Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RELL > SEC Filings for RELL > Form 10-Q on 11-Apr-2013All Recent SEC Filings

Show all filings for RICHARDSON ELECTRONICS LTD/DE | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for RICHARDSON ELECTRONICS LTD/DE


11-Apr-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this report may constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. The terms "may," "should," "could," "anticipate," "believe," "continues," "estimate," "expect," "intend," "objective," "plan," "potential," "project" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management's current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A, of our Annual Report on Form 10-K filed on July 27, 2012, and in the Company's Proxy Statement on Schedule 14A filed on August 30, 2012. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.

In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.

INTRODUCTION

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition, critical accounting policies and estimates, and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and the accompanying notes thereto appearing elsewhere herein. This section is organized as follows:

Business Overview

Results of Operations - an analysis and comparison of our consolidated results of operations for the three and nine months ended March 2, 2013, and March 3, 2012, as reflected in our unaudited consolidated statements of comprehensive income.

Liquidity, Financial Position, and Capital Resources - a discussion of our primary sources and uses of cash for the nine months ended March 2, 2013, and March 3, 2012, and a discussion of changes in our financial position.

BUSINESS OVERVIEW

Richardson Electronics, Ltd. ("we", "us", "the Company", and "our") is incorporated in the state of Delaware. We are a leading global provider of engineered solutions, power grid and microwave tubes and related components, and customized display solutions, serving customers in the alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. Our strategy is to provide specialized technical expertise and "engineered solutions" based on our core engineering and manufacturing capabilities. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair.

Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing, and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or used as display devices in a variety of industrial, commercial, medical, and communication applications.


Table of Contents

On March 1, 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of, our RF, Wireless and Power Division ("RFPD"), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. ("Arrow") in exchange for $238.8 million, which included an estimated pre-closing working capital adjustment of approximately $27.0 million ("the Transaction.") During the fourth quarter of fiscal 2011, we recorded a working capital adjustment of $4.2 million in our results from discontinued operations. During the second quarter of fiscal 2012, we paid Arrow $3.9 million to settle the agreed upon working capital adjustment.

On September 5, 2011, we acquired the assets of Powerlink Specialist Electronics Support Limited ("Powerlink") for approximately $2.3 million, including a working capital adjustment of $0.2 million related to payables of approximately $0.2 million that were paid by Powerlink prior to the close. Powerlink, a UK-based technical service company with locations in London and Dubai, services traveling wave tube ("TWT") amplifiers and related equipment for the Satellite Communications market throughout Europe and the Middle East. This acquisition positions us to provide cost-effective service of microwave and power grid tube equipment for communications, industrial, military, and medical users around the world.

On September 4, 2012, we acquired the assets of D and C Import-Export, Inc. ("D and C") for approximately $2.6 million. D and C, a Florida-based distributor of power grid tubes and associated RF components, services the commercial, broadcast, medical, industrial, scientific, and military markets. This acquisition provides us with access to additional product lines, vendors, and customers.

We have two operating segments, which we define as follows:

Electron Device Group ("EDG") provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. EDG focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. EDG also offers its customers technical services for both microwave and industrial equipment.

Canvys provides global customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical original equipment manufacturer ("OEM") markets.

We currently have operations in the following major geographic regions:

North America;

Asia/Pacific;

Europe; and

Latin America.

RESULTS OF CONTINUING OPERATIONS

FINANCIAL SUMMARY - THREE MONTHS ENDED MARCH 2, 2013

Net sales for the third quarter of fiscal 2013 were $33.6 million, down 12.3%, compared to net sales of $38.3 million during the third quarter of last year.

Gross margin as a percentage of net sales was 29.5% during the third quarter of fiscal 2013 and last year's third quarter.

SG&A expenses during the third quarter of fiscal 2013 were $9.3 million, or 27.7% of net sales, compared to $9.5 million, or 24.7% of net sales, during the third quarter of last year.

Operating income during the third quarter of fiscal 2013 was $0.6 million, or 1.8% of net sales, compared to operating income of $1.8 million, or 4.8% of net sales, during the third quarter of last year.


Table of Contents
Income from continuing operations during the third quarter of fiscal 2013 was $0.6 million, or $0.04 per diluted common share, compared to income from continuing operations of $1.6 million, or $0.09 per diluted common share, during the third quarter of last year.

Loss from discontinued operations, net of tax, was $0.2 million, during the third quarter of fiscal 2013 compared to a loss from discontinued operations, net of tax, of $0.3 million, during the third quarter of last year.

Net income during the third quarter of fiscal 2013 was $0.4 million, or $0.03 per diluted common share, compared to net income of $1.3 million, or $0.08 per diluted common share, during the third quarter of last year.

