2
Company at a Glance
Richardson Electronics, Ltd. is a global provider of engineered solutions, and a global distributor of
electronic components serving the RF and wireless communications, electron device, industrial power conversion
and display systems markets. The Company delivers specialized expertise and value-added products, which it
describes as “engineered solutions” in response to customers’ needs through product manufacturing,
systems integration, prototype design and manufacture, testing and logistics.
Table of Contents
To Our Stockholders ......................................................... 4-5
RF, Wireless & Power Division ............................................. 6
Electron Device Group ......................................................... 7
Display Systems Group ........................................................ 8
Five-Year Financial Review ............................................ 9-10
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ......................... 11-24
Consolidated Balance Sheets ............................................ 25
Consolidated Statements of Operations ............................. 26
Consolidated Statements of Cash Flows ............................ 27
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Loss) ....................................... 28
Notes to Consolidated Financial Statements ................ 29-45
Report of Independent Registered
Public Accounting Firm ............................................. 46-48
Stockholder Information ..................................................... 49
Market Price of Common Stock .......................................... 49
Officers & Directors ............................................................ 50
3
To Our Stockholders
The fiscal year 2007 marks the 60th anniversary of
an increase of 36.3%. Sales in Europe of $143.8 million
Richardson Electronics. My father, Arthur Richardson, Sr.,
were up 11.3% from fiscal 2006. Sales in North America
incorporated Richardson Electronics on May 31, 1947 as a
reached $229.3 million, up 0.6%. Sales in Latin America
specialized distributor of vacuum tubes. Total sales for the
declined to $17.0 million, as we closed warehouses in
first year of operation were $53,000.
Mexico and Columbia and substantially reduced staff in this
region.
Sixty years later, I am pleased to report that our sales
continue to grow year-over-year. Fiscal 2007 sales from our
Although we were disappointed to sell SSD, as it made a
three strategic business units — the RF, Wireless and Power
major contribution to the growth of Richardson Electronics
Division (RFPD), the Electron Device Group (EDG) and the
over many years, we were pleased with the $80 million sale
Display Systems Group (DSG) — reached $557.3 million,
price that allowed the Company to realize a gain of $41.6
up over 5% from the previous year. Several milestones have
million. The transaction was structured as a sale of the stock
all come together on our 60th anniversary:
of our Canadian subsidiary, Burtek Systems Corp., which
was held by our Dutch entity, Burtek Systems BV. This
• RFPD achieved a record fourth quarter with
structure allowed the Company to realize the $41.6 million
$99.4 million in sales.
gain with a very minimal effective tax rate of 6%. As a
• For the first time in our history, EDG exceeded
result of this transaction, we have reduced our bank debt
$100 million in sales for the fiscal year; with a
substantially and put a new credit agreement in place on
gross margin of 33%.
more competitive terms, which we expect will reduce
• The Security Systems Division (SSD) was successfully
interest expense. The sale of SSD will also allow us to repay
sold to Honeywell for $80 million, allowing the
a substantial amount of our intercompany debt, which
Company to realize a $41.6 million gain.
should eliminate the majority of our foreign exchange gains
and losses that have impacted our quarterly performance.
In fiscal 2007, sales growth was led by RFPD, which
The repayment of our bank debt has already improved our
had annual sales of $369.9 million — up 10.7% from the
balance sheet and reduced our debt to equity ratio from
previous year. EDG set a new record in sales and earnings,
129% (as of June 3, 2006) to 89% (as of June 2, 2007).
with sales at $101.2 million — up 7.1% from the previous
year. DSG experienced customer delays on several very
Our global restructuring plan, which was initiated at the
large projects, which resulted in a disappointing sales year
beginning of fiscal 2007, is nearing completion and will be
of $82.1 million — down 13.6% from the previous year.
finalized in September of fiscal 2008. We have installed a
centralized inventory hub system in Amsterdam to support
Sales in all geographic regions grew significantly in
Europe and in LaFox, IL to support the Americas. We also
fiscal 2007. Sales in Asia/Pacific were up 11.6% over the
continue to operate satellite warehouses in critical areas
previous year to $165.2 million. This sales growth was led
such as Brazil and China. We are in the process of installing
by China, which ended the year at nearly $59 million —
a centralized inventory hub system in Singapore to support
4
Asia/Pacific. The ultimate result will be the consolidation of
nearly 30 global warehouses into three worldwide hubs.
We have sold two warehouses, with a gain of nearly $3.9
million, and reduced the overall workforce substantially,
with total annual savings estimated at $8.0 million.
The cost to implement the restructuring plan was
approximately $6.0 million, with $2.7 million recorded in
fiscal 2006 and $3.3 million in fiscal 2007.
The utilization of UPS World EaseSM allows us to ship
from any one of our three hubs to any location in the world
in 3-5 days, improving our customer service and reducing
freight costs. Localizing purchasing, customer service, and
inventory management to service each of the three hubs will
result in improved customer service, reduced freight costs,
and enhanced inventory management. As a result, material
necessary resources to invest in our Engineered Solutions
purchased in Euros is stocked in the Amsterdam hub,
strategy. The global restructuring plan is nearly complete.
material purchased in US dollars is stocked in our LaFox
Foreign exchange issues have been minimized. The
hub, and material purchased in Asia is stocked in Singapore.
Company’s income tax structure has also been improved
dramatically. We look forward to returning the company to
At the same time, we are in the process of reorganizing
record levels of profitability in the very near term.
our foreign entities as limited risk distributors (LRDs),
reducing transfer price exposure and simplifying our
Thank you for your continued investment in
income tax structure. These moves will allow us to bring
Richardson Electronics.
approximately 95% of the incremental profits back to the
US, where we can utilize tax loss carry forwards and reduce
our tax cost for the future.
We expect to realize the full impact of cost savings from
Edward J. Richardson
the restructuring, as well as the tax benefits of the LRD
Chairman of the Board, Chief Executive Officer
structure, in the balance of fiscal 2008.
and President
From a financial perspective, the Company now has its
strongest balance sheet in many years. We now have the
5
Richardson Electronics’ RF, Wireless & Power Division (RFPD)
continues to lead the worldwide wireless revolution. RFPD designs and
distributes discrete devices, components and assemblies used in RF and
Wireless Infrastructure, Networks, Digital Broadcasting, Defense and
Power Conversion. Our goal is to continue being the best in the world
at bringing new products and technologies to market.
Strategic partnerships with the leading manufacturers of RF,
wireless and power components enable RFPD to provide complete
engineering and technical support for design-in components or
custom-engineered solutions from anywhere in the world. Our local
sales engineers work side-by-side with customers to design circuits,
select cost-effective components, create reference designs, test
prototypes and assemblies, and manufacture the highest quality
RF, Wireless and Power Conversion solutions.
RFPD’s business continues to be healthy and profitable. In fiscal 2007,
RFPD enhanced the profitability of Richardson Electronics by once
again outgrowing the market, with more than a 10% increase in sales.
Much of our success continues to come from securing a large
number of design registrations and our ability to support growing
markets with the top technology suppliers throughout the world.
Our global capabilities are
unmatched in the industry…
which allows Richardson Electronics
We continued to increase our alliance partnerships and the number
to continue our strong sales growth
and increased profitability through
our technology leading suppliers
and the most experienced and
of design engineers in the field that are talking to customers. Another
source of success in fiscal 2007 came from our Power Conversion
group’s ability to capitalize on the fast growing market for
alternative energy.
knowledgeable RF, Wireless and
In fiscal 2008, RFPD will continue to provide strong top line
Power Conversion Team
in the industry.
Greg Peloquin
Executive Vice President
RF, Wireless and
Power Conversion Division
growth with further improvements in profitability. We should also see
substantial sales growth from our Power Conversion group, thanks to
RFPD’s unparalleled range of high power components and assemblies.
Investments in Richardson Electronics’ supply chain, CRM and
Internet capabilities will directly improve RFPD’s growth and
profitability in the coming year. RFPD will continue to hire
the world’s top RF & Wireless talent, securing our position as the
largest worldwide engineered solutions provider and distributor of
RF & Wireless products.
6
6
Richardson Electronics’ Electron Device Group (EDG) represents the
company’s original core business of the past 60 years. Today, EDG
distributes and manufactures high-power, high-frequency electronic
components and sub-assemblies for many diverse markets, including
semiconductor equipment, laser, medical, microwave & RF industrial
heating, radio & TV broadcasting, radar, and communications.
EDG services almost 10,000 active customers in both OEM and end-user
(MRO) markets. Because our primary competitors are mostly electron device
manufacturers limited to offering only their own products, EDG’s business
model provides a high degree of stability, market share gains and the highest
profitability in the company.
The elements of our business model which make EDG particularly
effective in serving a large, geographically-dispersed MRO customer base
(54% outside of North America) include:
• Strategically placed inventory and the logistics system capable of
delivering products when the customer needs them
• Strong franchises with industry leading manufacturers, usually with
Following the Engineered Solutions
some exclusivity
strategy, EDG directs significant
• Unique engineering capabilities and value-added manufacturing resources
engineering expertise in electron
device manufacturing to help
our customers select the best
components for their application
needs from one of our many
franchise lines or in-house
factory brands.
Bart Petrini
Executive Vice President
Electron Device Group
• A technically astute product marketing and sales force selling a large
and diversified range of electron device products
In fiscal 2007, EDG reached two important milestones: total sales
exceeded $100 million, and the in-house manufacturing organization grew to
become our largest supplier, accounting for $24 million in sales. This success
has made in-house manufacturing not only the fastest growing niche
business in EDG but placed it among the highest gross margin businesses
in the company.
Our success in building the in-house manufacturing business (more than
40% growth in two years) is based on commanding an important niche
market that perfectly suits our facilities and resources. Specialized processes
have created a strong barrier to entry and limited competition to a very few.
The restructuring of a year ago returned EDG to the specialized sales and
marketing organization model, which has helped contribute to historic levels
of sales and profitability. Fiscal 2008 promises continued gains in market
share and profitability, as EDG leverages our strategic alliances, technical
expertise, experienced sales and marketing, and superior logistics to return
even better results to the company.
7
Richardson Electronics’ Display Systems Group (DSG) is one of a few
global providers of integrated display products and systems to OEMs,
resellers and end-users in the healthcare, industrial, financial,
transportation, and digital signage markets. DSG specializes in custom
display solutions requiring engineering expertise to integrate touch
screens, protective panels, enclosures, specialized finishes, and
application-specific software.
In fiscal 2007, DSG began taking a global approach to operations,
sales, and marketing. With engineering and production resources
strategically located throughout the US, Europe and Asia Pacific, our
efforts included facilitating communication between engineering
resources, assigning projects based on manufacturing capabilities, and
centralizing sourcing. Recognizing the need to stay close to the customer,
DSG also began the process of reorganizing our European and North
American sales force along vertical markets.
Areas of revenue growth in fiscal 2007 included increased demand for
TekLink® Professional Services, Digital Signage Solutions, and Medical
Modality Displays.
• The TekLink® QC/QA and Installation programs are unique in the
medical imaging marketplace, offering healthcare facilities a variety of
options to maximize their investment in display systems and to meet
mandated regulatory standards.
• With more customers realizing the benefits of targeted, dynamic
content, DSG began offering new solutions for the digital signage
market and expanding into large venue signage, content management
services, and network operations centers.
• Custom monitor sales to manufacturers of patient monitoring,
bio-medical, ultrasound, cardiac imaging, and other medical modality
equipment doubled in fiscal 2007.
Growing sales, reducing expense, and improving inventory turns are
DSG’s main objectives in fiscal 2008. Revenue growth will come from
the rapidly expanding digital signage market, custom integration
solutions to high volume OEMs, and our product design capabilities. Our
healthcare team will continue to meet the growing demand for integrated
and turn-key display solutions and professionally managed services,
while expanding customer relationships to encompass more of the
facility’s IT requirements.
DSG will continue to work closely with our private label and
exclusive franchise suppliers to streamline components and develop
better technology, while improving our ability to offer quick turnaround
DSG develops long term and
repeat relationships with
customers through knowledgeable,
hands-on sales and marketing
leaders, and comprehensive
technical support, including
post-sale service, proactive
maintenance and extended
warranty programs.
Robert Heise
Vice President & General Manager
Display Systems Group
8
8
to our customers.
Five-Year Financial Review
(in thousands, except per share amounts)
This information should be read in conjunction with the
Company’s consolidated financial statements, accompanying
notes and Management’s Discussion and Analysis
of Financial Condition and Results of Operations
included elsewhere herein.
Statement of Operations Data
2007(2)
2006(3)
2005(4)
2004(5)
2003(6)
Fiscal Year Ended(1)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
(Gain) loss on disposal of assets(7)(8)
Other expenses, net(9)
Income (loss) from continuing operations
before income taxes
Income tax (benefit) provision
Income (loss) from continuing operations
Income from discontinued operations, net of tax(10)
Income (loss) before cumulative effect of
accounting change
Cumulative effect of accounting change, net of tax(11)
Net income (loss)
Net income (loss) per common share - basic:
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Net income (loss) per common share - basic
Net income (loss) per Class B common share - basic:
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Net income (loss) per Class B common share -
basic
Net income (loss) per common share - diluted:
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Net income (loss) per common share - diluted
Net income (loss) per Class B common share - diluted:
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Cumulative effect of accounting change, net of tax
Net income (loss) per Class B common share -
diluted
Dividends per common share
Dividends per Class B common share(12)
$
$
$
$
$
$
$
$
$
$
$
$
557,291
424,888
132,403
128,175
(3,616)
5,662
$ 529,097
400,607
128,490
120,233
(154)
6,885
$ 473,143
364,038
109,105
112,011
(9,918)
4,725
$ 417,844
317,167
100,677
92,424
320
7,007
2,182
634
1,548
39,131
40,679
—
40,679
0.09
2.27
—
2.36
0.08
2.04
—
$
$
$
$
1,526
5,536
(4,010)
1,368
2,287
21,067
(18,780)
2,763
(2,642)
—
(16,017)
—
(2,642) $ (16,017)
(0.23) $
0.08
—
(0.15) $
(1.13)
0.17
—
(0.96)
(0.21) $
0.07
—
(1.02)
0.15
—
$
$
$
$
926
503
423
5,109
5,532
—
5,532
0.03
0.37
—
0.40
0.03
0.33
—
$
$
$
$
$
372,291
295,767
76,524
86,392
—
6,659
(16,527)
(4,142)
(12,385)
3,503
(8,882)
(17,862)
(26,744)
(0.92)
0.26
(1.32)
(1.98)
(0.83)
0.24
(1.19)
2.12
$
(0.14) $
(0.87)
$
0.36
$
(1.78)
0.09
2.21
—
2.30
0.08
2.03
—
2.11
0.160
0.144
$
$
$
$
$
$
(0.23) $
0.08
—
(0.15) $
(1.13)
0.17
—
(0.96)
(0.21) $
0.07
—
(1.02)
0.15
—
(0.14) $
(0.87)
0.160
0.144
$
$
0.160
0.144
$
$
$
$
$
$
Weighted-average number of common shares outstanding:(13)
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
14,517
3,048
17,667
3,048
14,315
3,093
14,315
3,093
13,822
3,120
13,822
3,120
$
$
$
$
$
$
0.03
0.35
—
0.38
0.03
0.33
—
0.36
0.160
0.144
10,872
3,168
14,418
3,168
(0.92)
0.26
(1.32)
(1.98)
(0.83)
0.24
(1.19)
(1.78)
0.160
0.144
10,602
3,207
10,602
3,207
9
Five-Year Financial Review
(in thousands, except per share amounts)
This information should be read in conjunction with the
Company’s consolidated financial statements, accompanying
notes and Management’s Discussion and Analysis
of Financial Condition and Results of Operations
included elsewhere herein.
