<TABLE>
Five-Year Financial Review
<CAPTION>
(in thousands, except per share amounts)
Statement of Operations Data
Year Ended May 31
2000 1999 1998 1997(1) 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $407,178 $320,941 $304,172 $255,139 $239,667
Cost of products sold 299,246 231,328 217,509 187,675 169,123
Selling, general and administrative
expenses 81,489 70,870 65,393 62,333 52,974
Other expense, net 7,839 6,886 7,334 7,856 5,559
--------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 18,604 11,857 13,936 (2,725) 12,011
Income tax provision (benefit) 5,500 3,505 4,200 (1,720) 3,900
--------- --------- --------- --------- ---------
Income (loss) before extraordinary
item 13,104 8,352 9,736 (1,005) 8,111
Extraordinary gain (loss),
net of tax -- -- -- (488) --
--------- --------- --------- --------- ---------
Net income (loss) $ 13,104 $ 8,352 $ 9,736 $ (1,493) $ 8,111
========= ========= ========= ========= =========
Income (loss) per share - basic:
Before extraordinary item $ 1.03 $ .60 $ .79 $ (.08) $ .70
Extraordinary gain (loss),
net of tax -- -- -- (.04) --
--------- --------- --------- --------- ---------
Net income (loss) per share $ 1.03 $ .60 $ .79 $ (.12) $ .70
========= ========= ========= ========= =========
Income (loss) per share - diluted:
Before extraordinary item $ 1.00 $ .60 $ .77 $ (.08) $ .68
Extraordinary gain (loss),
net of tax -- -- -- (.04) --
--------- --------- --------- --------- ---------
Net income (loss) per share $ 1.00 $ .60 $ .77 $ (.12) $ .68
========= ========= ========= ========= =========
Dividends per common share $ .16 $ .16 $ .16 $ .16 $ .16
========= ========= ========= ========= =========
Net Sales by Strategic Business Unit (2)
Year Ended May 31
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Net Sales by Strategic Business Unit:
RF & Wireless Communications
Group (Wireless) $154,502 $104,347 $100,358 $ 89,115 $ 83,768
Industrial Power Group (Industrial) 87,584 77,389 84,587 81,427 82,799
Medical Systems Group (Medical) 39,461 37,523 23,849 17,261 11,261
Security Systems Group (Security) 84,504 70,180 66,362 37,853 25,614
Display Systems Group (Display) 41,127 31,502 29,016 29,483 36,225
--------- --------- --------- --------- ---------
Consolidated $407,178 $320,941 $304,172 $255,139 $239,667
========= ========= ========= ========= =========
Balance Sheet Data
Year Ended May 31
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Receivables $ 77,821 $ 62,448 $ 63,431 $ 53,333 $ 48,232
Inventories 119,224 107,724 96,443 92,194 94,327
Working capital, net 174,270 161,640 149,577 140,821 133,151
Property, plant and equipment, net 25,851 23,047 18,477 17,526 16,054
Total assets 264,925 235,678 209,700 192,514 180,158
Long-term debt 117,643 113,658 87,427 107,275 92,025
Stockholders' equity 93,993 84,304 91,585 59,590 62,792
</TABLE>
(1)In 1997, the Company recorded special charges for severance and other costs
related to a corporate reorganization and a re-evaluation of reserve estimates
which increased cost of products sold by $7,200 and selling, general and
administrative expenses by $3,800. Net of tax, these charges reduced income
by $6,712, or $.56 per share. The Company also recorded an extraordinary loss
of $800, less a related tax benefit of $312, or $.04 per share, on the exchange
of certain of the Company's debentures.(See Note B to the Consolidated
Financial Statements.)
(2)The Company reorganized in 2000 from a product-oriented to a market-focused
structure. Historical
data for 1996 through 1999 have been restated to conform to the new
organization.
(12)
Management's Discussion and Analysis
Results of Operations
Sales and Gross Margin Analysis
Richardson Electronics, Ltd. is a specialized global distributor serving the
RF and wireless communications, industrial power conversion, medical imaging,
security and display systems markets. The marketing and sales structure of
the Company consists of five strategic business units (SBUs): RF & Wireless
Communications Group (Wireless), Industrial Power Group (Industrial), Medical
Systems Group (Medical), Security Systems Group (Security) and Display
Systems Group (Display). The Company completed its reorganization in 2000
from a product-oriented to a market-focused structure. Historical data
for 1999 and 1998 has been restated to conform to the new organization.
Consolidated sales in fiscal 2000 were a record $407.2 million. Sales by
SBU and percent of consolidated sales are presented in the following table
(in thousands):
Sales
(in thousands) 2000 % 1999 % 1998 %
-------- ----- -------- ----- -------- -----
Wireless $154,502 37.9 $104,347 32.5 $100,358 33.1
Industrial 87,584 21.5 77,389 24.1 84,587 27.8
Medical 39,461 9.7 37,523 11.7 23,849 7.8
Security 84,504 20.8 70,180 21.9 66,362 21.8
Display 41,127 10.1 31,502 9.8 29,016 9.5
-------- ----- -------- ----- -------- -----
Consolidated $407,178 100.0 $320,941 100.0 $304,172 100.0
======== ===== ======== ===== ======== =====
Gross margin for each SBU and margin as a percent of sales are shown in the
following table. Gross margin reflects the distribution product margin less
customer returns, engineering costs, overstock, and other provisions.
Manufacturing variances, warranty provisions, LIFO provisions and
miscellaneous costs are included under the caption "Corporate"
(in thousands):
Gross Margins
(in thousands) 2000 % 1999 % 1998 %
-------- ----- -------- ----- -------- -----
Wireless $40,524 26.2 $28,764 27.6 $27,269 27.2
Industrial 31,037 35.4 27,861 36.0 30,117 35.6
Medical 7,430 18.8 7,923 21.1 5,363 22.5
Security 19,846 23.5 16,184 23.1 15,335 23.1
Display 10,273 25.0 10,344 32.8 10,094 34.8
-------- ----- -------- ----- -------- -----
Total 109,110 26.8 91,076 28.4 88,178 29.0
Corporate (1,178) (1,463) (1,515)
-------- ----- -------- ----- -------- -----
Consolidated $107,932 26.5 $89,613 27.9 $86,663 28.5
======== ===== ======== ===== ======== =====
Sales and gross margin trends are analyzed for each strategic business unit
in the following sections.
RF & Wireless Communications Group
Wireless serves the rapidly expanding voice and data telecommunications
market and the radio and television broadcast industry. Wireless' team
of sales engineers provides engineering design, prototype assembly and
testing of discrete devices and components for the telecommunications
market and both vacuum tube and solid state components, systems design
and integration services for the broadcast market.
Sales increased 48.1% in 2000 to $154.5 million, including a 65.3% gain in
telecommunications. Sales growth in 1999 was 4.0%, due to a general weakness
in the semiconductor industry. Sales outside of the United States represented
52.4%, 51.2% and 49.8% of Wireless's sales in 2000, 1999 and 1998,
respectively. The largest sales gains in 2000 outside the United States for
Wireless telecommunications were in Asia / Pacific, up 93.2%, and Europe, up
60.9%.
In June 1998, the Company acquired TRL Technologies, Inc. Although the
acquisition added only $800,000 to fiscal 1999 sales, their RF & wireless
engineering and manufacturing capabilities resulted in design and assembly
contracts generating $7.4 million sales in 2000 and backlog of $18.3 million
at May 31, 2000.
Gross margin as a percent of sales was 26.2% in 2000, compared to 27.6% in
1999 and 27.2% in 1998. The decline in margin in 2000 reflects research and
development, engineering charges and start-up costs related to the TRL
contracts and, to a lesser extent, competitive pricing pressures in the
broadcast market and changes in product mix.
