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, 2000
_______________________________________________________________________
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, PO Box 393, LaFox, Illinois 60147
(Address of principal executive offices and zip code)
(630) 208-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sec-
tions 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
No
As of January 10, 2001, there were outstanding 10,149,647 shares of Common Stock, $.05 par value,
and 3,231,562 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 17 pages. An exhibit index is at page 17.
(1)
Richardson Electronics, Ltd. and Subsidiaries
Form 10-Q
For the Three- and Six-Month Periods Ended November 30, 2000 and 1999
INDEX
Page
__________
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets
3
Consolidated Condensed Income Statements
4
Consolidated Condensed Statements of Cash Flows
5
Notes to Consolidated Condensed Financial Statements
6
Management's Discussion and Analysis of Results
of Operations and Financial Condition
11
PART II - OTHER INFORMATION
17
(2)
(in thousands)
November 30
May 31
2000
_______________
________________
(Unaudited)
ASSETS
Current assets:
Cash and equivalents
$ 17,370
$ 11,832
Receivables, less allowance of $3,204 and $2,991
95,238
77,821
Inventories
138,194
119,224
Other
14,078
13,346
264,880
222,223
Property, plant and equipment
68,304
64,091
Less accumulated depreciation
(40,708)
(38,240)
Property, plant and equipment, net
27,596
25,851
Other assets
16,893
16,851
Total assets
$ 309,369
$ 264,925
===============
Current liabilities:
Accounts payable
$ 40,970
$ 30,882
Accrued expenses
16,460
14,452
Notes payable and current portion of long-term debt
1,694
2,619
59,124
47,953
Long-term debt, less current portion
140,722
117,643
Deferred income taxes
5,255
5,336
Stockholders' equity:
Common stock, $.05 par value; issued 11,884 at
November 30, 2000 and 11,670 at May 31, 2000
594
583
Class B common stock, convertible, $.05 par value; issued
3,232 at November 30, 2000 and at May 31, 2000
162
Additional paid-in capital
88,280
84,514
Common stock in treasury, at cost; 1,738 shares at
November 30, 2000 and 1,915 at May 31, 2000
(10,233)
(11,045)
Retained earnings
43,016
34,184
Foreign currency translation adjustment
(17,551)
(14,405)
104,268
93,993
Total liabilities and stockholders' equity
See notes to consolidated condensed financial statements.
(3)
For the Three- and Six- Month Periods Ended November 30, 2000 and 1999
(unaudited) (in thousands, except per share amounts)
Three Months
Six Months
______________________________
1999
_____________
Net sales
$ 131,079
$ 97,578
$ 251,185
$ 193,142
Cost of products sold
96,918
71,017
185,391
140,913
___________
Gross margin
34,161
26,561
65,794
52,229
Selling, general and administrative
Expenses
23,730
20,042
46,024
39,629
Operating income
10,431
6,519
19,770
12,600
Other (income) expense:
Interest expense
2,649
2,167
5,124
4,442
Investment income
(66)
(290)
(108)
(417)
Other, net
(4)
(17)
22
65
2,579
1,860
5,038
4,090
Income before income taxes
7,852
4,659
14,732
8,510
Income taxes
2,660
1,390
4,860
2,540
Net income
$ 5,192
$ 3,269
$ 9,872
$ 5,970
============
Net income per share - basic:
Net income per share
$ .39
$ .26
$ .74
$ .47
Average shares outstanding
13,364
12,647
13,282
12,635
Net income per share - diluted:
$ .34
$ .66
17,631
12,759
17,580
12,722
Dividends per common share
$ .04
$ .08
Comprehensive income:
Foreign currency translation
(2,227)
(1,386)
(3,146)
(388)
Comprehensive income
$ 2,965
$ 1,883
$ 6,726
$ 5,582
For the Six-Month Periods Ended November 30, 2000 and 1999
(unaudited) (in thousands)
Operating Activities:
Non-cash charges to income:
Depreciation
2,740
2,317
Amortization of intangibles and financing costs
500
378
(242)
1,329
Contribution to employee stock ownership plan
1,310
-
Total non-cash charges
4,308
4,024
Changes in working capital, net of effects of
currency translation and business acquisitions:
Accounts receivable
(18,638)
(8,487)
(20,574)
(1,459)
Other current assets
(668)
875
9,640
3,931
Other liabilities
1,569
2,706
Net changes in working capital
(28,671)
(2,434)
Net cash (used in) provided by
operating activities
(14,491)
7,560
Financing Activities:
Proceeds from borrowings
35,855
4,077
Payments on debt
(12,535)
(6,362)
Proceeds from stock issuance
3,278
360
Cash dividends
(1,039)
(967)
Net cash provided by (used in)
financing activities
25,559
(2,892)
Investing Activities:
Capital expenditures
(4,621)
(3,433)
Business acquisitions
(1,997)
(655)
Investments, notes receivable and other
1,088
(1,080)
Net cash used in investing activities
(5,530)
(5,168)
Increase (decrease) in cash and equivalents
5,538
(500)
Cash and equivalents at beginning of year
11,832
12,569
Cash and equivalents at end of period
$ 12,069
===========
(5)
Three- and Six-Month Periods Ended November 30, 2000 and 1999
Note A -- Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements (Statements) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods covered have been reflected in the Statements. Certain information and footnotes necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles have been omitted in accordance with the aforementioned instructions. It is suggested that the Statements be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2000.