Other Data:
Interest expense
Investment income
Depreciation and amortization(14)
Capital expenditures(15)
Net Sales by Strategic Business Unit:
RF, Wireless & Power Division (RFPD)
Electron Device Group (EDG)
Display Systems Group (DSG)
Corporate(16)
Consolidated
Balance Sheet Data:
Cash, cash equivalents, and restricted cash
Working capital
Property, plant and equipment, net
Total assets
Current maturities of long-term debt
Long-term debt
Stockholders’ equity
2007(2)
2006(3)
2005(4)
2004(5)
2003(6)
Fiscal Year Ended(1)
$
$
$
$
$
5,292
992
6,126
6,401
$
$
6,281
411
6,240
6,211
6,133
388
5,298
6,975
7,058
227
4,989
5,468
369,936
101,191
82,111
4,053
557,291
$ 334,131
94,443
95,010
5,513
$ 529,097
$ 296,334
92,174
78,078
6,557
$ 473,143
$ 256,270
87,856
66,452
7,266
$ 417,844
79,335
147,412
29,703
349,071
65,711
55,683
136,545
$
17,010
158,231
30,070
309,299
14,016
110,500
98,240
$
24,301
153,840
30,677
283,940
22,305
92,481
97,396
$
16,572
172,593
29,670
281,035
4,027
126,209
86,181
$
$
$
$
7,346
124
5,137
4,975
222,599
77,336
64,191
8,165
372,291
16,611
178,525
29,827
267,293
46
129,253
77,606
(1) Fiscal Year - The Company’s fiscal year ends on the Saturday nearest the end of May. Each of the fiscal years presented contains 52/53 weeks. All references herein for the
years 2007, 2006, 2005, 2004, and 2003 represent the fiscal years ended June 2, 2007, June 3, 2006, May 28, 2005, May 29, 2004, and May 31, 2003, respectively.
(2) During fiscal 2007, the Company recorded $2.9 million of severance expense and other costs associated with the 2007 Restructuring Plan.
(3) During the fourth quarter of fiscal 2006, the Company recorded employee severance costs of $2.7 million for certain employees whose termination became probable and
estimable. In addition, during the fourth quarter of fiscal 2006, the Company re-evaluated the realization of certain deferred tax assets, resulting in an additional valuation
allowance of $2.2 million.
(4)
In the third quarter of fiscal 2005, the Company recorded a $2.2 million restructuring charge as the Company terminated over 60 employees. In addition, the Company
recorded incremental tax provisions of $16.7 million in fiscal 2005 to increase the valuation allowance related to its deferred tax assets in the United States ($15.9 million)
and outside the United States ($0.8 million).
(5) The Company recorded incremental tax provisions of $2.5 million in fiscal 2004 to increase the valuation allowance related to its deferred tax assets outside the United States.
(6)
In the fourth quarter of fiscal 2003, the Company recorded a $16.1 million charge ($10.3 million net of tax) principally related to inventory write-downs and restructuring
charges, including a $1.7 million restructuring charge as the Company eliminated over 70 positions or approximately 6% of its workforce. In addition, the Company recorded
incremental tax provisions of $1.6 million to establish a valuation allowance related to its deferred tax assets outside the United States.
(7) During the third quarter of fiscal 2007, the Company completed the sale of approximately 1.5 acres of real estate and a building located in Geneva, Illinois, resulting in a gain
of $2.5 million before taxes. In addition, during the fourth quarter of fiscal 2007, the Company sold real estate and a building located in the United Kingdom, resulting in a gain
of $1.5 million before taxes.
(8)
In the fourth quarter of fiscal 2005, the Company completed the sale of approximately 205 acres of undeveloped real estate adjoining its headquarters in LaFox, Illinois,
resulting in a gain of $9.9 million before taxes.
(9) During the first quarter of fiscal 2007, the Company recorded retirement of long-term debt expenses of $2.5 million in other expenses, net as the Company entered into two
separate exchange agreements in August 2006 with certain holders of the Company's 8% convertible senior subordinated notes (8% notes) to purchase $14.0 million of the
8% notes.
(10) During the fourth quarter of fiscal 2007, the Company completed the sale of the Security Systems Division/Burtek Systems (SSD/Burtek) strategic business unit to Honeywell
International Inc. for $80 million. After transaction expenses paid through June 2, 2007, net cash proceeds from the sale were $78.1 million. This transaction resulted in an
after tax gain of $41.6 million after additional transactions costs of $2.5 million were accrued as of June 2, 2007. Loss from discontinued operations for fiscal 2007 was
$2.4 million, net of tax.
(11) In the second quarter of fiscal 2003, the Company adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” and as a result
recorded a cumulative effect of accounting change of $17.9 million ($3.7 million, net of tax) to write off impaired goodwill. Additionally, effective at the beginning of fiscal 2003,
the Company no longer amortizes goodwill.
(12) The dividend per Class B common share was 90% of the dividend per common share.
(13) The weighted-average number of common shares outstanding includes 3,048, 3,093, 3,120, 3,168, and 3,207 Class B common shares for the fiscal years ended
June 2, 2007, June 3, 2006, May 28, 2005, May 29, 2004, and May 31, 2003, respectively.
(14) Includes depreciation and amortization expense related to discontinued operations (SSD/Burtek) of $0.5 million, $0.3 million, $0.2 million, $0.3 million, and $0.3 million in fiscal
2007, 2006, 2005, 2004, and 2003, respectively.
(15) Includes capital expenditures related to discontinued operations (SSD/Burtek) of $0.2 million, $1.6 million, $0.4 million, $0.4 million, and $0.2 million in fiscal 2007, 2006, 2005,
2004, and 2003, respectively.
(16) Includes freight billed to customers, other non-specific net sales, and customer cash discounts.
1 0
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
In an effort to reduce the Company’s global operating
costs related to logistics, selling, general, and administrative
expenses and to better align its operating and tax structure
on a global basis, the Company implemented a global
restructuring plan during fiscal 2007 (2007 Restructuring
Plan). The 2007 Restructuring Plan decreased the number
of warehouses and streamlined much of the entire
organization which is expected to reduce future corporate
and administrative expense. During fiscal 2007, the
Company centralized inventory distribution in Europe,
restructured its Latin American operations, and reduced its
total workforce, including the elimination and restructuring of
layers of management.
The total restructuring and severance costs to implement
the plan were approximately $6.0 million, a majority of which
were $2.7 million of severance costs recorded in the fourth
quarter of fiscal 2006 and $2.2 million of severance costs
recorded in fiscal 2007.
The Company’s marketing, sales, product management,
and purchasing functions are organized as three strategic
business units (SBUs): RF, Wireless & Power Division
(RFPD), Electron Device Group (EDG), and Display Systems
Group (DSG), with operations in the major economic
regions of the world: North America, Asia/Pacific, Europe,
and Latin America.
Overview
The Company is a global provider of engineered
solutions and a global distributor of electronic components to
the radio frequency (RF), wireless and power conversion,
electron device, and display systems markets. Utilizing its
core engineering and manufacturing capabilities, the
Company is committed to a strategy of providing specialized
technical expertise and value-added products, or
“engineered solutions,” in response to customers’ needs.
These solutions include products which the Company
manufactures or modifies and products which are
manufactured to its specifications by independent
manufacturers under the Company’s own private labels.
Additionally, the Company provides solutions and adds value
through design-in support, systems integration, prototype
design and manufacturing, testing, and logistics for end
products of its customers. Design-in support includes
component modifications or the identification of lower-cost
product alternatives or complementary products.
The Company’s products include RF and microwave
components, power semiconductors, electron tubes,
microwave generators, and data display monitors. These
products are used to control, switch or amplify electrical
power signals, or as display devices in a variety of industrial,
commercial, and communication applications.
On May 31, 2007, the Company completed the sale of
the Security Systems Division/Burtek Systems (SSD/Burtek)
strategic business unit to Honeywell International Inc. for
$80 million. After transaction expenses paid through June 2,
2007, net cash proceeds from the sale were $78.1 million.
The transaction resulted in an after tax gain of $41.6 million
after additional transaction costs of $2.5 million were
accrued as of June 2, 2007. The Company has used the net
proceeds received and will continue to use the net proceeds
classified as restricted cash from the sale to pay down debt
outstanding under its multi-currency revolving credit
agreement (credit agreement). The Company presents SSD/
Burtek as a discontinued operation in accordance with the
criteria of Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, and prior period results and
disclosures have been restated to reflect this reporting.
1 1
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
RF, Wireless & Power Division
Net Sales and Gross Profit Analysis
In fiscal 2007, consolidated net sales increased 5.3% to
$557.3 million due mainly to higher sales of wireless, power,
and electron device products partially offset by a decline in
display systems. Fiscal 2007 contained 52 weeks as
compared to 53 weeks in fiscal 2006. Consolidated net sales
in fiscal 2006 increased 11.8% to $529.1 million as all three
SBUs increased net sales over the prior year with strong
demand for custom display and wireless products.
In addition, effective June 1, 2005, the Company acquired
A.C.T. Kern GmbH & Co. KG (Kern), a leading display
technology company in Europe. Net sales for Kern, included
in DSG and the European region, for fiscal 2006 were $14.1
million. Net sales by SBU and percent change year-over-
year are presented in the following table (in thousands):
Fiscal Year Ended
Net Sales
June 2,
2007
RFPD
EDG
DSG
Corporate
Total
$ 369,936
101,191
82,111
4,053
$ 557,291
June 3,
2006
$ 334,131
94,443
95,010
5,513
$ 529,097
May 28,
2005
FY07 vs 06
% Change
FY06 vs 05
% Change
$ 296,334
92,174
78,078
6,557
$ 473,143
10.7%
7.1%
(13.6%)
(26.5%)
5.3%
12.8%
2.5%
21.7%
(15.9%)
11.8%
Gross profit reflects the distribution and manufacturing
product margin less manufacturing variances, inventory
overstock charges, customer returns, scrap and cycle count
adjustments, engineering costs, and other provisions. Gross
profit on freight and miscellaneous costs are included under
the caption “Corporate.” Gross profit by SBU and percent
of SBU sales are presented in the following table
(in thousands):
Fiscal Year Ended
Gross Profit
June 2, 2007
June 3, 2006
May 28, 2005
RFPD
EDG
DSG
Subtotal
Corporate
Total
$ 84,338
32,942
19,145
136,425
(4,022)
$ 132,403
22.8 % $ 75,834 22.7 % $ 64,853 21.9 %
30,438 32.2 % 29,401 31.9 %
32.6 %
24,509 25.8 % 17,865 22.9 %
23.3 %
130,781 25.0 % 112,119 24.0 %
24.7 %
(2,291)
(3,014)
23.8 % $ 128,490 24.3 % $109,105 23.1 %
Net sales and gross profit trends are analyzed for each
strategic business unit in the following sections.
RFPD net sales increased 10.7% in fiscal 2007 to $369.9
million as compared with $334.1 million in fiscal 2006. The
net sales growth for fiscal 2007 primarily related to an
increase in sales of power conversion, infrastructure, and
passive/interconnect product lines, partially offset by lower
sales of broadcast products. Power conversion sales
increased 32.2% to $49.9 million in fiscal 2007 from $37.8
million in fiscal 2006. The increase in net sales of power
conversion during fiscal 2007 was mainly due to growth in
Asia/Pacific which benefited from RFPD’s penetration of the
welding and steel manufacturing market with induction
heating and power supply applications. Net sales of
infrastructure products increased 30.2% in fiscal 2007 to
$104.9 million from $80.5 million last fiscal year, as all four
geographic regions improved over the prior year. During
fiscal 2007, net sales of passive/interconnect products
increased 6.2% to $59.0 million from $55.6 million last year,
due to increased demand in Europe and Asia/Pacific. The
increased sales volume was the main contributor to the
11.2% increase in gross profit to $84.3 million for fiscal 2007
as compared to $75.8 million last fiscal year. Gross margin
remained relatively flat at 22.8% during fiscal 2007 as
compared with 22.7% during fiscal 2006.
RFPD net sales increased 12.8% in fiscal 2006 to $334.1
million as compared with $296.3 million in fiscal 2005. The
RFPD net sales growth for fiscal 2006 was mainly due to an
increase in sales of the network access and infrastructure
product lines. Network access products sales grew 16.9% to
$123.2 million in fiscal 2006 from $105.3 million in fiscal
2005, primarily due to sales growth in Asia/Pacific. Sales of
infrastructure products increased to $80.5 million, 10.7%
higher than $72.7 million in fiscal 2005 due to sales growth in
the U.S. and Europe. The net sales growth was the main
contributor to the gross profit increase of 16.9% to $75.8
million for fiscal 2006. RFPD’s gross margin increased to
22.7% in fiscal 2006 from 21.9% in fiscal 2005, primarily due
to inventory write-downs of $1.3 million recorded in the third
quarter of fiscal 2005, and a shift in product mix in fiscal
2006 as a result of higher sales of engineered solutions.
The gross margin improvement was partially offset by the
increase in Asia/Pacific sales that reduced the overall gross
margin due to lower gross margins in Asia/Pacific than other
geographic regions.
1 2
Electron Device Group
Display Systems Group
EDG net sales increased 7.1% during fiscal 2007 to
$101.2 million from $94.4 million during fiscal 2006. The net
sales growth for fiscal 2007 was due to increased demand
for semiconductor fabrication and tube products. Net sales to
the semiconductor fabrication industry increased 30.0%
during fiscal 2007 to $22.3 million from $17.2 million in fiscal
2006. The increase in net sales to the semiconductor
fabrication equipment industry was due mainly to higher
sales in North America, Asia/Pacific, and Europe. EDG has
targeted semiconductor equipment manufacturers as an
important market segment by selling semiconductor
fabrication equipment products for high frequency and high
power applications. This market focus lends itself to EDG’s
engineered solutions strategy of adding value to the
component distribution sales by incorporating these products
into subassemblies and assisting customers in product
design. During fiscal 2007, tube sales increased to $69.6
million, a 1.9% increase from $68.3 million in fiscal 2006.
Gross profit increased 8.2% during fiscal 2007 to $32.9
million from $30.4 million, due mainly to increased sales
volume. Gross margin increased during fiscal 2007 to 32.6%
from 32.2% last year. The increase in gross margin was due
to improved margins on semiconductor fabrication
equipment products.