Industrial Power Group
Industrial serves a broad range of customers including the steel, automotive,
textile, plastics, semiconductor, marine and avionics industries. Industrial's
specialized product and sales organization employs both vacuum tube and power
semiconductor technologies to meet customer needs in applications such as
motor speed controls, industrial heating, laser technology, semiconductor
manufacturing equipment, radar and welding.
Industrial's sales gain of 13.2% in 2000 reflects a 36.1% growth in the sale
of power semiconductors and components and a 15.7% gain in magnetrons,
microwave generators and related products, offset by flat sales of vacuum
tube products. A strong recovery in the semiconductor wafer fabrication
market contributed to the sales growth. Sales in 1999 reflect a 7.5%
contraction as the core business was adversely affected by economic
difficulties in Latin America and weak demand for microwave products used
in the manufacture of semiconductors. Foreign sales as a percent of total
sales for Industrial were 50.1%, 50.6% and 49.8% in 2000, 1999 and 1998,
respectively.
Gross margin for the Industrial market has been stable, at 35.4%, 36.0% and
35.6% in 2000, 1999 and 1998, respectively.
Medical Systems Group
Medical serves the medical imaging market, providing upgrades and integration
services in addition to a wide range of diagnostic imaging components.
Products include glassware, medical imaging intensifiers and tubes, high-
resolution color and monochrome displays, generators, cable assemblies and
test equipment.
(13)
Management's Discussion and Analysis
Medical sales increased 5.2% to $39.5 million in 2000, following a 57.3%
increase in 1999. Sales growth slowed in 2000 as original equipment
manufacturers, the Company's principal competition, focused more of their
efforts on the medical products replacement market. Sales outside of the
United States represented 23.2%, 26.2% and 32.2% of Medical's sales in 2000,
1999 and 1998, respectively.
Gross margin as a percent of sales was 18.8% in 2000, compared to 21.1% in
1999 and 22.5% in 1998. The gross margin trend reflects the increased
competition in the replacement market. The gross margin in 2000 was also
affected by production inefficiencies in tube reloading.
Security Systems Division
Security provides security systems and related design services with
an emphasis on closed circuit television (CCTV).
Sales increased 20.4% in 2000 and 5.8% in 1999. In December 1998, the Company
acquired Adler Video Systems, a distributor in southern California with annual
sales of approximately $8.4 million. This purchase followed the acquisition of
a Canadian distributor, Security Service International, Inc. in August 1997,
with annual sales of $20.0 million. Excluding the effect of acquisitions,
sales increased 7.1% in 2000 and declined 4.4% in 1999. Security's sales in
1999 were affected by a soft Canadian economy and by foreign exchange, as a
7.0% decline in the value of the Canadian dollar generated a 3.4% reduction
in reported sales. Sales outside of the United States represented 56.5% of
Security's sales in 2000, 59.5% in 1999, and 63.5% in 1998.
Gross margin was 23.5% of sales in 2000 and 23.1% of sales in 1999 and 1998.
Inventory turnover rates achieved by Security are significantly higher than
the Company's other SBU's, mitigating the effect of lower gross margin rates.
Display Systems Group
Display provides system integration and custom product solutions for the
public information display, financial, point-of-sale and general data display
markets.
Display sales increased 30.6% in 2000 and 8.6% in 1999. The sales growth in
both years reflects the expansion of the Display product line to include
monitors, flat panel displays and related systems integration. Revenues of
Eternal Graphics, acquired in March 1998, and Pixelink, in March 1999, were
responsible for 1999 sales growth. Acquisition revenues had a nominal effect
on sales growth in 2000. Sales outside the United States represented 29.7%,
43.7% and 48.8% of Display's sales in 2000, 1999 and 1998, respectively.
Growth in monitor sales in the U.S. was the predominant cause of the shift in
geographic sales.
Gross margin as a percent of sales was 25.0% in 2000, compared to 32.8% in
1999 and 34.8% in 1998. The margin trend reflects a shift in product mix from
CRT's to monitors and other display products. The gross margin rate in 2000
was also affected by several large contracts at lower margins.
Sales by Geographic Area
On a geographic basis, the Company categorizes its sales by destination: North
America, Europe, Latin America, Asia/Pacific and Other. Prior year data has
been restated to reflect this categorization. Other includes sales to export
distributors and to countries where the Company does not have offices. Sales
and gross margin by geographic area are as follows (in thousands):
Sales
(in thousands) 2000 % 1999 % 1998 %
-------- ----- -------- ----- -------- -----
North America $265,569 65.3 $205,013 63.9 $189,116 62.2
Europe 77,792 19.1 67,668 21.1 62,706 20.6
Asia/Pacific 34,305 8.4 24,208 7.5 21,155 7.0
Latin America 19,316 4.7 16,734 5.2 20,755 6.8
Other 10,196 2.5 7,318 2.3 10,440 3.4
-------- ----- -------- ----- -------- -----
Consolidated $407,178 100.0 $320,941 100.0 $304,172 100.0
======== ===== ======== ===== ======== =====
Gross Margins
(in thousands) 2000 % 1999 % 1998 %
-------- ----- -------- ----- -------- -----
North America $70,029 26.4 $55,569 27.1 $53,372 28.2
Europe 22,942 29.5 20,607 30.5 19,449 31.0
Asia/Pacific 11,042 32.2 7,169 29.6 6,427 30.4
Latin America 5,410 28.0 4,729 28.3 5,763 27.8
Other 3,573 35.0 3,002 41.0 3,167 30.3
-------- ----- -------- ----- -------- -----
Total 112,996 27.8 91,076 28.4 88,178 29.0
Corporate (5,064) (1,463) (1,515)
-------- ----- -------- ----- -------- -----
Consolidated $107,932 26.5 $89,613 27.9 $86,663 28.5
======== ===== ======== ===== ======== =====
North American sales increased 29.5% in 2000 and 8.4% in 1999. The 2000
increase primarily reflects the strong growth in Wireless and Display markets.
The 1999 increase includes 5.9% as a result of acquisitions and 2.5% due to
internal growth. Sales in Europe increased 15.0% in 2000 and 7.9% in 1999.
Growth in both years was adversely affected by foreign exchange as the U.S.
dollar strengthened relative to local currencies.
Sales in Asia/Pacific markets increased 41.7% in 2000 and 14.4% in 1999. Sales
in the first half of 1999 were affected by the economic slowdown and monetary
crisis in Asia. Performance improved significantly in the second half of 1999
and continued to improve in 2000, primarily due to the recovery in
semiconductor markets.
Sales in Latin America increased 15.4% in 200 after a decline of 19.4% in
1999. Shortly after the Asian crisis, the Brazilian market declined. Latin
American sales remained depressed throughout 1999, but began a steady recovery
in 2000.
Sales denominated in currencies other than U. S. dollars were 39.0%, 40.2%
and 39.0% of total sales in 2000, 1999 and 1998, respectively. Foreign
currency exchange rate changes reduced foreign sales by an average of 2.5%,
3.0% and 5.9% in 2000, 1999 and 1998, respectively. Average selling prices,
excluding the effects of exchange rate changes declined 1.3%, 0.4% and 0.3%
in 2000, 1999 and 1998 respectively.
(14)
Management's Discussion and Analysis
Other Cost of Sales
The following table reconciles product margin to gross margin reported in the
Consolidated Statements of Operations:
(% of sales) 2000 1999 1998
-------- -------- --------
Product margin 28.0 % 29.0 % 29.6 %
Customer returns and scrap (0.5)% (0.4)% (0.6)%
Engineering costs (0.3)% (0.1)% 0.0 %
Freight costs not inventoried (0.3)% (0.3)% (0.3)%
Overstock provisions (0.1)% 0.0 % 0.1 %
Other costs (0.3)% (0.3)% (0.3)%
-------- -------- --------
Gross margin 26.5 % 27.9 % 28.5 %
======== ======== ========
Fluctuations in product margin primarily reflect the shift in product mix as
Security sales have increased as a percent of consolidated sales and as
monitor sales have replaced CRT sales in the Display group.
