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RICHARDSON ELECTRONICS, LTD. - Quarter Report: 2003 November (Form 10-Q)

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

[X]

  

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended   November 29, 2003

or

[   ]

  

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____________________  to  ____________________

Commission File Number:

     0-12906                                               

Richardson Electronics, LTD

(Exact name of registrant as specified in its charter)

 

       

 

Delaware

36-2096643

(State or other jurisdiction of
incorporation or organization)

(IRS Employer Identification Number)

 

 

 

40W267 Keslinger Road
P.O. Box 393 LaFox, Illinois


60147

(Address of principal executive offices)

(Zip code)

(630) 208-2200

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X]

Yes

 

[  ]

No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

[X]

Yes

 

[  ]

No

As of January 6, 2004, there were outstanding 12,408,435 shares of Common Stock, $.05 par value, inclusive of 1,504,843 shares held in treasury, and 3,196,320 shares of Class B Common Stock, $.05 par value, which are convertible into Common Stock on a share-for-share basis.

1


Table of Contents


RICHARDSON ELECTRONICS, LTD.
QUARTERLY FINANCIAL REPORT
TABLE OF CONTENTS

 

         

         

                  

         

Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

3

   Condensed Consolidated Balance Sheets as of November 29, 2003 and May 31, 2003

 

 

3

 

   Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the
       Three- and Six-Months Periods Ended November 29, 2003 and November 30, 2002

 

 

4

 

   Condensed Consolidated Statements of Cash Flows for the
       Six-Months Periods Ended November 29, 2003 and November 30, 2002

 

 

5

 

   Notes to the Condensed Consolidated Financial Statements

 

 

6

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

11

 

Item 3. Quantitative and Qualitative Disclosures About Market Risks

15

Item 4. Controls and Procedures

15

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

 

15

 

Item 2. Change in Securities and Use of Proceeds

16

Item 3. Defaults upon Senior Securities

16

Item 4. Submission of Matters to a Vote of Security Holders

16

Item 5. Other Information

16

Item 6. Exhibits and Reports on Form 8-K

 

 

16

 

 

Signatures

 

 

16

 

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Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RICHARDSON ELECTRONICS, LTD
CONDENSED CONSOLIDATED BALANCE SHEETS

As of

November 29,

May 31,

(in thousands, except per share amounts)

2003

2003

(unaudited)

(as restated,

   

see Note B)

ASSETS

Current Assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,764

 

 

$

16,874

 

 

Receivables, less allowance of $3,900 and $3,350

 

 

93,865

 

 

 

85,355

 

 

Inventories

 

 

91,298

 

 

 

95,896

 

 

Prepaid expenses

 

 

6,398

 

          

 

6,919

 

 

Deferred income taxes, net

 

 

18,765

 

 

 

19,401

 

 

     Total current assets

 

 

231,090

 

 

 

224,445

 

 

Property, plant and equipment, net

30,556

31,088

Goodwill and intangible assets, net

 

 

6,023

 

 

 

6,129

 

Other assets

 

 

3,501

 

 

 

3,269

 

 

 Total assets

 

$

271,170

 

 

$

264,931

 

    

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

29,572

 

 

$

23,660

 

 

Accrued liabilities

 

 

20,861

 

 

 

17,421

 

 

Current portion of long-term debt

 

 

54

 

 

 

46

 

 

 

Total current liabilities

 

 

50,487

 

 

 

41,127

 

 

Long-term debt

 

 

134,784

 

 

 

138,396

 

Deferred income taxes, net

 

 

6,725

 

 

 

5,269

 

Other non-current liabilities

 

 

-

 

 

 

5,049

 

 

 

Total liabilities

 

 

191,996

 

 

 

189,841

 

  

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Common stock ($.05 par value; issued 12,396 shares at November 29, 2003 and 12,258 shares at May 31, 2003)

 

 

620

 

 

613

 

Class B common stock, convertible ($.05 par value; issued 3,201 shares at November 29, 2003 and 3,207 shares at May 31, 2003)

 

 

160

 

 

160

 

Preferred stock ($1.00 par value; no shares issued)

 

 

-

 

 

 

-

 

 

Additional paid-in capital

 

 

93,138

 

 

 

91,962

 

 

Common stock in treasury, at cost (1,505 shares at November 29, 2003 and 1,506 shares at May 31, 2003)

 

 

(8,920

)

 

 

(8,922

)

 

Retained earnings

 

 

7,581

 

 

 

6,079

 

 

Unearned compensation

 

 

(355

)

 

 

(541

)

 

Accumulated other comprehensive loss

 

 

(13,050

)

 

 

(14,261

)

 

 

Total stockholders’ equity

 

 

79,174

 

 

 

75,090

 

 

Total liabilities and stockholders' equity

 

$

271,170

 

 

$

264,931

 

  

See notes to condensed consolidated financial statements.

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Table of Contents


RICHARDSON ELECTRONICS, LTD
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE- AND SIX-MONTH PERIODS ENDED NOVEMBER 29, 2003 AND NOVEMBER 30, 2002

Three months ended

Six months ended

(unaudited, in thousands, except per share amounts)

November 29,
2003

November 30,
2002

November 29,
2003

November 30,
2002

(as restated,

(as restated,

see Note B)

see Note B)

                                                                                                                                                

         

         

         

         

Net sales

$

128,051

 

 

$

118,958

$

247,357

 

 

$

227,572

 

Cost of products sold

97,109

90,045

187,300

 

 

171,505

 

     

Gross margin

30,942

28,913

 

60,057

 

 

 

56,067

 

   

 Selling, general and administrative expenses

25,495

24,458

 

51,340

 

 

 

48,704

 

 

Operating income

5,447

4,455

 

8,717

 

 

 

7,363

 

Other (income) expense

 

 

 

 

 

 

Interest expense

2,558

2,528

 

5,104

 

 

 

5,123

 

 