The Statements are presented for the second quarter and first six months of fiscal 2001 (periods ended November 30, 2000) compared to second quarter and first six months of fiscal 2000 (periods ended November 30, 1999). The Company accounts for its results of operations on a 52/53 week period ending on the Saturday nearest May 31 each year. Results for the first six months include 26 weeks in fiscal 2001 and 27 weeks in fiscal 2000. Results for the second quarter include 13 weeks in both years.
Note B -- Income Taxes
The income tax provisions for the six-month periods ended November 30, 2000 and November 30, 1999 are based on the estimated annual effective tax rates of 33% and 30%, respectively. The effective rate is less than the U.S. federal statutory rate of 34% due to U.S. foreign sales corporation tax benefits and utilization of previously unrecognized foreign net operating loss carryforwards, partially offset by state income taxes. The effective tax rate in fiscal 2001 is higher than in fiscal 2000 because the U.S. Federal statutory rate increases from 34% to 35% on pretax income levels above $10 million and, additionally, tax benefits become proportionately less as pre-tax income increases.
In the first quarter of fiscal 2001, the annual effective tax rate was estimated to be 32%. The reported tax rate for the second quarter of fiscal 2001 of 34% was necessary to arrive at a six-month rate equal to the estimated annual effective rate of 33%.
Note C -- Calculation of 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.
(6)
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. 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 8 1/4% and 7 1/4% convertible debentures are excluded from the calculation in fiscal 2000 as assumed conversion would be anti-dilutive. The per share amounts presented in the Consolidated Condensed Income Statement are based on the following amounts:
Second Quarter
______________________
FY 2001
FY 2000
________
Numerator for basic EPS:
========
Denominator for basic EPS:
Shares outstanding, June 1
12,987
12,623
Additional shares issued
377
24
295
12
Numerator for diluted EPS:
Interest savings, net of tax, on
assumed conversion of bonds
865
1,730
Adjusted net income
$ 6,057
$ 11,602
Denominator for diluted EPS:
Effect of dilutive stock options
587
112
618
87
Assumed conversion of bonds
3,680
Note D -- Industry and Market Information
The Company completed the reorganization of its marketing and sales structure into five strategic business units (SBU's) in the fourth quarter of fiscal 2000. Historical data for fiscal 2000 has been restated to conform to the new organizational 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.
(7)
Medical serves the medical imaging market, providing system upgrade and integration services in addition to a wide range of diagnostic imaging components. Security provides security systems and related design services with an emphasis on closed circuit television (CCTV). Display provides system integration and custom product solutions for the public information display, financial, point-of-sale and general data display markets.
SBUs are managed by Vice Presidents and General Managers who report 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, some of 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 the three- and six-month periods ended November 30, 2000 and November 30, 1999 and identifiable assets as of the end of the respective periods by SBU are summarized in the following tables (in thousands):
Sales
Margin
Contribution
Assets
______________
Wireless
$ 63,899
$ 16,950
$ 11,540
$ 115,716
Industrial
23,296
8,184
6,742
44,538
Medical
10,361
2,289
1,274
26,909
Security
21,979
5,102
1,787
35,443
Display
11,544
2,725
1,508
21,983
Total
$ 35,250
$ 22,851
$ 244,589
$ 34,984
$ 9,594
$ 6,273
$ 77,862
21,296
7,557
5,765
41,202
10,328
2,062
1,148
24,571
21,193
5,026
1,784
31,720
9,777
2,590
1,488
22,515
$ 26,829
$ 16,458
$ 197,870
(8)
Six months
$ 121,005
$ 32,002
$ 21,915
45,827
16,178
13,349
20,257
4,496
2,589
42,644
9,909
4,027
21,452
5,069
2,616
$ 67,654
$ 44,496
$ 66,365
$ 18,047
$ 11,588
42,410
15,139
11,645
20,744
4,020
2,212
41,799
9,907
4,265
21,824
5,867
3,616
$ 52,980
$ 33,326
Reconciliations of gross margin, direct operating contribution and assets to the relevant consolidated amounts follow. (Other assets includes miscellaneous receivables, manufacturing inventories and sundry assets.) (in thousands):
_______________________
FY2001
FY2000
Gross margin - segments total
Manufacturing variances and other costs
(1,089)
(268)
(1,860)
(751)
$ 34,161
$ 26,561
$ 65,794
$ 52,229
==========
Segment profit contribution
Regional selling expenses
(7,668)
(6,651)
(11,714)
(10,053)
Administrative expenses
(3,831)
(3,061)
(11,320)
(9,963)
$ 10,263
$ 6,478
$ 19,602
$ 12,559
Segment assets
17,370
12,069
15,034
8,450
Net property
24,057
4,780
3,672
$ 246,118
The Company sells its products to companies in a wide range of industries and performs periodic credit evaluations of its customers' financial condition.
