UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-12906
RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)
Delaware 36-2096643
(State of incorporation or organization) (I.R.S. Employer Identification)
40W267 Keslinger Road, LaFox, Illinois 60147
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (708) 208-2200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of January 10, 1994, there were outstanding 8,039,757 shares of Common
Stock, $.05 par value, and 3,247,543 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 13 pages. It does not contain an
exhibit index.
INDEX
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets
Consolidated Condensed Statements of Income
Consolidated Condensed Statements of Cash Flow
Notes to Consolidated Condensed Financial Statements
Management's Discussion and Analysis of the Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Consolidated Condensed Balance Sheets
(in thousands) November 30 May 31
1993 1993
--------- ---------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and equivalents $6,804 $7,098
Trade accounts receivable, less
allowance ($1,429 at November 30, 1993
and $1,456 at May 31, 1993) 30,566 30,267
Inventories:
Finished products 77,879 76,294
Work in process 3,970 3,961
Materials 5,931 6,700
--------- ---------
87,780 86,955
Deferred income taxes 1,335 1,562
Other 5,798 6,405
--------- ---------
TOTAL CURRENT ASSETS 132,283 132,287
Investments 22,234 29,080
Property, Plant and Equipment 61,956 63,331
Less allowances for depreciation (28,805) (27,089)
--------- ---------
33,151 36,242
Other Assets 6,813 7,434
--------- ---------
TOTAL ASSETS $194,481 $205,043
========= =========
See Notes to Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets
(in thousands, except per share amounts)
November 30 May 31
1993 1993
--------- ---------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $9,767 $11,902
Compensation and payroll taxes 2,896 3,939
Accrued interest 2,616 2,622
Reserve for litigation settlement and
phase-down of domestic
manufacturing operations 2,367 2,954
Income taxes payable 318 1,967
Other accrued expenses 1,188 1,782
Notes payable and current portion
of long-term debt 12,476 3,134
--------- ---------
TOTAL CURRENT LIABILITIES 31,628 28,300
Long-Term Debt, less current portion 88,166 98,855
Deferred Income Taxes 2,377 2,471
Stockholders' Equity
Common stock, $.05 par value; issued
8,039 at November 30, 1993 and
8,019 at May 31, 1993 402 401
Class B Common Stock, convertible,
$.05 par value; issued 3,248 at
November 30, 1993 and at May 31, 1993 162 162
Preferred stock, $1.00 par value - -
Additional paid-in capital 49,287 49,158
Retained earnings 26,254 26,475
Foreign currency translation adjustment (3,795) (779)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 72,310 75,417
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $194,481 $205,043
========= =========
See Notes to Consolidated Condensed Financial Statements
Consolidated Condensed Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
November 30 November 30
1993 1992 1993 1992
--------- --------- --------- ---------
Net Sales $44,200 $41,214 $80,046 $77,807
Costs and Expenses:
Cost of products sold 32,173 28,253 58,056 53,175
Selling, general and
administrative expenses 9,544 9,246 18,418 17,941
Interest expense 1,891 1,928 3,753 3,864
Investment income (663) (545) (1,664) (1,009)
Other (income) expense, net 278 479 406 433
--------- --------- --------- ---------
43,223 39,361 78,969 74,404
--------- --------- --------- ---------
Income before Income Taxes 977 1,853 1,077 3,403
Income Taxes 380 660 420 1,260
--------- --------- --------- ---------
Net Income $597 $1,193 $657 $2,143
========= ========= ========= =========
Net Income per Share $.05 $.11 $.06 $.19
========= ========= ========= =========
Average Shares Outstanding 11,298 11,291 11,303 11,288
========= ========= ========= =========
See Notes to Consolidated Condensed Financial Statements
Consolidated Condensed Statements of Cash Flows
(in thousands)(unaudited)
Six Months Ended
November 30
---------------------------
1993 1992
--------- ---------
OPERATING ACTIVITIES
Net income $657 $2,143
Adjustments to reconcile income to cash
used in operating activities:
Depreciation 2,324 2,549
Amortization of intangibles
and financing costs 467 642
Deferred income taxes 131 430
Common stock awards and contribution
to employee stock ownership plan 130 146
Changes in current accounts, net of effects
of acquisitions and currency translation
Accounts receivable (1,243) 1,384
Inventories (2,376) (2,407)
Other current assets 448 2,878
Accounts payable (2,084) (265)
Other liabilities (3,710) (1,971)
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (5,256) 5,529
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 753 6,000
Payments on debt (1,058) (7,244)
Cash dividends (877) (874)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (1,182) (2,118)
--------- ---------
INVESTING ACTIVITIES
Investment activity, including
income reinvestment 6,846 (1,218)
Capital expenditures (687) (876)
Other (15) (14)
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 6,144 (2,108)
--------- ---------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (294) 1,303
Cash and equivalents at beginning of year 7,098 8,073
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $6,804 $9,376
========= =========
See Notes to Consolidated Condensed Financial Statements
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial 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
aforementioned 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
Consolidated Condensed Financial 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 fiscal year ended May 31, 1993.