EDG net sales increased 2.5% during fiscal 2006 to
$94.4 million from $92.2 million during fiscal 2005.
Semiconductor fabrication sales increased 22.5% during
fiscal 2006 to $17.2 million as compared to $14.0 million in
fiscal 2005 with growth mainly in the U.S. Gross profit for
EDG increased 3.5% to $30.4 million during fiscal 2006 due
to an improved product mix. Gross margin increased to
32.2% from 31.9% for fiscal 2006 and 2005, respectively,
due to a slightly improved product mix primarily as a result of
the increase in semiconductor fabrication equipment sales.
DSG net sales decreased 13.6% to $82.1 million during
fiscal 2007 as compared with $95.0 million in fiscal 2006.
The decrease in net sales for DSG was mainly the result of
lower demand for medical monitors and custom displays.
Net sales of medical monitors declined 37.3% to $21.7
million during fiscal 2007 from $34.6 million last fiscal year.
Net sales of custom displays decreased to $40.2 million
during fiscal 2007, a 12.8% decline from $46.1 million in
fiscal 2006. DSG has a project-based business and
approximately 22% of the net sales decline for custom
displays in fiscal 2007 is due to the completion of a large
project with the New York Stock Exchange during the first
quarter of fiscal 2006. The remaining decrease is due to a
decline in project business. Gross margin declined to 23.3%
during fiscal 2007 from 25.8% during fiscal 2006 due to
shifts in product mix. In addition, during the second quarter
of fiscal 2006, the Company recorded a reduction in
warranty expense of $0.9 million due to favorable
warranty experience.
DSG net sales increased 21.7% during fiscal 2006 to
$95.0 million as compared with $78.1 million in fiscal 2005.
Net sales for Kern in fiscal 2006 were $14.1 million. The
sales growth for fiscal 2006 was mainly due to the Kern
acquisition and an increase in sales of the custom display
product line which increased 3.0% to $46.1 million as
compared to $44.7 million for fiscal 2005. DSG gross profit
increased 37.2% to $24.5 million during fiscal 2006 from
$17.9 million for fiscal 2005 due mainly to the higher sales
volume. Gross margin increased to 25.8% from 22.9%
during fiscal 2006 and 2005, respectively. The gross margin
improvement was due mainly to an improved product mix
primarily from sales growth in the medical monitor product
lines. In addition, during the second quarter of fiscal 2006,
the Company recorded a reduction in warranty expense of
$0.9 million due to favorable warranty experience.
1 3
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Sales by Geographic Area
The Company currently has 19 facilities in North
America, 25 in Asia/Pacific, 20 in Europe, and 4 in Latin
America. On a geographic basis, the Company primarily
categorizes its sales by destination: North America, Europe,
Asia/Pacific, Latin America, and Corporate. Net sales by
geographic area and percent change year-over-year are
presented in the following table (in thousands):
Fiscal Year Ended
Net Sales
June 2,
2007
June 3,
2006
May 28,
2005
North America $ 229,296 $ 227,926 $ 217,275
124,763
Asia/Pacific
109,626
Europe
Latin America
16,476
Corporate
Total
165,230
143,823
16,979
1,963
147,993
129,212
18,601
5,365
$ 557,291 $ 529,097 $ 473,143
FY07 vs 06
% Change
0.6 %
11.6 %
11.3 %
(8.7 %)
5,003 (63.4 %)
5.3 %
FY06 vs 05
% Change
4.9 %
18.6 %
17.9 %
12.9 %
7.2 %
11.8 %
Gross profit by geographic area and percent of
geographic sales are presented in the following table
(in thousands):
Gross Profit
June 2, 2007
June 3, 2006
May 28, 2005
Fiscal Year Ended
North America $ 61,849 27.0 % $ 59,059 25.9 % $ 56,517 26.0 %
35,532 24.0 % 29,683 23.8 %
Asia/Pacific
30,116 27.5 %
35,161 27.2 %
Europe
4,746 28.8 %
5,411 29.1 %
Latin America
142,227 25.6 % 135,163 25.8 % 121,062 25.9 %
39,052 23.6 %
36,481 25.4 %
4,845 28.5 %
(9,824)
(6,673)
(11,957)
$132,403 23.8 % $128,490 24.3 % $109,105 23.1 %
Subtotal
Corporate
Total
Net sales in North America increased slightly during
fiscal 2007 to $229.3 million from $227.9 million last year.
The increase in net sales during fiscal 2007 was mainly the
result of increased sales of wireless, power conversion, and
electron device products, partially offset by a decrease in
display systems products. Gross margin increased to 27.0%
during fiscal 2007 from 25.9% due to shifts in sales mix to
higher margin electron device products.
Net sales in North America increased 4.9% in fiscal 2006
to $227.9 million as compared with $217.3 million in fiscal
2005 with all three SBUs contributing to the growth. A
majority of the sales increase in fiscal 2006 was due to
increases in demand for wireless products in the U.S. In
addition, net sales in Canada experienced an overall gain of
8.8% to $19.5 million in fiscal 2006 versus $17.9 million in
fiscal 2005. Gross margin remained relatively flat at 25.9% in
fiscal 2006 as compared to 26.0% in fiscal 2005.
The Company experienced its ninth consecutive year of
double-digit growth in Asia/Pacific as net sales increased
11.6% to $165.2 million in fiscal 2007 from $148.0 million in
fiscal 2006. The increase during fiscal 2007 was primarily the
result of strong demand for wireless infrastructure, power
conversion, and passive/interconnect products, partially
offset by a decline in demand for broadcast and network
1 4
access products. Net sales in China increased 36.3% to
$59.0 million during fiscal 2007. The net sales improvement
in China was mainly the result of increased sales of
infrastructure products resulting from production integration
of the Company’s designs in China’s 3G system market. Net
sales in China also increased due to continued strong
demand for power conversion products in industrial
uninterruptible power supply applications. During fiscal 2007,
net sales in Japan increased 23.5% to $26.1 million due
primarily to increased demand for power conversion,
infrastructure, and network access products. Gross margin in
Asia/Pacific decreased to 23.6% during fiscal 2007 from
24.0% due to an increase in sales mix of lower margin
wireless infrastructure and power conversion products.
Net sales in Asia/Pacific increased 18.6% to $148.0
million in fiscal 2006 led by continued strong demand for
wireless products in the cellular infrastructure,
semiconductor fabrication, and broadcasting markets. Net
sales in Korea increased 35.4% to $43.5 million mainly due
to higher demand for network access products. Growth in
broadcast product sales improved sales in Singapore by
29.3% to $23.5 million. In addition, the Company
experienced an increase in network access and power
components sales in China contributing to a 7.2%
improvement to $43.3 million. Gross margins increased in all
strategic business units in Asia/Pacific for fiscal 2006, as
compared with fiscal 2005 due mainly to shifts in product mix
focused on exclusive franchises, design registration
programs, and the reduction of lower margin programs.
Net sales in Europe increased 11.3% in fiscal 2007 to
$143.8 million from $129.2 million in the previous fiscal year.
The increase in net sales was mainly due to increased
demand for network access, power conversion, wireless,
and electron device products. Net sales in Germany
increased 23.3% during fiscal 2007 to $41.4 million, due
mainly to increased demand for power conversion, wireless
infrastructure, passive/interconnect, network access, and
industrial tubes. During fiscal 2007, net sales for the United
Kingdom increased 16.5% to $20.5 million. The net sales
increase in the United Kingdom was primarily due to
increased demand for display system and wireless
infrastructure products. In addition, net sales in France
increased 15.9% to $19.6 million during fiscal 2007 as a
result of strong demand for infrastructure, passive/
interconnect, and tube products. Gross margin in Europe
decreased during fiscal 2007 to 25.4% from 27.2% last fiscal
year. The decrease primarily related to shifts in product mix
to lower margin wireless products.
Net sales in Europe grew 17.9% in fiscal 2006 to $129.2
million from $109.6 million in fiscal 2005 due to the
incremental display systems products sales from the Kern
acquisition and growth in wireless demand mainly in Israel,
Spain, and Germany. This increase was partially offset by
Sales by Geographic Area (cont’d)
(Gain) Loss on Disposal of Assets
lower sales of electron device products. Gross margin in
Europe in fiscal 2006 decreased to 27.2% from 27.5% in
fiscal 2006 and 2005, respectively, primarily due to lower
gross margins on wireless products as compared to electron
device products.
On April 5, 2007, the Company sold real estate and a
building located in the United Kingdom for $1.9 million.
The Company recorded a pre tax gain on sale of $1.5 million
during the fourth quarter of fiscal 2007 with respect to the
sale of this property.
Net sales in Latin America decreased 8.7% to $17.0
million in fiscal 2007 from $18.6 million in the previous fiscal
year. The decline during fiscal 2007 was mainly due to a
decline in demand for wireless, electron device, and display
systems products. Gross margin decreased during fiscal
2007 to 28.5% as compared with 29.1% during fiscal 2006.
The decrease in gross margin was primarily due to shifts in
product mix and a more competitive wireless marketplace.
Net sales in Latin America improved 12.9% to $18.6
million in fiscal 2006 as compared with $16.5 million in fiscal
2005. The net sales growth was mainly driven by refocusing
the EDG sales team after the realignment. Gross margin in
Latin America increased to 29.1% in fiscal 2006 versus
28.8% in fiscal 2005 primarily due to higher gross margins
from electron device products.
Selling, General and Administrative Expenses
Selling, general, and administrative (SG&A) expenses
increased 6.6% to $128.2 million in fiscal 2007 as compared
with $120.2 million last fiscal year. The increase in SG&A
expenses for fiscal 2007 was primarily due to higher payroll-
related, advertising, and travel expenses to support sales
growth, higher healthcare expenses, an increase in
distribution and logistics expenses related to the
centralization of the Company’s distribution centers,
additional stock compensation expense of $0.8 million
related to the adoption of SFAS No. 123 (Revised 2004),
Share-Based Payment, (SFAS No. 123(R)), and restatement
related expenses of $0.6 million. During fiscal 2007,
severance expense and other costs related to the 2007
Restructuring Plan were $2.9 million. Total SG&A as a
percentage of sales remained increased to 23.0% of net
sales for fiscal 2007 as compared with 22.7% last fiscal year.
SG&A expenses increased 7.3% to $120.2 million in
fiscal 2006 as compared with $112.0 million in fiscal 2005.
The increase in SG&A expenses was primarily due to the
acquisition of Kern and severance expense. The Company
recorded severance expense of $4.0 million during fiscal
2006. During the third quarter of fiscal 2005, the Company
recorded a restructuring charge, including severance and
lease termination costs, of $2.2 million. Total SG&A
expenses in fiscal 2006 decreased to 22.7% of net sales
compared with 23.7% in fiscal 2005.
On December 29, 2006, the Company sold approxi-
mately 1.5 acres of real estate and a building located in
Geneva, Illinois for $3.1 million. The Company recorded a
gain of $2.5 million during the third quarter of fiscal 2007
with respect to the sale of this property.
On May 26, 2005, the Company completed the sale of
approximately 205 acres of undeveloped real estate
adjoining its headquarters in LaFox, Illinois. The Company
recorded a gain of $9.9 million during the fourth quarter of
fiscal 2005 with respect to the sale of this property.
Other (Income) and Expense
In accordance with Emerging Issues Task Force (EITF)
87-24, Allocation of Interest to Discontinued Operations
(EITF 87-24), the Company has allocated interest expense
to the discontinued operation (SSD/Burtek) due to the
requirement under the Company’s existing credit agreement
to pay the proceeds from the sale of a business to the
parties in the credit agreement. All borrowings under the
credit agreement, $65.7 million as of June 2, 2007, are
anticipated to be repaid by the end of the first quarter of
fiscal 2008. As such, interest expense related to the credit
agreement of $5.9 million, $3.5 million, and $2.8 million for
fiscal 2007, 2006, and 2005, respectively, has been included
in income (loss) from discontinued operations.
In fiscal 2007, other (income) expense decreased to an
expense of $5.7 million from an expense of $6.9 million last
fiscal year. The decrease in other (income) expense relates
to a decrease in interest expense and favorable foreign
exchange rate changes, partially offset by costs associated
with the retirement of long-term debt. Interest expense
decreased to $5.3 million during fiscal 2007 from $6.3 million
in fiscal 2006. The decrease in interest expense relates to
the Company’s purchase of $14.0 million of the Company’s
8% convertible senior subordinated notes (8% notes) during
fiscal 2007. During fiscal 2007, other (income) expense
included a foreign exchange gain of $1.1 million as
compared with a foreign exchange loss of $0.7 million during
fiscal 2006. The foreign exchange variance for fiscal 2007
was due to the weakening of the U.S. dollar, primarily related
to receivables due from foreign subsidiaries to the U.S.
parent company and denominated in foreign currencies.
1 5
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Other (Income) and Expense (cont’d)
Fiscal 2007 included costs associated with the retirement of
long-term debt of $2.5 million due to the Company entering
into two separate agreements in August 2006 with certain
holders of the Company’s 8% notes to purchase $14.0
million of the 8% notes.
In fiscal 2006, other (income) expense increased to an
expense of $6.9 million from an expense of $4.7 million in
fiscal 2005. Other (income) expense included a foreign
exchange loss of $0.7 million during fiscal 2006 as compared
to a foreign exchange gain of $1.0 million in fiscal 2005. The
foreign exchange variance for fiscal 2006 was due to the
strengthening of the U.S. dollar, primarily related to
receivables due from foreign subsidiaries to the U.S. parent
company and denominated in foreign currencies. Interest
expense increased to $6.3 million in fiscal 2006 as compared
to $6.1 million in fiscal 2005.
Income Tax Provision
The effective income tax rates for fiscal 2007 and 2006
were 29.1% and 362.8%, respectively. The difference
between the effective tax rates as compared to the U.S.
federal statutory rate of 34% primarily results from the
Company’s geographical distribution of taxable income or
losses, foreign branch income subject to U.S. tax and
valuation allowances related to net operating losses.
While the valuation allowance increased $1.8 million from
June 3, 2006 to June 2, 2007, the Company recognized a tax
benefit of $1.4 million related to the valuation allowance
because of the allocation of taxes between continuing
operations and discontinued operations required by U.S.
generally accepted accounting principles. This tax benefit
reduced the effective tax rate by 64.9% as of June 2, 2007.
For fiscal 2006, the tax benefit related to net operating losses
was limited by the requirement for a valuation allowance of
$6.3 million which increased the effective income tax rate
by 415.6%.
At June 2, 2007, domestic federal net operating loss
carryforwards (NOL) amount to approximately $38.1 million.
These federal NOL’s expire between 2024 and 2027.
Domestic state net operating loss carryforwards (NOL)
amount to approximately $49.6 million. These state NOL’s
expire between 2007 and 2027. Foreign net operating loss
carryforwards total approximately $11.6 million with various or
indefinite expiration dates. In fiscal 2006, the Company re-
evaluated the realization of certain deferred tax assets,
resulting in an additional valuation allowance of $2.2 million.