FINANCIAL SUMMARY - NINE MONTHS ENDED MARCH 2, 2013

Net sales for the first nine months of fiscal 2013 were $105.9 million, down 11.0%, compared to net sales of $119.0 million during the first nine months of last year.

Gross margin as a percentage of net sales decreased to 29.6% during the first nine months of fiscal 2013 compared to 30.0% during the first nine months of last year.

SG&A expenses during the first nine months of fiscal 2013 were $29.7 million, or 28.0% of net sales, compared to $30.2 million, or 25.4% of net sales, during the first nine months of last year.

Operating income during the first nine months of fiscal 2013 was $1.6 million, or 1.5% of net sales, compared to operating income of $5.6 million, or 4.7% of net sales, during the first nine months of last year.

Income from continuing operations during the first nine months of fiscal 2013 was $1.9 million, or $0.12 per diluted common share, compared to income from continuing operations of $4.2 million, or $0.25 per diluted common share, during the first nine months of last year.

Loss from discontinued operations, net of tax, was $0.5 million, during the first nine months of fiscal 2013 compared to income from discontinued operations, net of tax, of $1.6 million, or $0.09 per diluted common share, during the first nine months of last year.

Net income during the first nine months of fiscal 2013 was $1.4 million, or $0.09 per diluted common share, compared to net income of $5.8 million, or $0.34 per diluted common share, during the first nine months of last year.

Net Sales and Gross Profit Analysis

During the third quarter of fiscal 2013, consolidated net sales decreased 12.3% to $33.6 million, compared to $38.3 million during the third quarter of fiscal 2012. During the first nine months of fiscal 2013, consolidated net sales decreased 11.0% to $105.9 million, compared to $119.0 million during the first nine months of fiscal 2012.


Table of Contents

Net sales by segment and percent change during the third quarter and first nine months of fiscal 2013 and 2012 were as follows (in thousands):

Net Sales



                                    FY 2013       FY 2012       % Change
               Third Quarter
               EDG                 $  24,333     $  26,867           (9.4 %)
               Canvys                  9,297        11,463          (18.9 %)

               Total               $  33,630     $  38,330          (12.3 %)


                                    FY 2013       FY 2012       % Change
               First Nine Months
               EDG                 $  76,146     $  85,618          (11.1 %)
               Canvys                 29,737        33,361          (10.9 %)

               Total               $ 105,883     $ 118,979          (11.0 %)

Consolidated gross profit as a percentage of net sales remained at 29.5% during the third quarter of fiscal 2013, as compared to 29.5% during the third quarter of fiscal 2012 and to 29.6% during the first nine months of fiscal 2013, as compared to 30.0% during the first nine months of fiscal 2012.

Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs, and other provisions.

Gross profit by segment and percent of segment net sales during the third quarter and first nine months of fiscal 2013 and 2012 were as follows (in thousands):

Gross Profit



                                             % of                          % of
                             FY 2013       Net Sales       FY 2012       Net Sales
         Third Quarter
         EDG                 $  7,407            30.4 %    $  8,085            30.1 %
         Canvys                 2,503            26.9 %       3,212            28.0 %

         Total               $  9,910            29.5 %    $ 11,297            29.5 %


                                             % of                          % of
                             FY 2013       Net Sales       FY 2012       Net Sales
         First Nine Months
         EDG                 $ 23,337            30.6 %    $ 26,302            30.7 %
         Canvys                 7,961            26.8 %       9,387            28.1 %

         Total               $ 31,298            29.6 %    $ 35,689            30.0 %

Electron Device Group

Net sales for EDG decreased 9.4% to $24.3 million during the third quarter of fiscal 2013, from $26.9 million during the third quarter of fiscal 2012. Net sales of tubes decreased to $19.5 million during the third quarter of fiscal 2013, as compared to $21.4 million during the third quarter of fiscal 2012, due primarily to economic concerns and weaker demand, particularly in Europe and China, as well as overall declines in the plastic, wood and semiconductor fabrication markets. Gross margin as a percentage of net sales increased slightly to 30.4% during the third quarter of fiscal 2013, as compared to 30.1% during the third quarter of fiscal 2012. The overall increase in gross margin primarily reflects a shift in sales mix between product lines and geographic regions.


Table of Contents

Net sales for EDG decreased 11.1% to $76.1 million during the first nine months of fiscal 2013, from $85.6 million during the first nine months of fiscal 2012. Net sales of tubes decreased to $60.8 million during the first nine months of fiscal 2013, as compared to $69.3 million during the first nine months of fiscal 2012, primarily due to the continuing declines in the plastic, wood, and semiconductor fabrication markets. Gross margin as a percentage of net sales decreased slightly to 30.6% during the first nine months of fiscal 2013, as compared to 30.7% during the first nine months of fiscal 2012. The overall decrease in gross margin primarily reflects unabsorbed manufacturing labor and overhead costs due to the decline in demand for semiconductor wafer fabrication components.

