Richardson Electronics, Ltd. (NASDAQ: RELL) today reported its results for the fourth quarter and full year ended May 31, 2008.
Net sales during fiscal 2008 were $568.4 million, up 2%, from net sales during fiscal 2007. Operating loss during fiscal 2008 was $1.3 million, compared to operating income of $7.8 million last year. Operating loss during fiscal 2008 includes a non-cash goodwill impairment charge of $11.5 million. Net loss from continuing operations for fiscal 2008, which includes the impairment charge, was $8.5 million, compared to net income from continuing operations during fiscal 2007 of $1.5 million. Net loss from continuing operations for fiscal 2008 includes a $2.3 million tax benefit related to the impairment charge.
Excluding the impairment charge, on a non-GAAP basis, operating income for fiscal 2008 was $10.2 million and net income from continuing operations was $0.8 million.
IMPROVED FOURTH QUARTER OPERATING PERFORMANCE
Net sales during the fourth quarter of fiscal 2008 were $155.1 million, compared to $146.2 million during fiscal 2007. Gross margin improved 190 basis points, from 22.5% during fiscal 2007, to 24.4% during fiscal 2008. Selling, general, and administrative expenses as a percent of net sales were 20.6%, compared to 24.9% last year. Operating loss during the fourth quarter of fiscal 2008, which includes the goodwill impairment charge, was $5.7 million, compared to an operating loss of $2.0 million last year. Excluding the impairment charge, operating income for the fourth quarter was $5.8 million and net income from continuing operations was $4.0 million.
“I am pleased with our sales growth and operating performance during the fourth quarter. Our sales growth of 6.0% includes growth in our RFPD and DSG businesses, while EDG remained relatively flat. In addition, I am encouraged by the improvements we are seeing in our underlying operating performance as well as the progress we have made with our company-wide initiatives,” said Edward J. Richardson, Chairman, Chief Executive Officer and President of Richardson Electronics, Ltd.
“During the fourth quarter, our cash generated from operating activities was $19.7 million, compared to cash used in operating activities of $0.2 million last year. This reflects the improved working capital discipline implemented during fiscal 2008. We ended fiscal 2008 with total debt less cash of $15.6 million,” said Kathleen S. Dvorak, Executive Vice President and Chief Financial Officer.
“Our efforts are resulting in improvements in many of our key financial metrics. Excluding the goodwill impairment charge, our fourth quarter financial results demonstrate the capabilities of our business model to deliver sustainable, long-term growth and value for our shareholders,” added Mr. Richardson.
GOODWILL IMPAIRMENT
During the fourth quarter of every fiscal year, the Company reviews goodwill for impairment by applying a fair-value based test. The test for impairment indicated that the fair value of the Company's Display Systems Group was less than its carrying value as of the March 1, 2008, measurement date. As a result, during the fourth quarter, the Company recorded an impairment charge of $11.5 million as a non-cash charge to operating expenses. The Company also recorded a $2.3 million tax benefit as a result of the impairment charge.
FINANCIAL HIGHLIGHTS ─ TWELVE MONTHS ENDED MAY 31, 2008
- Cash flows provided by operating activities were $27.9 million during fiscal 2008 while cash flows used in operating activities were $9.0 million during fiscal 2007.
- Net sales for the RF, Wireless & Power Division, the Electron Device Group, and the Display Systems Group increased 1.7%, 2.0%, and 3.1%, respectively, during fiscal 2008 compared to fiscal 2007.
- Gross margin percentage for the RF, Wireless & Power Division, the Electron Device Group, and the Display Systems Group decreased by 0.1%, 0.7%, and 2.2%, respectively, during fiscal 2008 compared to fiscal 2007.
- Excluding certain items as noted in the “Non-GAAP Financial Information” section of this press release, gross margin was $138.4 million during fiscal 2008, an increase of $6.0 million, compared to gross profit of $132.4 million during fiscal 2007. Gross margin percentage was 24.4% during fiscal 2008, a 60 basis point improvement, from 23.8% during fiscal 2007.