Selling, General and Administrative Expenses
Selling, general and administrative expenses represented 20.0% of sales in
2000, 22.1% in 1999 and 21.5% in 1998. In the third quarter of 1999, the
Company adjusted staffing in light of current sales levels, resulting in a
reduction in annual operating costs of approximately $2.5 million, beginning
in the fourth quarter. Related severance costs were $340,000. In the fourth
quarter of 1999, the Company recorded a $500,000 provision for potential
losses on certain Latin American accounts receivable. During fiscal 2000,
the Company recorded additional provisions of $469,000 as prospects for a
partial recovery on these receivables diminished. These accounts were fully
reserved at May 31, 2000.
Other (Income) Expense
Interest expense increased 15.8% in 2000, reflecting higher borrowing levels
to support the growth of the Company and higher interest rates. Interest
expense decreased 4.9% in 1999, reflecting lower borrowing levels during the
year. Investment income includes realized capital gains of $877,000, $39,000
and $506,000 in 2000, 1999 and 1998. Foreign exchange and other expenses
primarily reflect changes in the value of the U. S. dollar relative to
foreign currencies.
Income Tax Provision
The effective tax rates were 29.6% in fiscal 2000 and 1999 and 30.1% in 1998.
The rates differ from the statutory rate of 34.0% primarily due to the
Company's foreign sales corporation benefit on export sales and , in 2000,
realization of tax benefit on prior years' foreign losses, offset by state
income taxes.
Net Income and per Share Data
Net income increased 56.9% in 2000, to $13.1 million, or $1.00 per share, from
$8.4 million, or $.60 per share in 1999.
Financial Condition
Liquidity
The Company provides engineered solutions, including prototype design and
assembly, in niche markets. Additionally, the Company specializes in certain
products representing trailing-edge technology that may not be available from
other sources, and may not be currently manufactured. In many cases, the
Company's products are components of production equipment for which immediate
availability is critical to the customer. Accordingly, the Company enjoys
higher gross margins, but necessarily has larger investments in inventory
than those of a commodity electronics distributor.
Liquidity is provided by the operating activities of the Company, adjusted
for non-cash items, and is reduced by working capital requirements, debt
service, capital expenditures, dividends, business acquisitions and, in
1999, purchases of treasury stock. Cash provided by operations was $4.1
million in 2000 and 1999 and $6.3 million in 1998. Additional investments in
working capital to support sales growth were $15.4 million, $10.2 million
and $10.6 million in 2000, 1999 and 1998, respectively.
The Company proposed a plan, which has been accepted by the Illinois
Environmental Protection Agency, to monitor and process soil and groundwater
at the LaFox facility. Contamination is believed to have resulted from
practices previously employed at the site. The present value of the estimated
future remediation costs was charged to operations in 1996. The balance of the
reserve is $520,000 and is included in accrued liabilities at May 31, 2000.
Financing
At May 31, 2000, the Company had a $50.0 million floating-rate revolving
credit agreement. Loans under the agreement bore interest at prime or 125
basis points over the London Inter-Bank Offered Rate (LIBOR), at the
Company's option. At May 31, 2000, $10.4 million was available under this
line. A Canadian subsidiary of the Company had a revolving credit and term
loan agreement aggregating $12.1 million with a Canadian affiliate of the
Company's primary bank. The loan was guaranteed by the Company and bore
interest at the Canadian prime rate.
On July 28, 2000, the Company refinanced the revolving credit facility and the
Canadian credit agreement with an $80.0 million multi-currency revolving
credit facility. The agreement matures in July 2004 and bears interest at
applicable LIBOR rates plus a margin, varying with certain financial
performance criteria. At initial funding, the margin was 150 basis points.
In addition, the Company entered into certain interest rate swap arrangements
for the term of the facility, fixing the interest rate on $33.9 million at an
average rate of 8.3%.
(15)
Management's Discussion and Analysis
In fiscal 1999, the Company purchased a suite of enterprise resource planning
software utilizing state-of-the-art technology. The Company entered into a
financing arrangement with quarterly payments through March 2001 at an
implicit interest rate of 7.5%.
In fiscal 1998, the Company sold 2.1 million shares of its Common Stock in a
public offering at a price of $12.50 per share. The net proceeds to the
Company, after deducting an underwriting discount of 6% and issuance costs of
$253,000, were $24.1 million. The proceeds were used to reduce borrowings
under the Company's revolving debt agreement.
In fiscal 1999, the Company purchased 2.0 million shares of its Common Stock
at an average cost of $5.76 per share.
Based on shares outstanding at May 31, 2000, annual dividend payments
approximate $2.0 million. 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.
Currency Fluctuations
The Company's foreign denominated assets and liabilities are cash, accounts
receivable, inventory and accounts payable, primarily in Canada and member
countries of the European community and, to a lesser extent, in Asia / Pacific
and Latin America. The Company monitors its foreign exchange exposures and,
while historically has not, may in the future enter into forward contracts to
hedge significant transactions. Other tools that may be used to manage foreign
exchange exposures include the use of currency clauses in sales contracts and
the use of local debt to offset asset exposures. There are no outstanding
forward exchange contracts at May 31, 2000.
Conversion to the Euro
On January 1, 1999, eleven member countries 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.
The Company has modified its transaction processing systems to accommodate
the Euro 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 has not been significant.
Risk Management and Market Sensitive Financial Instruments
As discussed above, the Company's debt financing, in part, varies with market
rates and certain of its operations and assets and liabilities are
denominated in foreign currencies that subject the Company to foreign exchange
risk.
In order to provide the user of these financial statements guidance regarding
the magnitude of these risks, the Securities and Exchange Commission requires
the Company to provide certain disclosures based upon hypothetical assumptions.
Specifically, these disclosures require the calculation of the effect a 10%
increase in market interest rates and a uniform 10% strengthening of the U. S.
dollar against foreign currencies would have on the reported net earnings of
the Company. Under these assumptions, additional interest expense, tax
effected, would have reduced net income by $210,000 in 2000 or $150,000 in
1999 and foreign currency exchange rates would have decreased net income by
$250,000 in 2000 or 140,000 in 1999.
The interpretation and analysis of these disclosures should not be considered
in isolation since such variances in interest rates and exchange rates would
likely influence other economic factors. Such factors, which are not readily
quantifiable, would likely also affect the Company's operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
Except for the historical information contained herein, the matters discussed
in this Annual Report (including the Annual Report on Form 10-K) are forward-
looking statements relating to future events which involve certain risks and
uncertainties, including those identified herein and in the Annual Report on
Form 10-K. Further, there can be no assurance that the trends reflected in
historical information will continue in the future.
(16)
Consolidated Balance Sheets
As of May 31
(in thousands) 2000 1999
--------- ---------
Assets
Current assets
Cash and equivalents $ 11,832 $ 12,569
Receivables, less allowance of $2,991
and $2,584 77,821 62,448
Inventories 119,224 107,724
Other 13,346 12,817
--------- ---------
Total current assets 222,223 195,558
Property, plant and equipment, net 25,851 23,047
Other assets 16,851 17,073
--------- ---------
Total assets $264,925 $235,678
========= =========
Liabilities and stockholders' equity
Current liabilities
Accounts payable 30,882 21,829
Accrued liabilities 14,452 10,259
Notes and current portion of
long-term debt 2,619 1,830
--------- ---------
Total current liabilities 47,953 33,918
Long-term debt 117,643 113,658
Deferred income taxes 5,336 3,798
--------- ---------
Total liabilities 170,932 151,374
Stockholders' equity
Common Stock, $.05 par value 583 570
Class B Common Stock, convertible,
$.05 par value 162 162
Preferred Stock, $1.00 par value -- --
Additional paid-in capital 84,514 82,309
Treasury stock (11,045) (11,532)
Retained earnings 34,184 23,044
Foreign currency translation adjustment (14,405) (10,249)
--------- ---------
Total stockholders' equity 93,993 84,304
--------- ---------
Total liabilities and stockholders'
equity $264,925 $235,678
========= =========
See notes to consolidated financial statements.