NOTE B -- INCOME TAXES
The income tax provision of $420,000 for the six months ended November 30, 1993
is based on the estimated effective tax rate of 39% for fiscal 1994 income.
This rate differs from the applicable federal statutory rate of 34% principally
as a result of state income taxes and foreign operating losses for which the
related tax benefit will not be recognized until future foreign earnings are
realized. The income tax provision of $1,260,000 for the six months ended
November 30, 1992 was based on the estimated effective tax rate of 37%, as a
result of state income taxes.
NOTE C -- DEBT AGREEMENTS
Prior to August 31, the Company entered into negotiations with its bank to
amend the terms of its floating rate term loan agreements. The term loan due
August 1994, which had a principal balance of $9,269,000 at August 31, was
revised to require quarterly payments of $750,000, with a final balloon payment
on August 14, 1994. The payment schedule for the term loan due June 1996
remained unchanged, requiring quarterly principal payments of $375,000. The
interest rates on the loans were increased, and when adjusted for the effect of
existing swap agreements, result in effective rates of 8.78% for the loan due
August 1994 and 9.35% for the loan due June 1996. The interest rates may be
reduced by as much as 1% in the future if the Company meets certain performance
requirements.
Several changes were made to the financial and operating covenants of both loan
agreements. The current maturities ratio test was eliminated, and the interest
coverage ratio minimum was reduced from 1.5:1 to 1.1:1. A new leverage ratio
has also been added, which restricts the Company's total funded debt to 62.5%
of debt plus net worth. A new loan liquidity ratio will require that the
Company maintain its cash and investment balances at a minimum of 75% of the
outstanding principal balance of the loan due August 1994.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Net sales for the second quarter ended November 30, 1993 were $44,200,000, up
7.2% from last year's total of $41,214,000. Sales by the Company's Display
Products Group increased 36% to $6,772,000, while sales by the Solid State &
Components Group increased 28.4% to $10,403,000. Electron Device Group sales
declined 3.9% to $24,200,000 and Security Systems Division sales declined 4.7%
to $2,825,000. Six month sales totals were up 2.9%, to $80,046,000 from
$77,807,000.
On a geographic basis, all four of the Company's regions experienced sales
gains for the second quarter over the same period last year. North American
sales were up 6.1% for the quarter, and 4.3% year to date. Sales for the Latin
America / Far East region were up 13.9% for the quarter and 4.7% year to date.
While the Europe region and the Rapidly Developing Markets region both
experienced second quarter increases of more than 5% over last year, they
remain slightly below last year for the first half.
Gross margins for the second quarter declined to 27.2% from 31.4% in the prior
year. The main cause of the margin decline was an increase in manufacturing
underabsorption, which grew to $1,492,000 from $490,000 a year ago. The gross
margins also reflect changes in product mix, which caused product margins on
distribution sales to decline to 32.2% from 34.1%. Gross margins for the six
month periods declined to 27.5% from 31.7% for the same reasons. First half
underabsorption increased to $3,117,000 from $906,000, while product margin on
distribution sales fell to 32.8% from 34.4%.