The Company believes that in order to reverse the recorded
valuation allowance in any subsidiary, the Company would
likely need to have positive cumulative earnings in that
subsidiary for the three-year period preceding the year of the
reversal. The Company also has an alternative minimum tax
credit carryforward at June 2, 2007, in the amount of $1.2
million that has an indefinite carryforward period.
Income taxes paid, including foreign estimated tax
payments, were $2.5 million, $1.9 million, and $0.6 million in
fiscal 2007, 2006, and 2005, respectively.
At the end of fiscal 2004, all of the cumulative positive
earnings of the Company’s foreign subsidiaries, amounting
to $35.1 million, were considered permanently reinvested
pursuant to APB No. 23, Accounting for Income Taxes -
Special Areas. As such, U.S. taxes were not provided on
these amounts. In fiscal 2005, because of a strategic
decision, the Company determined that approximately $12.9
million of one of its foreign subsidiaries’ earnings could no
longer be considered permanently reinvested as those
earnings may be distributed in future years. Based on
management’s potential future plans regarding this
subsidiary, it was determined that these earnings would no
longer meet the specific requirements for permanent
reinvestment under APB No. 23. Upon distribution of those
earnings in the form of dividends or otherwise, the Company
would be subject to both U.S. income tax and foreign
withholding taxes. As such, the Company established a
deferred tax liability of approximately $4.9 million during
fiscal 2005. The Company revised its estimate of the
deferred tax liability of $4.9 million at June 3, 2006 based on
changes in management’s potential future plans for this
subsidiary during fiscal 2006. In fiscal 2006, the Company
revised its strategy and as of June 3, 2006 concluded that
the undistributed earnings of this subsidiary were considered
permanently reinvested outside the United States. The
reversal of the $4.9 million deferred tax liability in fiscal 2006
resulted in an additional valuation allowance in the same
amount and, therefore, did not affect the fiscal 2006 tax
provision. Cumulative positive earnings of the Company’s
foreign subsidiaries were still considered permanently
reinvested pursuant to APB No. 23 and amounted to $125.8
million at June 2, 2007. Due to various tax attributes that are
continually changing, it is not possible to determine what, if
any, tax liability might exist if such earnings were to be
repatriated.
During fiscal 2005, the Canadian taxing authority
proposed an income tax assessment for fiscal 1998 through
fiscal 2002. The Company appealed the income tax
assessment; however, the Company paid the entire tax
liability in fiscal 2005 to the Canadian taxing authority to
avoid additional interest and penalties if the Company’s
appeal was denied. The payment was recorded as an
increase to income tax provision in fiscal 2005. In May 2006,
the appeal was settled in the Company’s favor. The
Company recorded a reduction to income tax provision for
approximately $1.0 million related to the appeal settlement
and subsequently received the refund during fiscal 2007.
1 6
Income Tax Provision (cont’d)
On October 22, 2004, the President signed the
American Jobs Creation Act of 2004 (the Act). The Act
provides a deduction for income from qualified domestic
production activities, which will be phased in from 2005
through 2010. In return, the Act also provides for a two-year
phase out ending December 31, 2006 of the existing
extraterritorial income exclusion (ETI) for foreign sales that
was viewed to be inconsistent with the international trade
protocols by the European Union. The Company did not
receive a tax benefit from the current ETI in fiscal 2007.
When this benefit is fully phased out, it will have no impact
on the rate.
In June 2006, the FASB issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS 109, Accounting for Income Taxes
(FIN 48). FIN 48 was issued to clarify the accounting for
uncertainty in tax positions taken or expected to be taken in a
tax return. Under FIN 48, the tax benefit from an uncertain
tax position may be recognized only if it is more likely than
not that the tax position will be sustained upon examination
by tax authorities. The Company plans to adopt FIN 48 for
annual periods beginning June 3, 2007. The Company is
currently evaluating the potential impact that the adoption of
FIN 48 will have on its consolidated financial statements and
at this time no material adjustments are anticipated.
Future effective tax rates could be adversely affected by
lower than anticipated earnings 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 U.S.
and foreign tax authorities and regularly assesses the
likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of the provision for
income taxes.
Discontinued Operations
The following table summarizes results of discontinued
operations, consisting of SSD/Burtek:
SSD/Burtek net sales decreased slightly during fiscal
2007 to $107.5 million, a 1.2% decline from $108.8 million
last fiscal year, due mainly to a decline in demand for private
label products. Gross profit remained relatively flat in fiscal
2007 at $27.8 million versus $27.3 million last fiscal year.
Gross margin increased during fiscal 2007 to 25.8% from
25.1% last year mainly due to lower inventory overstock and
scrap expense.
SSD/Burtek net sales increased 3.1% to $108.8 million in
fiscal 2006 from $105.6 million in fiscal 2005. Net sales of
private label products increased 9.0% to $35.0 million during
fiscal 2006 as compared with $32.1 million during fiscal
2005, and were partially offset by a slight decrease in
distribution products. Net sales in Canada in fiscal 2006
increased 13.2% from the prior year; however, net sales in
Europe and the U.S. in fiscal 2006 decreased 18.0% and
9.8%, respectively. Gross profit and gross margin as a
percentage of net sales remained relatively flat during fiscal
2006 as compared to fiscal 2005.
In accordance with EITF 87-24 the Company has
allocated interest expense to the discontinued operation
(SSD/Burtek) due to the requirement under the Company’s
existing credit agreement to pay the proceeds from the sale
of a business to the parties in the credit agreement. All
borrowings under the credit agreement, $65.7 million as of
June 2, 2007, are anticipated to be repaid by the end of the
first quarter of fiscal 2008. As such, interest expense related
to the credit agreement of $5.9 million, $3.5 million, and $2.8
million for fiscal 2007, 2006, and 2005, respectively, has
been included in income (loss) from discontinued operations.
Net Income and Per Share Data
In fiscal 2007, the Company reported net income of
$40.7 million, or $2.30 per diluted common share and $2.11
per diluted Class B common share. In fiscal 2006, the
Company reported a net loss of $2.6 million, or $0.15 per
diluted common share and $0.14 per diluted Class B com-
mon share. In fiscal 2005, the Company reported a net loss
of $16.0 million, or $0.96 per diluted common share and
$0.87 per diluted Class B common share.
June 2,
2007
$ 107,510
27,788
Net sales
Gross profit
Gross margin % 25.8%
(Loss) income,
net of tax
(2,434)
Fiscal Year Ended
June 3,
2006
$108,843
27,279
May 28,
2005
$ 105,581
26,889
FY07 vs 06
% Change
(1.2%)
1.9%
FY06 vs 05
% Change
3.1%
1.5%
25.1%
25.5%
1,368
2,763
1 7
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company has financed its growth and cash needs
largely through income from operations, borrowings under
the revolving credit facilities, issuance of convertible senior
subordinated notes, and sale of assets. Liquidity provided
by operating activities is reduced by working capital
requirements, debt service, capital expenditures, dividends,
and business acquisitions. Liquidity is increased by proceeds
from borrowings and dispositions of businesses and assets.
Cash and cash equivalents was $17.4 million at June 2,
2007 as compared to $17.0 million at June 3, 2006. Cash
used in operating activities during fiscal 2007 of $9.7 million
was primarily due to the increase in inventories and
receivables, partially offset by an increase in payables. The
increase in inventories is due to higher inventory stocking
levels to support anticipated sales growth. Accounts
receivable increased due to increased sales levels. Accounts
payable increased due to the increased levels of inventory.
Cash provided by operating activities of $5.5 million in fiscal
2006 was due to the increase in payables partially offset by
increases in inventories and accounts receivable.
Receivables increased due to an approximate 13% increase
in sales volume during the last two months of fiscal 2006 as
compared to fiscal 2005, while inventories increased due to
the Kern and Image Systems acquisitions and increased
levels of inventory in anticipation of future increases in sales.
The increase in payables was primarily the result of the
increased levels of inventory.
Net cash provided by investing activities during fiscal
2007 of $80.3 million was mainly due to proceeds from the
sale of SSD/Burtek of $78.1 million, proceeds from the sale
of assets of $5.1 million, and the liquidation of $3.5 million of
long-term investments, partially offset by capital expenditures
of $6.4 million primarily related to information technology
projects. For fiscal 2006, net cash used in investing activities
of $12.7 million was mainly the result of the Kern acquisition,
effective June 1, 2005, located in Donaueschingen in
southern Germany. The cash outlay for Kern was $6.6
million, net of cash acquired. In addition, effective October 1,
2005, the Company acquired certain assets of Image
Systems, a subsidiary of Communications Systems, Inc. in
Hector, Minnesota. The initial cash outlay for Image Systems
was $0.2 million. In addition, the Company spent $6.2 million
on capital projects during fiscal 2006 primarily related to
facility and information technology projects.
Net cash used in financing activities during fiscal 2007 of
$71.2 million was mainly due to amounts maintained as
restricted cash of $61.9 million resulting from proceeds from
the sale of the SSD/Burtek business unit, that are required
by the Company’s credit agreement to be used to pay down
outstanding debt amounts under the credit agreement, cash
payments on the early debt retirement of $15.9 million, and
dividend payments of $2.8 million, partially offset by net debt
borrowings of $8.1 million. Net cash used in financing
activities was $0.6 million in fiscal 2006.
The credit agreement balance of $65.7 million is
classified as current as of June 2, 2007 due to the obligation
to pay off the credit agreement with the proceeds from the
SSD/Burtek sale. The Company entered into a new $40.0
million credit agreement (new credit agreement) on July 27,
2007 which includes a Euro subfacility ($15.0 million) and a
Singapore subfacility ($5.0 million). This new credit
agreement expires in July 2010 and bears interest at
applicable LIBOR, SIBOR, or prime rates plus a margin
varying with certain quarterly borrowings under the new
credit agreement. This new credit agreement is secured by a
lien on the Company’s assets and also contains only one
financial covenant related to the ratio of senior funded debt
to cash flow. The commitment fee related to the new credit
agreement is 0.25% per annum payable quarterly on the
average daily unused portion of the aggregate commitment.
On September 8, 2006, the Company purchased $6.0
million of the 8% notes, and on December 8, 2006, the
Company purchased $8.0 million of the 8% notes. The
purchases were financed through additional borrowings
under the Company’s credit agreement. As the 8% notes are
subordinate to the Company’s existing credit agreement, the
Company received a waiver from its lending group to permit
the purchases. The Company recorded costs associated
with the retirement of long-term debt of $2.5 million in
connection with the purchases, which includes the
write-off of previously capitalized deferred financing
costs of $0.6 million.
On November 21, 2005, the Company sold $25.0 million
in aggregate principal amount of 8% notes due 2011
pursuant to an indenture dated November 21, 2005. The 8%
notes bear interest at a rate of 8% per annum. Interest is due
on June 15 and December 15 of each year. The 8% notes
are convertible at the option of the holder, at any time on or
prior to maturity, into shares of the Company’s common
stock at a price equal to $10.31 per share, subject to
adjustment in certain circumstances. In addition, the
Company may elect to automatically convert the 8% notes
into shares of common stock if the trading price of the
common stock exceeds 150% of the conversion price of the
8% notes for at least 20 trading days during any 30 trading
day period subject to a payment of three years of interest if
the Company elects to convert the 8% notes prior to
December 20, 2008.
The indenture provides that on or after December 20,
2008, the Company has the option of redeeming the 8%
notes, in whole or in part, for cash, at a redemption price
equal to 100% of the principal amount of the 8% notes to be
redeemed, plus accrued and unpaid interest, if any, to, but
1 8
Liquidity and Capital Resources (cont’d)
The Company’s credit agreement consisted of the following
facilities as of June 2, 2007:
excluding, the redemption date. Holders may require the
Company to repurchase all or a portion of their 8% notes for
cash upon a change-of-control event, as described in the
indenture, at a repurchase price equal to 100% of the
principal amount of the 8% notes to be repurchased, plus
accrued and unpaid interest, if any, to, but excluding the
repurchase date. The 8% notes are unsecured and
subordinate to the Company’s existing and future senior
debt. The 8% notes rank on parity with the Company’s
existing 73/4% convertible senior subordinated notes
(73/4% notes) due December 2011.
In February 2005, the Company issued $44.7 million of
73/4% notes due 2011 in exchange for $22.2 million of its
71/4% convertible debentures (71/4% debentures) due
December 2006 and $22.5 million of its 81/4% convertible
senior debentures (81/4% debentures) due June 2006. The
73/4% notes are convertible at the holder’s option, at any
time on or prior to maturity, into shares of the Company’s
common stock at a price equal to $18.00 per share, subject
to adjustments in certain circumstances. On or after
December 19, 2006, the Company may elect to
automatically convert the 73/4% notes into shares of common
stock if the trading prices of the common stock exceeds
125% of the conversion price of the 73/4% notes for at least
twenty trading days during any thirty trading day period
ending within five trading days prior to the date of the
automatic conversion notice. Subsequent to the exchange,
the Company had outstanding $4.8 million of 71/4%
debentures due December 2006, $17.5 million of 81/4%
debentures due June 2006, and $44.7 million of 73/4% notes.
In October 2004, the Company renewed its credit
agreement with the current lending group in the amount of
approximately $109 million. On August 4, 2006, the
Company amended its credit agreement and decreased the
facility to approximately $97.9 million (the size of the credit
line varies based on fluctuations in foreign currency
exchange rates). The credit agreement was terminated on
July 27, 2007. The portion of the credit line available for the
Company to borrow is limited by the amount of collateral and
certain covenants in the credit agreement. The credit
agreement is principally secured by the Company’s trade
receivables and inventory. The credit agreement bears
interest at applicable LIBOR rates plus a margin, varying with
certain financial performance criteria. At June 2, 2007, the
applicable margin was 2.00%, $65.7 million was outstanding
under the credit agreement, outstanding letters of credit were
$0.4 million, the unused line was $31.7 million, and the
available credit line was limited to $0.7 million due to
covenants related to maximum permitted leverage ratios.
The commitment fee related to the credit agreement is
0.25% per annum payable quarterly on the average daily
unused portion of the aggregate commitment.
U.S. Facility
Canada Facility
UK Facility
Euro Facility
Japan Facility
Total
Capacity
$ 77,500
2,261
8,909
6,727
2,465
$ 97,862
Amount
Outstanding
$ 46,400
2,150
8,790
6,727
1,644
$ 65,711
Interest
Rate
8.25 %
6.00 %
7.66 %
5.92 %
2.72 %
7.72 %
Note: Due to maximum permitted leverage ratios, the amount of the
unused line cannot be calculated on a facility-by-facility basis.
On March 3, 2007, the Company was not in compliance
with credit agreement covenants with respect to the leverage
ratio. On April 5, 2007, the Company received a waiver from
its lending group for the default.
On January 19, 2007, the Company executed an
amendment to the credit agreement to facilitate the
implementation of a European cash sweeping program. In
addition, the amendment decreased the Company's Canada
Facility and increased the Company’s U.S. Facility by
approximately $7.5 million.