(17)
Consolidated Statements of Operations
Year Ended May 31
(in thousands, except per share amounts) 2000 1999 1998
--------- --------- ---------
Net sales $407,178 $320,941 $304,172
Cost of products sold 299,246 231,328 217,509
--------- --------- ---------
Gross margin 107,932 89,613 86,663
Selling, general and
administrative expenses 81,489 70,870 65,393
--------- --------- ---------
Operating income 26,443 18,743 21,270
Other (income) expense:
Interest expense 8,911 7,689 8,084
Investment income (1,032) (636) (1,005)
Foreign exchange and other (40) (167) 255
--------- --------- ---------
7,839 6,886 7,334
--------- --------- ---------
Income before income taxes 18,604 11,857 13,936
Income tax provision 5,500 3,505 4,200
--------- --------- ---------
Net income $ 13,104 $ 8,352 $ 9,736
========= ========= =========
Net income per share:
Basic $ 1.03 $ .60 $ .79
Diluted $ 1.00 $ .60 $ .77
Dividends per common share $ .16 $ .16 $ .16
Comprehensive income:
Net income $ 13,104 $ 8,352 $ 9,736
Foreign currency translation
adjustment (4,156) (3,663) (2,983)
--------- --------- ---------
Comprehensive income $ 8,948 $ 4,689 $ 6,753
========= ========= =========
See notes to consolidated financial statements.
(18)
Consolidated Statements of Cash Flows
Year Ended May 31
(in thousands) 2000 1999 1998
-------- -------- ---------
Operating Activities:
Net income $13,104 $ 8,352 $ 9,736
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 4,415 3,605 3,477
Amortization of intangibles and
financing costs 744 633 632
Deferred income taxes 1,292 1,237 2,779
Stock contribution to employee
ownership plan -- 485 285
-------- -------- --------
Net adjustments 6,451 5,960 7,173
-------- -------- --------
Changes in working capital, net of
currency translation effects and
business acquisitions:
Receivables (17,072) 1,108 (9,170)
Inventories (11,307) (10,985) (3,658)
Other current assets (351) (3,015) 186
Accounts payable 9,130 3,172 4,366
Accrued liabilities 4,159 (509) (2,350)
-------- -------- --------
Net changes in working capital (15,441) (10,229) (10,626)
-------- -------- --------
Net cash provided by
operating activities 4,114 4,083 6,283
-------- -------- --------
Financing activities:
Proceeds from borrowings 12,316 31,528 16,731
Payments on debt (7,641) (3,743) (35,642)
Proceeds from sales of common stock 2,716 385 26,933
Purchases of treasury stock (11) (11,527) --
Cash dividends (1,964) (2,150) (1,976)
-------- -------- --------
Net cash provided
by financing activities 5,416 14,493 6,046
-------- -------- --------
Investing activities:
Capital expenditures (7,026) (3,795) (6,798)
Business acquisitions (2,356) (7,647) (4,116)
Other (885) (2,596) (3,396)
-------- -------- --------
Net cash used in
investing activities (10,267) (14,038) (14,310)
-------- -------- --------
Increase (decrease) in cash
and equivalents (737) 4,538 (1,981)
Cash and equivalents at beginning of year 12,569 8,031 10,012
-------- -------- --------
Cash and equivalents at end of year $11,832 $12,569 $ 8,031
======== ======== ========
(19)
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Shares Issued
Accumulated
--------------- Additional
Other
(shares and dollars Class B Par Paid-in Treasury Retained Comprehensive
in thousands) Common Common Value Capital Stock Earnings Income(Loss) Total
------- ------- ----- --------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 1, 1997 8,721 3,243 $ 599 $ 53,512 $ -- $ 9,082 $ (3,603) $59,590
Shares contributed to
ESOP 34 -- 2 283 -- -- -- 285
Shares issued under
ESPP 354 -- 19 2,845 -- -- -- 2,864
Public stock offering 2,070 -- 103 23,966 -- -- -- 24,069
Conversion of Class B 4 (4) -- -- -- -- -- --
Dividends -- -- -- -- -- (1,976) -- (1,976)
Currency translation -- -- -- -- -- -- (2,983) (2,983)
Net income -- -- -- -- -- 9,736 -- 9,736
------- ------- ----- --------- --------- -------- ------------ --------
Balance May 31, 1998 11,183 3,239 723 80,606 -- 16,842 (6,586) 91,585
Shares contributed to
ESOP 12 -- 1 484 -- -- -- 485
Shares issued under
ESPP 189 -- 8 1,219 (5) -- -- 1,222
Purchase of 2,000 shares
of common stock -- -- -- -- (11,527) -- -- (11,527)
Conversion of Class B
shares to common 6 (6) -- -- -- -- -- --
Dividends -- -- -- -- -- (2,150) -- (2,150)
Currency translation -- -- -- -- -- -- (3,663) (3,663)
Net income -- -- -- -- -- 8,352 -- 8,352
------- ------- ----- --------- --------- -------- ------------ --------
Balance May 31, 1999 11,390 3,233 732 82,309 (11,532) 23,044 (10,249) 84,304
Shares issued under
ESPP 279 -- 13 2,205 498 -- -- 2,716
Purchase of
Common Stock -- -- -- -- (11) -- -- (11)
Conversion of Class B
shares of common stock 1 (1) -- -- -- -- -- --
Dividends -- -- -- -- -- (1,964) -- (1,964)
Currency translation -- -- -- -- -- -- (4,156) (4,156)
Net income -- -- -- -- -- 13,104 -- 13,104
------- ------- ----- --------- --------- -------- ------------ --------
Balance May 31, 2000 11,670 3,232 $745 $ 84,514 $(11,045) $34,184 $ (14,405) $93,993
======= ======= ===== ========= ========= ======== ============ ========
</TABLE>
See notes to consolidated financial statements
Note A -- Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts and operations of the Company and its subsidiaries. All significant
intercompany transactions are eliminated. The Company accounts for its results
of operations on a 52/53 week year, ending on the Saturday nearest May 31.
Fiscal 2000 contained 53 weeks, including 14 weeks in the first quarter. Fiscal
1999 and 1998 each contained 52 weeks.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications: Certain amounts in the 1999 and 1998 financial statements
are reclassified to conform to the 2000 presentation.
Cash Equivalents: The Company considers short-term investments that have a
maturity of three months or less, when purchased, to be cash equivalents. The
carrying amounts reported in the balance sheet for cash and equivalents
approximate the fair market value of these assets.
Inventories: Inventories are stated at the lower of cost or market. Inventory
costs determined using the last-in, first-out (LIFO) method represent 79% of
total inventories at May 31, 2000 and 78% at May 31, 1999. For the remaining
inventories, cost is determined on the first-in, first-out (FIFO) method. If
the FIFO method had been used for all inventories, the total amount of
inventories would have been increased by $542 and $2,058 at May 31, 2000 and
1999, respectively. As a result of overstock reserves, the LIFO carrying value
of all inventories approximated market value at May 31, 2000 and 1999.
