UNITED STATES (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, 2001 __________
[ ] TRANSITION REPORT PURSUANT TO SECTINO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number0-12906
| |
RICHARDSON ELECTRONICS, LTD. (Exact name of registrant as specified in its charter) | |
DELAWARE (State of incorporation or organization) | 36-2096643 (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) | |
YES [ X ] NO [ ] As of January 2, 2002, there were outstanding 12,294,210 shares of Common Stock, $.05 par value, inclusive of 1,623,270 shares held in treasury, and 3,206,812 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 18 pages. An exhibit index is at page 17. |
Richardson Electronics, Ltd. and Subsidiaries
Form 10-Q
For the Three-MonthThree- and Six-Month Period Ended November 30, 2001
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 |
| 10 |
PART II - OTHER INFORMATION | 15 |
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands)
November 30 2001 | May 31 2001 | November 30 2001 | May 31 2001 | |
ASSETS | (Unaudited) | (Unaudited) | ||
Current Assets: | ||||
Cash and equivalients | $ 15,291 | $ 15,946 | $ 15,291 | $ 15,946 |
Receivables, less allowance of $2,640 and $2,639 | 81,221 | 90,069 | ||
Receivables, less allowance of $3,011 and $2,639 | 81,221 | 90,069 | ||
Inventories | 140,648 | 144,135 | 140,648 | 144,135 |
Other | 20,267 | 19,329 | 20,267 | 19,329 |
Total current assets | 257,427 | 269,479 | 257,427 | 269,479 |
Property, plant and equipment | 53,704 | 50,884 | 53,704 | 50,884 |
Less accumulated depreciation | (24,844) | (22,131) | (24,844) | (22,131) |
Property, plant and equipment, net | 28,860 | 28,753 | 28,860 | 28,753 |
Other assets | 29,873 | 23,282 | 29,873 | 23,282 |
Total assets | 316,160 | 321,514 | $ 316,160 | $ 321,514 |
LIABILITES AND STOCKHOLDERS EQUITY | ||||
Current liabilities: | ||||
Accounts payable | $ 31,916 | $ 28,491 | $ 31,916 | $ 28,491 |
Accrued expenses | 13,873 | 15,347 | 13,873 | 15,347 |
Notes payable and current portion of long-term debt | 54 | 205 | 54 | 205 |
Total current liabilities | 45,843 | 44,043 | 45,843 | 44,043 |
Long-term debt, less current portion | 145,595 | 155,134 | 145,595 | 155,134 |
Deferred income taxes | 7,248 | 7,492 | 7,248 | 7,492 |
Non-current liabilities | 5,309 | 5,300 | 5,309 | 5,300 |
Total liabilities | 203,995 | 211,969 | 203,995 | 211,969 |
Stockholders' equity: | ||||
Common stock, $.05 par value; issued 10,380 at August 31, 2001 and 10,263 at May 31, 2001 | 603 | 599 | ||
Class B common stock, convertible, $.05 par value; issued 3,207 at August 31, 2001 and at May 31, 2001 | 160 | |||
Common stock, $.05 par value; issued 12,065 shares at November 30, 2001 and 11,971 shares at May 31, 2001 | 603 | 599 | ||
Class B common stock, convertible, $.05 par value; issued 3,207 shares at November 30, 2001 and at May 31, 2001 | 160 | |||
Additional paid-in capital | 90,145 | 88,877 | 90,145 | 88,877 |
Common stock in treasury, at cost; 1,632 shares at August 31, 2001 and 1,708 at May 31, 2001 | (9,569) | (10,068) | ||
Common stock in treasury, at cost; 1,623 shares at November 30, 2001 and 1,708 at May 31, 2001 | (9,569) | (10,068) | ||
Retained earnings | 50,125 | 49,834 | 50,125 | 49,834 |
Foreign currency translation adjustment | (19,299) | (19,857) | (19,299) | (19,857) |
Total stockholders' equity | 112,165 | 109,545 | 112,165 | 109,545 |
Total liabilities and stockholders' equity | $ 316,160 | $ 321,514 | $ 316,160 | $ 321,514 |