At March 4, 2006, the Company was not in compliance
with credit agreement covenants with respect to the leverage
ratio, fixed charge coverage ratio, and tangible net worth
covenants. On August 4, 2006, the Company received a
waiver from its lending group for the defaults and executed
an amendment to the credit agreement. In addition, the
amendment also (i) permitted the purchase of $14.0 million
of the 8% notes; (ii) adjusted the minimum required fixed
charge coverage ratio for the first quarter of fiscal 2007; (iii)
adjusted the minimum tangible net worth requirement; (iv)
permitted certain sales transactions contemplated by the
Company; (v) eliminated the Company’s Sweden Facility; (vi)
reduced the Company’s Canada Facility by approximately
$5.4 million; (vii) changed the definition of “Adjusted
Earnings Before Interest, Taxes, Depreciation, and
Amortization (EBITDA)” for covenant purposes; and (viii)
provided that the Company maintain excess availability on
the borrowing base of not less than $20.0 million until the
Company filed its Form 10-Q for the quarter ended
March 4, 2006, at which time the Company will maintain
excess availability of the borrowing base of not less than
$10.0 million.
At September 3, 2005, the Company was not in
compliance with credit agreement covenants with respect to
the tangible net worth covenant due solely to the additional
goodwill recorded as a result of the Kern acquisition. On
October 12, 2005, the Company received a waiver from its
lending group for the default and executed an amendment to
the credit agreement. The amendment changed the
minimum tangible net worth requirement to adjust for the
goodwill associated with the Kern acquisition.
1 9
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Annual dividend payments for fiscal 2007 amounted to
The Company believes that the existing sources of
liquidity, including current and restricted cash, as well as
cash provided by operating activities, supplemented as
necessary with funds available under credit arrangements,
will provide sufficient resources to meet known capital
requirements and working capital needs for the fiscal year
ended May 31, 2008.
$2.8 million. The Company’s policy regarding payment of
dividends is reviewed periodically by the Board of Directors
in light of the Company’s operating needs and capital
structure. Over the last 20 years, the Company has been in a
position to regularly pay a quarterly dividend of $0.04 per
common share and $0.036 per Class B common share. The
Company currently expects to continue paying dividends at
this historical rate in fiscal 2008.
See Item 7A for “Risk Management and Market Sensitive
Financial Instruments” for information regarding the effect on
net income of market changes in interest rates.
Contractual Obligations
Contractual obligations by expiration period as of June 2,
2007 are presented in the table below (in thousands):
Payments Due by Period
Total
$ 55,683
19,285
Less than
1 Year
$
— $
4,343
1 - 3
Years
—
8,686
Convertible notes(1)
Convertible notes - interest(1)
Multi-currency revolving credit
agreement(2)
65,711
65,711
—
Multi-currency revolving credit
agreement - interest(2)
Lease obligations(3)
Purchase obligations(4)
Other(5)
Total
1,268
10,549
148,965
451
$ 301,912
1,268
3,830
148,965
309
$ 224,426
—
4,244
—
142
$ 13,072
Convertible notes(1)
Convertible notes - interest(1)
Multi-currency revolving credit
agreement(2)
Multi-currency revolving credit
agreement - interest(2)
Lease obligations(3)
Purchase obligations(4)
Other(5)
Total
Payments Due by Period
3 - 5
Years
$ 55,683
6,256
—
—
1,700
—
—
$ 63,639
More than
5 Years
$
$
—
—
—
—
775
—
—
775
(1) Convertible notes consist of the 73/4% notes, with principal of $44.7
million due December 2011, and 8% notes, with principal of $11.0
million due June 2011.
(2) The credit agreement expires in October 2009 and bears interest at
applicable LIBOR rates plus a 200 basis point margin. The credit
agreement balance of $65.7 million is classified as current as of
June 2, 2007 due to the obligation to pay off the credit agreement with
the proceeds from the SSD/Burtek sale. The Company completed the
refinancing of the credit agreement on July 27, 2007. Interest in the
table above is calculated using 7.72% interest rate and $65.7 million
principal amount as of June 2, 2007 through the end of the first quarter
of fiscal year 2008.
(3) Lease obligations are related to certain warehouse and office facilities
and office equipment under non-cancelable operating leases.
(4) The Company has outstanding purchase obligations with vendors at
the end of fiscal 2007 to meet operational requirements as part of the
normal course of business.
(5) The Company has a physical distribution agreement with a third-party
logistics provider.
2 0
Critical Accounting Policies and Estimates
The Company’s consolidated financial statements have
been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial
statements requires the Company to make significant
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses and related
disclosure of contingent assets and liabilities. On an ongoing
basis, the Company evaluates its estimates, including those
related to allowances for doubtful accounts, inventories,
intangible assets, income taxes, and contingencies and
litigation. The Company bases its estimates on historical
experience and on various other assumptions that are
believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results
may differ from these estimates under different assumptions
or conditions.
The policies discussed below are considered by
management to be critical to understanding the Company’s
financial position and results of operations. Their application
involves more significant judgments and estimates in
preparation of the Company’s consolidated financial
statements. For all of these policies, management cautions
that future events rarely develop exactly as forecast, and the
best estimates routinely require adjustment.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The estimates are
influenced by the following considerations: continuing credit
evaluation of customers’ financial conditions; aging of
receivables, individually and in the aggregate; large number
of customers which are widely dispersed across geographic
areas; collectability and delinquency history by geographic
area; and the fact that no single customer accounts for 10%
or more of net sales. Significant changes in one or more of
these considerations may require adjustments to the
allowance affecting net income and net carrying value of
accounts receivable. At June 2, 2007, the allowance for
doubtful accounts was $1.6 million as compared to $2.0
million at June 3, 2006.
Impairment of Investments
The Company holds a portfolio of investment securities
and periodically assesses its recoverability. In the event of a
decline in fair value of an investment, the judgment is made
whether the decline is other-than-temporary. Management's
assessment as to the nature of a decline is largely based on
the duration of that market decline, financial health of and
specific prospects for the issuer, and the Company’s cash
requirements and intent to hold the investment. If an
investment is impaired and the decline in market value is
considered to be other-than-temporary, an appropriate write-
down is recorded. The Company recognized investment
impairment of less than $0.1 million in fiscal 2007 and 2005,
and $0.1 million in fiscal 2006.
Inventories
The Company carries all its inventories at the lower of
cost or market using the first-in, first-out (FIFO) method.
Inventories include material, labor, and overhead associated
with such inventories. Substantially all inventories represent
finished goods held for sale.
Provisions for obsolete or slow moving inventories are
recorded based upon regular analysis of stock rotation,
obsolescence, and assumptions about future demand and
market conditions. If future demands, change in the industry,
or market conditions differ from management's estimates,
additional provisions may be necessary.
The Company recorded inventory obsolescence and
overstock provisions of $0.9 million, $0.8 million, and $3.4
million in fiscal 2007, 2006, and 2005, respectively, which
were included in cost of sales. The provisions were
principally for obsolete and slow moving parts. The parts
were written down to estimated realizable value.
Long-Lived and Intangible Assets
The Company periodically evaluates the recoverability of
the carrying amounts of its long-lived assets, including
software, property, plant and equipment. The Company
assesses in accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the
possibility of long-lived assets being impaired when events
trigger the likelihood.
Impairment is assessed when the undiscounted
expected cash flows to be derived from an asset are less
than its carrying amount. If impairment exists, the carrying
value of the impaired asset is written down and impairment
loss is recorded in operating results. In assessing the
potential impairment of the Company’s goodwill and other
intangible assets, management makes significant estimates
and assumptions regarding the discounted future cash flows
to determine the fair value of the respective assets on an
annual basis. These estimates and their related assumptions
include, but are not limited to, projected future operating
results, industry and economy trends, market discount rates,
indirect expense allocations, and tax rates. If these estimates
or assumptions change in the future as a result of changes
in strategy, Company profitability, or market conditions,
among other factors, this could adversely affect future
goodwill and other intangible assets valuations and result in
impairment charges.
2 1
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Effective June 1, 2002, the Company adopted SFAS No.
Income Taxes
142, Goodwill and Other Intangible Assets. This statement
changed the accounting for goodwill and indefinite lived
assets from an amortization approach to an impairment-only
approach. The Company performs its impairment test as of
the third quarter of each fiscal year. The Company did not
find any indication that an impairment existed and, therefore,
no impairment loss was recorded in fiscal 2007.
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.
The Company estimates the cost to perform under its
warranty obligation and recognizes this estimated cost at the
time of the related product sale. The Company reports this
expense as an element of cost of sales in its Consolidated
Statement of Operations. Each quarter, the Company
assesses actual warranty costs incurred, on a product-by-
product basis, as compared to its estimated obligation. The
estimates with respect to new products are based generally
on knowledge of the products and are extrapolated to reflect
the extended warranty period, and are refined each quarter
as better information with respect to warranty experience
becomes known.
Warranty reserves are established for costs that are
expected to be incurred after the sale and delivery of
products under warranty. The warranty reserves are
determined based on known product failures, historical
experience, and other currently available evidence.
Stock Compensation
Effective June 4, 2006, the Company adopted SFAS No.
123(R) which requires the measurement and recognition
of compensation cost at fair value for all share-based
payments, including stock options. The Company estimates
fair value using the Black-Scholes option-pricing model,
which requires assumptions such as expected volatility,
risk-free interest rate, expected life, and dividends.
Compensation cost is recognized using a graded-vesting
schedule over the applicable vesting period, or date on which
retirement eligibility is achieved, if shorter (non-substantive
vesting period approach). See Note A of the notes to the
consolidated financial statements for further information.
The Company recognizes deferred tax assets and
liabilities based on the differences between financial
statement carrying amounts and the tax bases of assets and
liabilities. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation
allowance based on a number of factors, including both
positive and negative evidence, in determining the need for a
valuation allowance. Those factors include historical taxable
income or loss, projected future taxable income or loss, the
expected timing of the reversals of existing temporary
differences, and the implementation of tax planning
strategies. In circumstances where the Company or any of its
affiliates has incurred three years of cumulative losses which
constitute significant negative evidence, positive evidence of
equal or greater significance is needed by the Company at a
minimum to overcome that negative evidence before a tax
benefit is recognized for deductible temporary differences
and loss carryforwards. In evaluating the positive evidence
available, expectations as to future taxable income would
rarely be sufficient to overcome the negative evidence of
recent cumulative losses, even if supported by detailed
forecasts and projections. In order to reverse the recorded
valuation allowance, the Company would likely need to have
positive cumulative earnings for the three-year period
preceding the year of the reversal. Therefore, the Company’s
projections as to future earnings would not be used as an
indicator in analyzing whether a valuation allowance
established in a prior year can be removed or reduced.
At June 2, 2007 and June 3, 2006, the Company’s
deferred tax assets related to tax carryforwards were $20.0
million and $13.6 million, respectively. The tax carryforwards
are comprised of net operating loss carryforwards and other
tax credit carryovers. A majority of the net operating losses
and other tax credits can be carried forward for 20 years.
The Company has recorded valuation allowances for the
majority of its federal deferred tax assets and loss
carryforwards, and for tax loss carryforwards of certain non-
U.S. subsidiaries. The Company believes that the deferred
tax assets for the remaining tax carryforwards are
considered more likely than not to be realizable based on
estimates of future taxable income and the implementation
of tax planning strategies.
2 2
New Accounting Pronouncements
In June 2006, the FASB issued FIN 48. FIN 48 was
issued to clarify the accounting for uncertainty in tax posi-
tions taken or expected to be taken in a tax return. Under
FIN 48, the tax benefit from an uncertain tax position may be
recognized only if it is more likely than not that the tax
position will be sustained upon examination by tax authori-
ties. The Company plans to adopt FIN 48 for annual periods
beginning June 3, 2007. The Company is currently evaluat-
ing the potential impact that the adoption of FIN 48 will have
on its consolidated financial statements and at this time no
material adjustments are anticipated.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measure-
ments. Under SFAS No. 157, fair value refers to the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
in the market in which the reporting entity transacts. The
standard clarifies that fair value should be based on the
assumptions market participants would use when pricing the
asset or liability. SFAS No. 157 will be effective for the
Company beginning in fiscal 2009. The Company is currently
assessing the impact that SFAS No. 157 may have on the
financial statements.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108 (SAB No. 108) regarding the quantification
of financial statement misstatements. SAB No. 108 requires
a “dual approach” for quantifications of errors using both a
method that focuses on the income statement impact,
including the cumulative effect of prior years’ misstatements,
and a method that focuses on the period-end balance sheet.
SAB No. 108 will be effective for the Company beginning
in fiscal 2008. The Company does not expect the
adoption to have a material impact on the Company's
financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159), including an amendment to SFAS
No. 115. Under SFAS No. 159, entities may elect to measure
specified financial instruments and warranty and insurance
contracts at fair value on a contract-by-contract basis, with
changes in fair value recognized in earnings each reporting
period. The election, called the fair value option, will enable
entities to achieve an offset accounting effect for changes in
fair value of certain related assets and liabilities without
having to apply complex hedge accounting provisions. SFAS
No. 159 is expected to expand the use of fair value measure-
ment consistent with the FASB’s long-term objectives for
financial instruments. SFAS No. 159 will be effective for the
Company beginning in fiscal 2009. The Company is currently
evaluating the impact of the adoption of SFAS No. 159 on
the financial statements.
Safe Harbor Statement Under the Private
Securities Litigation Reform Act of 1995
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 “may,” “will,” “should,”
“could,” “expect,” “plan,” “intend,” “estimate,” “anticipate,”
“predict,” “believe,” “potential,” “continue,” 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 financ-
ing plans; (iii) the Company’s business and growth strate-
gies, including potential acquisitions; and (iv) other plans and
objectives for future operations. Any such forward-looking
statements are not guarantees of future performance and
involve risks and uncertainties and actual results may differ
materially from those predicted in the forward-looking
statements or which may be anticipated from historical
results or trends.
2 3
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Had the U.S. dollar strengthened 10% against various
foreign currencies, net sales would have been lower by an
estimated $21.2 million for fiscal 2007 and an estimated
$18.7 million for fiscal 2006. Total assets would have
declined by an estimated $17.9 million as of the fiscal year
ended June 2, 2007 and an estimated $10.0 million as of the
fiscal year ended June 3, 2006, while the total liabilities
would have decreased by an estimated $3.8 million as of the
fiscal year ended June 2, 2007 and an estimated $2.7 million
as of the fiscal year ended June 3, 2006.
The interpretation and analysis of these disclosures
should not be considered in isolation since such variances
in interest rates and exchange rates would likely influence
other economic factors. Such factors, which are not
readily quantifiable, would likely also affect the
Company’s operations.
Quantitative and Qualitative Disclosures
about Market Risk
Risk Management and Market Sensitive
Financial Instruments
Certain operations, assets, and liabilities of the
Company are denominated in foreign currencies subjecting
the Company to foreign currency exchange risk. In addition,
some of the Company’s debt financing varies with market
rates exposing the Company to the market risk from
changes in interest rates. In order to provide the user of
these financial statements guidance regarding the magnitude
of these risks, the Securities and Exchange Commission
requires the Company to provide certain quantitative
disclosures based upon hypothetical assumptions.
