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Richardson Electronics Reports Fourth Quarter and Fiscal 2014 Results and Declares Quarterly Cash Dividend

Richardson Electronics, Ltd. (NASDAQ: RELL), today reported sales and earnings for its fourth quarter and fiscal year ended May 31, 2014. The Company also announced that its Board of Directors declared a $0.06 per share quarterly cash dividend.

Fiscal 2014 Results

Net sales for fiscal 2014 were $138.0 million, a 2.2% decrease compared to net sales of $141.1 million in the prior year. Gross margin was $41.0 million, or 29.7% of net sales during fiscal 2014, compared to $41.5 million, or 29.5% of net sales during fiscal 2013.

Operating expenses were $43.5 million for fiscal 2014, compared to $41.5 for fiscal 2013. Operating expenses included employee termination costs of $1.2 million, $1.1 million related to potential acquisitions, $0.4 million investment in new product development, and system implementation expenses of $0.8 million.

Operating loss of $4.2 million in fiscal 2014 included a goodwill impairment charge of $1.7 million.

Loss from continuing operations for fiscal 2014 was $0.3 million, compared to income of $0.5 million from continuing operations for fiscal 2013.

Cash provided by operating activities totaled $4.6 million for fiscal 2014, compared to cash provided by operating activities of $8.6 million in fiscal 2013.

Fourth Quarter Results

Net sales for the fourth quarter of fiscal 2014 were $35.4 million, a 0.6% increase compared to net sales of $35.2 million in the prior year. Sales for the Company's EDG business were up 3.8% while sales for its Canvys division were down 9.1%, compared to the prior year's quarter. Gross margin was $10.2 million, or 28.7% of net sales during the fourth quarter of fiscal 2014, compared to $10.2 million, or 29.1% of net sales during fiscal 2013.

Operating expenses were $12.4 million for the fourth quarter of fiscal 2014, compared to $11.8 million for the fourth quarter of fiscal 2013. The fourth quarter of fiscal 2014 operating expenses included employee termination costs of $1.2 million, $0.5 million related to potential acquisitions, $0.2 million investment in new product development, and system implementation expenses of $0.5 million.

Operating loss for the fourth quarter of fiscal 2014 was $3.9 million compared to operating loss of $1.6 million for the fourth quarter of fiscal 2013. The fiscal 2014 fourth quarter operating loss included a $1.7 million goodwill impairment charge.

Loss from continuing operations for the fourth quarter of fiscal 2014 was $2.8 million compared to loss from continuing operations for the fourth quarter of fiscal 2013 of $1.4 million.

FINANCIAL SUMMARY – FISCAL 2014

  • Net sales for fiscal 2014 were $138.0 million, down 2.2%, compared to net sales of $141.1 during fiscal 2013.
  • Gross margin increased to 29.7% during fiscal 2014 compared to 29.5% during fiscal 2013.
  • Selling, general, and administrative expenses increased to $43.5 million, or 31.5% of net sales, for fiscal 2014 compared to $41.5 million, or 29.4% of net sales, for fiscal 2013.
  • Operating loss during fiscal 2014 was $4.2 million compared to breakeven for fiscal 2013.
  • Other income for fiscal 2014 was $3.5 million compared to other income of $0.6 million for fiscal 2013. Other income for fiscal 2014 included $2.5 million of proceeds from a class action lawsuit settlement.
  • Loss from continuing operations during fiscal 2014 was $0.3 million versus income of $0.5 million during fiscal 2013.
  • Loss from discontinued operations, net of tax, was $0.2 million during fiscal 2014 compared to income from discontinued operations, net of tax, of $0.8 million during fiscal 2013, or $0.05 per diluted common share.
  • Net loss during fiscal 2014 was $0.5 million compared to net income of $1.2 million, or $0.08 per diluted common share, during fiscal 2013.