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Income Statements
For the Three- and Six Month Periods Ended November 30, 2001 and 2000
(Unaudited) (in thousands, except per share amounts)
Three Months | Six Months | |||
2001 | 2000 | 2001 | 2000 | |
Net sales | $ 115,499 | $ 132,019 | $ 220,180 | $ 253,114 |
Cost of products sold | 87,118 | 97,486 | 165,325 | 186,592 |
Gross margin | 28,381 | 34,533 | 54,855 | 66,522 |
Selling, general and administrative expenses | 23,312 | 24,102 | 46,854 | 46,752 |
Operating income | 5,069 | 10,431 | 8,001 | 19,770 |
Other (income) expense: | ||||
Interest expense | 2,874 | 2,649 | 5,847 | 5,124 |
Investment income | (70) | (66) | (271) | (108) |
Other, net | 205 | (4) | 288 | 22 |
3,009 | 2,579 | 5,864 | 5,038 | |
Income before Income taxes | 2,060 | 7,852 | 2,137 | 14,732 |
Income taxes | 744 | 2,660 | 770 | 4,860 |
Net income | 1,316 | 5,192 | 1,367 | 9,872 |
Net income per share - basic: | ||||
Net income per share | $ .10 | $ .39 | $ .10 | $ .74 |
Average shares outstanding | 13,614 | 13,364 | 13,570 | 13,282 |
Net income per share - diluted: | ||||
Net income per share | $ .10 | $ .34 | $ .10 | $ .66 |
Average shares outstanding | 13,806 | 17,631 | 13,883 | 17,580 |
Dividends per common share | $ .04 | $ .04 | $ .08 | $ .08 |
Comprehensive income: | ||||
Net income | $ 1,316 | $ 5,192 | $ 1,367 | $ 9,872 |
Foreign currency translation | (867) | (2,227) | 558 | (3,146) |
Comprehensive income | $ 449 | $ 2,965 | $ 1,925 | $ 6,726 |
Richardson Electronics, Ltd. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
For the Six-Month Periods Ended November 30, 2001 and 2000
(Unaudited) (in thousands)
2001 | 2000 | 2001 | 2000 | |
Operating Activites: | ||||
Net income | $ 1,367 | $ 9,872 | $ 1,367 | $ 9,872 |
Non-cash charges to income: | ||||
Depreciation | 2,698 | 2,740 | 2,698 | 2,740 |
Amortization of intangibles and financing costs | 419 | 500 | 419 | 500 |
Deferred income taxes | (1) | (242) | (1) | (242) |
Contribution to employee stock ownership plan | 887 | 1,310 | 887 | 1,310 |
Total non-cash charges | 4,003 | 4,308 | 4,003 | 4,308 |
Changes in working capital, net of effects of currency translation and business acquisitions | ||||
Accounts receivable | 13,163 | (18,638) | 13,163 | (18,638) |
Inventories | 4,136 | (20,574) | 4,136 | (20,574) |
Other current assets | (676) | (668) | (676) | (668) |
Accounts payable | 1,157 | 9,640 | 1,157 | 9,640 |
Other Liabilities | (2,876) | 1,569 | (2,876) | 1,569 |
Net changes in working capital | 14,904 | (28,671) | 14,904 | (28,671) |
Net cash provided by (used in) operating activities | 20,274 | (14,491) | 20,274 | (14,491) |
Financing Activities: | ||||
Proceeds from borrowings | 15,308 | 35,855 | 15,308 | 35,855 |
Payments on debt | (24,716) | (12,535) | (24,716) | (12,535) |
Proceeds from stock issuance | 643 | 3,278 | 643 | 3,278 |
Cash dividends | (1,076) | (1,039) | (1,076) | (1,039) |
Net cash (used in) provided by financing activities | (9,841) | 25,559 | ||
Net cash provided by (used in) financing activities | (9,841) | 25,559 | ||
Investing Activities: | ||||
Capital expenditures | (2,766) | (4,621) | (2,766) | (4,621) |
Business acquisitions | (8,634) | (1,997) | (8,634) | (1,997) |
Investments, notes receivable and other | 312 | 1,088 | ||
Other | 312 | 1,088 | ||
Net cash used in investing activities | (11,088) | (5,530) | (11,088) | (5,530) |
(Decrease) Increase in cash and equivalents | (655) | 5,538 | ||