Specifically, these disclosures require the calculation of the
effect of a 10% increase in market interest rates and a
uniform 10% strengthening of the U.S. dollar against foreign
currencies on the reported net earnings and financial position
of the Company.
The Company’s multi-currency revolving credit
agreement’s interest rate varies based on market interest
rates. Had interest rates increased 10%, additional interest
expense, tax effected, would have decreased the net income
by an estimated $0.3 million in fiscal 2007, and increased the
net loss by an estimated $0.2 million in fiscal 2006.
The Company’s foreign denominated assets and
liabilities are cash, accounts receivable, inventory, accounts
payable, and intercompany receivables and payables,
primarily in member countries of the European Union,
Asia/Pacific and, to a lesser extent, Canada and
Latin America. Tools that the Company may use to manage
foreign exchange exposures include currency clauses in
sales contracts, local debt to offset asset exposures and
forward contracts to hedge significant transactions. The
Company has not entered into any forward contracts
in fiscal 2007 or 2006.
2 4
Consolidated Balance Sheets
(in thousands)
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Receivables, less allowance of $1,574 and $1,965
Inventories
Prepaid expenses
Deferred income taxes
Current assets of discontinued operations held for sale
Total current assets
Non-current assets:
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Non-current deferred income taxes
Assets held for sale
Other assets
Non-current assets of discontinued operations held for sale
Total non-current assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of long-term debt
Current liabilities of discontinued operations held for sale
Total current liabilities
Non-current liabilities:
Long-term debt, less current portion
Non-current liabilities
Non-current liabilities of discontinued operations held for sale
Total non-current liabilities
Total liabilities
Stockholders’ equity:
Common stock, $0.05 par value; issued 15,920 shares at
June 2, 2007
June 3, 2006
$ 17,436
61,899
105,709
110,174
5,129
2,131
242
302,720
29,703
11,611
1,581
389
1,004
2,058
5
46,351
$ 349,071
$ 55,530
31,330
65,711
2,737
155,308
55,683
1,535
—
57,218
212,526
$ 17,010
—
99,631
99,484
3,509
1,527
34,168
255,329
30,070
11,256
2,092
1,300
1,018
3,814
4,420
53,970
$309,299
$ 45,194
29,769
14,016
8,119
97,098
110,500
1,169
2,292
113,961
211,059
June 2, 2007 and 15,663 shares at June 3, 2006
796
783
Class B common stock, convertible, $0.05 par value; issued 3,048
shares at June 2, 2007 and 3,093 shares at June 3, 2006
Preferred stock, $1.00 par value, no shares issued
Additional paid-in-capital
Common stock in treasury, at cost, 1,179 shares at June 2, 2007
and 1,261 shares at June 3, 2006
Retained earnings (accumulated deficit)
Accumulated other comprehensive income
Accumulated other comprehensive income from discontinued
operations held for sale
Total stockholders’ equity
Total liabilities and stockholders’ equity
152
—
118,880
(6,989)
21,631
2,075
—
136,545
$ 349,071
See accompanying notes to consolidated financial statements.
155
—
119,149
(7,473)
(19,048)
897
3,777
98,240
$309,299
2 5
Consolidated Statements of Operations
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Gain on disposal of assets
Operating income
Other (income) expense:
Interest expense
Investment income
Foreign exchange (gain) loss
Retirement of long-term debt expenses
Other, net
Total other expense
Income from continuing operations before income taxes
Income tax provision
Income (loss) from continuing operations
Discontinued operations:
Income (loss) from discontinued operations, net of provision for
income tax of $3,428, $2,682, and $3,533, respectively
Gain on sale of discontinued operations, net of provision for
income tax of $2,824
Income from discontinued operations
Net income (loss)
Net income (loss) per common share - basic:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per common share - basic
Net income (loss) per Class B common share - basic:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per Class B common share - basic
Net income (loss) per common share - diluted:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per common share - diluted
Net income (loss) per Class B common share - diluted:
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss) per Class B common share - diluted
Weighted average number of shares:
Common shares - basic
Class B common shares - basic
Common shares - diluted
Class B common shares - diluted
Dividends per common share
Dividends per Class B common share
Fiscal Year Ended
June 2,
2007
June 3,
2006
May 28,
2005
$ 557,291
424,888
132,403
128,175
(3,616)
7,844
$ 529,097
400,607
128,490
120,233
(154)
8,411
$ 473,143
364,038
109,105
112,011
(9,918)
7,012
5,292
(992)
(1,078)
2,540
(100)
5,662
2,182
634
1,548
6,281
(411)
712
—
303
6,885
1,526
5,536
(4,010)
6,133
(388)
(969)
—
(51)
4,725
2,287
21,067
(18,780)
(2,434)
1,368
2,763
41,565
39,131
40,679
0.09
2.27
2.36
0.08
2.04
2.12
0.09
2.21
2.30
0.08
2.03
2.11
$
$
$
$
$
$
$
$
$
—
1,368
(2,642)
—
2,763
$ (16,017)
(0.23)
0.08
(0.15)
(0.21)
0.07
(0.14)
(0.23)
0.08
(0.15)
(0.21)
0.07
(0.14)
$
$
$
$
$
$
$
$
(1.13)
0.17
(0.96)
(1.02)
0.15
(0.87)
(1.13)
0.17
(0.96)
(1.02)
0.15
(0.87)
$
$
$
$
$
$
$
$
$
14,517
3,048
17,667
3,048
14,315
3,093
14,315
3,093
13,822
3,120
13,822
3,120
$
$
0.160
0.144
$
$
0.160
0.144
$
$
0.160
0.144
2 6
See accompanying notes to consolidated financial statements.
June 2,
2007
June 3,
2006
May 28,
2005
Fiscal Year Ended
$ 40,679
$ (2,642)
$ (16,017 )
Consolidated Statements of Cash Flows
(in thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization
Stock compensation expense
Gain on disposition of segment of business
(Gain) loss on disposal of assets
Retirement of long-term debt expenses
Deferred income taxes
Receivables
Inventories
Accounts payable and accrued liabilities
Other liabilities
Other
Net cash (used in) provided by operating activities
Investing activities:
Capital expenditures
Proceeds from sale of assets
Proceeds from sale of segment of business,
net of transaction expenses paid
Business acquisitions, net of cash acquired
Proceeds from sales of available-for-sale securities
Purchases of available-for-sale securities
Net cash provided by (used in) investing activities
Financing activities:
Proceeds from borrowings
Payments on debt
Restricted cash
Proceeds from issuance of common stock
Cash dividends
Payments on retirement of long-term debt
Other
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
6,126
845
(41,565)
(3,582)
2,540
309
(3,635)
(9,836)
2,637
371
(4,558)
(9,669)
(6,401)
5,093
78,114
—
3,774
(274)
80,306
258,561
(250,419)
(61,899)
1,948
(2,764)
(15,915)
(674)
(71,162)
951
426
17,010
$ 17,436
6,240
—
—
3
—
1,462
(5,417)
(10,420)
15,910
(267)
588
5,457
(6,211)
278
—
(6,800)
2,317
(2,317)
(12,733)
252,997
(249,853)
—
710
(2,736)
—
(1,711)
(593)
578
(7,291)
24,301
$ 17,010
5,298
—
—
(9,918 )
—
18,281
2,303
(9,618 )
1,037
1,156
5,465
(2,013 )
(6,975 )
10,925
—
(971 )
3,042
(3,042 )
2,979
113,229
(131,624 )
—
29,729
(2,719 )
—
(2,364 )
6,251
512
7,729
16,572
24,301
9,131
565
$
$
$
Supplemental Disclosure of Cash Flow Information:
Cash paid during the fiscal year for:
Interest
Income taxes
$ 11,142
2,530
$
$ 9,026
$ 1,916
See accompanying notes to consolidated financial statements.
2 7
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income (Loss)
(in thousands)
Comprehensive
Income
(Loss)
Common
Class B
Common
Par
Value
Additional
Paid-In
Capital
Treasury
Stock
Retained
Earnings/
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Income (Loss)
Discontinued
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance May 29, 2004:
Comprehensive income (loss):
12,524
3,168 $ 784 $ 93,877
$ (8,515) $ 1,650
$ (2,415)
$ 800
$ 86,181
$
Net loss
(16,017)
Recognition of unearned compensation —
597
Currency translation, net of tax
Fair value adjustments on
investment, net of tax
Cash flow hedges, net of tax
Comprehensive loss
121
66
(15,233)
$
—
—
—
—
—
Common stock issued
Conversion of Class B shares to common stock
Dividends paid to:
3,025
48
Common ($0.04 per share)
Class B ($0.036 per share)
—
—
—
—
—
—
—
—
(48)
—
—
—
—
—
—
—
152
—
—
—
—
242
—
—
—
28,153
—
(568)
(113)
— (16,017)
—
—
—
—
—
—
621
—
—
—
—
—
—
—
(1,699)
(340)
—
—
33
121
66
—
—
—
—
—
—
564
(16,017)
242
597
—
—
—
—
—
—
121
66
28,926
—
(2,267)
(453)
Balance May 28, 2005:
Comprehensive income (loss):
(2,642)
Net loss
Recognition of unearned compensation —
Currency translation, net of tax
5,289
Fair value adjustments on investment,
$
net of tax
Comprehensive income
$
216
2,863
Common stock issued
Conversion of Class B shares to common stock
Dividends paid to:
Common ($0.04 per share)
Class B ($0.036 per share)
Balance June 3, 2006:
Comprehensive income:
$
Net income
40,679
Recognition of unearned compensation —
Stock compensation
—
2,566
Currency translation, net of tax
Fair value adjustments on investment, —
(281)
42,964
Comprehensive income
net of tax
$
Recognition of currency translation
Common stock issued
Conversion of Class B shares to common stock
Dividends paid to:
Common ($0.04 per share)
Class B ($0.036 per share)
15,597
3,120
936
121,591
(7,894)
(16,406)
(2,195)
1,364
97,396
—
—
—
—
39
27
—
—
—
—
—
—
—
(27)
—
—
—
—
—
—
2
—
—
—
—
(17)
—
—
311
—
(2,289)
(447)
—
—
—
—
421
—
—
—
(2,642)
—
—
—
—
—
—
—
—
—
2,876
216
—
—
—
—
—
—
2,413
(2,642)
(17)
5,289
—
—
—
—
—
216
734
—
(2,289)
(447)
15,663
3,093
938
119,149
(7,473)
(19,048)
897
3,777
98,240
—
—
—
—
—
—
212
45
—
—
—
—
—
—
—
—
—
(45)
—
—
—
—
—
—
—
—
10
—
—
—
—
8
930
—
—
—
1,557
—
(2,323)
(441)
— 40,679
—
—
—
—
—
—
—
—
—
1,459
—
—
—
1,107
40,679
8
930
2,566
—
—
484
—
—
—
—
—
—
—
—
—
(281)
—
(281)
—
—
—
—
—
(4,884)
—
—
—
—
(4,884)
2,051
—
(2,323)
(441)
Balance June 2, 2007
15,920
3,048 $ 948 $118,880
$ (6,989) $ 21,631
$ 2,075
$ — $136,545
See accompanying notes to consolidated financial statements.
2 8
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Note A — Significant Accounting Policies
Principles of Consolidation: Fiscal Year - Richardson Electronics,
Ltd. (the “Company”) fiscal year ends on the Saturday nearest the end of
May. Fiscal years 2007 and 2005 contain 52 weeks while fiscal year 2006
contains 53 weeks. All references herein for the years 2007, 2006, and
2005 represent the fiscal years ended June 2, 2007, June 3, 2006, and
May 28, 2005, respectively.
The consolidated financial statements include the Company and its
subsidiaries. Significant intercompany transactions and accounts have
been eliminated.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires the
Company’s management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Values of Financial Instruments: The fair values of financial
instruments are determined based on quoted market prices and market
interest rates as of the end of the reporting period. The Company’s
financial instruments include accounts receivable, accounts payable,
accrued liabilities, and long-term debt. The fair values of these financial
instruments, with the exception of long-term debt as disclosed in Note H,
were not materially different from their carrying or contract values at June
2, 2007 and June 3, 2006.
Cash Equivalents and Restricted Cash: The Company considers
short-term, highly liquid investments that are readily convertible to known
amounts of cash, and so near their maturity that they present insignificant
risk of changes in value because of changes in interest rates, and that
have maturity of three months or less, when purchased, to be cash
equivalents. The carrying amounts reported in the balance sheet for cash
and cash equivalents approximate the fair market values of these assets.
The Company maintained $61,899 of restricted cash as of June 2,
2007, due to year end cash balances resulting from proceeds from the
sale of the Company’s Security Systems Division/Burtek Systems (SSD/
Burtek) business unit, that are required by the Company’s multi-currency
revolving credit agreement (credit agreement) to be used to pay down
outstanding debt amounts under the credit agreement.
Allowance for Doubtful Accounts: The Company maintains
allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. The estimates are
influenced by the following considerations: continuing credit evaluation of
customers’ financial conditions; aging of receivables, individually and in
the aggregate; large number of customers which are widely dispersed
across geographic areas; collectability and delinquency history by
geographic area; and the fact that no single customer accounts for 10%
or more of net sales. Significant changes in one or more of these
considerations may require adjustments to the allowance affecting net
income and net carrying value of accounts receivable. At June 2, 2007,
the allowance for doubtful accounts was $1,574 as compared to $1,965 at
June 3, 2006.
Inventories: The Company’s worldwide inventories are stated at the
lower of cost or market using the first-in, first-out (FIFO) method.
Inventories include material, labor, and overhead associated with such
inventories. Substantially all inventories represent finished goods held
for sale.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. Improvements and replacements are capitalized while
expenditures for maintenance and repairs are charged to expense as
incurred. Provisions for depreciation are computed using the straight-line
method over the estimated useful life of the asset. Depreciation expense
was $5,163, $5,582, and $4,734 in fiscal 2007, 2006, and 2005, respec-
tively. Property, plant and equipment consist of the following:
Land and improvements
Buildings and improvements
Computer and communications equipment
Machinery and other equipment
Accumulated depreciation
Property, plant and equipment, net
June 2, 2007
June 3, 2006
$
$
1,274
18,165
29,966
19,266
68,671
(38,968)
29,703
$
1,307
18,484
28,688
18,484
66,963
(36,893)
$ 30,070
Supplemental disclosure information of the estimated
useful life of the asset:
Land and improvements
Buildings and improvements
Computer and communications equipment
Machinery and other equipment
10 years
10 - 30 years
3 - 10 years
3 - 10 years
The Company is in the application development stage of
implementing certain modules of enterprise resource management
software (PeopleSoft). In accordance with Accounting Standards
Executive Committee (AcSEC) Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use,
the Company capitalizes all direct costs associated with the application
development of this software including software acquisition costs,
licensing fees, consulting costs, and internal payroll costs. The Statement
requires these costs to be depreciated once the application development
stage is complete. The unamortized balance of the aforementioned
capitalized costs, included within computer and communications
equipment, is $8,042 and $5,022 at June 2, 2007 and June 3, 2006,
respectively.