Substantially all inventories represent finished goods held for sale.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Provisions for depreciation are computed principally using the straight-
line method over the estimated useful life of the asset. Property, plant and
equipment consist of the following:
May 31
2000 1999
--------- ---------
Land and improvements $ 2,770 $ 2,764
Buildings and improvements 19,310 18,776
Machinery and equipment 42,011 36,003
--------- --------
Property, at cost 64,091 57,543
Accumulated depreciation (38,240) (34,496)
--------- ---------
Property,plant and equipment net $ 25,851 $ 23,047
========= =========
Other Assets: Deferred financing costs, goodwill and other deferred charges
are amortized using the straight-line method. Goodwill is generally amortized
over a period of 20 to 40 years. The Company continually evaluates the
carrying value of goodwill based upon its recoverability from related
projected undiscounted cash flows. Other assets consist of the following:
May 31
2000 1999
--------- ---------
Investments (at market) $ 3,497 $ 2,603
Notes receivable 544 5,680
Deferred financing costs, net 370 436
Goodwill, net 9,844 7,126
Property held for sale 1,732 -
Other deferred charges, net 864 1,228
--------- ---------
Other assets, net $ 16,851 $ 17,073
========= =========
Accrued Liabilities: Accrued liabilities consist of the following:
May 31
2000 1999
--------- ---------
Compensation and payroll taxes $ 5,986 $ 4,048
Interest 3,042 2,758
Income taxes 2,452 1,042
Other accrued expenses 2,972 2,411
--------- ---------
Accrued liabilities $ 14,452 $ 10,259
========= =========
Foreign Currency Translation: Foreign currency balances and financial
statements are translated into U. S. dollars at end-of-period rates, except
that revenues and expenses are translated at the current rate on the date of
the transaction. Gains and losses resulting from foreign currency
transactions are included in income currently. Foreign currency transaction
gains (losses) reflected in operations are $60, $77, and $(299) in 2000,
1999, and 1998, respectively.
Gains and losses resulting from translation of foreign subsidiary financial
statements are credited or charged directly to a separate component of
stockholders' equity.
Revenue Recognition: Revenues are recorded when title passes to the customer.
Income Taxes: Deferred tax assets and liabilities are established for
differences between financial reporting and tax accounting of assets and
liabilities and are measured using the marginal tax rates.
Stock-Based Compensation: The Company accounts for its stock option plans in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
However, all grants under the Company's option plans have been made at the
fair market value on the date of grant. Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation", requires
estimation of the fair value of options granted to employees. As permitted by
SFAS No. 123, the Company presents this estimated fair value information in
Note E.
(25)
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Earnings per Share: Basic earnings per share is calculated by dividing net
income by the weighted average number of Common and Class B Common shares
outstanding. Diluted earnings per share is calculated by dividing net income
(adjusted for interest savings, net of tax, on assumed bond conversions) by
the actual shares outstanding and share equivalents that would arise from the
exercise of stock options and the assumed conversion of convertible bonds.
The per share amounts presented in the Consolidated Statement of Operations
are based on the following amounts:
2000 1999 1998
-------- -------- --------
Numerator for basic EPS:
Net income $13,104 $ 8,352 $ 9,736
======== ======== ========
Denominator for basic EPS:
Shares outstanding,
June 1 12,623 14,422 11,964
Additional shares issued 61 106 300
Reduction of shares acquired - (706) -
-------- -------- --------
Average shares outstanding 12,684 13,822 12,264
======== ======== ========
Numerator for diluted EPS:
Net income $13,404 $ 8,352 $ 9,736
Interest saving, net of
Tax, on assumed conversions
of bonds 3,459 - -
-------- -------- --------
Adjusted net income $16,563 $ 8,352 $ 9,736
======== ======== ========
Denominator for diluted EPS:
Average shares
outstanding 12,684 13,822 12,264
Effect of dilutive stock
options 216 204 425
Assumed converstion of bonds 3,680 - -
-------- -------- --------
Adjusted shares outstanding 16,580 14,026 12,689
======== ======== ========
Out-of-the-money (exercise price higher than market price) stock options are
excluded from the calculation because they are anti-dilutive. The Company's
81/4% and 71/4% convertible debentures are excluded from the calculation in
1999 and 1998 as assumed conversion would be anti-dilutive.
Note B -- Acquisitions
Fiscal 2000: In December 1999, the Company's Wireless unit acquired the assets
and liabilities of Apoio Technico, a distributer of broadcast transmitters and
equipment in Brazil with annual sales of $8,000. In May 2000, the Wireless
unit also acquired the assets and liabilities of Broadcast Richmond, a global
distributer and installer of broadcast equipment located in Richmond, Indiana,
with annual sales of $2,000.
The aggregate cash outlay for business acquisitions made in 2000 was $391.
Additional non-cash payments of $5,058 were made in the form of the
foregiveness of an account receivable.
Fiscal 1999: In December 1998, the Company's Security unit acquired Adler
Video Systems, a southern California based distributor of closed circuit
television (CCTV) systems with annual sales of $8,400. The Company also made
three smaller acquisitions with annual sales of approximately $2,000 each.
These acquisitions included TRL Industries, a manufacturer of amplifier
circuits for the Wireless business unit's wireless communications operations;
Sahab S.A., a Mexican distributer of broadcast transmitters for the Wireless
business unit; and Pixelink, a systems integrator specializing in monitors
for the Display business unit.
The aggregate cash outlay for business acquisitions made in 1999 was $2,868.
Additional non-cash payments of $1,113 were made in the form of the Company's
Common Stock and the foregiveness of a note receivable.
Fiscal 1998: In August 1997 the Company's Security unit acquired the assets
of Security Service International, Inc., a Canadian distributor of security
systems with annual sales of approximately $20,000. In March, 1998, the
Company acquired Eternal Graphics, a systems integrator specializing in
financial applications for the Display business unit with annual sales of
$4,200. The aggregate cash outlay for business acquisitions made in 1998
was $5,742.
Each of the acquisitions was accounted for by the purchase method, and
accordingly, their results of operations are included in the consolidated
statements of operations from the respective dates of acquisition. The impact
of these acquisitions on results of operations was not significant and would
not have been significant if they had been included for the entire year. If
each of these acquisitions had occurred at the beginning of the year,
consolidated sales would have increased by approximately $6,000, $6,900 and
$6,000 in 2000, 1999 and 1998, respectively.
The terms of certain of the Company's acquisition agreements provide for
additional consideration to be paid if the acquired entity's results of
operations exceed certain targeted levels. Such amounts are paid in cash and
recorded when earned as additional consideration, and amounted to $1,965, $927
and $1,056 in 2000, 1999 and 1998, respectively. Assuming the goals
established in all agreements outstanding at May 31, 2000 were met, additional
consideration aggregating approximately $4,783 would be payable through 2004.
Note C -- Debt Financing
Long-term debt consists of the following:
May 31
2000 1999
--------- ---------
8 1/4% Convertible debentures, due
June 2006 $ 40,000 $ 40,000
7 1/4% Convertible debentures, due
December 2006 30,825 30,825
Floating-rate revolving credit
facility, due June 2001
(7.46% at May 31, 2000) 39,582 33,582
Revolving credit and term loan due
June 2001 (6.95% at May 31, 2000) 7,646 7,694
Software financing 1,588 2,673
Other 621 714
--------- ---------
Long-term debt 120,262 115,488
Less current portion (2,619) (1,830)
--------- ---------
Long-term debt $117,643 $113,658
========= =========
The 7 1/4% convertible debentures are unsecured and subordinated to other
long-term debt, including the 8 1/4% convertible debentures. Each $1,000 of the
7 1/4% debenture is convertible into the Company's Common Stock at any time
prior to maturity at $21.14 per share and the 8 1/4% convertible debentures are
convertible at $18.00 per share. The Company is required to make sinking fund
payments of $3,850 in 2004 and $6,225 in 2005.