- Operating loss during fiscal 2008 was $1.3 million, compared to operating income of $7.8 million during fiscal 2007. Excluding the items noted in the “Non-GAAP Financial Information” section of this press release, operating income during fiscal 2008 was $16.3 million, a 101% increase, compared to operating income of $8.1 million during fiscal 2007.
- Net loss from continuing operations during fiscal 2008 was $8.5 million compared to net income from continuing operations of $1.5 million during fiscal 2007. Excluding the goodwill impairment charge of $11.5 million ($9.2 million, net of tax benefit of $2.3 million) net income from continuing operations during fiscal 2008 was $0.8 million.
IMPROVED WORKING CAPITAL MANAGEMENT AND CASH FLOWS
Cash and cash equivalents were $40.0 million at May 31, 2008, as compared to $17.4 million as of June 2, 2007. The increase in overall cash and cash equivalents during fiscal 2008 reflects $29.3 million of cash provided by improved working capital management. This is a $37.9 million improvement compared to cash used to support an increase in working capital of $8.6 million during fiscal 2007.
Total debt less cash as of May 31, 2008, was $15.6 million, compared to $42.1 million as of June 2, 2007.
NON-GAAP FINANCIAL INFORMATION
| Richardson Electronics, Ltd. | ||||||||||||||||
| Gross Profit and Operating Income / (Loss) Reconciliations | ||||||||||||||||
| (in millions) | ||||||||||||||||
| Twelve Months Ended | Twelve Months Ended | |||||||||||||||
| May 31, 2008 | June 2, 2007 | |||||||||||||||
| Percent | Percent | |||||||||||||||
| Amount | of Net Sales | Amount | of Net Sales | |||||||||||||
| GAAP Gross Profit, as reported | $ | 135.6 | 23.9 | % | $ | 132.4 | 23.8 | % | ||||||||
| Adjustments: | ||||||||||||||||
| Inventory write-downs | 2.8 | 0.5 | % | - | - | |||||||||||
| Adjusted Gross Profit | $ | 138.4 | 24.4 | % | $ | 132.4 | 23.8 | % | ||||||||
| GAAP Operating Income/(Loss), as reported | $ | (1.3 | ) | (0.2 | %) | $ | 7.8 | 1.4 | % | |||||||
| Adjustments: | ||||||||||||||||
| Impairment of goodwill | 11.5 | 2.0 | % | |||||||||||||
| Inventory write-downs | 2.8 | 0.5 | % | - | - | |||||||||||
| Employee termination related expenses | 3.3 | 0.6 | % | 3.9 | 0.7 | % | ||||||||||
| Less gain on disposal of assets | - | - | (3.6 | ) | (0.6 | %) | ||||||||||
| Adjusted Operating Income | $ | 16.3 | 2.9 | % | $ | 8.1 | 1.5 | % | ||||||||
In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles (“GAAP”), the Company adjusts for certain charges that it believes impacts the comparability of the results of operations.
The Company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the Company’s operating performance and the underlying trends in the Company's business.
OUTLOOK
“We believe that our cost reduction initiatives and our disciplined focus on working capital management will result in continued improvement in our cash flows and overall financial performance during fiscal 2009. I am encouraged by the progress we have made in a relatively short period of time and remain optimistic about our long-term prospects,” added Mr. Richardson.
CONFERENCE CALL INFORMATION
On Thursday, July 31, 2008, at 9:00 a.m. CT, Edward J. Richardson, Chairman and Chief Executive Officer, and Kathleen S. Dvorak, Chief Financial Officer, will host a conference call to discuss the Company’s fourth quarter and fiscal 2008 results. A question and answer session will be included as part of the call's agenda. To listen to the call, please dial 888-482-0024 and enter passcode 46231055 approximately five minutes prior to the start of the call. A replay of the call will be available beginning at 11:00 a.m. CT on July 31, 2008, for seven days. The telephone numbers for the replay are (USA) 888-286-8010 and (International) 617-801-6888; access code 77481736.
