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, 1994
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 No.)
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 April 13, 1994, there were outstanding 8,039,727 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 34 pages. An exhibit index is on
page 13.
(1)
Richardson Electronics, Ltd. and Subsidiaries
INDEX
Page
PART 1 - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 5
Consolidated Condensed Statements of Cash Flow 6
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of the Financial 8
Condition and Results of Operations 9
PART II - OTHER INFORMATION 12
(2)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
February 28 May 31
1994 1993
--------- ---------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash and equivalents $4,539 $7,098
Trade accounts receivable, less
allowance ($1,343 at February 28, 1994
and $1,456 at May 31, 1993) 31,162 30,267
Inventories:
Finished products 77,919 76,294
Work in process 2,936 3,961
Materials 6,455 6,700
--------- ---------
87,310 86,955
Deferred income taxes 1,187 1,562
Other 6,548 6,405
--------- ---------
TOTAL CURRENT ASSETS 130,746 132,287
Investments 20,140 29,080
Property, Plant and Equipment 62,545 63,331
Less allowances for depreciation (29,962) (27,089)
--------- ---------
32,583 36,242
Other Assets 6,581 7,434
--------- ---------
TOTAL ASSETS $190,050 $205,043
========= =========
See Notes to Consolidated Condensed Financial Statements.
(3)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands, except per share amounts)
February 28 May 31
1994 1993
--------- ---------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $9,571 $11,902
Compensation and payroll taxes 2,734 3,939
Accrued interest 1,271 2,622
Reserve for litigation settlement and
phase-down of domestic
manufacturing operations 1,990 2,954
Income taxes payable 233 1,967
Other accrued expenses 1,521 1,782
Notes payable and current portion of
of long-term debt 2,480 3,134
--------- ---------
TOTAL CURRENT LIABILITIES 19,800 28,300
Long-Term Debt, less current portion 95,452 98,855
Deferred Income Taxes 2,379 2,471
Stockholders' Equity
Common stock, $.05 par value; issued
8,039 at February 28, 1994 and
8,019 at May 31, 1993 402 401
Class B Common Stock, convertible,
$.05 par value; issued 3,248 at
February 28, 1994 and at May 31, 1993 162 162
Preferred stock, $1.00 par value - -
Additional paid-in capital 49,287 49,158
Retained earnings 26,073 26,475
Foreign currency translation adjustment (3,505) (779)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 72,419 75,417
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $190,050 $205,043
========= =========
See Notes to Consolidated Condensed Financial Statements.
(4)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
February 28 February 28
---------- --------- ---------- ---------
1994 1993 1994 1993
--------- --------- --------- ---------
Net Sales $43,051 $38,086 $123,097 $115,893
Costs and Expenses:
Cost of products sold 30,952 26,786 89,008 79,961
Selling, general and
administrative expenses 10,118 9,718 28,536 27,659
Interest expense 1,856 1,912 5,609 5,776
Investment income (405) (912) (2,069) (1,920)
Other (income) expense, net 92 206 498 638
--------- --------- --------- ---------
42,613 37,710 121,582 112,114
--------- --------- --------- ---------
Income before Income Taxes 438 376 1,515 3,779
Income Taxes 180 140 600 1,400
--------- --------- --------- ---------
Net Income $258 $236 $915 $2,379
========= ========= ========= =========
Net Income per Share $0.02 $0.02 $0.08 $0.21
========= ========= ========= =========
Average Shares Outstanding 11,302 11,417 11,303 11,331
========= ========= ========= =========
See Notes to Consolidated Condensed Financial Statements.
(5)
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(in thousands)(unaudited)
Nine Months Ended
February 28
------------------------
1994 1993
--------- ---------
OPERATING ACTIVITIES
Net income $915 $2,379
Adjustments to reconcile income to cash
used in operating activities:
Depreciation 3,476 3,798
Amortization of intangibles
and financing costs 760 985
Deferred income taxes 278 592
Common stock awards and contribution
to employee stock ownership plan 193 209
Changes in current accounts, net of effects
of acquisitions and currency translation:
Accounts receivable (1,711) 358
Inventories (1,806) (3,454)
Other current assets (379) 1,930
Accounts payable (2,329) (763)
Other liabilities (5,355) (2,397)
--------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (5,958) 3,637
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 753 6,370
Payments on debt (3,901) (8,433)
Cash dividends (1,317) (1,312)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,465) (3,375)
--------- ---------
INVESTING ACTIVITIES
Investment activity, including
income reinvestment 8,940 (2,026)
Capital expenditures (1,161) (1,719)
Other 85 211
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 7,864 (3,534)
--------- ---------
DECREASE IN CASH AND EQUIVALENTS (2,559) (3,272)
Cash and equivalents at beginning of year 7,098 8,073
--------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD $4,539 $4,801
========= =========
See Notes to Consolidated Condensed Financial Statements.
(6)
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
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 $600,000 for the nine months ended February 28,
1994 is based on the estimated effective tax rate of 40% 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 $1,400,000 for the nine
months ended February 28, 1993 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, 1993, the Company entered into negotiations with
Continental 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, 1993, 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.
(7)
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
In addition to changes in the interest rates, several changes were made to the
financial and operating covenants. The interest coverage ratio minimum was
reduced from 1.5:1 to 1.1:1, a new leverage ratio was added and a new loan
liquidity ratio required 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. At February 28, 1994, the outstanding principal balance on
these term loans was $12,269,000.