2 9
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Other Assets: Other assets consist of the following:
Accrued Liabilities: Accrued liabilities consist of the following:
Investments
Notes receivable
Other deferred charges, net
Other assets
June 2, 2007
$ 1,001
1,057
—
$ 2,058
June 3, 2006
$ 3,781
—
33
$ 3,814
The Company’s investments are primarily equity securities, all of
which are classified as available-for-sale and are carried at their fair value
based on the quoted market prices. Proceeds from the sale of the
securities were $3,774, $2,317, and $3,042 during fiscal 2007, 2006, and
2005, respectively. During the second quarter of fiscal 2007, the Company
retained $3,500 of the proceeds from the sale of securities, while in prior
periods all the proceeds from the sale of securities were reinvested. The
cost of the equity securities sold were based on a specific identification
method. Gross realized gains on those sales were $773, $299, and $372 in
fiscal 2007, 2006, and 2005, respectively. Gross realized losses on those
sales were $64, $141, and $102 in fiscal 2007, 2006, and 2005, respec-
tively. Net unrealized holding gains of $428, $216, and $121, have been
included in accumulated comprehensive income (loss) for fiscal 2007,
2006, and 2005, respectively.
The following table is the disclosure under Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments
in Debt and Equity Securities, for the investment in marketable equity
securities with fair values less than cost basis:
Marketable Security Holding Length
Less than
12 months
More than
12 months
Total
Description
of Securities
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Compensation and payroll taxes
Interest
Income taxes
Professional fees
Other accrued expenses
Accrued liabilities
June 2, 2007
$ 11,041
1,990
10,408
1,165
6,726
$ 31,330
June 3, 2006
$ 12,035
2,730
7,986
1,884
5,134
$ 29,769
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.
The Company estimates the cost to perform under its warranty
obligation and recognizes this estimated cost at the time of the related
product sale. The Company reports this expense as an element of cost
of sales in its Consolidated Statements of Operations. Each quarter, the
Company assesses actual warranty costs incurred, on a product-by-
product basis, as compared to its estimated obligation. The estimates
with respect to new products are based generally on knowledge of the
products, are extrapolated to reflect the extended warranty period, and
are refined each quarter as better information with respect to warranty
experience becomes known.
Warranty reserves are established for costs that are expected to be
incurred after the sale and delivery of products under warranty. The
warranty reserves are determined based on known product failures,
historical experience, and other currently available evidence.
Changes in the warranty reserve for fiscal 2007 and 2006 were
June 2, 2007
Common Stock $
June 3, 2006
Common Stock $
65 $
4
$ — $ — $
65
$
4
as follows:
623 $ 34
$ 158
$
17
$
781
$ 51
Balance at May 28, 2005
Accruals for products sold
Utilization
Adjustment
Balance at June 3, 2006
Accruals for products sold
Utilization
Adjustment
Balance at June 2, 2007
Warranty
Reserve
$ 1,439
932
(589)
(946)
836
629
(594)
(456)
415
$
$
During the second quarter of fiscal 2003, the Display Systems Group
provided a three-year warranty on some of its products. As the extended
warranty on the first products sold under the warranty program expired
during the second quarter of fiscal 2006, along with additional warranty
experience available during the first six months of fiscal 2006, the
Company revised its estimate of the warranty reserve to reflect the actual
warranty experience to date. As a result, an adjustment of $946 was
recorded during the second quarter of fiscal 2006. As a result of lower
than anticipated failure rates and lower sales volume of products with this
warranty feature, further reserve adjustments of $456 were recorded
during fiscal 2007.
Goodwill and Other Intangible Assets: In accordance with SFAS
No. 142, Goodwill and Other Intangible Assets, (SFAS No. 142) which
requires that goodwill and intangible assets deemed to have indefinite
lives are not amortized but are subject to annual impairment testing.
Intangible assets with finite lives are amortized over their estimated useful
lives on a straight line basis.
Management reviews the valuation of goodwill and intangible assets
not subject to amortization at least annually, or more frequently, if events
or circumstances indicate that goodwill might be impaired. The Company
utilizes the comparison of reporting units’ fair value derived by discounted
cash flow analysis and their book value as an indicator of potential
impairment. The application of SFAS No. 142 and the annual impairment
test are discussed in Note C.
3 0
Non-Current Liabilities: Non-current liabilities of $1,535 at June 2,
2007 and $1,169 at June 3, 2006 represent the pension obligations for
qualified Korea and Italy employees.
Foreign Currency Translation: Foreign currency balances are
translated into U.S. dollars at end-of-period rates. Revenues and
expenses are translated at the current rate on the date of the transaction.
Gains and losses resulting from foreign currency transactions are
included in income. Foreign currency transactions reflected in operations
was gain of $1,078 in fiscal 2007, a loss of $712 in fiscal 2006, and a gain
of $969 in fiscal 2005. Gains and losses resulting from translation of
foreign subsidiary financial statements are credited or charged directly to
accumulated other comprehensive income (loss), a component of
stockholders’ equity.
Revenue Recognition: The Company’s product sales are recog-
nized as revenue upon shipment, when title passes to the customer,
delivery has occurred or services have been rendered, and collectibility is
reasonably assured. The Company’s terms are generally FOB shipping
point and sales are recorded net of discounts and returns based on the
Company’s historical experience. The Company’s products are often
manufactured to meet the specific design needs of its customers’
applications. Its engineers work closely with customers in ensuring that
the product the Company seeks to provide them will meet their needs,
but its customers are under no obligation to compensate the Company
for designing the products it sells; the Company retains the rights
to its designs.
Shipping and Handling Fees and Costs: Shipping and handling
costs billed to customers are reported as revenue and the related costs
are reported as cost of sales.
Income Taxes: The Company recognizes deferred tax assets and
liabilities based on the differences between financial statement carrying
amounts and the tax bases of assets and liabilities. The Company
regularly reviews its deferred tax assets for recoverability and establishes
a valuation allowance based on a number of factors, including both
positive and negative evidence, in determining the need for a valuation
allowance. Those factors include historical taxable income or loss,
projected future taxable income or loss, the expected timing of the
reversals of existing temporary differences, and the implementation of tax
planning strategies. In circumstances where the Company or any of its
affiliates has incurred three years of cumulative losses which constitute
significant negative evidence, positive evidence of equal or greater
significance is needed by the Company at a minimum to overcome that
negative evidence before a tax benefit is recognized for deductible
temporary differences and loss carryforwards. In evaluating the positive
evidence available, expectations as to future taxable income would rarely
be sufficient to overcome the negative evidence of recent cumulative
losses, even if supported by detailed forecasts and projections. In order to
reverse the recorded valuation allowance, the Company would likely need
to have positive cumulative earnings for the three-year period preceding
the year of the reversal. Therefore, the Company’s projections as to future
earnings would not be used as an indicator in analyzing whether a
valuation allowance established in a prior year can be removed or
reduced.
Discontinued Operations: In accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, (SFAS
No. 144) the Company reported the results of SSD/Burtek as a discontin-
ued operation, and has restated prior periods to reflect this presentation.
The application of SFAS No. 144 is discussed in Note B.
Stock-Based Compensation: Prior to fiscal 2007, the Company
accounted for its stock-based compensation under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations
(APB No. 25), and adopted the disclosure-only provision of SFAS No.
123, Accounting for Stock-Based Compensation. Under APB No. 25, no
stock-based compensation cost was reflected in net income for grants of
stock options prior to fiscal 2006 because the Company grants stock
options with an exercise price equal to the market value of the stock on
the date of grant. Stock-based compensation totaled approximately $964
in fiscal 2006 and $1,834 in fiscal 2005.
Under APB No. 25, pro-forma expense for stock options was
calculated using a graded-vesting schedule over the applicable vesting
period, which generally ranges from two to four years. Upon adoption of
SFAS No. 123 (Revised 2004), Share-Based Payment, (SFAS No.
123(R)) the Company records compensation expense using a graded-
vesting schedule over the applicable vesting period, or to the date on
which retirement eligibility is achieved, if shorter (non-substantive vesting
period approach). Had the Company used the fair value based accounting
method for stock compensation expense prescribed by SFAS No. 123(R),
the Company’s net income and earnings per share for fiscal 2006 and
fiscal 2005 would have been reduced to the pro-forma amount illustrated
as follows (in thousands, except per share amounts):
Fiscal Year Ended
June 3,
2006
$
(2,642)
May 28,
2005
$ (16,017)
Net loss - as reported
Add: Reported stock-based
compensation expense, net of tax
7
425
Deduct: Fair valued based
compensation expense, net of tax
Pro-forma net loss
Earnings per share, as reported:
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
Earnings per share, pro forma:
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
$
$
$
$
$
$
$
$
$
(964)
(3,599)
(1,834)
$ (17,426)
(0.15)
(0.14)
(0.15)
(0.14)
(0.21)
(0.19)
(0.21)
(0.19)
$
$
$
$
$
$
$
$
(0.96)
(0.87)
(0.96)
(0.87)
(1.05)
(0.95)
(1.05)
(0.95)
3 1
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Effective June 4, 2006, the Company adopted SFAS No. 123 (R),
which requires the measurement and recognition of compensation cost at
fair value for all share-based payments, including stock options. Using the
modified prospective method, stock-based compensation for fiscal 2007
includes compensation expense, recognized over the applicable vesting
periods, for new share-based awards and for share-based awards
granted prior to, but not yet vested, as of June 3, 2006. Stock-based
compensation totaled approximately $1,038 for fiscal 2007.
Stock options granted to members of the Board of Directors generally
vest immediately and stock options granted to employees generally vest
over a period of five years and have contractual terms for exercise of ten
years. A summary of stock option activity is as follows (in thousands,
except option prices and years):
Number
of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contactual
Price
Aggregate
Intrinsic
Value
Options outstanding at
May 29, 2004
Granted
Exercised
Cancelled
Options outstanding at
May 28, 2005
Granted
Exercised
Cancelled
Options outstanding at
June 3, 2006
Granted
Exercised
Cancelled
Options outstanding at
1,455
313
(24)
(43)
1,701
436
(41)
(245)
1,851
319
(212)
(257)
$ 9.58
7.75
6.96
4.05
$ 9.46
8.14
7.22
8.86
$ 9.26
8.70
7.18
9.35
The fair value of stock options is estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
Expected volatility
Risk-free interest rate
Expected lives
Annual cash dividend
June 2,
2007
48.12%
4.73%
6.50
0.16
$
Fiscal Year Ended
June 3,
2006
43.49%
4.30%
5.12
0.16
$
The fiscal 2007 and 2006 expected volatility assumptions are based
on historical experience. The fiscal 2007 expected stock option life
assumption is based on the Securities and Exchange Commission’s
guidance in Staff Accounting Bulletin No. 107 and the fiscal 2006
expected stock option life assumption is based on historical experience.
The risk-free interest rate is based on the yield of a treasury note with a
remaining term equal to the expected life of the stock option.
The following table summarizes information about stock options
outstanding at June 2, 2007 (in thousands, except option prices
and years):
Outstanding
Exercisable
Exercise
Price Range
$5.38 to $7.50
$7.75 to $9.00
$9.23 to $13.81
Total
Shares
Price
Life
Aggregate
Intrinsic
Value
357 $ 6.94 3.4 $ 985
808 $ 8.29 7.5 $1,138
9
536 $ 12.71 4.7 $
1,701 $ 9.40 5.8
Shares Price
Life
343 $ 6.93 3.2
252 $ 8.27 5.1
451 $ 13.24 3.9
1,046 $ 9.97 4.0
Aggregate
Intrinsic
Value
$ 948
$ 360
$ —
A summary of restricted stock award transactions was as follows:
June 2, 2007
1,701
$ 9.40
5.76
$ 2,132
Options exercisable at
June 2, 2007
1,046
$ 9.97
3.96
$ 1,308
There were 212 stock options exercised during fiscal 2007, with cash
received of $1,522 and a realized gain of $428. The total intrinsic value of
options exercised during fiscal 2007 and 2006 totaled $465 and $50,
respectively. The weighted average fair value of stock option grants was
$3.94 for fiscal 2007 and $3.14 for fiscal 2006. As of June 2, 2007, total
unrecognized compensation costs related to nonvested stock options was
$1,707 which is expected to be recognized over the remaining weighted
average period of five years. The total grant date fair value of stock
options vested during fiscal 2007 was $609.
Unvested at May 29, 2004
Granted
Vested
Cancelled
Unvested at May 28, 2005
Granted
Vested
Cancelled
Unvested at June 3, 2006
Granted
Vested
Cancelled
Unvested at June 2, 2007
Shares
31
18
(29)
(7)
13
3
(12)
—
4
11
(12)
—
3
Compensation effects arising from issuing stock awards were $108,
$7, and $425 in fiscal 2007, 2006, and 2005, and have been charged
against income and recorded as additional paid-in capital in the
Consolidated Statements of Stockholders’ Equity and Comprehensive
Income (Loss).
3 2
Earnings per Share: The Company has authorized 30,000 shares of
common stock, 10,000 shares of Class B common stock, and 5,000
shares of preferred stock. The Class B common stock has ten votes per
share. The Class B common stock has transferability restrictions;
however, it may be converted into common stock on a share-for-share
basis at any time. With respect to dividends and distributions, shares of
common stock and Class B common stock rank equally and have the
same rights, except that Class B common stock cash dividends are
limited to 90% of the amount of common stock cash dividends.
According to the Emerging Issues Task Force Issue No. 03-6
“Participating Securities and the Two-Class Method under FASB State-
ment No. 128” (EITF Issue No. 03-6), the Company’s Class B common
stock is considered a participating security requiring the use of the two-
class method for the computation of basic and diluted earnings per share.
The two-class computation method for each period reflects the cash
dividends paid per share for each class of stock, plus the amount of
allocated undistributed earnings per share computed using the participa-
tion percentage which reflects the dividend rights of each class of stock.
Basic and diluted earnings per share reflect the application of EITF Issue
No. 03-6 and was computed using the two-class method. The shares of
Class B common stock are considered to be participating convertible
securities since the shares of Class B common stock are convertible on a
share-for-share basis into shares of common stock and may participate in
dividends with common stock according to a predetermined formula (90%
of the amount of common stock cash dividends).