Canvys

Canvys net sales decreased 18.9% to $9.3 million during the third quarter of fiscal 2013, from $11.5 million during the third quarter of fiscal 2012. Sales were down across all three business segments but most significantly in the North America Healthcare segment driven by the uncertainty with the effects of the health care reform. Gross margin as a percentage of net sales decreased to 26.9% during the third quarter of fiscal 2013 as compared to 28.0% during the third quarter of fiscal 2012, due primarily to lower margin in North America and European OEM segments related to customer mix and price pressure. Gross margin for the Healthcare segment improved over prior year quarter.

Canvys net sales decreased 10.9% to $29.7 million during the first nine months of fiscal 2013, from $33.4 million during the first nine months of fiscal 2012. Sales were down in the North America Healthcare segment driven by the uncertainty with the effects of the health care reform while sales in Europe were down due to the continuing effect of the economic environment. Gross margin as a percentage of net sales decreased to 26.8% during the first nine months of fiscal 2013 as compared to 28.1% during the first nine months of fiscal 2012, due primarily to lower margin in Europe associated with customer mix and currency exchange.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses ("SG&A") decreased during the third quarter of fiscal 2013 to $9.3 million from $9.5 million during the third quarter of fiscal 2012. The decrease includes a $0.1 million increase of SG&A for EDG offset by a $0.1 million decrease of SG&A for Canvys and a $0.1 million reduction of total company support function costs. The increase of $0.1 million within EDG was due primarily to increases in employee related costs and marketing partially offset by reductions in travel and bad debt expense. The decrease of $0.1 million within Canvys was due primarily to employee related costs and marketing. The decrease of $0.1 million in total company support function costs was due primarily to decreases in employee related costs.

SG&A decreased during the first nine months of fiscal 2013 to $29.7 million from $30.2 million during the first nine months of fiscal 2012. The decrease includes a $0.2 million reduction of SG&A for Canvys and a $0.9 million reduction of total company support function costs, offset by a $0.7 million increase of SG&A for EDG. The decrease of $0.2 million within Canvys was due primarily to a reduction in bad debt expense. The decrease of $0.9 million in support functions was due primarily to headcount reductions and professional services. The increase in SG&A for EDG of $0.7 million was due primarily to increases in bad debt expense and product development costs.

Other (Income) Expense

Other (income) expense was $0.2 million of expense during the third quarter of fiscal 2013, as compared to $0.4 million of income during the third quarter of fiscal 2012. Other (income) expense included a foreign exchange loss of $0.5 million during the third quarter of fiscal 2013, as compared to a foreign exchange gain of less than $0.1 million during the third quarter of fiscal 2012. Our foreign exchange gains and losses are primarily due to the translation of our U.S. dollars we hold in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency. The third quarters of fiscal 2013 and fiscal 2012 also included $0.3 million and $0.4 million, respectively, of investment/interest income.


Table of Contents

Other (income) expense was $0.3 million of income during the first nine months of fiscal 2013, as compared to $0.7 million of income during the first nine months of fiscal 2012. Other (income) expense included a foreign exchange loss of $0.7 million and $0.3 million during the first nine months of fiscal 2013 and fiscal 2012, respectively. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency. The first nine months of fiscal 2013 and fiscal 2012 also included $1.0 million and $1.0 million, respectively, of investment/interest income.

Income Tax Provision

The effective income tax rate from continuing operations during the first nine months of fiscal 2013 was 2.1%, as compared to 32.5% during the first nine months of fiscal 2012. The decrease in rate during the first nine months of fiscal 2013, as compared to fiscal 2012, was due to the decrease in available cash in foreign jurisdictions to distribute unremitted foreign earnings with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas. The effective rate as compared to the federal statutory rate of 34.0% resulted from our geographical distribution of taxable income or losses, apportionment of income to various states, in addition to our position with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. We are no longer subject to either U.S. federal, state or local, or non-U.S. tax examinations by tax authorities for years prior to fiscal 2004. Currently, we are under federal audit in the U.S. for fiscal year 2011. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany and the Netherlands beginning in fiscal 2007.

As of March 2, 2013, approximately $37.2 million of cumulative positive earnings of some of our foreign subsidiaries are still considered permanently reinvested pursuant to ASC 740-30, Income Taxes-Other Considerations or Special Areas. It is not practical to determine what, if any, tax liability might exist if such earnings were to be repatriated.

As of March 2, 2013, our worldwide liability for uncertain tax positions related to continuing operations, excluding interest and penalties, was $0.4 million as compared to $0.5 million as of June 2, 2012. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited consolidated statements of income and comprehensive income.