Other, net

(160

)

179

 

(112

)

 

 

166

             Total other (income) expense

2,398

2,707

 

4,992

 

 

5,289

 

Income before income tax and cumulative effect of accounting change

3,049

1,748

 

3,725

 

 

 

2,074

 

Income tax

844

670

 

1,128

 

 

830

 

Net income before cumulative effect of accounting change

2,205

1,078

 

2,597

 

 

 

1,244

 

Cumulative effect of accounting change, net of tax (Note E)

-

-

-

 

 

(17,862

)

 

Net income (loss)

 $

2,205

 

 

 $

1,078

 $

2,597

 

 

 $

(16,618

)

 

 

 

 

 

 

 

 

Net income (loss) per share - basic:

 

 

 

 

 

 

 

 

Net income per share before cumulative effect of accounting change

$

0.16

$

0.08

 $

0.19

 

 

 $

0.09

 

Cumulative effect of accounting change, net of tax (Note E)

-

-

-

 

 

(1.30

)

 

Net income (loss) per share

$

0.16

$

0.08

 $

0.19

 

 

 $

(1.21

)

 

Average shares outstanding

13,979

13,740

13,952

 

 

13,734

 

 

 

 

 

 

 

 

 

Net income (loss) per share - diluted:

 

 

 

 

 

 

 

 

Net income per share before cumulative effect of accounting change

$

0.15

$

0.08

 $

0.18

 

 

 $

0.09

 

Cumulative effect of accounting change, net of tax (Note E)

-

-

-

 

 

(1.28

)

 

Net income (loss) per share

$

0.15

$

0.08

 $

0.18

 

 

 $

(1.19

)

 

Average shares outstanding

14,361

13,871

14,281

 

 

14,004

 

 

 

 

 

 

 

 

 

Dividends per common share

$

0.04

$

0.04

$

0.08

 

 

$

0.08

 

 

 

 

 

 

 

 

 

Statement of comprehensive income (loss):

 

 

 

 

 

 

 

 

Net income (loss)

$

2,205

$

1,078

 $

2,597

 

 

 $

(16,618

 

Foreign currency translation

3,426

(1,936

)

 

654

 

 

(1,744

Unrealized gain (loss) on investments

70

(9

)

212

(203

)

 

Fair value adjustments - cash flow hedges

164

23

 

345

 

 

(253

 

     Comprehensive income (loss)

$

5,865

$

(844

)

 $

3,808

 

 $

(18,818

)

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

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RICHARDSON ELECTRONICS, LTD
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED NOVEMBER 29, 2003 AND NOVEMBER 30, 2002

(unaudited, in thousands)

Six months ended

 

                                                                                                                                               

         

November 29,
2003

         

November 30,
2002

 

(as restated,

 

see Note B)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income (loss)

$

2,597

 

 

$

(16,618

)

 

Non-cash charges to income (loss):

 

 

 

 

 

 

 

 

      Depreciation

 

2,684

 

 

2,764

 

 

 Amortization of intangibles and financing costs

 

150

 

 

 

153

 

 

       Deferred income taxes, net

 

636

 

 

 

(52

)

 

       Goodwill impairment charge

 

-

 

 

17,862

 

       Other, net

 

525

 

 

646

 

 

       Total non-cash charges

 

3,995

 

 

 

21,373

 

Changes in working capital, net of effects of currency translation: 

 

       Accounts receivable

 

(7,652

)

 

 

2,637

 

       Inventories

 

5,446

 

 

(1,942

)

 

       Other current assets

 

553

 

 

(1,469

)

 

       Accounts payable

 

6,930

 

 

 

(9,260

)

 

       Other liabilities

 

(320

)

 

 

1,785

 

            Net changes in working capital

 

4,957

 

 

 

(8,249

)

 

   

 

          Net cash provided by (used in) operating activities

 

11,549

 

 

 

(3,494

)

 

  

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

       Proceeds from borrowings

 

21,678

 

 

19,841

 

       Payments on debt

 

(26,244

)

 

 

(16,436

)

 

       Proceeds from stock issuance

 

1,002

 

 

 

48

 

 

       Cash dividends

 

(1,097

)

 

 

(1,611

)

 

  

 

          Net cash (used in) provided by financing activities

 

(4,661

)

 

 

1,842

 

 

  

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

       Capital expenditures

 

(2,520

)

 

 

(3,224

)

 

       Earnout payment related to acquisitions

 

(726

)

 

 

(764

)

 

       Other

 

-

 

 

 

(230

)

 

  

 

          Net cash used in investing activities

 

(3,246

)

 

 

(4,218

)

 

  

 

       Effect of exchange rate changes on cash and cash equivalents

 

248

 

 

144

 

   Net increase (decrease) in cash and cash equivalents

3,890

(5,726

)

 

       Cash and cash equivalents at beginning of period

 

16,874

 

 

15,296

 

  

 

Cash and cash equivalents at end of period

$

20,764

 

 

$

9,570

 

 

    

 

 

See notes to condensed consolidated financial statements.

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RICHARDSON ELECTRONICS, LTD
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)

     Note A – Basis of Presentation

     The accompanying unaudited Condensed Consolidated Financial Statements (Statements) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made and such adjustments were of a normal and recurring nature. The results of operations and cash flows for the three- and six-month periods ended November 29, 2003 are not necessarily indicative of the results that may be expected for the year ended May 31, 2004.
     For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2003. Certain fiscal 2003 balances have been reclassified to conform to the fiscal 2004 presentation.