Selling, general, and administrative expenses for the first half of fiscal 1994
were $18,418,000, an increase of $477,000 from the prior year, as payroll
additions for the specialty sales program were partially offset by expense
reductions. Selling expense as a percent of sales was constant at 23%.
Investment income for the first half increased to $1,664,000 from $1,009,000
for the first half last year due to an increase in realized capital gains.
The estimated fiscal 1994 effective tax rate of 39% differs from the federal
statutory rate of 34%, primarily as the result of state income taxes and
foreign operating losses for which the related tax benefit will not be
recognized until future earnings are realized. The fiscal 1993 effective tax
rate of 37%, differs from the statutory rate as a result of state income taxes.
Net income per share in the second quarter of fiscal 1994 and 1993 was $.05
and $.11, respectively. Net income per share for the six month periods
declined to $.06 from $.19.
Liquidity and Capital Resources
Cash (used in) provided by operating activity, after working capital
requirements, for the six months ended November 30, 1993 and 1992, was
$(5,256,000) and $5,529,000, respectively The current year result includes
U.S. federal income tax payments of $2.6 million, while the prior year included
a $3 million tax refund received. The remainder of the change in cash from
operations reflects lower net income and changes in accounts receivable and
accounts payable balances. Anticipated funds from operations and current
short-term financing arrangements are expected to be adequate to meet the
operational needs and future dividends of the Company.
In the first quarter of fiscal 1994, the final payment of the term loan due
August 1994 was reclassified to current portion of long term debt. As a
result, bank loan repayments totalling $12,476,000 are due within the next
twelve months.
The term loan agreements issued by the bank contain various financial and
operating covenants which have been revised as described in Note C to the
condensed financial statements. The most significant of these covenants places
a restriction on a portion of the Company's cash and investment balances and
limits the Company's total funded debt.
In connection with the December 1986 debt issuance, certain restrictions were
placed on the Company relating to the purchase of treasury stock or the payment
of cash dividends. At November 30, 1993, $22,324,000 was available for such
transactions. Payment of dividends will be considered quarterly based upon
corporate performance.
At November 30, 1993, the market value of the Company's non-current investment
portfolio totaled approximately $22,600,000. Included in the portfolio are
high-yield investments for which management periodically evaluates the
associated market risk. The investments are being maintained for corporate
purposes which may include short-term operating needs and the evaluation of
opportunities for the Company's expansion.
ITEM II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the matter reported under the
category "Legal Proceedings" in the Registrant's Report on Form 10-K for the
fiscal year ended May 31, 1993. The case remains in the discovery stage and
the court has not determined whether the matter may be maintained as a class
action.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual meeting of stockholders held October 12, 1993, the
following directors were elected. It was noted that of the proxies voting it
was believed 345,788 shares are broker votes and such brokers held another
2,100 shares entitled to vote and such shares were not voted.
NUMBER OF WITHHELD
NAME AFFIRMATIVE VOTES AUTHORITY
Edward J. Richardson 38,830,458 44,891
Dennis R. Gandy 38,829,922 45,427
David Gilden 38,829,751 45,598
Joel Levine 38,829,922 45,427
Leonard R. Prange 38,830,458 44,891
Arnold R. Allen 38,828,227 47,122
Kenneth N. Pontikes 38,830,458 44,891
Scott Hodes 38,830,348 45,001
Samuel Rubinovitz 38,830,348 45,001
Kenneth J. Douglas 38,829,651 45,698
Jacques Bouyer 38,829,926 45,423
Shares not voted 1,460,148 Common and 17,969 Class B
Votes not voted 1,639,838
ITEM 5. OTHER INFORMATION
See "Legal Proceedings" above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports on Form 8-K - None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD.
Date: January 13, 1994 By: /s/ Leonard R. Prange
Vice President and
Chief Financial Officer