(9)
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.
The Company is exposed to potential changes in interest rates under its revolving credit agreements. The Company uses interest rate swap agreements to manage its exposure to interest rate changes.
In June 1998, the FASB issued statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended by FASB Statements Nos. 137 and 138. The Company is required to adopt this statement on June 1, 2001. The Company does not expect adoption of this statement to have a significant impact on its financial position or results of operations.
(10)
Management's Discussion and Analysis
Of Results of Operations and Financial Condition
Results of Operations
Sales and Gross Margin
Net sales for the second quarter of fiscal 2001 were $131.1 million, the Company's seventh consecutive record quarter. Sales increased 34.3% over last year's second quarter of $97.6 million. Sales for the six-month period were $251.2 million, an increase of 30.1%. Sales, percentage change from the prior year, gross margins and gross margin percent of sales by SBU are summarized in the following table. Gross margins for each SBU include provisions for returns and overstock. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands).
Gross Margin
_________________________________
_____________________________________________
%
GM% of
Change
_________
_______
82.7%
26.5%
27.4%
9.4%
35.1%
35.5%
0.3%
22.1%
20.0%
3.7%
23.2%
23.7%
18.1%
23.6%
Corporate
34.3%
26.1%
27.2%
=========
82.3%
26.4%
8.1%
35.3%
35.7%
-2.3%
22.2%
19.4%
2.0%
-1.7%
26.9%
$193,142
30.1%
26.2%
27.0%
Wireless' second quarter sales increased 82.7% from fiscal 2000 levels, based upon increased demand for RF / microwave components to support the expansion of the cellular infrastructure and deliveries under a telematics contract for an original equipment manufacturer. Telematics is a new technology used in automobiles for all types of wireless communications. The gross margin rate for Wireless declined to 26.5% from 27.4% last year, primarily due to several large volume contracts at lower margins. Sales levels and gross margin rates for the six-month periods reflect similar trends as the quarter results.
(11)
Industrial's second quarter sales increased 9.4%, primarily in microwave generators and DC power component products. Sales levels and gross margin rates for the six-month periods reflect similar trends as the quarter results.
Sales of the Medical SBU in fiscal 2001 were comparable to the prior year's second quarter. Sales of high resolution monitors increased 67.9% to $7.6 million, offset by declines in sales of x-ray tubes, image intensifiers and medical logistics services. Gross margins increased to 22.1% of sales in fiscal 2001 compared to 20.0% in the second quarter of fiscal 2000. The margin improvement reflects better operating efficiencies in tube reloading and lower customer return levels. Certain low-margin sales contracts also affected fiscal 2000 margins. The six-month results reflect the same sales and margin trends, but gains in monitor sales did not fully offset the decline in other sales.
Security sales increased by 3.7% for the second quarter 2001 from fiscal 2000 levels. Gross margins declined slightly to 23.2% from 23.7%. The six-month results reflect the same sales and margin trends.
Second quarter sales for Display increased 18.1% in fiscal 2001 from 2000 levels, reflecting several large contract sales (ranging from $240,000 to over $1.0 million). Gross margins declined to 23.6% from 26.5% as the large contract sales were at lower margin rates. The gross margin rate is also affected by a shift in sales from high-margin CRT's to monitors and integrated systems. Sales for the six-month period were 1.7% below the prior year, as the first quarter of fiscal 2000 included two contracts which aggregated $4.8 million. Prospects for the balance of the current year are expected to offset the effect of these contracts on full year comparisons. Gross margins as a percent of sales decreased to 23.6% in fiscal 2001 from 26.9% in fiscal 2000, reflecting the shift in product mix from CRT's to monitors.
Sales, percentage change from the prior year, gross margins and gross margin percent of sales by geographic area are summarized in the following table. Prior year amounts have been restated to be comparable to the current year's classifications. The caption, "other", includes sales to export distributors and to countries where the Company does not have offices . Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands).