     Note B - Restatement

     The Company identified an accounting error that occurred in a foreign subsidiary, which affected previously reported interest expense for the prior seven quarters. The correction of the error, which aggregated to $738, is presented as a restatement of these prior periods. The restatement increases diluted earnings per share to $0.15 for the second quarter of fiscal 2004 versus the $0.11 published in the December 18, 2003 earnings release.
     The Company is in the process of filing amended Forms 10-K for fiscal 2002 and 2003 and Form 10-Q for the first quarter of fiscal 2004. A reconciliation of reported net income (loss) to amended net income (loss) including the additional interest expense for the affected quarters is provided in the following table:

FY 2004

FY 2003

FY 2002

   

1st Qtr

  4th Qtr

3rd Qtr

2nd Qtr 

1st Qtr

4th Qtr

3rd Qtr

    

    

    

    

    

    

    

Reported net income (loss)

$

506.0

$

(11,163.0

)

$

(5.0

)

$

1,190.0

$

(17,578.0

)

$

(9,075.0

)

$

(2,743.0

)

Additional interest expense

(113.9

)

(107.6

)

(96.8

)

(112.1

)

(118.3

)

(108.9

)

(80.2

)

Amended net income (loss)

$

392.1

$

(11,270.6

)

$

(101.8

)

$

1,077.9

$

(17,696.3

)

$

(9,183.9

)

$

(2,823.2

)

   

Reported basic and diluted income (loss) per share

$

0.04

$

(0.81

)

$

-

$

0.09

$

(1.28

)

$

(0.66

)

$

(0.20

)

Additional interest expense

(0.01

)

(0.01

)

(0.01

)

(0.01

)

(0.01

)

(0.01

)

(0.01

)

Amended basic and diluted net income (loss) per share

$

0.03

$

(0.82

)

$

(0.01

)

$

0.08

$

(1.29

)

$

(0.67

)

$

(0.21

)

     Note C - Change in Accounting Principle

     At November 29, 2003, the Company’s worldwide inventories were stated at the lower of cost or market using the first-in, first-out (FIFO) method. Effective June 1, 2003, the North American operations, which represent a majority of the Company’s operations and approximately 76% of the Company’s inventories, changed from the last-in, first-out (LIFO) method to the FIFO method. All other inventories were consistently stated at the lower of cost or market using FIFO method. The FIFO method is preferable in the circumstances because it provides a better matching of revenue and expenses in the Company’s business environment. The accounting change was not material to the financial statements for any of the periods presented, and accordingly, no retroactive restatement of prior years’ financial statements was made.  Inventories include material, labor and overhead.

     Note D – Restructuring Charges

     As a result of the Company's fiscal 2003 restructuring initiative, a restructuring charge of $1,730 was recorded in selling, general and administrative expenses for the year ended May 31, 2003. Severance costs of $328 were paid in fiscal 2003 with the remaining balance payable in fiscal 2004. The following table depicts the amounts associated with the activity related to the restructuring initiative through November 29, 2003:

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Table of Contents

Restructuring

Paid

Unpaid

liability

through

Reversal

balance as of

  

May 31, 2003

  

        

  

November 29, 2003

  

        

  

of  accrual

  

        

  

November 29, 2003

  

     Employee severance and related costs      

$

1,192

$

843

$

292

$

57

     Lease termination costs

210

-

210

-

Total

$

1,402

$

843

$

502

$

57

     The reversal of the employee severance and related costs resulted from the difference between the estimated severance costs and the actual payouts and was recorded in the quarter ended November 29, 2003. All employees originally notified were terminated. The lease termination did not occur as the agreement for the replacement facility was not finalized. The lease termination reversal was recorded in the quarter ended August 30, 2003.

     Note E – Goodwill and Other Intangible Assets

     Effective June 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. This statement changed the accounting for goodwill and indefinite-lived intangible assets from an amortization approach to an impairment-only approach. As a result of the adoption of SFAS No. 142, the Company recorded a transitional impairment charge during the first quarter of fiscal 2003 of $21,587 ($17,862 net of tax), presented as a cumulative effect of accounting change. This charge related to the Company's segments as follows: RF & Wireless Communications Group (RFWC), $20,456; and Security Systems Division (SSD), $1,131.
     The Company periodically reviews the carrying amount of goodwill to determine whether an additional impairment may exist. A fair value approach is used to test goodwill for impairment. An impairment charge is recognized for the amount, if any, by which the carrying amount of the goodwill exceeds its fair value. Management establishes fair values using discounted cash flows. When available and as appropriate, management uses comparative market multiples to corroborate discounted cash flow results. The Company performed its annual impairment test during the fourth quarter of fiscal 2003. The Company did not find any indication that additional impairment existed and, therefore, no additional impairment loss was recorded.

     The table below provides changes in the carrying values of goodwill and intangible assets not subject to amortization by reportable segment:

Goodwill and intangible assets not subject to amortization

                                                                             

      

   

                   

  

      

   

                   

  

      

   

                   

  

      

   

                   

  

      

   

                   

  

RFWC

IPG

SSD

DSG

Total

  

Balance at May 31, 2003

$

-

$

882

$

1,714

$

2,959

$

5,555

     Modification of earnout payment

-

-

-

(58

)

(58

)

     Foreign currency translation

-

4

99

-

103

Balance at November 29, 2003

$

-

$

886

$

1,813

$

2,901

$

5,600

     Intangible assets subject to amortization as of November 29, 2003 and May 31, 2003 are as follows:

November 29, 2003

May 31, 2003

                                                                            

      

   

Gross

  

      

   

Accumulated

  

      

   

Gross

  

      

   

Accumulated

Amount

Amortization

Amount

Amortization

Intangible assets subject to amortization:

     Deferred financing costs

$

2,193

$

1,793

$

2,191

$

1,647

     Patents and trademarks

478

455

478

448

Total

$

2,671

$

2,248

$

2,669

$

2,095


     Amortization expense for the second quarter and six months is as follows:

Amortization expense for the

Second Quarter

Six Months

FY 2004

         

FY 2003

      

FY 2004

         

FY 2003

Intangible assets subject to amortization:

     Deferred financing costs

$

72

$

98

$

144

$

135

     Patents and trademarks

3

3

6

6

Total

$

75

$

101

$

150

$

141

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     The amortization expense associated with the existing intangible assets subject to amortization is expected to be $299, $180, $75 and $20 in fiscal 2004, 2005, 2006, and 2007, respectively. The weighted average number of years of amortization expense remaining is 1.8.

