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 August 31, 1995 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) (708) 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 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 October 9, 1995, there were outstanding 8,330,394 shares of Common Stock, $.05 par value, and 3,247,118 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. An exhibit index is at page 10. (1) Richardson Electronics, Ltd. and Subsidiaries Form 10-Q For the Quarter Ended August 31, 1995 INDEX Page ---- PART I - FINANCIAL INFORMATION Consolidated Condensed Balance Sheets 3 Consolidated Condensed Statements of Income 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 7 PART II - OTHER INFORMATION 10 (2) Part I - Financial Information Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Balance Sheets (in thousands) August 31 May 31 1995 1995 --------- --------- (Unaudited) (Audited) ASSETS - ------ Current assets: Cash and equivalents $ 4,197 $ 11,151 Receivables,less allowance of $1,572 and $1,385 40,914 42,768 Inventories 87,159 81,267 Other 9,149 8,762 --------- --------- Total current assets 141,419 143,948 Investments 3,596 7,070 Property, plant and equipment, net 16,318 16,388 Other assets 6,482 6,108 --------- --------- Total assets $ 167,815 $ 173,514 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 12,948 $ 16,695 Accrued expenses 8,974 11,161 Current portion of long-term debt 9,857 9,857 --------- --------- Total current liabilities 31,779 37,713 Long-term debt, less current portion 79,182 79,647 Stockholders' equity: Common stock, $.05 par value; issued 8,330 at August 31, 1995 and 8,225 at May 31, 1995 415 411 Class B common stock, convertible, $.05 par value; issued 3,247 at August 31, 1995 and at May 31, 1995 162 162 Additional paid-in capital 50,515 49,989 Retained earnings 7,421 6,141 Foreign currency translation adjustment (1,819) (686) Market appreciation on investments, net of tax 160 137 --------- --------- Total stockholders' equity 56,854 56,154 --------- --------- Total liabilities and stockholders' equity $ 167,815 $ 173,514 ========= ========= See notes to consolidated condensed financial statements. (3) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Income (in thousands, except per share amounts) Three Months Ended August 31 --------------------------- 1995 1994 --------- --------- (Unaudited) Net sales $ 57,201 $ 46,407 Costs and expenses: Cost of products sold 40,063 32,904 Selling, general and administrative expenses 13,311 10,980 --------- --------- 53,374 43,884 --------- --------- Operating income 3,827 2,523 Other (income) expense: Interest expense 1,504 1,549 Investment income (511) (246) Other, net 174 6 --------- --------- 1,167 1,309 --------- --------- Income before income taxes 2,660 1,214 Income taxes 930 430 --------- --------- Net income $ 1,730 $ 784 ========= ========= Net income per share $ .15 $ .07 ========= ========= Average shares outstanding 11,710 11,428 ========= ========= See notes to consolidated condensed financial statements. (4) Richardson Electronics, Ltd. and Subsidiaries Consolidated Condensed Statements of Cash Flows (in thousands)(unaudited) Three Months Ended August 31 ---------------------- 1995 1994 --------- --------- Operating Activities: Net income $ 1,730 $ 784 Non-cash charges to income: Depreciation 654 681 Amortization of intangibles and financing costs 85 86 Deferred income taxes (275) 381 Common stock awards and contribution to employee stock ownership plan 530 505 --------- --------- Total non-cash charges 994 1,653 --------- --------- Net income adjusted for non-cash charges 2,724 2,437 Changes in working capital, net of effects of currency translation: Accounts receivable 1,344 1,182 Inventories (6,461) (3,997) Other current assets (559) (73) Accounts payable (3,828) 7 Other liabilities (2,084) (2,956) --------- --------- Net changes in working capital (11,588) (5,837) --------- --------- Net cash used in operating activities (8,864) (3,400) --------- --------- Financing Activities: Payments on debt (465) (466) Cash dividends (449) (445) --------- --------- Net cash used in financing activities (914) (911) --------- --------- Investing Activities: Reduction in investments 3,514 3,347 Capital expenditures (627) (607) Other (63) 26 --------- --------- Net cash provided by investing activities 2,824 2,766 --------- --------- Decrease in cash and equivalents (6,954) (1,545) Cash and equivalents at beginning of year 11,151 9,739 --------- --------- Cash and equivalents at end of period $ 4,197 $ 8,194 ========= ========= See notes to consolidated condensed financial statements. (5) Richardson Electronics, Ltd. and Subsidiaries Notes to Consolidated Condensed Financial Statements Three Months Ended August 31, 1995 (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 year ended May 31, 1995. The Company accounts for its results of operations on a 52/53 week period ending on the Saturday nearest May 31 in each year. Quarterly results for the periods ended August 31, 1995 and August 31, 1994 are for 14 and 13 weeks, respectively. Note B -- Income Taxes The income tax provision of $930,000 for the three months ended August 31, 1995 is based on the estimated effective tax rate of 35% for fiscal 1996 income. The income tax provision for first quarter of fiscal 1995 was also based on a 35% estimated effective tax rate. In both years, the rate differs from the applicable federal statutory rate of 34% principally as a result of state income taxes, partially offset by a foreign sales