Increase (Decrease) in cash and equivalents | (655) | 5,538 | ||
Cash and equivalents at beginning of year | 15,946 | 11,832 | 15,946 | 11,832 |
Cash and equivalents at end of period | $ 15,291 | $ 17,370 | $ 15,291 | $ 17,370 |
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
Three- and Six-Month Periods Ended November 30, 2001 and 2000
(Unaudited)
Note A -- Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements (Statements) have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the periods covered have been reflected in the Statements. Certain information and footnotes necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles have been omitted in accordance with the aforementioned instructions. It is suggested that the Statements be read in conjunction with the Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2001.
Note B -- Income Taxes
The income tax provisions for the three and six-month periods ended November 30, 2001 and November 30, 2000 are based on the estimated annual effective tax rates of 36% and 33%, respectively. In fiscal 2001, the effective rate was less than the U.S. federal statutory rate of 35% due to U.S. foreign sales corporation tax benefits and foreign taxes at other rates, partially offset by state income taxes. Foreign tax loss carryforwards that were fully utilized in fiscal 2001 are the primary reason for the higher effective tax rate in fiscal 2002.
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. 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 when such assumptions have a dilutive effect on the calculation. 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 2002 as assumed conversion would be anti-dilutive. The per share amounts presented in the Consolidated Condensed Income Statement are based on the following amounts (in thousands):
Second Quarter | Six Months | Second Quarter | Six Months | |||||
FY 2002 | FY 2001 | FY 2002 | FY 2001 | FY 2002 | FY 2001 | FY 2002 | FY 2001 | |
Numerator for basic EPS: | ||||||||
Net income | $ 1,316 | $ 5,192 | $ 1,367 | $ 9,872 | $ 1,316 | $ 5,192 | $ 1,367 | $ 9,872 |
Denominator for basic EPS: | ||||||||
Beginning shares outstanding | 13,470 | 12,987 | 13,470 | 12,987 | 13,470 | 12,987 | 13,470 | 12,987 |
Additional shares issued | 144 | 377 | 100 | 295 | 144 | 377 | 100 | 295 |
Average shares outstanding | 13,614 | 13,364 | 13,570 | 13,282 | 13,614 | 13,364 | 13,570 | 13,282 |
Numerator for diluted EPS: | ||||||||
Net income | $ 1,316 | $ 5,192 | $ 1,367 | $ 9,872 | $ 1,316 | $ 5,192 | $ 1,367 | $ 9,872 |
Interest savings, net of tax, on assumed | - | 865 | - | 1,730 | - | 865 | - | 1,730 |
Adjusted net income | $ 1,316 | $ 6,057 | $ 1,367 | $ 11,602 | $ 1,316 | $ 6,057 | $ 1,367 | $ 11,602 |
Denominator for diluted EPS: | ||||||||
Average shares outstanding | 13,614 | 13,364 | 13,570 | 13,282 | 13,614 | 13,364 | 13,570 | 13,282 |
Effect of dilutive stock options | 192 | 587 | 313 | 618 | 192 | 587 | 313 | 618 |
Assumed conversion of bonds | - | 3,680 | - | 3,680 | - | 3,680 | - | 3,680 |
Average shares outstanding | 13,806 | 17,631 | 13,883 | 17,580 | 13,806 | 17,631 | 13,883 | 17,580 |
Note D -- Industry and Market Information
The marketing and sales structure of the Company consists of five strategic business units (SBU's): 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 global RF and wireless communications market and the radio and television broadcast industry, predominately for infrastructure applications.