     Note F – Warranties

     The Company offers warranties for specific products it manufactures. The Company also provides extended warranties for some products it sells that lengthen the period of coverage specified in the manufacturer’s original warranty. Terms generally range from one to three years.
     Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of the products subject to warranty. Such costs are accrued at the time revenue is recognized. The warranty reserves are determined based on known product failures, historical experience, and other currently available evidence. The reserve is included in "Accrued Liabilities" on the Condensed Consolidated Balance Sheets.
     Changes in the warranty reserve for the six months ended November 29, 2003 were as follows:

Warranty

                                                                                                                  

Reserve

Balance at May 31, 2003

$

672

     Accruals for products sold

416

     Utilization

(58

)

Balance at November 29, 2003

$

1,030


     The increase in the warranty accrual represents warranties related to a new product offering by the Company's Display Systems Group beginning in the third quarter of fiscal 2003.

     Note G – Income Taxes

     The income tax provisions for the six-month periods ended November 29, 2003 and November 30, 2002 are based on the estimated annual effective tax rate of 30.3% and 40.0%, respectively. The difference between the effective tax rate and the U.S. statutory rate of 35% primarily results from the Company's geographic distribution of taxable income and losses, certain non-tax deductible charges, and the Company's foreign sales corporation benefit on export sales, net of state income taxes.
     Income tax refund, net of foreign estimated tax payments, was $932 for six months ended November 29, 2003.

     Note H – Calculation of Earnings per Share

     Basic income (loss) per share is calculated by dividing net income by the weighted average number of Common and Class B Common shares outstanding. Diluted income (loss) per share is calculated by dividing net income (loss) (adjusted for interest savings, net of tax, on assumed conversion of bonds) by the actual shares outstanding and share equivalents that would arise from the exercise of stock options, certain restricted stock awards, and the assumed conversion of convertible bonds when such assumptions have a dilutive effect on the calculation. The Company’s 8¼% and 7¼% convertible debentures are excluded from the calculation in both fiscal 2004 and 2003, as assumed conversion and effect of interest savings would be anti-dilutive. The per share amounts presented in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) are based on the following amounts:

Second Quarter

Six Months

FY 2004

FY 2003

FY 2004

FY 2003

                                                                                          

      

   

                    

  

      

   

                   

  

      

Numerator for basic and diluted EPS:

     Net income before cumulative effect of accounting change

$

2,205

$

1,078

$

2,597

$

1,244

     Cumulative effect of accounting change

-

-

-

(17,862

)

Net income (loss)

$

2,205

$

1,078

$

2,597

$

(16,618

)

Denominator:

     Denominator for basic EPS

        Weighted average common shares outstanding

13,979

13,740

13,952

13,734

     Effect of dilutive securities:

        Unvested restricted stock awards

33

49

36

51

        Dilutive stock options

349

82

293

219

Shares applicable to diluted income (loss) per common share

14,361

13,871

14,281

14,004

8


Table of Contents

     The effect of potentially dilutive stock options is calculated using the treasury stock method. Certain stock options are excluded from the calculations because the average market price of the Company's stock during the period did not exceed the exercise price of those options. For the three-month period ended November 29, 2003, there were 579 such options. However, some or all of the above mentioned options may be potentially dilutive in the future.

     Note I – Stock-Based Compensation

     The Company has stock-based compensation plans under which stock options are granted to key managers at the market price on the date of grant. Most of these new grants are fully exercisable after five years and have a ten-year life. Three such grants were issued during the six months ended November 29, 2003.
     The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB interpretation No. 44,Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion 25, issued in March 2000, to account for its stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No.123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No.123. The following table illustrates the pro-forma effect on net income (loss) attributable to common stockholders if the fair value-based method had been applied to all outstanding and unvested awards in each period.

 

Second Quarter

Six Months

FY 2004

FY 2003

FY 2004

FY 2003

                                                                                                                 

      

   

                   

  

      

   

                   

  

      

   

                    

  

      

   

                   

  

Net income (loss), as reported

$

2,205

$

1,078

$

2,597

$

(16,618

)

     Add: Stock-based compensation expense included in
  reported net income (loss), net of tax

59

64

119

122

     Deduct: Stock-based compensation expense determined
under fair value-based method for all awards, net of taxes

(263)

(303

)

(527

)

(601

)

Pro-forma net income (loss)

$

2,001

$

839

$

2,189

$

(17,097

)

Net income (loss) per share, basic:

     Reported net income (loss)

$

0.16

$

0.08

$

0.19

$

(1.21

)

     Pro-forma compensation expense, net of taxes

(0.02

)

(0.02

)

(0.03

)

(0.03

)

Pro-forma net income (loss) per share

$

0.14

$

0.06

$

0.16

$

(1.24

)

Net income (loss) per share, diluted:

     Reported net income (loss)

$

0.15

$

0.08

$

0.18

$

(1.19

)

     Pro-forma compensation expense, net of taxes

(0.01

)

(0.02

)

(0.03

)

(0.03

)

Pro-forma net income (loss) per share

$

0.14

$

0.06

$

0.15

$

(1.22

)