FORWARD-LOOKING STATEMENTS
This release includes certain “forward-looking” statements as defined by the Securities and Exchange Commission. Statements in this press release regarding the Company’s business which are not historical facts represent “forward-looking” statements that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the most recently ended fiscal year. The Company assumes no responsibility to update the forward-looking statements in this release as a result of new information, future events, or otherwise.
ABOUT RICHARDSON ELECTRONICS, LTD.
Richardson Electronics, Ltd. is a global provider of “Engineered Solutions,” serving the RF, Wireless & Power Conversion; Electron Device; and Display Systems markets. The Company delivers engineered solutions for its customers’ needs through product manufacturing, systems integration, prototype design and manufacture, testing and logistics. Press announcements and other information about Richardson are available at www.rell.com.
Richardson Electronics common stock trades on the NASDAQ Global Market under the ticker symbol RELL.
| Richardson Electronics, Ltd. | ||||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||
| May 31, | June 2, | May 31, | June 2, | |||||||||||||||
| Statements of Operations | 2008 | 2007 | 2008 | 2007 | ||||||||||||||
| Net sales | $ | 155,093 | $ | 146,246 | $ | 568,409 | $ | 557,291 | ||||||||||
| Cost of sales | 117,173 | 113,343 | 432,810 | 424,888 | ||||||||||||||
| Gross profit | 37,920 | 32,903 | 135,599 | 132,403 | ||||||||||||||
| Selling, general, and administrative expenses | 32,018 | 36,428 | 125,330 | 128,175 | ||||||||||||||
| Impairment of goodwill | 11,506 | - | 11,506 | - | ||||||||||||||
| (Gain) loss on disposal of assets | 97 | (1,518 | ) | 27 | (3,616 | ) | ||||||||||||
| Operating income (loss) | (5,701 | ) | (2,007 | ) | (1,264 | ) | 7,844 | |||||||||||
| Other (income) expense: | ||||||||||||||||||
| Interest expense | 1,239 | 1,081 | 6,854 | 5,292 | ||||||||||||||
Investment income | (357 | ) | (107 | ) | (928 | ) | (992 | ) | ||||||||||
| Foreign exchange (gain) loss | (67 | ) | (1,359 | ) | 1,485 | (1,078 | ) | |||||||||||
| Retirement of long-term debt expenses | - | - | - | 2,540 | ||||||||||||||
| Other, net | (19 | ) | (102 | ) | 14 | (100 | ) | |||||||||||
Total other (income) expense | 796 | (487 | ) | 7,425 | 5,662 | |||||||||||||
| Income (loss) from continuing operations before income taxes | (6,497 | ) | (1,520 | ) | (8,689 | ) | 2,182 | |||||||||||
| Income tax provision (benefit) | (1,263 | ) | (1,022 | ) | (218 | ) | 634 | |||||||||||
| Income (loss) from continuing operations | (5,234 | ) | (498 | ) | (8,471 | ) | 1,548 | |||||||||||
Income from discontinued operations, net of tax | - | 40,157 | 45 | 39,131 | ||||||||||||||
| Net income (loss) | $ | (5,234 | ) | $ | 39,659 | $ | (8,426 | ) | $ | 40,679 | ||||||||
| Net income (loss) per common share – basic: | ||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.30 | ) | $ | (0.03 | ) | $ | (0.48 | ) | $ | 0.09 | |||||||
Income from discontinued operations | 0.00 | 2.32 | 0.00 | 2.27 | ||||||||||||||
| Net income (loss) per common share – basic | $ | (0.30 | ) | $ | 2.29 | $ | (0.48 | ) | $ | 2.36 | ||||||||