It is reasonably possible that there will be a change in the unrecognized tax benefits related to continuing and discontinued operations, excluding interest and penalties, in the range of $0 to approximately $0.3 million and in the range of $0 to approximately $1.3 million, respectively, due to the expiration of various statutes of limitations and closing of examinations within the next 12 months.

Discontinued Operations

Arrow Transaction

On March 1, 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of, our RF, Wireless and Power Division ("RFPD"), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. ("Arrow") in exchange for $238.8 million, which included an estimated pre-closing working capital adjustment of approximately $27.0 million ("the Transaction.") During the fourth quarter of fiscal 2011, we recorded a working capital adjustment of $4.2 million in our results from discontinued operations. During the second quarter of fiscal 2012, we paid Arrow $3.9 million to settle the working capital adjustment.


Table of Contents

Financial Summary - Discontinued Operations

Summary financial results for the three and nine months ended March 2, 2013, and
March 3, 2012, are presented in the following table (in thousands):



                                               Three Months                              Nine Months
                                     Mar 2, 2013          Mar 3, 2012          Mar 2, 2013          Mar 3, 2012
Net sales (loss)                    $         (33 )      $         840        $         466        $       2,532
Gross loss                                   (297 )                (44 )               (518 )               (418 )
Selling, general, and
administrative expenses                       231                  377                  497                  (71 )
Other (income) expense                         -                    -                    -                    -
Additional gain on sale                        -                    -                    -                  (266 )
Income tax provision (benefit)               (346 )               (169 )               (543 )             (1,632 )
Income (loss) from discontinued
operations, net of tax              $        (182 )      $        (252 )      $        (472 )      $       1,551

Net sales and gross loss for the three and nine months ended March 2, 2013, reflect our financial results relating to the Manufacturing Agreement with Arrow that we entered into in connection with the Transaction. Pursuant to the three-year agreement, we agreed to continue to manufacture certain RFPD products for Arrow. Net sales for the third quarter ended March 2, 2013, reflect a return of inventory from RFPD of approximately $0.1 million. There was also an income tax benefit of $0.3 million recorded during the quarter, reflecting the tax benefit related to the loss from discontinued operations as well as a tax refund from one of our foreign subsidiaries.

Assets and liabilities classified as discontinued operations on our unaudited consolidated balance sheets as of March 2, 2013, and June 2, 2012, include the following (in thousands):

                                                Mar 2, 2013       Jun 2, 2012
        Inventories                            $         379     $         503
        Prepaid expenses and other assets                 -                 11

        Discontinued operations-Assets         $         379     $         514

        Accrued liabilities-current (1)        $         831     $         253
        Long-term income tax liabilities (2)           1,461             1,361

        Discontinued operations-Liabilities    $       2,292     $       1,614

(1) Included in accrued liabilities as of March 2, 2013, is a payable to Arrow for transition services of $2.4 million, offset by a receivable due to us from Arrow for transition services of $1.6 million.

(2) Included in long-term income tax liabilites as of March 2, 2013, is the reserve for uncertain tax positions.

In accordance with ASC 230, Statement of Cash Flows, entities are permitted but not required to separately disclose, either in the statement of cash flows or footnotes to the financial statements, cash flows pertaining to discontinued operations. Entities that do not present separate operating cash flows information related to discontinued operations must do so consistently for all periods presented, which may include periods long after the sale or liquidation of the operation. Cash flows related to our discontinued operations are not material.

Net Income and Per Share Data

Net income during the third quarter of fiscal 2013 was $0.4 million, or $0.03 per diluted common share and $0.03 per Class B diluted common share, as compared to net income of $1.3 million during the third quarter of fiscal 2012, or $0.08 per diluted common share and $0.08 per Class B diluted common share.

Net income during the first nine months of fiscal 2013 was $1.4 million, or $0.09 per diluted common share and $0.08 per Class B diluted common share, as compared to net income of $5.8 million during the first nine months of fiscal 2012, or $0.34 per diluted common share and $0.31 per Class B diluted common share.


Table of Contents

LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

Our growth and cash needs have been primarily financed through income from operations. Cash and cash equivalents for the first nine months ended March 2, 2013, were $77.0 million. In addition, time deposits and CD's classified as short-term investments were $63.6 million and long-term investments were $7.1 million, including equity investments of $0.4 million. Cash and investments at March 2, 2013, excluding equity investments of $0.4 million, consisted of $85.0 million in North America, $20.2 million in Europe, $1.2 million in Latin America, and $40.9 million in Asia/Pacific. At June 2, 2012, cash and cash equivalents were $43.9 million. Time deposits and CD's classified as short-term . . .

  Add RELL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RELL - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.