     Note J – Segment Information

     The marketing, sales, product management, and purchasing functions of the Company consist of four strategic business units (SBU’s): RF & Wireless Communications Group (RFWC), Industrial Power Group (IPG), Security Systems Division (SSD), and Display Systems Group (DSG).
     RFWC serves the voice and data telecommunications market and the broadcast industry predominately for infrastructure applications.
     IPG serves a broad range of customers including the steel, automotive, textile, plastics, semiconductor manufacturing, and transportation industries.
     SSD provides security systems and related design services which includes such products as closed circuit television (CCTV), fire, burglary, access control, sound and communication products and accessories.
     DSG provides system integration and custom display solutions for the public information, financial, point-of-sale, and medical imaging markets.
     Each SBU is directed by a Vice President and General Manager who reports to the President and Chief Operating Officer. The President evaluates performance and allocates resources, in part, based on the direct operating contribution of each SBU. Direct operating contribution is defined as gross margin less product management and direct selling expenses.
     Accounts receivable, inventory, goodwill, and some intangible assets are identified by SBU. Cash, net property and other assets are not identifiable by SBU. Operating results for each SBU are summarized in the following table:

9


Table of Contents

                                                                            

      

   

                   

  

      

   

Gross

  

Direct Operating

  

                   

  

       

Goodwill and

Sales

Margin

        

Contribution

        

Assets

Intangibles

Second Quarter

     FY 2004

          RFWC

$

57,705

$

12,846

$

7,039

$

79,162

$

-

          IPG

27,868

8,678

6,261

48,030

886

          SSD

26,109

6,664

3,767

34,439

1,813

          DSG

14,864

3,727

1,947

21,422

2,901

               Total

$

126,546

$

31,915

$

19,014

$

183,053

$

5,600

   

     FY 2003

          RFWC

$

53,762

$

12,031

$

6,381

$

85,503

$

-

          IPG

24,331

7,540

5,268

44,905

866

          SSD

23,989

6,013

3,500

33,454

1,138

          DSG

14,833

3,993

2,372

23,834

2,175

               Total

$

116,915

$

29,577

$

17,521

$

187,696

$

4,179

Six Months
     FY 2004

          RFWC

$

107,520

$

24,028

$

12,727

$

79,162

$

-

          IPG

53,718

16,347

11,698

48,030

886

          SSD

51,281

13,025

7,334

34,439

1,813

          DSG

30,943

7,986

4,354

21,422

2,901

               Total

$

243,462

$

61,386

$

36,113

$

183,053

$

5,600

   

     FY 2003

          RFWC

$

100,878

$

22,786

$

11,699

$

85,503

$

-

          IPG

47,778

15,080

10,504

44,905

866

          SSD

46,396

11,447

6,454

33,454

1,138

          DSG

28,122

7,596

4,380

23,834

2,175

               Total

$

223,174

$

56,909

$

33,037

$

187,696

$

4,179

     Fiscal 2003 data has been reclassified to conform with the current presentation, which includes the reclassification of the broadcast tubes product line from RFWC to the IPG business unit. Fiscal 2003 quarterly sales for the broadcast tubes were $4,685, $4,625, $4,717, and $3,995 for the first, second, third, and fourth quarters, respectively.

     A reconciliation of sales, gross margin, direct operating contribution and assets to the relevant consolidated amounts follows. Freight, Medical Glassware business, Logistics business, and miscellaneous sales are included in "Other sales". "Other assets" primarily represent miscellaneous receivables, manufacturing and other inventories, intangible assets subject to amortization and investments.

Second Quarter

Six Months

FY 2004

FY 2003

FY 2004

FY 2003

                                                                                       

      

   

                   

  

      

   

                    

  

      

Sales - segments total

$

126,546

$

116,915

$

243,462

$

223,174

Other sales

1,505

2,043

3,895

4,398

     Sales

$

128,051

$

118,958

$

247,357

$

227,572

Gross margin - segments total

$

31,915

$

29,577

$

61,386

$

56,909

Gross margin on other sales

(973

)

(664

)

(1,329

)

(842

)

     Gross margin

$

30,942

$

28,913

$

60,057

$

56,067

Segment profit contribution

$

19,014

$

17,521

$

36,113

$

33,037

Gross margin on other sales

(973

)

(664

)

(1,329

)

(842

)

Regional selling expenses

(4,497

)

(4,097

)

(8,931

)

(8,388

)

Administrative expenses

(8,097

)

(8,305

)

(17,136

)

(16,444

)

     Operating income

$

5,447

$

4,455

$

8,717

$

7,363

Segment assets

$

183,053

$

187,696

Cash and cash equivalents

20,764

9,570

Other current assets

25,162

21,945

Net property

30,556

29,345

Other assets

11,635

11,348

     Total assets

$

271,170

$

259,904

10


Table of Contents

     The Company sells its products to companies in diversified industries and performs periodic credit evaluations of its customers' financial condition. Terms are generally on open account, payable net 30 days in North America, and vary throughout Europe, Asia/Pacific and Latin America. Estimates of credit losses are recorded in the financial statements based on periodic reviews of outstanding accounts and actual losses have been consistently within management's estimates.

     Note K – Recently Issued Pronouncements

     On December 23, 2003, the FASB issued FASB Statement No. 132 (Revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits. This standard increases the existing GAAP disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies will be required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. Statement 132(R) also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after December 15, 2003. The Company is in the process of reviewing the new disclosure requirements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands, except per share amounts)

     Second Quarter Overview

     During the quarter ended November 29, 2003, the Company increased sales by 7.6% from a year ago to $128.1 million. Net income was $2.2 million or $0.15 per share. The financial results marked the sixth consecutive quarter of year-over-year sales growth and the fourth consecutive quarter of sales increases across all SBUs. The Company achieved record sales in both Europe and Asia/Pacific while sales in North America and Latin America were slightly down.
     The Company experiences moderate seasonality in its business and typically realizes lower sequential sales in its first and third quarters, reflecting decreased transaction volume in the summer and holiday months. Historically, sales in the third quarter were, on average, approximately 3% lower sequentially. However, strong second quarter bookings point to a flat third quarter amid increasing signs that technology spending may be increasing.
     The Company strengthened its balance sheet during the quarter, reducing inventory by $2.3 million and paying down $2.2 million of debt (offset by foreign currency exchange effects) despite a 7.4% sequential sales growth. Liquidity was further improved during the quarter as cash and equivalents increased $2.6 million driven by $5.1 million positive cash flows from operations. The Company’s selling, general and administrative expenses decreased to 19.9% as a percentage of net sales from 21.7% in the prior quarter and 20.6% a year ago.
     During the second quarter, the Company identified an accounting error that occurred in its Swedish subsidiary which affected interest expense previously reported for the prior seven quarters in the aggregate amount of $738. The Company is in the process of filing amended Forms 10-K for fiscal 2003 and 2002 and Form 10-Q for the period ended August 30, 2003, which will increase interest expense reported in those periods (See Note B to Condensed Consolidated Financial Statements).