| Net income (loss) per common share – diluted: | ||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.30 | ) | $ | (0.03 | ) | $ | (0.48 | ) | $ | 0.09 | |||||||
Income from discontinued operations | 0.00 | 2.32 | 0.00 | 2.21 | ||||||||||||||
| Net income (loss) per common share – diluted | $ | (0.30 | ) | $ | 2.29 | $ | (0.48 | ) | $ | 2.30 | ||||||||
| Weighted average number of shares: | ||||||||||||||||||
| Common shares – basic | 14,806 | 14,588 | 14,794 | 14,517 | ||||||||||||||
| Class B common shares - basic | 3,048 | 3,048 | 3,048 | 3,048 | ||||||||||||||
| Common shares – diluted (1) | 14,806 | 14,588 | 14,794 | 17,667 | ||||||||||||||
| Class B common shares - diluted | 3,048 | 3,048 | 3,048 | 3,048 | ||||||||||||||
| Dividends per common share | $ | 0.020 | $ | 0.040 | $ | 0.120 | $ | 0.160 | ||||||||||
| Dividends per Class B common share | $ | 0.018 | $ | 0.036 | $ | 0.108 | $ | 0.144 | ||||||||||
(1)Total common stock equivalents and Class B common stock for the three and twelve months ended May 31, 2008, are excluded from the diluted earnings per share calculation because their impact would be anti-dilutive. | ||||||||||||||||||
| Richardson Electronics, Ltd. | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| (in thousands, except per share amounts) | ||||||||||
| May 31, | June 2, | |||||||||
| 2008 | 2007 | |||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 40,042 | $ | 17,436 | ||||||
| Restricted cash | - | 61,899 | ||||||||
| Receivables, less allowance of $1,635 and $1,574 | 109,520 | 105,709 | ||||||||
| Inventories | 93,858 | 110,174 | ||||||||
| Prepaid expenses | 4,300 | 5,129 | ||||||||
| Deferred income taxes | 2,121 | 2,131 | ||||||||
| Current assets of discontinued operations held for sale | - | 242 | ||||||||
| Total current assets | 249,841 | 302,720 | ||||||||
| Non-current assets: | ||||||||||
| Property, plant and equipment, net | 28,635 | 29,278 | ||||||||
| Goodwill | 1,483 | 11,611 | ||||||||
| Other intangible assets, net | 758 | 1,581 | ||||||||
| Non-current deferred income taxes | 3,875 | 389 | ||||||||
| Assets held for sale | 105 | 1,429 | ||||||||
| Other non-current assets | 1,538 | 2,058 | ||||||||
| Non-current assets of discontinued operations held for sale | - | 5 | ||||||||
| Total non-current assets | 36,394 | 46,351 | ||||||||
| Total assets | $ | 286,235 | $ | 349,071 | ||||||
| Liabilities and Stockholders’ Equity | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 58,860 | $ | 55,530 | ||||||
| Accrued liabilities | 21,818 | 31,330 | ||||||||
| Current portion of long-term debt | - | 65,711 | ||||||||
| Current liabilities of discontinued operations held for sale | - | 2,737 | ||||||||
| Total current liabilities | 80,678 | 155,308 | ||||||||
| Non-current liabilities: | ||||||||||
| Long-term debt, less current portion | 55,683 | 55,683 | ||||||||
| Long-term income tax liabilities | 6,768 | - | ||||||||
| Other non-current liabilities | 1,676 | 1,535 | ||||||||
| Total non-current liabilities | 64,127 | 57,218 | ||||||||
| Total liabilities | 144,805 | 212,526 | ||||||||
| Commitment and contingencies | - | - | ||||||||
| Stockholders’ equity | ||||||||||
| Common stock, $0.05 par value; issued 15,929 shares at | ||||||||||
| May 31, 2008, and 15,920 shares at June 2, 2007 | 797 | 796 | ||||||||
