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-K on 26-Jul-2013All Recent SEC Filings

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

Form 10-K for RICHARDSON ELECTRONICS LTD/DE


26-Jul-2013

Annual Report


ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and related notes.

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 consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:

Business Overview

Results of Continuing Operations - an analysis and comparison of our consolidated results of operations for the fiscal years ended June 1, 2013, June 2, 2012, and May 28, 2011, as reflected in our consolidated statements of comprehensive income (loss).

Liquidity, Financial Position, and Capital Resources - a discussion of our primary sources and uses of cash for the fiscal years ended June 1, 2013, June 2, 2012, and May 28, 2011, 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 are used as display devices in a variety of industrial, commercial, medical, and communication applications.

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. 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.

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.


Table of Contents

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 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

Overview - Fiscal Year Ended June 1, 2013

Net sales for fiscal 2013 were $141.1 million, down 10.6%, compared to net sales of $157.8 million during fiscal 2012.

Gross margin as a percentage of net sales was relatively flat at 29.5% during fiscal 2013, compared to 29.6% during fiscal 2012.

Selling, general, and administrative expenses increased to $41.5 million during fiscal 2013, compared to $40.6 million during fiscal 2012.

Operating income during fiscal 2013 was less than $0.1 million, compared to operating income of $6.3 million during fiscal 2012.

Income from continuing operations during fiscal 2013 was $0.5 million, or $0.03 per diluted common share, versus income of $8.0 million, or $0.47 per diluted common share, during fiscal 2012.

Income from discontinued operations, net of tax, was $0.8 million, or $0.05 per diluted common share, during fiscal 2013 compared to $0.5 million, or $0.03 per diluted common share, during fiscal 2012.

Net income during fiscal 2013 was $1.2 million, or $0.08 per diluted common share, compared to net income of $8.5 million, or $0.50 per diluted common share, during fiscal 2012.


Table of Contents

Net Sales and Gross Profit Analysis

Net sales by segment and percent change for fiscal 2013, 2012, and 2011 were as
follows (in thousands):



                                                         FY13 vs. FY12         FY12 vs. FY11
  Net Sales    FY 2013       FY 2012       FY 2011         % Change              % Change

  EDG         $ 102,593     $ 112,586     $ 113,715                (8.9 %)               (1.0 %)
  Canvys         38,473        45,250        45,152               (15.0 %)                0.2 %

  Total       $ 141,066     $ 157,836     $ 158,867               (10.6 %)               (0.6 %)

During fiscal 2013 consolidated net sales decreased 10.6 % compared to fiscal 2012. Sales for Canvys declined by 15.0%, and sales for EDG declined 8.9%. Consolidated net sales during fiscal 2012 decreased 0.6% compared to fiscal 2011, reflecting an increase in Canvys sales of 0.2%, offset by a 1.0% decline in sales for EDG.

Gross profit by segment and percent of segment net sales for fiscal 2013, 2012, and 2011 were as follows (in thousands):

        Gross Profit         FY 2013                  FY 2012                  FY 2011

        EDG            $ 31,431       30.6 %    $ 34,626       30.8 %    $ 35,020       30.8 %
        Canvys           10,114       26.3 %      12,155       26.9 %      11,093       24.6 %

        Total          $ 41,545       29.5 %    $ 46,781       29.6 %    $ 46,113       29.0 %

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

Consolidated gross profit was $41.5 million during fiscal 2013, compared to $46.8 million during fiscal 2012. Consolidated gross margin as a percentage of net sales declined slightly to 29.5% during fiscal 2013, from 29.6% during fiscal 2012. Gross margin during fiscal 2013 and fiscal 2012 included expense related to inventory provisions for EDG and Canvys of $0.2 million and $0.2 million, respectively. In addition gross margin for EDG included $1.0 million and $0.2 million related to unabsorbed manufacturing labor and overhead for continuing operations during fiscal 2013 and 2012, respectively.

Consolidated gross profit was $46.8 million during fiscal 2012, compared to $46.1 million during fiscal 2011. Consolidated gross margin as a percentage of net sales increased to 29.6% during fiscal 2012, from 29.0% during fiscal 2011. Gross margin during fiscal 2012 included expense related to inventory provisions for EDG and Canvys of $0.2 million and $0.2 million, respectively. Gross margin during fiscal 2011 included expense related to inventory provisions for EDG and Canvys of $0.7 million and $0.4 million, respectively.