(12)
______________________________________________
North America
$ 82,674
$ 63,713
29.8%
$ 20,858
25.2%
$ 16,351
25.7%
Europe
24,092
18,950
27.1%
7,248
5,802
30.6%
Asia / Pacific
13,642
8,206
66.2%
4,285
31.4%
2,871
35.0%
Latin America
6,845
4,635
47.7%
1,838
1,282
27.7%
3,826
2,074
84.5%
1,021
26.7%
523
$ 160,621
$126,307
$ 41,298
$ 32,610
25.8%
45,222
37,400
20.9%
13,206
29.2%
11,369
30.4%
25,352
15,581
62.7%
7,736
30.5%
5,181
33.3%
12,959
9,600
3,557
2,733
28.5%
7,031
4,254
65.3%
1,857
1,087
25.6%
North American sales growth of 29.8% in the second quarter and 27.2% year to date reflect growth in all of the Company's strategic business units, led by demand for Wireless products. European sales gains of 27.1% for the quarter and 20.9% year to date are due to Wireless sales growth. Period to period sales comparisons in Europe were adversely affected by the decline in the euro relative to the U.S. dollar. The change in exchange rates reduced reported sales for Europe by approximately 15% for year to date comparative purposes.
Asia Pacific sales increased by 66.2% in the second quarter and 62.7% year to date, primarily benefiting from growth in the sale of Wireless products. Latin American sales grew 47.7% for the quarter and 35.0% year to date, benefitting primarily from broadcast equipment sales by the Wireless group and growth in both Security and Medical product sales.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses improved as a percentage of sales, declining to 18.1% in the second quarter of fiscal 2001 from 20.5% in the same period last year, reflecting the strong sales growth and the Company's continued emphasis on its program to maximize operating efficiencies.
(13)
Interest and Other Expenses
Interest costs in the first half of fiscal 2001 increased 15.4% compared to fiscal 2000 due to higher interest rates on the Company's revolving credit debt and increased borrowing levels.
Net Results
Net income for the second quarter was $5.2 million or $.34 per diluted share, compared to $3.3 million or $.26 per share in the prior year. Net income for the six-month period was $9.9 million, or $.66 per diluted share, compared to $6.0 million or $.47 per share in the prior year.
Liquidity and Capital Resources
Cash used in operations was $14.5 million in the first half of fiscal 2001, compared to cash provided by operations of $7.6 million in the prior year period. To fund the 30.1% increase in sales, the Company increased its investment in working capital by $28.7 million in the current year compared to a $2.4 million increase last year. While days sales outstanding were consistent in year to year comparisons at 58 days, accounts receivable increased $18.6 million in 2001 and $8.5 million in 2000, reflecting the growth in sales. Inventory turnover improved in the first half of fiscal 2001 to 3.00 from 2.68 a year ago as the Company continued its program to improve asset utilization. The increase in inventories of $20.6 million in fiscal 2001, primarily for product line expansion, compared to an increase of $1.5 million in 2000. Accounts payable increased by $9.6 million in fiscal 2001 due to higher purchasing levels.
On July 28, 2000, the Company refinanced its revolving credit facility and Canadian credit agreement with an $85 million multi-currency revolving credit facility. The agreement matures in July 2004 and bears interest at applicable LIBOR rates plus a margin, presently 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%.
The Company's loan agreements contain various financial and operating covenants which set benchmark levels for tangible net worth, debt / tangible net worth ratio and annual debt service coverage. The Company was in compliance with these covenants at November 30, 2000.
Cash reserves, investments, funds from operations and credit lines are expected to be adequate to meet the operational needs and future dividends of the Company. The policy regarding payment of dividends is reviewed periodically by the Board of Directors in light of the Company's operating needs and capital structure.
(14)
Euro Currency Conversion
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.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Investors should consider carefully the following risk factors, in addition to the other information included and incorporated by reference in this quarterly report on Form 10-Q. All statements other than statements of historical facts included in this report are statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations; (ii) the Company's financing plans; (iii) the Company's business and growth strategies, including potential acquisitions; and (iv) other plans and objectives for future operations. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those predicted in the forward-looking statements or which may be anticipated from historical results or trends. In addition to the information contained in the Company's other filings with the Securities and Exchange Commission, factors which could affect future performance include, among others, the following:
(15)
(16)
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred in the matters reported under the category "Legal Proceedings" in the Registrant's Report on Form 10-K for the fiscal year ended May 31, 2000.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date
January 12, 2001
By
/S/
William J. Garry
________________________
_____________________________________
Senior Vice President and
Chief Financial Officer