| Class B common stock, convertible, $0.05 par value; issued 3,048 | ||||||||||
| shares at May 31, 2008, and 3,048 share at June 2, 2007 | 152 | 152 | ||||||||
| Preferred stock, $1.00 par value, no shares issued | - | - | ||||||||
| Additional paid-in-capital | 119,735 | 118,880 | ||||||||
| Common stock in treasury, at cost, 1,065 shares at May 31, 2008, | ||||||||||
| and 1,179 shares at June 2, 2007 | (6,310 | ) | (6,989 | ) | ||||||
| Retained earnings | 11,098 | 21,631 | ||||||||
| Accumulated other comprehensive income | 15,958 | 2,075 | ||||||||
| Total stockholders’ equity | 141,430 | 136,545 | ||||||||
| Total liabilities and stockholders’ equity | $ | 286,235 | $ | 349,071 | ||||||
| Richardson Electronics, Ltd. | ||||||||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||
| May 31, | June 2, | May 31, | June 2, | |||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||||||
| Operating activities: | ||||||||||||||||||||
| Net income (loss) | $ | (5,234 | ) | $ | 39,659 | $ | (8,426 | ) | $ | 40,679 | ||||||||||
| Adjustments to reconcile net income (loss) to cash provided by | ||||||||||||||||||||
| (used in) operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 1,317 | 1,471 | 5,257 | 6,126 | ||||||||||||||||
| Impairment of goodwill | 11,506 | - | 11,506 | - | ||||||||||||||||
| Gain on disposal of segment of business | - | (41,565 | ) | - | (41,565 | ) | ||||||||||||||
| (Gain) loss on disposal of assets | 97 | (1,484 | ) | 27 | (3,582 | ) | ||||||||||||||
| Retirement of long-term debt expenses | - | - | - | 2,540 | ||||||||||||||||
| Write-off of deferred financing costs | - | - | 643 | 62 | ||||||||||||||||
| Stock compensation expense | 164 | 179 | 687 | 953 | ||||||||||||||||
| Deferred income taxes | (2,096 | ) | (108 | ) | (3,026 | ) | 309 | |||||||||||||
| Accounts receivable | (4,266 | ) | (8,651 | ) | 3,535 | (3,635 | ) | |||||||||||||
| Inventories | 14,717 | 4,961 | 23,403 | (9,836 | ) | |||||||||||||||
| Accounts payable | 663 | 4,330 | 2,344 | 4,871 | ||||||||||||||||
| Accrued liabilities | 1,662 | 4,824 | (6,928 | ) | (2,234 | ) | ||||||||||||||
| Other liabilities | 221 | (235 | ) | 91 | 371 | |||||||||||||||
| Other | 907 | (3,552 | ) | (1,197 | ) | (4,019 | ) | |||||||||||||
| Net cash provided by (used in) operating activities | 19,658 | (171 | ) | 27,916 | (8,960 | ) | ||||||||||||||
| Investing activities: | ||||||||||||||||||||
| Capital expenditures | (271 | ) | (1,685 | ) | (4,464 | ) | (6,401 | ) | ||||||||||||
| Proceeds from sale of assets | 130 | 1,984 | 1,137 | 5,093 | ||||||||||||||||
| Contingent purchase price consideration | (96 | ) | - | (256 | ) | - | ||||||||||||||
| Proceeds from sale of segment of business, net of transaction expenses paid | - | 78,114 | - | 78,114 | ||||||||||||||||
Gain on sale of investments | (253 | ) | (39 | ) | (124 | ) | (709 | ) | ||||||||||||
| Proceeds from sales of available-for-sale securities | 362 | 92 | 707 | 3,774 | ||||||||||||||||
| Purchases of available-for-sale securities | (8 | ) | (92 | ) | (196 | ) | (274 | ) | ||||||||||||
| Net cash provided by (used in) investing activities | (136 | ) | 78,374 | (3,196 | ) | 79,597 | ||||||||||||||
| Financing activities: | ||||||||||||||||||||