Electron Device Group

Net sales for EDG decreased 8.9% to $102.6 million during fiscal 2013, from $112.6 million during fiscal 2012. Net sales of tubes decreased to $80.8 million during fiscal 2013, as compared to $90.1


Table of Contents

million during fiscal 2012, due primarily to economic factors and weaker demand, particularly in Europe and China, as well as overall declines in the plastic, wood, and semiconductor fabrication markets. Net sales of continuous wave magnetrons and related assemblies sold primarily into the semi-conductor fabrication market decreased to $9.7 million during fiscal 2013, as compared to $10.1 million during fiscal 2012. Gross margin as a percentage of net sales decreased slightly to 30.6% during fiscal 2013, as compared to 30.8% during fiscal 2012.

Net sales for EDG decreased 1.0% to $112.6 million during fiscal 2012, from $113.7 million during fiscal 2011. Net sales of tubes decreased slightly to $90.1 million during fiscal 2012, as compared to $91.9 million during fiscal 2011, due primarily to declines in the broadcast and textile markets. Net sales of continuous wave magnetrons and related assemblies sold primarily into the semi-conductor fabrication market decreased to $10.1 million during fiscal 2012, as compared to $11.5 million during fiscal 2011. Gross margin as a percentage of net sales remained flat at 30.8% during fiscal 2012, as compared to 30.8% during fiscal 2011.

Canvys

Canvys net sales decreased 15.0% to $38.5 million during fiscal 2013, from $45.3 million during fiscal 2012. Sales were down in the North America Healthcare segment driven by the uncertainty with surrounding health care reform while sales in Europe were down due to continuing economic pressures. Gross margin as a percentage of net sales decreased to 26.3% during fiscal 2013 as compared to 26.9% during fiscal 2012, due to lower margin in Europe associated with customer mix and currency exchange.

Canvys net sales increased 0.2% to $45.3 million during fiscal 2012, from $45.2 million during fiscal 2011. Sales increased in the North America original equipment manufacturer ("OEM") market, while sales in Europe were down due to the effect of the economic crisis on German exports. Healthcare revenues were flat. Gross margin as a percentage of net sales increased to 26.9 % during fiscal 2012 as compared to 24.6% during fiscal 2011, due primarily to improved quoting procedures and project selection, and better control of inventory and expedited freight requirements. A warranty charge taken during the fourth quarter of fiscal 2012 relating to a customer specific project had a negative impact on gross margin of 0.7%.

Sales by Geographic Area

On a geographic basis, our sales are categorized by destination: North America;
Europe; Asia/Pacific; Latin America; and Other.

Net sales by geographic area and percent change for fiscal 2013, 2012, and 2011
were as follows (in thousands):



                                                           FY13 vs. FY12         FY12 vs. FY11
Net Sales        FY 2013       FY 2012       FY 2011         % Change              % Change

North America   $  61,633     $  68,990     $  67,646               (10.7 %)                2.0 %
Asia/Pacific       22,732        25,588        26,354               (11.2 %)               (2.9 %)
Europe             45,663        52,039        54,040               (12.3 %)               (3.7 %)
Latin America       9,447         9,870        10,239                (4.3 %)               (3.6 %)
Other               1,591         1,349           588

Total           $ 141,066     $ 157,836     $ 158,867               (10.6 %)               (0.6 %)


Table of Contents

Gross profit by geographic area and percent of geographic net sales for fiscal 2013, 2012, and 2011 were as follows (in thousands):

   Gross Profit (Loss)         FY 2013                   FY 2012                   FY 2011

   North America         $ 21,460        34.8 %    $ 21,640        31.4 %    $ 19,873        29.4 %
   Asia/Pacific             7,753        34.1 %       9,061        35.4 %       9,441        35.8 %
   Europe                  14,323        31.4 %      16,082        30.9 %      14,356        26.6 %
   Latin America            3,294        34.9 %       3,710        37.6 %       4,093        40.0 %
   Other                   (5,285 )                  (3,712 )                  (1,650 )

   Total                 $ 41,545        29.5 %    $ 46,781        29.6 %    $ 46,113        29.0 %

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses ("SG&A") increased during fiscal 2013 to $41.5 million from $40.6 million during fiscal 2012. SG&A as a percentage of sales from continuing operations, increased to 29.4% during fiscal 2013 from 25.8% during fiscal 2012. SG&A in fiscal 2013 includes a $1.4 million increase for EDG partially offset by a $0.1 million reduction of support function costs and a decrease of SG&A costs for Canvys of $0.9 million. SG&A in fiscal 2013 includes employee-related termination costs of $0.5 million, $0.3 million, and $0.4 million relating to EDG, Canvys, and Corporate, respectively, compared to no employee-related termination costs for fiscal 2012.

