Richardson Electronics, Ltd. — Fiscal 2014 First Quarter
Reporting period: Three months ended August 31, 2013; comparison period ended September 1, 2012. Richardson Electronics supplies engineered electronic solutions, power grid and microwave products, and customized display solutions through its Electron Device Group (EDG) and Canvys segments.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Net sales | $34.3 million | $35.7 million |
| Gross profit / margin | $10.2 million / 29.8% | $10.6 million / 29.9% |
| Operating income / margin | $0.1 million / 0.4% | $0.5 million / 1.4% |
| Income from continuing operations | $2.0 million | $0.7 million |
| Net income | $2.0 million | $0.6 million |
| Basic and diluted EPS, common shares | $0.14 | $0.04 |
| Operating cash flow | $(1.2) million | $(3.3) million |
SG&A was essentially unchanged at $10.1 million, but rose to 29.4% of sales from 28.5%. The effective tax rate on continuing operations declined to 18.5% from 22.2%.
At August 31, 2013, cash was $92.5 million and investments totaled approximately $44.0 million. Current assets were $194.1 million and current liabilities $19.7 million. The balance sheet reports no borrowings or debt. Total stockholders’ equity was $180.3 million.
Changes and notable items
- Sales declined 3.9% year over year. EDG sales fell 0.6% to $25.5 million; Canvys sales fell 12.4% to $8.8 million.
- EDG tube sales were lower, primarily in industrial heating, broadcast, and aviation, partly offset by growth in laser and marine markets. Canvys weakness reflected North American healthcare market uncertainty and delayed OEM program starts.
- Net income benefited substantially from a $2.1 million anti-trust class-action settlement recorded in other income. Operating income, by contrast, decreased to $0.1 million. The filing does not provide a separate adjusted or normalized earnings measure.
- Cash and cash equivalents fell $9.5 million during the quarter. Financing uses included $6.7 million of share repurchases and $0.9 million of dividends; operating activities used $1.2 million of cash. Working-capital outflows included lower payables and accrued liabilities and higher receivables and inventory.
- The company acquired WVS-Technology’s assets in Germany on July 5 for approximately $1.0 million. Preliminary allocation included $0.7 million of inventory and $0.3 million of fixed assets; the purchase-price allocation remained subject to change.
Outlook, risks, and contingencies
Management said existing liquidity should be sufficient for known capital requirements and working-capital needs through fiscal year ending May 31, 2014, and to support foreseeable growth strategies. The filing gives no specific revenue or earnings guidance. Future dividends remain at the board’s discretion.
Management identified foreign-currency exposure as its primary financial market risk and said it does not use derivatives to manage currency exposure. Approximately $42.4 million of foreign subsidiary earnings remained considered permanently reinvested; any tax cost on repatriation was not determinable. Management reported no material changes to the risk factors in its prior Form 10-K. Pending ordinary-course litigation was not considered reasonably likely to result in a material loss; the quarter’s $2.1 million settlement was received during the period.
Discontinued operations, related to the previously divested RFPD business, recorded a net loss of $11,000 versus $87,000 a year earlier. The company reported effective disclosure controls and no material changes in internal control over financial reporting.
Important facts for investors to verify
- How much of the reported earnings improvement is attributable to the nonrecurring $2.1 million legal settlement, and what earnings level is sustainable without it.
- Whether Canvys demand and EDG market conditions improve, particularly in healthcare, OEM programs, and the cited end markets.
- Whether working-capital movements reverse and operating cash flow turns positive, given the quarter’s cash use.
- Completion of WVS purchase accounting and the acquisition’s contribution to sales, margins, and cash flow.
- Capital allocation and liquidity after substantial repurchases and dividends, as well as any tax implications if foreign earnings are repatriated.