(22)
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
At May 31, 2000, the Company had a $50,000 floating-rate revolving credit
facility expiring June 2001. Loans under the agreement bore interest at the
Company's option at prime or at a premium over LIBOR. The premium over LIBOR
varied with certain performance benchmarks. At May 31, 2000, the premium was
125 basis points, and $10,400 was available for future borrowing. A Canadian
subsidiary of the Company had a revolving credit and term loan agreement
aggregating $12,100 with a Canadian affiliate of the Company's primary bank.
The loan was guaranteed by the Company and bore interest at the Canadian prime
rate.
On July 28, 2000, the Company refinanced the revolving credit facility and the
Canadian credit agreement with an $80,000 multi-currency revolving credit
facility. The agreement matures in July 2004 and bears interest at applicable
LIBOR rates plus a margin, varying with certain financial performance
criteria. At initial funding, the margin was 150 basis points. In addition,
the Company entered into certain interest rate swap arrangements for the term of
the facility, fixing the interest rate on $33.9 million at an average rate of
8.3%.
In fiscal 1999, the Company purchased a suite of enterprise resource planning
software utilizing state-of the-art client-server technology. The Company
entered into a financing arrangement with quarterly payments through March
2001 at an average implicit interest rate of 7.5%.
In the following table, the fair values of the Company's 7 1/4% and 8 1/4%
convertible debentures are based on quoted market prices at the end of the
fiscal year. The fair values of the bank term loans are based on carrying
value, adjusted for market interest rate changes.
2000 1999
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
8 1/4% Convertible
debentures $ 40,000 $ 34,400 $ 40,000 $ 33,800
7 1/4% Convertible
debentures 30,825 24,352 30,825 22,965
Floating-rate revolving
credit facility 39,582 39,582 33,582 33,582
Revolving credit and
term loan 7,646 7,646 7,694 7,694
Software financing
arrangment 1,588 1,674 2,673 3,036
Other 621 621 714 714
--------- --------- --------- ---------
Total 120,262 108,275 115,488 101,791
Less current portion (2,619) (2,619) (1,830) (1,830)
--------- --------- --------- ---------
Total $117,643 $105,656 $113,658 $ 99,961
========= ========= ========= =========
The loan and debenture agreements contain financial covenants with which the
Company was in full compliance at May 31, 2000. The most restrictive covenants
set benchmark levels for tangible net worth, debt to tangible net worth ratio,
cash flow to senior funded debt and annual debt service coverage.
Aggregate maturities of debt during the next five years are: $2,619 in 2001,
$263 in 2002, $3,850 in 2004 and $45,807 in 2005. Cash payments for interest
were $8,627, $7,477 and $8,387 in 2000, 1999 and 1998, respectively.
Note D -- Income Taxes
The components of income before income taxes are:
2000 1999 1998
---------- --------- ---------
United States $ 16,199 $ 9,531 $ 11,070
Foreign 2,405 2,326 2,866
---------- ---------- ---------
Income (loss) before taxes
and extraordinary item $ 18,604 $ 11,857 $ 13,936
========== ========== =========
The provision for income taxes differs from income taxes computed at the
federal statutory tax rate of 34% as a result of the following items:
2000 1999 1998
---------- ---------- ----------
Federal statutory rate 34.0 % 34.0 % 34.0 %
Effect of:
State income taxes, net of
federal tax benefit 3.2 2.8 3.5
FSC benefit on export sales (4.4) (7.2) (6.2)
Realization of tax benefit on
prior years' foreign losses (2.8) - -
Foreign taxes at other rates 0.5 0.5 (0.3)
Other (0.9) (0.5) (0.9)
---------- ---------- ----------
Effective tax rate 29.6 % 29.6 % 30.1 %
========== ========== ==========
The provisions for income taxes consist of the following:
2000 1999 1998
---------- ---------- ----------
Currently payable:
Federal $ 2,224 $ 1,294 $ 973
State 192 (44) 155
Foreign 1,792 1,018 293
---------- ---------- ----------
Total currently payable 4,208 2,268 1,421
Deferred:
Federal 2,023 730 1,867
State 739 545 275
Foreign (1,470) (38) 637
---------- ---------- ----------
Total deferred 1,292 1,237 2,779
---------- ---------- ----------
Income tax provision $ 5,500 $ 3,505 $ 4,200
========== ========== ==========
(23)
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of May 31, 2000 and
1999 are as follows:
Balance Sheet Presentation
Current Noncurrent
Asset (1) Liability
---------- ----------
At May 31, 2000:
Deferred tax assets:
Intercompany profit in inventory $ 1,469 $ -
Inventory valuation 5,898 -
Environmental and other reserves - 545
Other, net 73 71
---------- ----------
Deferred tax assets 7,440 616
Deferred tax liabilities:
Accelerated depreciation - (4,182)
Other, net - (1,770)
---------- ----------
Net deferred tax $ 7,440 $ (5,336)
At May 31, 1999:
Deferred tax assets:
Intercompany profit in inventory 1,492 -
Inventory valuation 5,674 -
Environmental and other reserves - 756
Other, net 11 -
---------- ----------
Deferred tax assets 7,177 756
Deferred tax liabilities:
Accelerated depreciation - (3,834)
Other, net - (720)
---------- ----------
Net deferred tax $ 7,177 $ (3,798)
========== ==========
(1) Included in other current assets on the balance sheet
In 1995, due to the timing and nature of a claim settlement, the Company
utilized a ten-year carryback provision under the Internal Revenue Code. The
Company's U. S. federal tax returns have been examined through 1995. As part
of this examination, in December 1997, the Internal Revenue Service contested
the Company's carryback of the aforementioned claim settlement. The Company
is appealing the IRS position. However, if the Company were ultimately
unsuccessful, the claim would be available for carryforward at the then
current statutory rate and the impact on the Company's financial position and
results of operations would not be material.
Income taxes paid were $2,313, $1,758, and $850 in 2000, 1999 and 1998,
respectively.
Note E -- Stockholders' Equity
The Company has authorized 30,000 shares of Common Stock, 10,000 shares of
Class B Common Stock, and 5,000 shares of Preferred Stock. The Class B Common
Stock has ten votes per share. The Class B Common Stock has transferability
restrictions; however, it may be converted into Common Stock on a share-for-
share basis at any time. With respect to dividends and distributions, shares
of common stock and Class B common stock rank equally and have the same
rights, except that Class B common stock is limited to 90% of the amount of
common stock cash dividends.
In May 1998, the Company sold 2,070 shares of its common stock through a
public offering at a price of $12.50 per share. The net proceeds to the
Company, after deducting an underwriting discount of 6% and issuance costs
of $253 were $24,069. Proceeds were used to pay down the revolving credit
facility.
In fiscal 1999, the Company purchased 2,000 shares of Common Stock at an
average cost of $5.76 per share.
Total Common Stock issued and outstanding at May 31, 2000 was 9,755 shares.
An additional 9,430 shares of Common Stock have been reserved for the
potential conversion of the convertible debentures and Class B Common Stock
and for future issuance under the Employee Stock Option Plans.
The Employee Stock Purchase Plan (ESPP) provides substantially all employees
an opportunity to purchase Common Stock of the Company at 85% of the stock
price at the beginning or the end of the year, whichever is lower. At May 31,
2000, the plan had 64 shares reserved for future issuance.
The Employees' 1998 Incentive Compensation Plan authorizes the issuance of up
to 800 shares as incentive stock options, non-qualified stock options or stock
awards. Under this plan and predecessor plans, 2,069 shares are reserved at
May 31, 2000 for future issuance. The Plan authorizes the granting of
incentive stock options at the fair market value at the date of grant.
Generally, these options become exercisable over staggered periods and expire
up to ten years from the date of grant.
Under the 1996 Stock Option Plan for Non-Employee Directors and a predecessor
plan, at May 31, 2000, 382 shares of Common Stock have been reserved for
future issuance relating to stock options exercisable based on the passage of
time. Each option is exercisable over a period from its date of grant at the
market value on the grant date and expires after ten years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its option plans and, accordingly, has not recorded
compensation expense for such plans. SFAS No. 123 requires the calculation
of the fair value of each option granted.