Industrial serves a broad range of customers including the steel, automotive, textile, plastics, semiconductor, and transportation industries.
Medical serves the medical imaging market, providing system upgrade and integration services in addition to a wide range of diagnostic imaging components.
Display provides custom display solutions and system integration services for the public information, financial, point-of-sale and general data display markets.
Security is a full-line distributor of close circuit television (CCTV), fire, burglary, access control, sound, and communication products and accessories.
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. Administrative expenses including finance, legal, information technology, human resources, logistics, and facility costs are not allocated to SBU results. Inter-segment sales are not significant.
Accounts receivable, inventory, goodwill and certain notes receivable are identified by SBU. Cash, net property, plant and equipment, and other assets are not identifiable by SBU. Accordingly, depreciation, amortization expense other than amortization of goodwill, and financing costs are not identifiable by SBU. Operating results for the three and six-month periods ended November 30, 2001 and November 30, 2000 and identifiable assets as of the end of the respective periods by SBU are summarized in the following table (in thousands):
Second Quarter | Sales | Margin | Contribution | Assets |
FY 2002 | ||||
Wireless | $ 53,077 | $ 12,546 | $ 7,481 | $ 126,920 |
Industrial | 18,750 | 6,164 | 4,521 | 40,194 |
Medical | 10,394 | 2,287 | 1,205 | 22,422 |
Security | 21,491 | 5,084 | 2,691 | 35,736 |
Display | 10,769 | 2,714 | 1,516 | 22,368 |
Total | $ 114,481 | $ 28,795 | $ 17,414 | $ 247,640 |
FY 2001 | ||||
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 | 2,585 | 35,443 |
Display | 11,544 | 2,725 | 1,508 | 21,983 |
Total | $ 131,079 | $ 35,250 | $ 23,649 | $ 244,589 |
Richardson Electronics, Ltd. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
Three- and Six-Month Periods Ended November 30, 2001 and 2000
(Unaudited)
Six Months | Sales | Margin | Contribution | Assets |
FY 2002 | ||||
Wireless | $ 97,540 | $ 23,736 | $ 12,537 | $ 126,920 |
Industrial | 37,534 | 12,561 | 9,293 | 40,194 |
Medical | 19,728 | 4,481 | 2,282 | 22,422 |
Security | 41,880 | 9,869 | 5,096 | 35,736 |
Display | 21,623 | 5,332 | 2,842 | 22,368 |
Total | $ 218,305 | $ 55,979 | $ 32,050 | $ 247,640 |
FY 2001 | ||||
Wireless | $ 121,005 | $ 32,002 | $ 21,915 | $ 115,716 |
Industrial | 45,827 | 16,178 | 13,349 | 44,538 |
Medical | 20,257 | 4,496 | 2,589 | 26,909 |
Security | 42,644 | 9,909 | 4,825 | 35,443 |
Display | 21,452 | 5,069 | 2,616 | 21,983 |
Total | $ 251,185 | $ 67,654 | $ 45,294 | $ 244,589 |
A reconciliation of sales, gross margin, direct operating contribution and assets to the relevant consolidated amounts follows. (Other assets include miscellaneous receivables, manufacturing inventories and sundry assets.) (in thousands):
First Quarter | Six Months | Second Quarter | Six Months | |||||