| Proceeds from borrowings | 34,500 | 56,550 | 197,700 | 258,561 | ||||||||||||||||
| Payments on debt | (44,500 | ) | (68,769 | ) | (263,340 | ) | (250,419 | ) | ||||||||||||
| Restricted cash | - | (61,899 | ) | 61,899 | (61,899 | ) | ||||||||||||||
| Proceeds from issuance of common stock | - | 1,193 | 69 | 1,948 | ||||||||||||||||
| Cash dividends | (351 | ) | (693 | ) | (2,107 | ) | (2,764 | ) | ||||||||||||
| Payments on retirement of long-term debt | - | - | - | (15,915 | ) | |||||||||||||||
| Other | - | - | (95 | ) | (674 | ) | ||||||||||||||
| Net cash used in financing activities | (10,351 | ) | (73,618 | ) | (5,874 | ) | (71,162 | ) | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 329 | 488 | 3,760 | 951 | ||||||||||||||||
Increase in cash and cash equivalents | 9,500 | 5,073 | 22,606 | 426 | ||||||||||||||||
| Cash and cash equivalents at beginning of period | 30,542 | 12,363 | 17,436 | 17,010 | ||||||||||||||||
| Cash and cash equivalents at end of period | $ | 40,042 | $ | 17,436 | $ | 40,042 | $ | 17,436 | ||||||||||||
| Richardson Electronics, Ltd. | ||||||||||||||||||||||||||||
| Net Sales and Gross Profit | ||||||||||||||||||||||||||||
| For the Fourth Quarter and Twelve Months of Fiscal 2008 and 2007 | ||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| By Business Unit: | ||||||||||||||||||||||||||||
| Net Sales | Gross Profit (1) | |||||||||||||||||||||||||||
| % | GP% of | GP% of | ||||||||||||||||||||||||||
| Fourth Quarter | FY 2008 | FY 2007 | Change | FY 2008 | Sales | FY 2007 | Sales | |||||||||||||||||||||
| RF, Wireless & Power Division | $ | 102,996 | $ | 99,369 | 3.7 | % | $ | 22,866 | 22.2 | % | $ | 21,907 | 22.0 | % | ||||||||||||||
| Electron Device Group | 26,482 | 26,639 | (0.6 | %) | 8,470 | 32.0 | % | 8,970 | 33.7 | % | ||||||||||||||||||
| Display Systems Group | 24,800 | 19,310 | 28.4 | % | 6,214 | 25.1 | % | 4,275 | 22.1 | % | ||||||||||||||||||
| Corporate | 815 | 928 | 370 | (2,249 | ) | |||||||||||||||||||||||
| Total | $ | 155,093 | $ | 146,246 | 6.0 | % | $ | 37,920 | 24.4 | % | $ | 32,903 | 22.5 | % | ||||||||||||||
| % | GP% of | GP% of | ||||||||||||||||||||||||||
| Twelve Months | FY 2008 | FY 2007 | Change | FY 2008 | Sales | FY 2007 | Sales | |||||||||||||||||||||
| RF, Wireless & Power Division | $ | 376,203 | $ | 369,936 | 1.7 | % | $ | 85,323 | 22.7 | % | $ | 84,338 | 22.8 | % | ||||||||||||||
| Electron Device Group | 103,256 | 101,191 | 2.0 | % | 32,941 | 31.9 | % | 32,942 | 32.6 | % | ||||||||||||||||||
| Display Systems Group | 84,671 | 82,111 | 3.1 | % | 17,848 | 21.1 | % | 19,145 | 23.3 | % | ||||||||||||||||||
| Corporate | 4,279 | 4,053 | (513 | ) | (4,022 | ) | ||||||||||||||||||||||
| Total | $ | 568,409 | $ | 557,291 | 2.0 | % | $ | 135,599 | 23.9 | % | $ | 132,403 | 23.8 | % | ||||||||||||||
Note: Corporate consists of freight and other non-specific net sales. | ||||||||||||||||||||||||||||
(1)Included in Gross Profit for fiscal 2008 are inventory write-downs of $0.9 million in the RF, Wireless & Power Division and $1.9 million in the Display Systems Group. | ||||||||||||||||||||||||||||
Contacts:
Edward J. Richardson
Chairman
and CEO
Phone: (630) 208-2340
E-mail: info@rell.com
or
Kathleen
S. Dvorak
EVP & CFO
(630) 208-2208