corporation tax benefit. (6) Management's Discussion and Analysis of Results of Operations and Financial Condition Three Months Ended August 31, 1995 (Unaudited) Results of Operations Net sales for the quarter ended August 31, 1995 were $57.2 million, compared to last year's first quarter of $46.4 million. Sales and gross margin by the Company's strategic business units (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 ----------------- ------------------ Quarter ended August 31 1995 1994 1995 1994 ------- ------- ------- ------- Electron Device Group $26,809 $23,865 $ 8,217 $ 7,054 Solid State & Components 15,943 11,318 4,971 3,668 Display Products Group 8,872 8,596 3,188 2,748 Security Systems Division 5,577 2,628 1,163 620 Corporate - - (401) (587) ------- ------- ------- ------- Consolidated $57,201 $46,407 $17,138 $13,503 ======= ======= ======= ======= Sales and product margin by geographic area are summarized in the following table. Product margins exclude inventory and manufacturing provisions, which are not practical to identify by geographic area (in thousands). Sales Product Margin ----------------- ------------------ Quarter ended August 31 1995 1994 1995 1994 ------- ------- -------- ------- North America $34,279 $27,388 $10,422 $ 8,457 Europe 13,027 10,167 4,586 3,240 Rest of World 9,895 8,852 2,941 2,684 ------- ------- -------- ------- Consolidated $57,201 $46,407 $17,949 $14,381 ======= ======= ======= ======= Sales, margin and expense comparisons are affected by the Company's accounting calendar, which included 14 weeks in the quarter ended August 31, 1995 and 13 weeks in the quarter ended August 31, 1994. Gross margins for the current year first quarter were 30.0%, compared to 29.1% in the prior year, reflecting higher product margins and lower manufacturing inefficiencies. Product margins were 31.4%, compared to 31.0% in the prior year. Manufacturing variances (7) Management's Discussion and Analysis of Results of Operations and Financial Condition Three Months Ended August 31, 1995 (Unaudited) included in the determination of operating results in the first quarter were insignificant, compared to $.3 million the prior year. Selling, general, and administrative expenses for the first quarter of fiscal 1996 were $13.3 million, an increase of $2.3 million from the prior year, as a result of sales staff additions, incentive payments on increased gross margins and the Company's accounting calendar. Selling, general and administrative expense as a percent of sales improved, declining to 23.3% from 23.7%. Investment income of $.5 million in the current year quarter compared to $.2 million in the prior comparable period reflects higher realized capital gains. Net income was $1.7 million or $.15 per share, compared to $.8 million or $.07 per share in the prior year first quarter. Liquidity and Capital Resources Cash provided by operations, exclusive of working capital requirements, was $2.7 million in the first quarter of fiscal 1996, compared to $2.4 million for the first quarter last year. Higher working capital requirements of $11.6 million in the current quarter and $5.8 million last year, debt service and dividend payments were met from cash generated by operations and by liquidation of investments. Quarterly working capital requirements are affected by the timing of semi-annual interest payments under the Company's long-term debt agreements. First quarter interest payments were $2.9 million in each of fiscal 1996 and 1995. First quarter working capital requirements also include additional inventory investments of $6.5 million in fiscal 1996 and $4.0 million in fiscal 1995 to support sales growth in the SSC, DPG, and SSD business units. Working capital requirements in fiscal 1996 include a $1.1 million payment related to the settlement of audits of the Company's fiscal 1991 and 1992 federal income tax returns. Subsequent to August 31, 1995, the Company received $2.7 million in federal and state tax refunds. (8) Management's Discussion and Analysis of Results of Operations and Financial Condition Three Months Ended August 31, 1995 (Unaudited) Certain of 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 August 31, 1995. The $8 million short-term bank loan due August 31, 1995 was extended to November 30, 1995. The Company is negotiating a $25 million revolving credit facility to consolidate an existing $10.2 million long-term loan and the $8 million short-term loan and to provide an additional $6.8 million for working capital. In addition, certain of the current agreements contain restrictions on the Company relating to the purchase of treasury stock or the payment of cash dividends. At August 31, 1995, $4.7 million was available for such transactions. Payment of dividends will be considered quarterly based upon corporate performance. At August 31, 1995, the market value of the Company's non-current investment portfolio totaled $3.6 million. 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. 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. (9) PART II - OTHER INFORMATION 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, 1995. 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) Exhibit 10 - $8,000,000 Promissory note dated August 31, 1995 delivered to American National Bank. - page 12 Exhibit 27 - Financial Data Schedule - page 13. (b) Reports on Form 8-K - None (10) PART II - OTHER INFORMATION 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 October 12 , 1995 By /s/ William J. Garry William J. Garry Vice President and Chief Financial Officer (11)