In March, 1994, the Company entered into a new loan agreement with American
National Bank, which replaced the floating rate term loans with a $13,000,000
term loan due November, 1998. The term loan will require quarterly principal
payments of $464,300 beginning on April 30, 1994 and a balloon payment at
maturity. The loan initially will bear interest floating at the bank's prime
rate, or 1 1/2 % above the London Inter Bank Offered Rate (LIBOR), at the
Company's option. The interest rate will be adjusted based on the Company's
financial performance. Financial covenants under the agreement set benchmark
levels for tangible net worth, debt / tangible net worth ratio and annual debt
service coverage.
NOTE D -- POTENTIAL LITIGATION
The United States Government has advised the Company that the Government is
considering making a claim against the Company under the False Claims Act and
the Lanham Act for conduct in connection with a $3.1 million contract to supply
the Government with certain tubes which was completed in 1989. The False
Claims Act permits the Government to seek a civil penalty for each violation of
not less than $5,000 nor more than $10,000, plus three times its damages. The
Company believes it has not violated these statutes and is in the early stages
of discussing the possibility of resolving the matter with the Government. If
such discussions are not satisfactorily concluded, the Company plans to
vigorously defend itself against any litigation the Government may initiate.
The status of the Penache litigation remains as described in Note I of the
Company's Annual Report.
(8)
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Net sales for the third quarter ended February 28, 1994 were $43,051,000, up
13% from last year's third quarter total of $38,086,000. Sales by the
Company's Display Products Group increased 56.2% to $6,575,000, while sales by
the Solid State & Components Group increased 38.2% to $10,584,000. Security
Systems Division sales increased 1.8% to $2,645,000, and Electron Device Group
sales declined 1.2% to $23,247,000. Nine month sales totals were up 6.2%, to
$123,097,000 from $115,893,000.
On a geographic basis, North American sales were up 10% for the quarter, to
$25,323,000. Sales for the Latin America / Far East region were up 26.4% for
the quarter, to $7,893,000. Europe region sales increased 16.3% for the
quarter, to $8,902,000. Sales for the Rapidly Developing Markets (RDM) region
declined 20.1% to $933,000, primarily due to a large sales contract recorded in
the third quarter of fiscal 1993. The RDM region consists of 77 countries in
Africa, the Middle East, South Central Asia, the Commonwealth of Independent
States and parts of Oceania. These countries are considered to have high growth
potential, and the Company is establishing new programs to increase sales in
this region.
Gross margin for the third quarter declined to 28.1% from 29.7% in the prior
year. The gross margin decline reflects changes in product mix, which caused
product margins on distribution sales to decline to 32.0% from 33.2%. The
gross margin also was affected by the continuing high level of manufacturing
underabsorption, which was $875,000 for the quarter, compared to $716,000 a
year ago. Gross margin for the nine month period declined to 27.7% from 31.0%,
as underabsorption increased to $3,991,000 from $1,622,000. Product margin on
distribution sales fell to 32.5% from 34.1%.
Selling, general, and administrative expenses for the first nine months of
fiscal 1994 were $28,536,000, an increase of $877,000 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 declined to 23.2%
from 23.9%. Net non-operating expenses declined 10.1% to $4,038,000,
(9)
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
reflecting lower debt levels, and higher realized capital gains on the
Company's investment portfolio.
The estimated fiscal 1994 effective tax rate of 40% 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 third quarter of fiscal 1994 was $.02, unchanged
from the third quarter of fiscal 1993. Net income per share for the nine month
periods declined to $.08 from $.21.
Liquidity and Capital Resources
Cash (used in) provided by operating activity, after working capital
requirements, for the nine months ended February 28, 1994 and 1993, was
$(5,958,000) and $3,637,000, 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 working capital balances.
Funding for the current year activity and for scheduled debt repayments was
obtained through the liquidation of $8,940,000 from the long-term investment
portfolio. 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.
As indicated in Note D to the consolidated condensed financial statements, the
U. S. Government is considering filing a claim against the Company in
connection with a supply contract which was completed in 1989. The costs of
defense against or settlement of the claim, if any, is expected to be met by
anticipated funds from operations and current short-term financing
arrangements.
(10)
Richardson Electronics, Ltd. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
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
consolidated condensed financial statements. In March, 1994, the Company
replaced the term loan agreements with a new term loan as described in Note C.
Principal balances outstanding at February 28 which were due within one year
under the existing term loans have been reclassified as long-term to reflect
the new agreements. The new loan agreement also contains financial and
operating covenants which set benchmark levels for tangible net worth, debt /
tangible net worth ratio and annual debt service coverage.
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 February 28, 1994, $22,142,000 was available for such
transactions. Payment of dividends will be considered quarterly based upon
corporate performance.
At February 28, 1994, the market value of the Company's non-current investment
portfolio totaled approximately $20,700,000. 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.
(11)
Richardson Electronics, Ltd. and Subsidiaries
Part 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.
The Company has been advised that the U. S. Government is considering filing a
claim under the False Claims Act and the Lanham Act for conduct in connection
with a $3.1 million supply contract completed in 1989. See Note D to the
condensed consolidated financial statements.
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.
(12)
Richardson Electronics, Ltd. and Subsidiaries
Part II -- Other Information
ITEM 5. OTHER INFORMATION
On March 30, the Company entered into a long term loan agreement with American
National Bank. The terms of this agreement are summarized in Note C to the
condensed consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
$13,000,000 Senior Term Note dated March 28, 1994 delivered to American
National Bank
(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 April 13 , 1994 By /s/ Leonard R. Prange
Leonard R. Prange
Vice President and
Chief Financial Officer
(13)