SG&A decreased during fiscal 2012 to $40.6 million from $43.3 million during fiscal 2011. SG&A as a percentage of sales, from continuing operations, declined by 140 basis points to 25.8% during fiscal 2012 from 27.2% during fiscal 2011. The $2.7 million decrease includes a $0.1 million reduction of SG&A for EDG and a $2.8 million reduction of total company support function costs, due primarily to a reduction in headcount and professional services, partially offset by an increase of SG&A costs for Canvys of $0.2 million due primarily to an increase in bad debts from one customer, partially offset by a decrease in salary and severance.

Other (Income) Expense

Other (income) expense was income of $0.6 million during fiscal 2013, compared to income of $1.4 million during fiscal 2012. Other (income) expense included a foreign exchange loss of $0.8 million, as compared to a foreign exchange gain of less than $0.1 million during fiscal 2012. 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. Fiscal 2013 and fiscal 2012 also included $1.3 million and $1.4 million, respectively, of investment income.

Other (income) expense was income of $1.4 million during fiscal 2012, compared with expense of $0.4 million during fiscal 2011. The change from expense to income during fiscal 2012, as compared to fiscal 2011, was due primarily to income from investments of $1.4 million. Foreign exchange was a gain of less than $0.1 million during fiscal 2012, as compared to a foreign exchange loss of $0.6 million during fiscal 2011. 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. We carried no debt and had no redemptions during fiscal 2012, while fiscal 2011 included a loss of $0.1 million related to the redemption of our 7 3/4% convertible senior subordinated notes. Interest expense decreased to less than $0.1 million during fiscal 2012, as compared to $0.1 million during fiscal 2011, due to the full redemption of our convertible notes.


Table of Contents

Income Tax Provision (Benefit)

Our income tax provision during fiscal year 2013 was $0.2 million. Our income tax benefit for fiscal year 2012 was $0.3 million. During fiscal 2011, we had an income tax provision of $0.5 million. The effective income tax rates for continuing operations during fiscal 2013, 2012, and 2011, were 24.9%, (4.37%), and 19.1%, respectively. The difference between the effective tax rates as compared to the U.S. federal statutory rate of 34% during 2013 and 2012 and 35% during fiscal 2011, resulted from our geographical distribution of taxable income or losses, return to provisions adjustments, the release of income tax reserves for uncertain tax positions, changes in the amount of foreign earnings considered to be permanently reinvested, and changes in valuation allowance. There were no changes in judgment during the fiscal year end regarding the beginning-of-year valuation allowance which would require a benefit to be excluded from the annual effective tax rate and allocated to the interim period.

As of June 1, 2013, we had no domestic federal net operating loss ("NOL") carryforwards. Domestic state NOL carryforwards amounted to approximately $2.3 million. Foreign NOL carryforwards totaled approximately $0.8 million with various or indefinite expiration dates. We also had no alternative minimum tax credit carryforward or foreign tax credit carryforwards as of June 1, 2013. The domestic federal NOL and foreign tax credit generated in fiscal 2013 are expected to be carried back to prior tax years.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant component of objective evidence evaluated was the cumulative income of loss incurred in each jurisdiction over the three-year period ended June 1, 2013. On the basis of this evaluation, as of June 1, 2013, a valuation allowance of $7.5 million has been recorded to record only the portion of the deferred tax asset that more likely than not will be realized. The valuation allowance relates to deferred tax assets in jurisdictions where cumulative losses have been incurred, and domestic state NOL carryforwards related to states where the utilization of NOLs have been suspended. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

Our future U.S. federal statutory tax rate is expected to be closer to 34%, our state effective tax rate is expected to be approximately 3.8%, and our foreign effective tax rate is expected to be approximately 26%.

Income taxes paid, including foreign estimated tax payments, were $1.7 million, $40.1 million, and $3.4 million during fiscal 2013, 2012, and 2011, respectively.