FINANCIAL SUMMARY – FOURTH QUARTER

  • Net sales for the fourth quarter of fiscal 2014 were $35.4 million, up 0.6%, compared to net sales of $35.2 million during the fourth quarter of fiscal 2013.
  • Gross margin decreased to 28.7% during the fourth quarter of fiscal 2014 compared to 29.1% during last year's fourth quarter.
  • Selling, general, and administrative expenses increased to $12.4 million, or 35.1% of net sales for the fourth quarter of fiscal 2014 compared to $11.8 million for the fourth quarter of fiscal 2013, or 33.7% of net sales.
  • Operating loss during the fourth quarter of fiscal 2014 was $3.9 million compared to operating loss of $1.6 million for the fourth quarter of fiscal 2013.
  • Other income for the fourth quarter of fiscal 2014 was $0.2 million compared to income of $0.3 million for the fourth quarter of fiscal 2013.
  • Loss from continuing operations during the fourth quarter of fiscal 2014 was $2.8 million compared to loss from continuing operations for the fourth quarter of fiscal 2013 of $1.4 million.
  • Income from discontinued operations, net of tax, was $0.4 million during the fourth quarter of fiscal 2014 compared to income from discontinued operations, net of tax, of $1.2 million during the fourth quarter of fiscal 2013.
  • Net loss during the fourth quarter of fiscal 2014 was $2.5 million compared to net loss of $0.2 million during the fourth quarter of fiscal 2013.

CASH DIVIDEND

The Company also announced today that its Board of Directors declared a $0.06 quarterly dividend per share to holders of common stock and a $0.054 cash dividend per share to holders of Class B common stock. The dividend will be payable on August 22, 2014, to common stockholders of record on August 8, 2014.

“Cash and investments at the end of our fourth quarter were $136.0 million. As of today, the Company currently has 11.8 million outstanding shares of common stock and 2.2 million outstanding shares of Class B common stock. With our strong balance sheet, we are committed to returning value to our shareholders,” said Edward Richardson, Chairman, Chief Executive Officer, and President.

OUTLOOK

“We believe sales for fiscal 2015 will be in the range of $140 to $150 million. We will continue to use our cash and investments to make strategic acquisitions, invest in growth initiatives, and repurchase our stock. During the last several years, our small strategic acquisitions have provided additional resources, customers, and knowledge-based support to EDG.

“While the market for tubes has been declining, we have been able to increase our market share and improve our margins. We are taking costs out of EDG to enable us to dedicate resources to our growth initiatives. We are developing our own intellectual property and plan to grow sales in new markets, such as healthcare, while maximizing the use of our existing global customer base and infrastructure. With an improving economy and continued attention to operating efficiencies, we are confident that our investments will result in higher sales growth and improved financial performance over the long term,” concluded Mr. Richardson.

CONFERENCE CALL INFORMATION

On Thursday, July 24, 2014, 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 results for fiscal 2014. A question and answer session will be included as part of the call's agenda. To listen to the call, please dial (888) 339-2688 and enter passcode 77103118 approximately five minutes prior to the start of the call. A replay of the call will be available beginning at 11:59 p.m. CT on July 24, 2014, for seven days. The telephone numbers for the replay are (USA) (888) 286-8010 and (International) (617) 801-6888; passcode 82510744.

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 filed on July 26, 2013. 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 leading global provider of engineered solutions, power grid and microwave tubes and related consumables, and customized display solutions serving customers in the alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company's strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair. More information is available online at www.rell.com.

Richardson Electronics common stock trades on the NASDAQ Global Select Market under the ticker symbol RELL.

 
 
Richardson Electronics, Ltd.
Consolidated Balance Sheets

(in thousands, except per share amounts)

 
May 31,
2014
June 1,
2013
Assets
Current assets:
Cash and cash equivalents $ 102,752 $ 102,002
Accounts receivable, less allowance of $581 and $1,092 18,354 18,268
Inventories 33,869 33,975
Prepaid expenses and other assets 1,089 1,155
Deferred income taxes 1,537 1,856
Income tax receivable 2,888 6,429
Investments - current 31,732 38,971
Discontinued operations - assets 18   303  
Total current assets 192,239   202,959  
Non-current assets:
Property, plant and equipment, net 7,223 5,073
Goodwill 1,519
Other Intangibles 843 908
Non-current deferred income taxes 1,724 1,398
Investments - non-current 1,516   5,461  
Total non-current assets 11,306   14,359  
Total assets $ 203,545   $ 217,318  
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 12,337 $ 14,255
Accrued liabilities 9,220 9,566
Discontinued operations - liabilities 7   245  
Total current liabilities 21,564   24,066  
Non-current liabilities:
Non-current deferred income taxes liability 5,691 6,726
Other non-current liabilities 1,315 1,287
Discontinued operations - non-current liabilities 130    
Total non-current liabilities 7,136   8,013  
Total liabilities 28,700   32,079  
Commitments and contingencies
Stockholders’ equity
Common stock, $0.05 par value; issued 11,835 shares at May 31, 2014, and 12,263 shares at June 1, 2013 592 613
Class B common stock, convertible, $0.05 par value; issued 2,191 shares at May 31, 2014, and 2,491 shares at June 1, 2013 110 125
Preferred stock, $1.00 par value, no shares issued
Additional paid-in-capital 66,141 73,979
Common stock in treasury, at cost, 1 share at May 31, 2014, and 9 shares at June 1, 2013 (14 ) (105 )
Retained earnings 97,959 101,816
Accumulated other comprehensive income 10,057   8,811  
Total stockholders’ equity 174,845   185,239  
Total liabilities and stockholders’ equity $ 203,545   $ 217,318  
 