     Results of Operations

Sales and Gross Margins

     Consolidated sales for the quarter ended November 29, 2003 increased $9.1 million or 7.6% from the prior year to $128.1 million. For the six-month period, sales were up 8.7% to $247.4 million due to the increased demand across all SBUs and record sales in some geographic regions. Consolidated gross margins decreased 10 basis points (bps) and 30 bps for the second quarter and six months, respectively, primarily due to a mix shift to lower margin component sales.
     Sales, percentage changes from the prior year, gross margins and gross margin percent of sales by SBU are summarized in the following table. Freight, Medical Glassware business (sold in fiscal 2002), Logistics business, and miscellaneous costs are included under the caption “Other”.


11


Table of Contents

By Business Unit:

SALES

GROSS MARGIN

                               

  

    

    

    

    

    

    

    

    

         

    

    

    

    

    

    

    

    

    

    

    

FY 2004

FY 2003

%  Change

FY 2004 

% of Sales

FY 2003

% of Sales

Second Quarter

     RFWC

$

57,705

$

53,762

7.3

%

$

12,846

22.3

%

$

12,031

22.4

%

     IPG

27,868

24,331

14.5

%

8,678

31.1

%

7,540

31.0

%

     SSD

26,109

23,989

8.8

%

6,664

25.5

%

6,013

25.1

%

     DSG

14,864

14,833

0.2

%

3,727

25.1

%

3,993

26.9

%

     Other

1,505

2,043

(973

)

(664

)

          Total

$

128,051

$

118,958

7.6

%

$

30,942

24.2

%

$

28,913

24.3

%

Six Months

     RFWC

$

107,520

$

100,878

6.6

%

$

24,028

22.3

%

$

22,786

22.6

%

     IPG

53,718

47,778

12.4

%

16,347

30.4

%

15,080

31.6

%

     SSD

51,281

46,396

10.5

%

13,025

25.4

%

11,447

24.7

%

     DSG

30,943

28,122

10.0

%

7,986

25.8

%

7,596

27.0

%

     Other

3,895

4,398

(1,329

)

(842

)

          Total

$

247,357

$

227,572

8.7

%

$

60,057

24.3

%

$

56,067

24.6

%


     RFWC’s second quarter and six months sales increased 7.3% and 6.6%, respectively, from fiscal 2003 levels, driven by strength in major product lines offset by weakness in some specialty and Broadcast products. For six months, the Network Access, Infrastructure and Passive/Interconnect product lines posted growth of 13.6%, 1.5%, and 5.5% to $36.5 million, $32.4 million, and $18.9 million, respectively, compared to the prior year, associated with wireless and infrastructure demand increases. Gross margins were down 10 bps for the quarter and 30 bps for six months due to higher component sales, particularly in Asia, which carry a lower gross margin than engineered solutions.
     IPG sales increased 14.5% and 12.4% for the quarter and six months, respectively, led by strong, broad-based demand. Power components were up 24% to $8.6 million for the quarter and 17% to $15.7 million for six months. The tube businesses increased 10% to $19.3 million for the quarter and 11% to $38.0 million for six months. Margins were essentially flat in the quarter and down 120 bps for six months primarily due to the exchange rate impact on the cost of certain tube products manufactured in Europe.
     SSD posted a record quarter, with sales increasing 8.8% and margins increasing 40 bps from a year ago, fueled by continued expansion of the Canadian business and strengthening of the Canadian dollar. For six months, sales were up 10.5% while gross margins increased 70 bps due to the exchange rate impact partially offset by competitive pricing pressure.
     DSG growth slowed to 0.2% for the second quarter mainly due to the timing of some custom display projects. Driven by the strong first quarter, six months sales growth was 10% as Medical monitor sales increased by 37.4 % to $12.1 million. High margin legacy CRT products were down 13.2% to $2.6 million for the quarter and 3.3% to $5.3 million for six months, negatively affecting gross margin.
     Sales, percentage change from the prior year, gross margins and gross margin percent of sales by geographic area are summarized in the following table. Previously reported sales under the caption “Direct Export” and some of the "Corporate" sales were identified by geographic area and reclassified accordingly. The caption “Corporate” now consists primarily of Freight and Corporate provisions.

By Geographic Area:

SALES

GROSS MARGIN

                               

  

    

    

    

    

    

    

    

    

         

    

    

    

    

    

    

    

    

    

    

     

FY 2004

FY 2003

%  Change

FY 2004 

% of Sales

FY 2003

% of Sales

Second Quarter

     North America

$

65,702

$

67,898

-3.2

%

$

17,064

26.0

%

$

17,573

25.9

%

      Europe

31,576

25,575

23.5

%

9,009

28.5

%

7,101

27.8

%

     Asia/Pacific

25,160

19,701

27.7

%

5,648

22.4

%

4,468

22.7

%

     Latin America

4,572

4,969

-8.0

%

1,118

24.5

%

1,509

30.4

%

     Corporate

1,041

815

(1,897

)

(1,738

)

          Total

$

128,051

$

118,958

7.6

%

$

30,942

24.2

%

$

28,913

24.3

%

   

