.45 per share, assuming dilution,
compared to $6.7 million or $.54 per share. Per share comparisons were affected
by the increase in average shares outstanding resulting from the issuance of
new shares in the fourth quarter of fiscal 1998.
Liquidity and Capital Resources
Cash used in operations was $9.2 million in the first nine months of fiscal
1999, compared to cash provided by operations of $9.0 million in the prior
year. The Company increased its investment in working capital by $20.0 million
in the current year, compared to a $2.5 million increase last year. Inventory
increased $12.7 million in 1999, primarily for product line expansion,
compared to an increase of $862,000 in 1998. Accounts payable increased by
$5.5 million in fiscal 1998, compared to $701,000 in fiscal 1999. In 1999,
the Company took advantage of certain vendor discounts for early payment
which were not previously offered.
In fiscal 1999, the Company's Board of Directors authorized the repurchase of
up to 2.0 million shares of its common stock on the open market. The Company
repurchased 548,000 shares at an average price of $6.55 per share in the second
quarter, 424,600 shares at $6.00 per share in the third quarter and 1,027,400
shares at an average price of $5.25 subsequent to February 28, 1999. Capital
expenditures, business acquisitions, stock repurchases and dividend payments
were funded primarily by additional borrowings. Interest payments for the
nine-month period were $6.7 million in fiscal 1999 and $7.5 million in 1998.
(9)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three- and Nine-Month Periods Ended February 28, 1999
(Unaudited)
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 February 28, 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-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 its sales or any vendor which accounts for more than 9% of
its 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.
(10)
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three- and Nine-Month Periods Ended February 28, 1999
(Unaudited)
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.
(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, 1998, except that the Arius, Inc. v. Richardson
Electronics, Ltd., et. al., suit proceeding in state court in Orlando,
Florida, has been settled for $30,000 and dismissed with prejudice.
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 27 - Financial Data Schedule - page 14.
(b) Report on Form 8-K - for press release issued on January 29,
1999 announcing that expected results for the fiscal quarter
ended February 28, 1999 would be substantially below
analysts' expectations.
(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 April 13, 1999 By /s/ William J. Garry
William J. Garry
Senior Vice President and
Chief Financial Officer
(13)
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