 
Richardson Electronics, Ltd.
Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except per share amounts)

     
Three Months Ended Twelve Months Ended
May 31,
2014
  June 1,
2013
May 31,
2014
  June 1,
2013
Statements of Comprehensive Income (Loss)
Net sales $ 35,383 $ 35,183 $ 137,960 $ 141,066
Cost of sales 25,219   24,936   96,946   99,521  
Gross profit 10,164 10,247 41,014 41,545
Selling, general, and administrative expenses 12,417 11,841 43,496 41,536
Impairment of goodwill 1,671 1,671
Loss on disposal of assets       (2 )
Operating income (loss) (3,924 ) (1,594 ) (4,153 ) 11  
Other (income) expense:
Investment/interest income (221 ) (311 ) (1,018 ) (1,306 )
Foreign exchange (gain) loss (39 ) 40 84 760
Proceeds from legal settlement (2,547 )
Other, net 16   (23 ) (20 ) (85 )
Total other income (244 ) (294 ) (3,501 ) (631 )
Income (loss) from continuing operations before income taxes (3,680 ) (1,300 ) (652 ) 642
Income tax provision (benefit) (837 ) 119   (307 ) 160  
Income (loss) from continuing operations (2,843 ) (1,419 ) (345 ) 482
Income (loss) from discontinued operations, net of tax 368   1,238   (170 ) 766  
Net income (loss) (2,475 ) (181 ) (515 ) 1,248  
Foreign currency translation gain/(loss), net of tax 664 336 (1,216 ) (1,508 )
Fair value adjustments on investments (1 ) (16 ) (30 ) (30 )
Comprehensive income (loss) $ (1,812 ) $ 139   $ (1,761 ) $ (290 )

Net income (loss) per Common share - Basic:

Income (loss) from continuing operations $ (0.21 ) $ (0.10 ) $ (0.03 ) $ 0.03
Income (loss) from discontinued operations 0.03   0.08   (0.01 ) 0.05  
Total net income (loss) per Common share - Basic: $ (0.18 ) $ (0.02 ) $ (0.04 ) $ 0.08  

Net income (loss) per Class B common share - Basic:

Income (loss) from continuing operations $ (0.19 ) $ (0.09 ) $ (0.02 ) $ 0.03
Income (loss) from discontinued operations 0.02   0.08   (0.01 ) 0.05  
Total net income (loss) per Class B common share - Basic: $ (0.17 ) $ (0.01 ) $ (0.03 ) $ 0.08  

Net income (loss) per Common share - Diluted:

Income (loss) from continuing operations $ (0.21 ) $ (0.09 ) $ (0.03 ) $ 0.03
Income (loss) from discontinued operations 0.03   0.08   (0.01 ) 0.05  
Total net income (loss) per Common share - Diluted: $ (0.18 ) $ (0.01 ) $ (0.04 ) $ 0.08  

Net income (loss) per Class B common share - Diluted:

Income (loss) from continuing operations $ (0.19 ) $ (0.08 ) $ (0.02 ) $ 0.03
Income (loss) from discontinued operations 0.02   0.08   (0.01 ) 0.05  
Total net income (loss) per Class B common share - Diluted: $ (0.17 ) $   $ (0.03 ) $ 0.08  
Weighted average number of shares:
Common shares - Basic 11,833   12,293   11,915   12,448  
Class B common shares - Basic 2,191   2,696   2,250   2,790  
Common shares - Diluted 11,833   15,122   11,915   15,372  
Class B common shares - Diluted 2,191   2,696   2,250   2,790  
Dividends per common share $ 0.060   $ 0.060   $ 0.240   $ 0.240  
Dividends per Class B common share $ 0.054   $ 0.054   $ 0.220   $ 0.220  
 
 
Richardson Electronics, Ltd.
Consolidated Statements of Cash Flows

(in thousands)

     
Three Months Ended Twelve Months Ended
May 31,
2014
  June 1,
2013
May 31,
2014
  June 1,
2013
Operating activities:
Net income (loss) $ (2,475 ) $ (181 ) $ (515 ) $ 1,248
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization 298 274 1,094 1,057
Gain on sale of investments (4 ) (2 ) (27 ) (28 )
Loss on disposal of assets 16
Share-based compensation expense 174 206 759 619
Deferred income taxes (900 ) 161 (1,005 ) 145
Impairment of goodwill 1,671 1,671
Change in assets and liabilities, net of effect of acquired businesses:
Accounts receivable 1,693 1,337 195 1,814
Income tax receivable 752 371 3,541 143
Inventories 1,384 930 1,517 3,097
Prepaid expenses and other assets 230 (5 ) 96 (329 )
Accounts payable 1,098 1,227 (2,072 ) 1,482
Accrued liabilities 1,805 1,255 (723 ) 960
Other non-current liabilities 435 (1,792 ) 133 (1,918 )
Other (111 ) (29 ) (51 ) 319  
Net cash provided by operating activities 6,050   3,752   4,613   8,625  
Investing activities:
Cash consideration paid for acquired businesses (973 ) (2,557 )
Capital expenditures (960 ) (571 ) (2,781 ) (1,640 )
Proceeds from sale of assets 4
Proceeds from maturity of investments 83,990 26,686 342,279 154,228
Purchases of investments (82,150 ) (377 ) (331,023 ) (82,898 )
Proceeds from sales of available-for-sale securities 24 27 176 188
Purchases of available-for-sale securities (24 ) (27 ) (176 ) (188 )
Other 1   68   98   68  
Net cash provided by investing activities 881   25,806   7,600   67,205  
Financing activities:
Repurchase of common stock (14 ) (3,474 ) (8,739 ) (15,024 )
Proceeds from issuance of common stock 6 50 190 198
Cash dividends paid (827 ) (886 ) (3,341 ) (3,571 )
Other 62     37    
Net cash used in financing activities (773 ) (4,310 ) (11,853 ) (18,397 )
Effect of exchange rate changes on cash and cash equivalents (566 ) (269 ) 390   676  
Increase in cash and cash equivalents 5,592 24,979 750 58,109
Cash and cash equivalents at beginning of period 97,160   77,023   102,002   43,893  
Cash and cash equivalents at end of period $ 102,752   $ 102,002   $ 102,752   $ 102,002  
       
 
Richardson Electronics, Ltd.
Net Sales and Gross Profit
For the Fourth Quarter and Fiscal 2014 and Fiscal 2013

(in thousands)

             

By Strategic Business Unit:

 

Net Sales

Q4 FY 2014 Q4 FY 2013   % Change
EDG $ 27,439 $ 26,447 3.8%
Canvys 7,944   8,736   (9.1)%
Total $ 35,383   $ 35,183   0.6%
 
FY 2014 FY 2013   % Change
EDG $ 103,274 $ 102,593 0.7%
Canvys 34,686   38,473   (9.8)%
Total $ 137,960   $ 141,066   (2.2)%
 

Gross Profit

Q4 FY 2014   % of Net Sales     Q4 FY 2013     % of Net Sales
EDG $ 8,105 29.5% $ 8,094 30.6%
Canvys 2,059   25.9% 2,153   24.6%
Total $ 10,164   28.7% $ 10,247   29.1%
 
FY 2014   % of Net Sales     FY 2013     % of Net Sales
EDG $ 31,610 30.6% $ 31,431 30.6%
Canvys 9,404   27.1% 10,114   26.3%
Total $ 41,014   29.7% $ 41,545   29.5%

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