Six Months

     North America

$

131,133

$

129,167

1.5

%

$

34,620

26.4

%

$

33,987

26.3

%

     Europe

56,942

48,932

16.4

%

16,386

28.8

%

13,334

27.3

%

     Asia/Pacific

47,490

37,932

25.2

%

10,587

22.3

%

8,803

23.2

%

     Latin America

9,677

10,036

-3.6

%

2,301

23.8

%

2,791

27.8

%

     Corporate

2,115

1,505

(3,837

)

(2,848

)

          Total

$

247,357

$

227,572

8.7

%

$

60,057

24.3

%

$

56,067

24.6

%

   

12


Table of Contents


     North America sales decreased 3.2% in the second quarter primarily due to the completion of a large wireless infrastructure project in the prior year. For six months, sales were up slightly as Canada posted 23.2% sales growth to $35.7 million as a result of the strong Canadian dollar and increased demand across all SBUs.
     Europe had a record quarter with sales growth of 23.5% from a year ago led by Israel where sales more than doubled to $3.3 million due to a large wireless component sales contract. For six months, sales were up 16.4% as all regions posted increases in sales partially due to the weakening US dollar.
     Asia/Pacific achieved record levels with sales increasing by 27.7% in the quarter and 25.2% for six months from fiscal 2003. The Company's six months sales in China increased 74.9% over last year to $9.9 million. The margins in China, however, are among the lowest in the area due to the high level of contract manufacturing and component sales, driving the overall Asia/Pacific gross margin down. The Company's sales in Singapore and Thailand grew 64.4% to $6.7 million while all other regions posted growth in the high single- to low double-digit range.
     Latin America sales were down 8.0% in the quarter due to decreasing demand in the Central and Southern regions partially offset by moderate growth in Brazil and Mexico.
     Fiscal 2004 gross margins by geographic area experienced significant fluctuations from an increase of 150 bps in Europe to a decrease of 400 bps in Latin America, principally resulting from changes in the sales mix.

Selling, General and Administrative (SG&A) Expenses

     For the three- and six-month periods, SG&A expenses increased by $1,037 or 4.2% to $25.5 million and by $2.6 million or 5.4% to $51.3 million, respectively, primarily due to foreign currency translation and increased PeopleSoft implementation costs. SG&A as a percent of sales decreased to 19.9% in the second quarter compared to 20.6% a year ago, as the Company realized savings from the recent restructuring initiative and continued cost controls as well as the reversal of a portion of the restructuring accrual. (See Note D to Condensed Consolidated Financial Statements).

Interest and Other Expenses

     For three- and six-month periods, interest expense was relatively flat as both average borrowing levels and the weighted-average interest rate remained essentially the same compared to the prior year. Cash payments for interest were $5,086 for six months ended November 29, 2003.
     Other, net include a realized foreign exchange gain of $66 in the second quarter and $424 for six months in fiscal 2004 compared to a realized foreign exchange loss of $212 in the second quarter and $257 for six months in fiscal 2003. Also included in Other expenses are a realized investment gain of $118 in 2004 and $26 in 2003. In 2004, the Company recorded a loss of $229 due to revaluation of fixed assets and other-than-temporary investment impairment loss of $210.

Income Tax Provision

     The effective tax rate was 30.3% for the six-month period of fiscal 2004 compared to 40.0% in fiscal 2003. The effective tax rate differs from the statutory rate of 35.0% primarily due to the impact of certain non-tax deductible charges, Company's foreign sales corporation benefits on export sales, state taxes, and the tax impact of non-U.S. operations. As the Company restated fiscal 2003 results because of the accounting error in its Swedish subsidiary associated with the interest expense, no adjustment was made to the income tax provision since the Company does not believe it is more likely than not that the benefits of the foreign losses will be realized. As a result, there were significant fluctuations in the income tax rate in fiscal 2003 and the first half of fiscal 2004.
     Future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where the Company has lower statutory rates, changes in the valuation of certain deferred tax assets or liabilities, or changes in tax laws or interpretations thereof. In addition, the Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities and regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for income taxes.

  Net Results

     Net income for the second quarter of fiscal 2004 was $2,205 or $0.15 per share compared to $1,078 or $0.08 per share a year ago as a 7.6% increase in sales was partially offset by 10 bps gross margin deterioration and a 4.2% increase in SG&A expenses. Net income for the first half of fiscal 2004 was $2,597, or $0.18 per share, compared to net income before cumulative effect of accounting change of $1,244, or $0.09 per share, in the first half of the prior year. The cumulative effect of accounting change included in the 2003 net results represents a goodwill and other intangible assets impairment charge in the amount of $17.9 million, net of taxes of $3.7 million. The impairment was recorded as a change in accounting principle in the first quarter of fiscal 2003. (See Note E to the Condensed Consolidated Financial Statements).

13


Table of Contents

     Liquidity and Capital Resources

     Cash and cash equivalents were $20.8 million at November 29, 2003, an increase of $3.9 million from the beginning of the year. During the first six months of fiscal 2004, the Company generated $11.5 million of cash from operating activities. Working capital decreased $5.0 million, largely due to an increase in accounts payable of $6.9 million and decrease in inventory of $5.4 million partially offset by a $7.7 million accounts receivable increase.
     Inventory days were approximately 86 in the second quarter of fiscal 2004, compared with 94 days in the first quarter and 97 days at the end of fiscal 2003. Inventory levels and the associated inventory turns reflect the Company's ongoing inventory management efforts. Inventory management remains an area of focus as the Company balances the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements.
     The Company has a multi-currency revolving credit facility agreement in the amount of $102.0 million that matures in September of 2005 and bears interest at applicable LIBOR rates plus a margin, varying with certain financial performance criteria. At November 29, 2003, the applicable margin was 225 basis points and $39.1 million was available under the total facility. This amount was reduced to $14.1 million due to the borrowing base limitations.
     In the six-month period of fiscal 2004, the Company reduced its long-term debt by $3.6 million as $4.6 million was paid down under the multi-currency credit facility. Foreign currency translation increased the debt by $1.3 million, while payments on the interest rate exchange hedges accounted for the balance of the debt reduction. The Company was in compliance with all debt covenants for the period ended November 29, 2003. Quarterly dividends of $0.04 per common share and $0.036 per class B common share in the total amount of $1,097 for six months were offset by $1,002 in proceeds from the exercise of stock options by employees, resulting in net cash used in financing activities of $4.7 million. 
     The Company spent approximately $2.5 million on capital projects during the first half of fiscal 2004 primarily related to PeopleSoft development costs and ongoing investments in information technology infrastructure. Over the next two quarters, management estimates the capital expenditures to increase as the PeopleSoft implementation progresses. The $726 earnout payment represents a cash outlay associated with the Pixelink acquisition as the business unit achieved certain operating performance criteria.