FY2002 | FY2001 | FY2002 | FY2001 | FY2002 | FY2001 | FY2002 | FY2001 | |
Sales - segments total | $ 114,481 | $ 131,079 | $ 218,305 | $ 251,185 | $ 114,481 | $ 131,079 | $ 218,305 | $ 251,185 |
Freight | 1,018 | 940 | 1,875 | 1,929 | 1,018 | 940 | 1,875 | 1,929 |
Sales | $ 115,499 | $ 132,019 | $ 220,180 | $ 253,114 | $ 115,499 | $ 132,019 | $ 220,180 | $ 253,114 |
Gross margin - segments total | $ 28,795 | $ 35,250 | $ 55,979 | $ 67,654 | $ 28,795 | $ 35,250 | $ 55,979 | $ 67,654 |
Manufacturing variances and other costs | (414) | (717) | (1,124) | (1,132) | (414) | (717) | (1,124) | (1,132) |
Gross Margin | $ 28,381 | $ 34,533 | $ 54,855 | $ 66,522 | $ 28,381 | $ 34,533 | $ 54,855 | $ 66,522 |
Segment profit contribution | $ 17,414 | $ 23,649 | $ 32,050 | $ 45,294 | $ 17,414 | $ 23,649 | $ 32,050 | $ 45,294 |
Manufacturing variances and other costs | (414) | (717) | (1,124) | (1,132) | (414) | (717) | (1,124) | (1,132) |
Regional selling expenses | (3,590) | (4,225) | (7,436) | (8,271) | (3,590) | (4,225) | (7,436) | (8,271) |
Administrative expenses | (8,341) | (8,276) | (15,489) | (16,121) | (8,341) | (8,276) | (15,489) | (16,121) |
Operating income | $ 5,069 | $ 10,431 | $ 8,001 | $ 19,770 | $ 5,069 | $ 10,431 | $ 8,001 | $ 19,770 |
Segment assets | $ 247,640 | $ 244,589 | $ 247,640 | $ 244,589 | ||||
Cash and equivalents | 15,291 | 17,370 | 15,291 | 17,370 | ||||
Other current assets | 20,267 | 15,034 | 20,267 | 15,034 | ||||
Net property | 28,860 | 27,596 | 28,860 | 27,596 | ||||
Other assets | 4,102 | 4,780 | 4,102 | 4,780 | ||||
Total assets | $ 316,160 | $ 309,369 | $ 316,160 | $ 309,369 |
The Company sells its products to companiescustomers in a wide range of industries and performs periodic credit evaluations of its customers'their 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.
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Three- and Six-Month Periods Ended November 30, 2001 and 2000
(Unaudited)
Sales and Gross Margin
The severe economic slow down effected the comparison of sales and operating results for the second quarter of fiscal 2002 against the prior year. Net sales for the second quarter of fiscal 2002 were $115.5 million compared to last year's second quarter of $132.0 million. Sales for the six-month period of fiscal 2002 were $220.2 million compared to the same period of the prior year of $253.1 million. However, sequential quarterly trends were positive as sales in the second quarter of fiscal 2002 increased 10.3% over the first quarter. Gross margin as a percent of sales in fiscal 2002 were effected by manufacturing variances from lower utilization rates and lower markups on an expanding Wireless customer base primarily in Asia Pacific. Sales, percentage changes from the prior year, gross margins and gross margin percent of sales by SBU are summarized in the following table. Gross margins for each SBU include provisions for returns and overstock. Provisions for LIFO, manufacturing charges and other costs are included under the caption "Corporate" (in thousands).