(25)
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
This fair value is estimated on the date of grant using the Black-Scholes
option-pricing model with the assumptions indicated below. Had the Company's
option plans and stock purchase plan been treated as compensatory under the
provisions of SFAS No. 123, the Company's net income and net income per share
would have been affected as follows:
2000 1999 1998
------- ------- -------
Net income, as reported $13,104 $ 8,352 $ 9,736
Proforma net income 12,300 7,629 9,261
Profoma net income per share:
Basic $ .97 $ .55 $ .76
Assuming full dilution .95 .54 .73
Assumptions used:
Risk-free interest rate 6.0% 5.4% 5.5%
Annual standard deviation
of stock price 55% 50% 40%
Average expected life (years) 5.5 6.1 5.6
Annual dividend rate $ .16 $ .16 $ .16
Average fair value
per option $ 3.59 $ 3.31 $ 3.49
Option value of ESPP per share $ 1.24 $ 1.13 $ 1.19
Fair value of options granted
during the year $ 991 $ 1,115 $ 948
The effect of applying SFAS No. 123 in this proforma disclosure is not
indicative of the effects on future years, because SFAS No. 123 does not apply
to grants issued prior to fiscal 1996.
A summary of the share activity and weighted average exercise prices for the
Company's option plans is as follows:
Outstanding Exercisable
-------------------- -------------------
Shares Price Shares Price
-------- -------- -------- --------
At June 1, 1997 1,489 $ 7.31 936 $ 7.21
Granted 291 8.70
Exercised (308) 6.57
Cancelled (99) 7.26
--------
At May 31, 1998 1,373 7.74 697 7.52
Granted 338 7.19
Exercised (20) 4.68
Cancelled (5) 7.86
--------
At May 31, 1999 1,686 7.66 855 7.62
Granted 296 7.81
Exercised (292) 6.98
Cancelled (131) 7.66
--------
At May 31, 2000 1,559 7.82 755 7.82
The following table summarizes information about stock options outstanding
as of May 31, 2000:
Outstanding Exercisable
------------------- -------------------
Exercise
Price Range Shares Price Life Shares Price Life
----------------- ------- ----- ---- ------- ----- ----
$3.75 to $5.375 87 $4.46 6.1 72 $4.27 4.2
$6.00 to $7.50 793 6.90 6.3 308 6.83 4.5
$8.00 to $8.50 505 8.23 7.1 277 8.15 4.8
$10.813 to $13.25 174 12.52 5.8 98 12.59 3.8
------- -------
Total 1,559 755
======= =======
Note F -- Employee Retirement Plans
The Company's domestic employee retirement plans consist of a profit sharing
plan and a stock ownership plan (ESOP). Annual contributions in cash or
Company stock are made at the discretion of the Board of Directors. In
addition, the profit sharing plan has a 401(k) provision whereby the Company
matches 50% of employee contributions up to 4% of base pay. Charges to expense
for discretionary and matching contributions to these plans were $1,790,
$1,370 and $1,341 in 2000, 1999 and 1998, respectively. Such amounts included
contributions in stock of $1,310 for 2000 and $285 for 1998, based on the
stock price at the date contributed. Shares are included in the calculation of
earnings per share and dividends are paid to the ESOP from the date the shares
are contributed. Foreign employees are covered by a variety of government
mandated programs.
Note G -- Industry and Market Information
The following disclosures are made in accordance with the SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company completed the reorganization of its marketing and sales structure into
five strategic business units (SBU's) in fiscal 2000. Historical data for 1999
and 1998 have been restated to conform to the new organization structure. The
new units are: RF & Wireless Communications Group (Wireless), Industrial Power
Group (Industrial), Medical Systems Group (Medical), Security Systems Division
(Security) and Display Systems Group (Display).
Wireless serves the rapidly expanding wireless voice and data
telecommunications industry and radio and television broadcast industry.
Industrial serves a broad range of customers including the steel, automotive,
textile, plastics, semiconductor, marine and avionics industries.
Medical serves the medical imaging market, providing system upgrade and
integration services in addition to a wide range of diagnostic imaging
components.
Security is a full-line distributor of CCTV, fire, burglary, access control,
sound and communication products and accessories.
Display provides system integration and custom product solutions for the
public information display, financial, point-of-sale and general data
display markets.
(25)
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
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. Inter-segment 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 each SBU are summarized in the following table:
Gross
Sales Margin Contribution Assets
---------- --------- ------------ ---------
Fiscal 2000
Wireless $ 154,502 $ 40,524 $ 26,694 $ 86,638
Industrial 87,584 31,037 24,117 42,449
Medical 39,461 7,430 4,065 26,654
Security 84,504 19,846 9,699 33,470
Display 41,127 10,273 5,758 19,825
---------- --------- ------------ ---------
Total $ 407,178 $109,110 $ 70,333 $209,036
========== ========= ============ =========
Fiscal 1999
Wireless $ 104,347 $ 28,764 $ 18,042 $ 63,751
Industrial 77,389 27,861 21,318 43,661
Medical 37,523 7,923 4,817 25,870
Security 70,180 16,184 7,179 31,685
Display 31,502 10,344 6,517 20,918
---------- --------- ----------- ---------
Total $ 320,941 $ 91,076 $ 57,873 $185,885
========== ========= =========== =========
Fiscal 1998
Wireless $ 100,358 $ 27,269 $ 17,764 $ 56,687
Industrial 84,587 30,117 23,659 45,558
Medical 23,849 5,363 2,619 19,853
Security 66,362 15,335 7,084 30,245
Display 29,016 10,094 7,458 16,900
---------- --------- ----------- ---------
Total $ 304,172 $ 88,178 $ 58,584 $169,243
========== ========= =========== =========
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 other
assets.)
2000 1999 1998
--------- --------- ---------
Segment gross margin $109,110 $ 91,076 $ 88,178
Manufacturing variances
and other costs (1,178) (1,463) (1,515)
--------- --------- ---------
Gross margin 107,932 89,613 86,663
========= ========= =========
Segment contribution 70,333 57,873 58,584
Manufacturing variances
and other costs (1,178) (1,463) (1,515)
Regional selling
expenses (14,489) (12,842) (12,357)
Administrative expenses (28,223) (24,825) (23,442)
--------- --------- ---------
Operating income 26,443 18,743 21,270
========= ========= =========
Segment assets 209,036 185,885 169,243
Cash and equivalents 11,832 12,569 8,031
Other current assets 13,346 12,817 9,681
Net property 25,851 23,047 18,477
Other assets 4,860 1,360 4,268
--------- --------- ---------
Total assets $264,925 $235,678 $209,700
========= ========= =========
Geographic sales information is grouped by customer destination into five
areas: North America, Europe, Latin America, Asia/Pacific and Other. Sales to
Mexico are included as part of Latin America. Other includes sales to export
distributors and to countries where the Company does not have sales offices.
The United States and Canada are the only countries for which sales
disclosure under SFAS No. 131 is required. Fiscal 2000 sales and long-lived
assets (net property and other assets, excluding investments) were as follows:
Sales Assets
--------- --------
United States $212,376 $31,213
Canada 53,193 2,260
--------- --------
North America 265,569 33,473
Europe 77,792 2,929
Asia / Pacific 34,305 625
Latin America 19,316 2,178
Other 10,196 0
--------- --------
Total $407,178 $39,205
========= ========
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.