Special Note Regarding Forward-Looking Statements and Analyst Reports

     Investors should consider carefully the following risk factors, in addition to the other information included in this quarterly report on Form 10-Q. All statements other than statements of historical facts included in this report are statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934. The words "expect," "estimate," "anticipate," "predict," "believe" and similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this report and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations; (ii) the Company's financing plans; (iii) the Company's business and growth strategies, including potential acquisitions; and (iv) other plans and objectives for future operations. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those predicted in the forward-looking statements or which may be anticipated from historical results or trends. In addition to the information contained in the Company’s other filings with the Securities and Exchange Commission, factors that could affect future performance include, among others, the following:

·               Competitive pressures may increase or change through industry consolidation, entry of new competitors, marketing changes or otherwise. There can be no assurance that the Company will be able to continue to compete effectively with existing or potential competitors.

·               Technological changes may affect the marketability of inventory on hand.

·               General economic or business conditions, domestic and foreign, may be less favorable than expected, resulting in lower sales or lower profit margins than expected.

·               Changes in relationships with customers or vendors, the ability to develop new relationships or the business failure of several customers or vendors may affect sales or profitability.

·               Political, legislative or regulatory changes may adversely affect the businesses in which the Company operates.

·               Changes in securities markets, interest rates or foreign exchange rates may adversely affect the Company’s performance or stock price.

·               The failure to obtain or retain key executive or technical personnel could affect future performance.

·               The Company’s growth strategy includes expansion through acquisitions. There can be no assurance that the Company will be able to successfully complete further acquisitions or that past or future acquisitions will not have an adverse impact on the Company’s operations.

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·               The potential future sale of Common Stock shares, possible anti-takeover measures available to the Company, dividend policies, as well as voting control of the Company by Edward J. Richardson, Chairman of the Board and Chief Executive Officer may affect the stock price.

·               The continued availability of financing on favorable terms cannot be assured.

     The risks included here are not exhaustive. Other sections of this report may include additional factors which could adversely affect the Company's business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results
     Investors should also be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company's policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that the Company agrees 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 the responsibility of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     For a description of the Company’s market risks, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management and Market Sensitive Financial Instruments” in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2003.

ITEM 4. CONTROLS AND PROCEDURES

     The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. At the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including Chairman of the Board and Chief Executive Officer ("CEO") and Senior Vice President and Chief Financial Officer ("CFO"), of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective.
     There have been no changes in the Company's internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS (in thousands)

      In fiscal 2003, the Company received notice that two customers of one of its subsidiaries are asserting claims against it in connection with product it sold to them by the subsidiary that the Company acquired pursuant to a distribution agreement with the manufacturer of the product. The claims are based on the product not meeting the specification provided by the manufacturer. The Company has notified the manufacturer and the Company's insurance carrier of these claims. The Company is unable to evaluate the outcome of these claims or the recovery from the manufacturer or insurance carrier as the investigation has not been completed. The Company intends to vigorously defend these claims and prosecute its claims against the manufacturer and insurer if it should have any liability.
     The Company is engaged in litigation it has filed, Richardson Electronics, Ltd. v. Signal Technology Corporation, 03 L 002661 (Circuit Court, Cook County, Illinois) and Signal Technology Corporation v. Richardson Electronics, Ltd., C.A. No. 03-0335 (Superior Court Boston, Massachusetts). The Company filed suit in Illinois claiming damages in the amount of approximately $2,000 resulting from Signal's refusal to take delivery of product on six purchase orders it had placed with the Company. Signal has filed a declaratory judgment suit in Massachusetts seeking a ruling that it has no liability to the Company. Signal has not asserted any claim against the Company.
     The Company has asserted a claim against a former vendor in the amount of $593 for inventory it sought to return to the vendor pursuant to the terms of a Distribution Agreement between the two parties, that the vendor has refused to accept as of this time.
     While the Company has several other litigation matters pending against or filed by it that arose in the ordinary course of business, it is believed that, in the aggregate, they would not have a material adverse effect on the Company. 

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ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

      Not applicable.

ITEM 3.  DEFAULT UPON SENIOR SECURITIES

      Not applicable.

ITEM 4.  SUBMSSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not applicable.

ITEM 5.  OTHER INFORMATION

      Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

 

     31.1      

  

Certification of Edward J. Richardson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     31.2

  

Certification of Dario Sacomani pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     32

  

Certification of Edward J. Richardson and Dario Sacomani pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     99

  

Press Release dated January 13, 2004 announcing Richardson to amend previously reported financial statements

 

(b) Reports on form 8-K

 

Form 8-K dated 10/23/03 announcing Richardson annual shareholders' meeting and including a copy of the meeting presentation slides.

Form 8-K dated 12/04/03 announcing date of fiscal 2004 second quarter conference call.

Form 8-K dated 12/19/03 reporting Richardson's fiscal 2004 second quarter results.

SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

       

 

 

       

 

RICHARDSON ELECTRONICS

       

(Registrant)

 

Date: January 13, 2004

      

By: /s/ DARIO SACOMANI

Dario Sacomani
Senior Vice President and Chief Financial Officer

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