Sales | Gross Margin | ||||||
Second Quarter | FY 2002 | FY 2001 | % Change | FY 2002 | GM % of Sales | FY 2001 | GM % of Sales |
Wireless | $ 53,077 | $ 63,899 | -16.9 % | $ 12,546 | 23.6 % | $ 16,950 | 26.5 % |
Industrial | 18,750 | 23,296 | -19.5 % | 6,164 | 32.9 % | 8,184 | 35.1 % |
Medical | 10,394 | 10,361 | 0.3 % | 2,287 | 22.0 % | 2,289 | 22.1 % |
Security | 21,491 | 21,979 | - 2.2 % | 5,084 | 23.7 % | 5,102 | 23.2 % |
Display | 10,769 | 11,544 | - 6.7 % | 2,714 | 25.2 % | 2,725 | 23.6 % |
Corporate | 1,018 | 940 | (414) | (717) | |||
Total | $ 115,499 | $ 132,019 | -12.5 % | $ 28,381 | 24.6 % | $ 34,533 | 26.2 % |
First Six Months | |||||||
Wireless | $ 97,540 | $ 121,005 | -19.4 % | $ 23,736 | 24.3 % | $ 32,002 | 26.4 % |
Industrial | 37,534 | 45,827 | -18.1 % | 12,561 | 33.5 % | 16,178 | 35.3 % |
Medical | 19,728 | 20,257 | - 2.6 % | 4,481 | 22.7 % | 4,496 | 22.2 % |
Security | 41,880 | 42,644 | - 1.8 % | 9,869 | 23.6 % | 9,909 | 23.2 % |
Display | 21,623 | 21,452 | 0.8 % | 5,332 | 24.7 % | 5,069 | 23.6 % |
Corporate | 1,875 | 1,929 | (1,124) | (1,132) | |||
Total | $ 220,180 | $ 253,114 | - 13.0 % | $ 54,855 | 24.9 % | $ 66,522 | 26.3 % |
Wireless' second quarter sales decreased 16.9% from fiscal 2001 levels, reflecting lower demand primarily in the North American telecommunications industry and the general state of the economy. Gross margins as a percent of sales decreased from 26.5% in the prior year's second quarter to 23.6% in the second quarter of fiscal 2002 due to lower operating efficiency in the Company's engineering design and assembly facilities as well as lower markups on an expanded customer base in Asia Pacific. In July 2001, the Company purchased Sangus Holdings AB (Sangus), which serves the Nordic countries of Sweden, Finland, Denmark, and Norway. Second quarter and year-to-date sales results include sales recorded by Sangus from the date of acquisition of $3.7 million and $5.4 million, respectively.
Industrial's second quarter sales decreased 19.5% from the prior year's second quarter due to general economic conditions and softness in the demand for equipment used in the manufacture of semiconductors. Gross margins declined from 35.1% to 32.9% due to several large volume contracts at lower margins and product mix.
Medical's sales and gross margins in the second quarter of fiscal 2002 were essentially comparable to the prior year.
Security's second quarter sales decreased 2.2% from the prior year's second quarter while gross margins as a percent of sales increased from 23.2% in the second quarter of fiscal 2001 to 23.7% in the second quarter of the current fiscal year.
Second quarter sales for Display decreased 6.7% in fiscal 2002 from 2001 levels. Gross margins as a percent of sales increased to 25.2% in fiscal 2002 from 23.6% in fiscal 2001, reflecting improved margins on monitor sales.
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 with 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).