We have historically determined that certain undistributed earnings of our foreign subsidiaries to the extent of cash available will be repatriated to the U.S., and accordingly, we have provided a deferred tax liability totaling $6.8 million and $7.6 million as of June 1, 2013 and June 2, 2012, respectively, on foreign earnings of $42.6 million. In addition, as of June 1, 2013, $36.9 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 ("ASC 740-30"). Due to various tax attributes that are constantly changing, it is not practical to determine what, if any, tax liability might exist if such earnings were to be repatriated.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2005 are closed for examination under the statute of limitation for U.S. federal, state or local, or non-U.S. tax jurisdictions. During fiscal 2013, we completed federal audits in the U.S. for fiscal 2009, 2010, and 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.


Table of Contents

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 RFPD division, as well as certain other Company assets, including our information technology assets, to Arrow in exchange for $238.8 million, which included an estimated pre-closing working capital adjustment of approximately $27.0 million. 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.

Following the Transaction, the Compensation Committee of our Board of Directors granted cash bonus compensation to certain executive officers and former employees in recognition of their efforts for successfully completing the Transaction. The cash bonus compensation amount awarded was approximately $3.8 million, and was recorded as expense from discontinued operations during the fourth quarter of fiscal 2011.

To help facilitate the transition of RFPD to Arrow, we agreed to provide certain transitional services to Arrow such as financial support services, warehouse services, and access to facilities in accordance with the terms of the Transition Services Agreement. Arrow also agreed to provide certain transitional services such as information technology services, warehouse services, and access to facilities and equipment in accordance with the terms of the Transition Services Agreement. The duration of the transitional services were less than one year from March 1, 2011, except for the information technology services which is three years. In addition, we entered into a Manufacturing Agreement with Arrow, in connection with the Transaction, for a term of three years. Pursuant to the Manufacturing Agreement, we agreed to manufacture certain products for Arrow.

The Transition Services Agreement, which commenced on March 1, 2011, and ended on March 1, 2012, allowed us to exert very limited influence over Arrow's operating and financial policies. The continuing cash flows related to our Transition Services Agreement as well as the Manufacturing Agreement, are insignificant. We believe it is appropriate to include fees and associated costs with the Transition Services Agreement that relate to financial support, certain facilities, and certain warehouse services in discontinued operations as they relate specifically to RFPD. We further believe it is appropriate to treat the revenue and costs associated with the Manufacturing Agreement as discontinued operations as it relates specifically to RFPD.

Financial Summary - Discontinued Operations

Summary financial results for fiscal 2013, 2012, and 2011 are presented in the
following table (in thousands):



                                              Fiscal 2013           Fiscal 2012           Fiscal 2011
Net sales                                    $         636         $       2,984         $     321,826
Gross profit (loss) (1)                               (553 )                (227 )              66,718
Selling, general, and administrative
expenses (2)                                           714                   552                44,317
Interest expense, net                                   -                     -                    387
Additional gain on sale                                 18                  (266 )            (111,432 )
Income tax provision (benefit) (3)                  (2,051 )              (1,049 )              47,480
Income (loss) from discontinued
operations, net of tax                                 766                   536                85,966

Notes:

(1) Gross profit (loss) for fiscal year 2013 includes unabsorbed manufacturing labor and overhead expenses related to the Manufacturing Agreement with RFPD.

(2) Selling, General and Administrative expenses relates primarily to tax audits resulting from the Transaction.

(3) The income tax benefit of $2.1 million during fiscal year 2013 relates primarily to the reversal of tax reserves.


Table of Contents

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. We did not have cash balances that were specific to RFPD and elected not to present separate cash flows from discontinued operations on our statement of cash flows.

Assets and liabilities classified as discontinued operations on our consolidated balance sheets as of June 1, 2013, and June 2, 2012, include the following (in thousands):

                                               June 1, 2013      June 2, 2012
       Inventories                             $         303     $         503
       Prepaid expenses and other assets                  -                 11

       Discontinued operations - Assets        $         303     $         514


       Accrued liabilities - current (1)       $         243     $         253
       Long-term income tax liabilities (2)               -              1,361

       Discontinued operations - Liabilities   $         243     $       1,614

(1) Included in accrued liabilities as of June 2, 2012, is $0.2 million of other accrued liabilities primarily related to professional legal and tax services.

(2) Included in long-term income tax liabilties as of June 1, 2012, is the reserve for uncertain tax positions of $1.4 million.

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 . . .

  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.