(26)
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Note H -- Litigation
On June 19, 1990, the Company was served with a complaint in Panache
Broadcasting of Pennsylvania, Inc. v. Richardson Electronics, Ltd.; Varian
Associates, Inc.; and Varian Supply Company (VASCO - a joint venture between
the Company and Varian Associates, Inc.), in U. S. District Court for the
Eastern Division of Pennsylvania alleging violations of Sections 1 and 2 of
the Sherman Act and Section 7 of the Clayton Act. This is a class action for
the purpose of determining liablility only on behalf of all persons and
businesses in the U. S. who purchased electron tubes (1) encompassed in the
VASCO agreement, (2) related to the dud tube collection program of the
defendants or (3) related to acquisitions arising out of VASCO between
February 26, 1986 to May 13, 1999. The suit seeks treble damages alleged to
be in excess of $100, injunctive relief and attorneys' fees. The litigation
has been transferred to the U. S. District Court for the Northern District of
Illinois, Eastern Division as cause No. 90C6400, and is in the discovery
stage. The Company is defending itself against this action. It is not
possible at this time to predict the outcome of this legal action.
Note I -- Selected Quarterly Financial Data
(Unaudited)
Summarized quarterly financial data for 2000 and 1999 follow. There were no
material fourth quarter adjustments in 2000. The fourth quarter of fiscal
1999 includes a $500 provision for bad debts in Latin America which reduced
net income by $305 or $.02 per share.
First Second Third Fourth
-------- -------- -------- ---------
2000:
Net sales $ 95,564 $ 97,578 $ 98,874 $ 115,162
Gross margin 25,668 26,561 25,780 29,923
Net income 2,701 3,269 2,528 4,606
Net income per share:
Basic $ .21 $ .26 $ .20 $ .36
Dilutive $ .21 $ .26 $ .20 $ .32
1999:
Net sales $ 76,038 $ 82,232 $ 77,092 $ 85,579
Gross margin 21,712 23,262 21,388 23,251
Net income 2,501 3,279 693 1,879
Net income per share:
Basic $ .17 $ .23 $ .05 $ .15
Dilutive $ .17 $ .23 $ .05 $ .15
(27)
Report of Independent Auditors
Stockholders and Directors
Richardson Electronics, Ltd.
LaFox, Illinois
We have audited the accompanying consolidated balance sheets of Richardson
Electronics, Ltd. and subsidiaries as of May 31, 2000 and 1999, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended May 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Richardson
Electronics, Ltd. and subsidiaries at May 31, 2000 and 1999, and the
consolidated results of their operations and cash flows for each of the
three years in the period ended May 31, 2000, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Chicago, Illinois
July 18, 2000, except for information in Note C, as to which the date is July
28,2000
(28)
Officers and Directors
Corporate Officers
Edward J. Richardson
Chairman of the Board and Chief Executive Officer
Bruce W. Johnson
President and Chief Operating Officer
Pierluigi Calderone
Vice President and Director of European Operations
Kevin M. Connor
Vice President of Sales, RF & Wireless Communications Group
Flint Cooper
Executive Vice President and General Manager, Security Systems Division
Lawrence T. Duneske
Vice President, Worldwide Logistics
William J. Garry
Senior Vice President, Finance and Chief Financial Officer
Joseph C. Grill
Senior Vice President, Human Resources
Robert J. Heise
Vice President and General Manager, Display Systems Group
Gregory J. Peloquin
Vice President and General Manager, RF & Wireless Communications Group
Kathleen M. McNally
Senior Vice President, Marketing Operations
Murray J. Kennedy
Vice President and General Manager, Industrial Power Group
Kevin C. Oakley
Vice President and General Manager, Medicaly Systems Group
Robert Prince
Executive Vice President, Worldwide Sales
Kevin F. Reilly
Senior Vice President and Chief Information Officer
William G. Seils
Senior Vice President, General Counsel and Corporate Secretary
Ronald G. Ware
Treasurer and Assistant Secretary
Board of Directors
Edward J. Richardson (1)
Arnold R. Allen
Consultant
Jacques Bouyer (3,4,6)
Consultant
John Peterson, (2,6)
Managing Director, Tucker Anthony Cleary Gull
William J. Garry
Scott Hodes (2,3,5)
Partner, Law Firm of Ross & Hardies
Bruce W. Johnson (1)
Ad Ketelaars (6)
CEO, Comsys Holding B.V.
Harold L. Purkey (2)
President, Forum Capital Markets
Samuel Rubinovitz (1,3,4,5,6)
Consultant and Chairman of the Board, LTV Corporation
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Stock Option Committee
(5) Executive Oversight Committee
(6) Strategic Planning Committee
(29)
Stockholder Information
Corporate Office
Richardson Electronics, Ltd.
40W267 Keslinger Road
P.O. Box 393
LaFox, Illinois 60147-0393
(630) 208-2200
Annual Meeting
We encourage stockholders to attend the annual meeting scheduled for Tuesday,
October 3, 2000 at 3:15 p.m. at the Company's corporate office. Further
details are available in your proxy materials.
Transfer Agent and Registrar
Continental Stock Transfer Company
2 Broadway, 19th Floor
New York, NY 10004
Independent Auditors
Ernst & Young LLP
111 North Canal Street
Chicago, Illinois 60606
Brokerage Reports
Barrington Research
McDonald & Company Securities, Inc.
Stifel, Nicolaus & Company, Inc.
Tucker Anthony Cleary Gull
Market Makers
Barrington Research
William Blair & Co.
Forum Capital Markets
McDonald & Company Securities, Inc.
Smith Barney Shearson
Stifel, Nicolaus & Company, Inc.
Tucker Anthony Cleary Gull
Wechsler & Krumholz, Inc.
Form 10K and Other Information
A copy of the Company's Annual Report on Form 10K, filed with the Securities
and Exchange Commission is available without charge upon request. All
inquiries should be addressed to the Investor Relations Department, Richardson
Electronics, Ltd., 40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois 60147-
0393. Press releases and other information can be found on the Internet at the
Company's home page at http://www.rell.com.
Market Price of Common Stock
The Common Stock is traded on the NASDAQ National Market System under the
symbol "RELL".The number of stockholders of record of Common Stock and Class B
Common Stock at May 31, 2000 was 689 and 20, respectively. The Company
believes there are approximately an additional 1,300 holders who own shares
of the Company's Common Stock in street name. The quarterly market price
ranges of the Company's common stock were as follows:
2000 1999
----------------- -----------------
Fiscal Quarters High Low High Low
-------- -------- -------- --------
First 7 15/16 5 25/32 14 7 1/2
Second 9 1/16 6 5/8 8 3/4 6 7/16
Third 11 7/16 6 5/16 10 5 1/4
Fourth 13 5/8 10 6 7/8 4 7/8
(30)
<TABLE>
Richardson Electronics, Ltd. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(in thousands)
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
------------------------------ ---------- ------------------------ --------- ----------
(1) (2)
Balance Charged Charged to Balance
at to Costs Other at
Beginning and Accounts- Deductions- End of
DESCRIPTION of Period Expenses Describe Describe Period
------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended May 31, 2000:
Allowance for sales
returns and doubtful
accounts $ 2,584 $1,461 $ - $1,054 <F1> $ 2,991
Other reserves $ 1,236 $ 12 <F2> $ - $ 219 <F3> $ 1,029
Year ended May 31, 1999:
Allowance for sales
returns and doubtful
accounts $ 2,230 $ 934 $ - $ 580 <F1> $ 2,584
Other reserves $ 1,362 $ 46<F2> $ - $ 172 <F3> $ 1,236
Year ended May 31, 1998:
Allowance for sales
returns and doubtful
accounts $ 2,102 $ 431 $ - $ 303<F1> $ 2,230
Other reserves $ 1,956 $ 41<F2> $ - $ 635<F3> $ 1,362
<FN>
(F1) Uncollectible amounts written off, net of recoveries and foreign currency
translation.
(F2) Provision to increase EPA groundwater remediation reserve
(F3) Expenditures made for reserved items
</FN>
</TABLE>