Sales | Gross Margin | ||||||
Second Quarter | FY 2002 | FY 2001 | % Change | FY 2002 | GM % of Sales | FY 2001 | GM % of Sales |
North America | $ 61,984 | $ 82,251 | - 24.6 % | $ 15,785 | 25.5 % | $ 20,795 | 25.3 % |
Europe | 24,697 | 25,330 | - 2.5 % | 6,446 | 26.1 % | 7,774 | 30.7 % |
Asia/Pacific | 18,299 | 13,642 | 34.1 % | 4,091 | 22.4 % | 4,285 | 31.4 % |
Latin America | 7,545 | 6,845 | 10.2 % | 1,998 | 26.5 % | 1,838 | 26.9 % |
Other | 1,956 | 3,011 | - 35.0 % | 475 | 24.3 % | 558 | 18.5 % |
Corporate | 1,018 | 940 | (414) | (717) | |||
Total | $ 115,499 | $ 132,019 | - 12.5 % | $ 28,381 | 24.6 % | $ 34,533 | 26.2 % |
First Six Months | |||||||
North America | $ 123,462 | $ 160,621 | - 23.1 % | $ 31,559 | 25.6 % | $ 41,298 | 25.7 % |
Europe | 45,472 | 46,626 | - 2.5 % | 12,135 | 26.7 % | 13,782 | 29.6 % |
Asia/Pacific | 31,373 | 25,352 | 23.7 % | 7,486 | 23.9 % | 7,736 | 30.5 % |
Latin America | 14,252 | 12,959 | 10.0 % | 3,879 | 27.2 % | 3,557 | 27.4 % |
Other | 3,746 | 5,627 | - 33.4 % | 920 | 24.6 % | 1,281 | 22.8 % |
Corporate | 1,875 | 1,929 | (1,124) | (1,132) | |||
Total | $ 220,180 | $ 253,114 | - 13.0 % | $ 54,855 | 24.9 % | $ 66,522 | 26.3 % |
North America sales declined 24.6% in the second quarter from the prior year, primarily due to the general economic slowdown. Asia Pacific sales increased by 34.1% in the second quarter while gross margins as a percent of sales declined from 31.4% to 22.4% in the same period; both related to an expanded customer base in Wireless at lower margins. Latin American sales increased 10.2% from the prior year's second quarter as a result of sales growth in both Wireless and Display products. Europe sales include sales of Sangus from the date of acquisition, July 1, 2001.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses were $23,312 in the second quarter of fiscal 2002 compared to $24,102 in the prior year's second quarter. Operating expenses of Sangus, severance costs incurred in the quarter and the full year impact of mid-year fiscal 2001 personnel additions accounted for the increase mitigated by reduced spending on personnel additions, travel, entertainment, advertising, and other discretionary costs.
Interest and Other Expenses
Higher interest costs in fiscal 2002 compared to fiscal 2001 are due to increased borrowings primarily to finance business acquisitions during the latter part of fiscal 2001 and the first quarter of fiscal 2002.
Net Results
Net income for the second quarter was $1.3 million compared to $5.2 million in the second quarter of the prior year. Net income for the six-month period was $1.4 million compared to $9.9 million in the prior year.
Liquidity and Capital Resources
Cash provided by operations was $20.3 million in the first six months of fiscal 2002, compared to cash used in operations of $14.5 million in the prior year. Accounts receivable decreased $13.2 million in the first six months of fiscal 2002 and increased $18.6 million in the first six months of fiscal 2001. In the first six months of fiscal 2002, inventories decreased by $4.1 million compared to an increase in the same period in the prior year of $20.6 million. Fluctuations in receivables and inventories are primarily a function of sales levels.
Effective August 31, 2001, the Company increased its multi-currency revolving credit facility agreement to $111.3 million from $105.0 million. The agreement matures in July 2004 and bears interest at applicable LIBOR rates plus a margin, varying with certain financial performance criteria.
The Company's loan agreements, as amended, 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, 2001.
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.
Euro Currency Conversion
On January 1, 1999, eleven member countries of the European Union began conversion to a common currency, the Euro. 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 will not be 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 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:
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, 2001.
ITEM 2.CHANGES IN SECURITIES
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits -
10 (a) Fourth Amendment to the Revolving Credit Agreement effective November 29, 2001 among various subsidiaries of Richardson Electronics, Ltd., various lending institutions, and Bank One, N.A. London Branch, as Euro Funding Agent and American National Bank and Trust Company of Chicago, as Administrative Agent.
10 (b) Second Amendment to the Loan Agreement effective November 29, 2001 between Richardson Electronics, Ltd. and American National Bank and Trust Company of Chicago, Harris Trust and Savings Bank, LaSalle Bank National Association, and National City Bank, as Lenders and American National Bank and Trust Company of Chicago, as Agent.(b) Reports on Form 8-K - None
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 14, 2002 | RICHARDSON ELECTRONICS, LTD. By_\S\ Willian J. Garry _ |