Diluted earnings per share is calculated by dividing net income,
adjusted for interest savings, net of tax, on assumed conversion of
convertible debentures and notes, 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 convert-
ible debentures and notes when dilutive. For the fiscal years ended
June 2, 2007 and June 3, 2006, the assumed conversion and the effect of
the interest savings of the Company’s 73/4% convertible senior subordi-
nated notes (73/4% notes) and 8% convertible senior subordinated notes
(8% notes) were excluded because their inclusion would have been anti-
dilutive. For the fiscal year ended May 28, 2005, the assumed conversion
and the effect of the interest savings of the Company’s 71/4% convertible
debentures (71/4% debentures), 81/4% convertible senior subordinated
debentures (81/4% debentures) and 73/4% notes were excluded because
their inclusion would have been anti-dilutive. The per share amounts
presented in the Consolidated Statements of Operations are based on the
following amounts:
Fiscal Year Ended
June 2,
2007
June 3,
2006
May 28,
2005
Numerator for basic and diluted EPS:
Income (loss) from
continuing operations
$
1,548
$ (4,010)
$ (18,780)
Less dividends:
Common stock
Class B common stock
Undistributed losses
Common stock
undistributed losses
Class B common stock
2,323
441
2,289
447
$ (1,216) $ (6,746)
2,267
453
$ (21,500)
$ (1,023) $ (5,648)
$ (17,870)
undistributed losses - basic
(193)
(1,098)
(3,630)
Total undistributed losses
- common stock and
Class B common stock - basic
Common stock
undistributed losses
Class B common stock
$ (1,216) $ (6,746)
$ (21,500)
$ (1,024) $ (5,648)
$ (17,870)
undistributed losses - diluted
(192)
(1,098)
(3,630)
Total undistributed losses -
Class B common stock - diluted
$ (1,216) $ (6,746)
$ (21,500)
Income from
discontinued operations
Less dividends:
Common stock
Class B common stock
Undistributed earnings (losses)
$ 39,131
$
1,368
$
2,763
2,323
441
$ 36,367
2,289
447
$ (1,368)
2,267
453
43
$
Common stock undistributed
earnings (losses)
Class B common stock
undistributed earnings
(losses) - basic
Total undistributed earnings
(losses) - common stock and
Class B common stock - basic
Common stock undistributed
earnings (losses)
Class B common stock
undistributed earnings
(losses) - diluted
Total undistributed earnings
(losses) - Class B
common stock - diluted
$ 30,587
$ (1,145)
$
36
5,780
(223)
7
$ 36,367
$ (1,368)
$
43
$ 30,621
$ (1,145)
$
36
5,746
(223)
7
$ 36,367
$ (1,368)
$
43
3 3
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Fiscal Year Ended
Derivatives and Hedging Activities: The Company accounts for
June 2,
2007
June 3,
2006
May 28,
2005
Numerator for basic and diluted EPS:
Net income (loss)
Less dividends:
Common stock
Class B common stock
Undistributed earnings (losses)
Common stock undistributed
$ 40,679
$ (2,642)
$ (16,017)
2,323
441
$ 37,915
2,289
447
$ (5,378)
2,267
453
$ (18,737)
earnings (losses)
$ 31,889
$ (4,502)
$ (15,573)
Class B common stock undistributed
earnings (losses) - basic
6,026
(876)
(3,164)
Total undistributed earnings (losses)
- common stock and
Class B common stock - basic
$ 37,915
$ (5,378)
$ (18,737)
Common stock undistributed
earnings (losses)
$ 31,924
$ (4,502)
$ (15,573)
Class B common stock undistributed
earnings (losses) - diluted
Total undistributed earnings
(losses) - Class B common
stock - diluted
5,991
(876)
(3,164)
$ 37,915
$ (5,378)
$ (18,737)
Denominator for basic and diluted EPS:
Denominator for basic EPS:
Common stock weighted
average shares
14,517
14,315
13,822
Class B common stock weighted
average shares, and shares
under if-converted method for
diluted earnings per share
Effect of dilutive securities:
Unvested restricted stock awards
Dilutive stock options
3,048
3,093
3,120
4
98
—
—
—
—
Denominator for diluted EPS
adjusted weighted average
shares and assumed conversions 17,667
17,408
16,942
Income (loss) from continuing operations per share:
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
0.09
0.08
0.09
0.08
$
$
$
$
$
$
$
$
(0.23)
(0.21)
(0.23)
(0.21)
Income from discontinued operations per share:
$
Common stock - basic
$
Class B common stock - basic
$
Common stock - diluted
$
Class B common stock - diluted
2.27
2.04
2.21
2.03
$
$
$
$
0.08
0.07
0.08
0.07
Net income (loss) per share:
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
Common stock options that were
$
$
$
$
2.36
2.12
2.30
2.11
$
$
$
$
(0.15)
(0.14)
(0.15)
(0.14)
$
$
$
$
$
$
$
$
$
$
$
$
(1.13)
(1.02)
(1.13)
(1.02)
0.17
0.15
0.17
0.15
(0.96)
(0.87)
(0.96)
(0.87)
anti-dilutive and not included in dilutive
earnings per common share
1,603
1,852
1,701
3 4
derivative financial instruments in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This
standard requires the Company to recognize all derivatives on the
balance sheet at fair value. Derivative value changes are recorded in
income for any contracts not classified as qualifying hedging instruments.
For derivatives qualifying as cash flow hedge instruments, the effective
portion of the derivative fair value change must be recorded through other
comprehensive income, a component of stockholders’ equity. The
Company did not have any derivative instruments recorded in the
consolidated balance sheet at June 2, 2007 and June 3, 2006.
New Accounting Pronouncement: In June 2006, the FASB issued
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of SFAS 109, Accounting for Income Taxes (FIN 48). FIN
48 was issued to clarify the accounting for uncertainty in tax positions
taken or expected to be taken in a tax return. Under FIN 48, the tax
benefit from an uncertain tax position may be recognized only if it is more
likely than not that the tax position will be sustained upon examination by
tax authorities. The Company plans to adopt FIN 48 for annual periods
beginning June 3, 2007. The Company is currently evaluating the
potential impact that the adoption of FIN 48 will have on its
consolidated financial statements and at this time no material
adjustments are anticipated.
In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclo-
sures about fair value measurements. Under SFAS No. 157, fair value
refers to the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in
the market in which the reporting entity transacts. The standard clarifies
that fair value should be based on the assumptions market participants
would use when pricing the asset or liability. SFAS No. 157 will be
effective for the Company beginning in fiscal 2009. The Company is
currently assessing the impact that SFAS No. 157 may have on the
financial statements.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108
(SAB No. 108) regarding the quantification of financial statement
misstatements. SAB No. 108 requires a “dual approach” for quantifica-
tions of errors using both a method that focuses on the income statement
impact, including the cumulative effect of prior years’ misstatements, and
a method that focuses on the period-end balance sheet. SAB No. 108 will
be effective for the Company beginning in fiscal 2008. The Company
does not expect the adoption to have a material impact on the Company’s
financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities (SFAS No. 159), including an
amendment to SFAS No. 115. Under SFAS No. 159, entities may elect to
measure specified financial instruments and warranty and insurance
contracts at fair value on a contract-by-contract basis, with changes in fair
value recognized in earnings each reporting period. The election, called
the fair value option, will enable entities to achieve an offset accounting
effect for changes in fair value of certain related assets and liabilities
without having to apply complex hedge accounting provisions. SFAS No.
159 is expected to expand the use of fair value measurement consistent
with the FASB’s long-term objectives for financial instruments. SFAS No.
159 will be effective for the Company beginning in fiscal 2009. The
Company is currently evaluating the impact of the adoption of SFAS No.
159 on the financial statements.
Note B — Discontinued Operations
On May 31, 2007, the Company completed the sale of the SSD/Burtek
strategic business unit to Honeywell International Inc. for $80,000. After
transaction expenses paid through June 2, 2007, net cash proceeds from the
sale were $78,114. The transaction resulted in an after tax gain of $41,565
after additional transactions costs of $2,464 were accrued as of June 2,
2007. The Company has used the net proceeds received and will continue to
use the net proceeds classified as restricted cash from the sale to pay down
debt outstanding under its credit agreement. The Company presents SSD/
Burtek as a discontinued operation in accordance with the criteria of SFAS
No. 144, and prior period results and disclosures have been restated to
reflect this reporting. The results of operations of SSD/Burtek through the
date of sale are presented as a separate line in the Consolidated Statements
of Operations. Prior to the disposition, the assets and liabilities of SSD/Burtek
are aggregated and reported on separate lines of the Consolidated
Balance Sheet.
Net sales, gross profit, and (loss) income from discontinued operations
are presented in the following table:
Discontinued Operations
Fiscal Years
2007
2006
2005
Net Sales
Gross profit
(Loss) income, net of tax
$ 107,510
27,788
(2,434)
$ 108,843
27,279
1,368
$ 105,581
26,889
2,763
In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Company has allocated interest expense to the discontinued
operation (SSD/Burtek) due to the requirement under the Company’s
existing credit agreement to pay the proceeds from the sale of a business to
the parties in the credit agreement. All borrowings under the credit agree-
ment, $65,711 as of June 2, 2007, are anticipated to be repaid by the end of
the first quarter of fiscal 2008. As such, interest expense related to the credit
agreement of $5,883, $3,528, and $2,814 for fiscal 2007, 2006, and 2005,
respectively, has been included in income (loss) from discontinued opera-
tions. Income (loss) from discontinued operations includes a provision for
income tax of $3,428, $2,682, and $3,533 in fiscal 2007, 2006, and 2005,
respectively. In addition, the Company recognized a gain on sale of SSD/
Burtek of $41,565, net of a provision for income tax of $2,824.
Net assets of discontinued operations are presented in the
following table:
June 2,
2007
June 3,
2006
Accounts receivable
Inventories
Prepaid expenses
$
Current assets of discontinued
operations held for sale
Property, plant, and equipment, net
Goodwill
Other intangible assets, net
Non-current assets of discontinued
operations held for sale
Total assets of discontinued
operations held for sale
Accounts payable
Accrued liabilities
Current liabilities of discontinued
operations held for sale
Long-term debt
Non-current liabilities of discontinued
operations held for sale
Total liabilities of discontinued
operations held for sale
Accumulated other comprehensive
income of discontinued
operations held for sale
Total liabilities and stockholders’
equity of discontinued
operations held for sale
$
$
128
114
—
242
5
—
—
5
247
1,569
1,168
2,737
—
—
—
$
$
$
16,102
17,836
230
34,168
2,287
1,812
321
4,420
38,588
7,300
819
8,119
2,292
10,411
3,777
$
2,737
$
14,188
The balance sheet amounts of June 2, 2007 for discontinued opera-
tions represent the net assets held at the Company’s Colombia location that
were included in the SSD/Burtek sale agreement, but were not part of the
transaction closing on May 31, 2007. The Company anticipates final closing
of the Colombia net assets to occur within the first half of fiscal 2008.
In addition, net assets from discontinued operations at June 2, 2007
also included accrued transactions costs related to the sale of
SSD/Burtek of $2,464.
3 5
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Note C — Goodwill and Other Intangible Assets
Intangible assets subject to amortization as well as amortization
expense are as follows:
Intangible Assets Subject to Amortization as of
Gross amounts:
Deferred financing costs
Patents and trademarks
Total gross amounts
Accumulated amortization
Deferred financing costs
Patents and trademarks
Total accumulated amortization
June 2,
2007
June 3,
2006
$
$
$
$
4,539
478
5,017
2,958
478
3,436
$
$
$
$
4,639
478
5,117
2,559
475
3,034
Deferred financing costs decreased during fiscal 2007 due to the write-
off of previously capitalized deferred financing costs of $625 in fiscal 2007,
related to the Company entering into agreements with certain holders to
purchase $14,000 of the Company’s 8% notes. This decrease was partially
offset by additional deferred financing costs associated with the Company
entering into the fourth amendment of the credit agreement in the first
quarter of fiscal 2007.
Amortization of Intangible Assets Subject to Amortization
Deferred financing costs
Patents and trademarks
Total
June 2,
2007
$
$
488
3
491
June 3,
2006
$
$
361
1
362
The amortization expense associated with the intangible assets subject
to amortization is expected to be $495, $495, $329, $209, and $53 in fiscal
2008, 2009, 2010, 2011, and 2012, respectively. Deferred financing costs
are amortized over the life of the debt that the costs are associated with. The
weighted average number of years of amortization expense
remaining is 3.19.
Note D — Assets Held for Sale
In July 2006, the Company offered to sell a building located in Brazil for
$1,004. The sale of the building is expected to close during the next year,
however, the Company cannot give any assurance as to the actual timing or
successful completion of the transaction.
The Company performs an annual goodwill impairment assessment
using a two-step, fair-value based test. The first step compares the fair value
of the reporting unit to its carrying amount. If the carrying amount of the
reporting unit exceeds its fair value, the second step is performed. The second
step compares the carrying amount of the goodwill to the estimated fair value
of the goodwill. If the fair value of goodwill is less than the carrying amount, an
impairment loss is reported. The Company determined that the following
components qualified as reporting units: RF, Wireless & Power Division
(RFPD), Electron Device Group (EDG), and Display Systems Group (DSG).
The Company used a discounted cash flow valuation (income approach) to
determine the fair value of each of the reporting units. Sales, net income, and
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
multiples (market approaches) were used as a check against the impairment
implications derived under the income approach.
The Company performed its annual impairment test as of the third
quarter of fiscal 2007. The Company did not find any indication that an
impairment existed and, therefore, no impairment loss was recorded as a
result of completing the annual impairment test.
The table below provides changes in carrying value of goodwill by
reportable segment which includes RFPD, EDG, and DSG:
Reportable Segments
RFPD
EDG
DSG
Total
Goodwill
Balance at May 28, 2005
$
Additions
Foreign currency translation
Balance at June 3, 2006
Foreign currency translation
$
Balance at June 2, 2007
245
—
7
252
11
263
$
$
881
—
12
893
9
902
$
3,446
6,501
164
10,111
335
$ 10,446
$ 4,572
6,501
183
11,256
355
$ 11,611
The addition to goodwill in fiscal 2006 represents the acquisition of
A.C.T. Kern GmbH & Co. KG (Kern) located in Germany, effective June 1,
2005. The cash outlay for Kern was $6,550, net of cash acquired. Kern is
one of the leading display technology companies in Europe with worldwide
customers in manufacturing, OEM, medicine, multimedia, IT trading, system
houses, and other industries. Goodwill included as part of the gain on sale of
SSD/Burtek as of May 31, 2007 was $1,862.
The following table provides changes in carrying value of other
intangible assets not subject to amortization:
Other Intangible Assets Not Subject to Amortization
Reportable Segments
RFPD
EDG
DSG
Total
Balance at May 28, 2005
Balance at June 3, 2006
Reclassification
Balance at June 2, 2007
$ — $
—
—
$
9
9
(9)
$ — $ — $
— $
—
—
— $
9
9
(9)
—
Note: During the third quarter of fiscal 2007, EDG’s other intangible assets not subject
to amortization were reclassified to SSD/Burtek, which is presented as a
discontinued operation.
3 6
Note E —
Restructuring and Severance Charges
The Company implemented a global restructuring plan during fiscal
2007 (2007 Restructuring Plan). The 2007 Restructuring Plan decreased the
number of warehouses and streamlined much of the entire organization
which is expected to reduce further corporate and administrative expense.
During fiscal 2007, the Company centralized inventory distribution in Europe,
restructured its Latin American operations, and reduced its total workforce,
including the elimination and restructuring of layers of management.
As a result of the Company’s 2007 Restructuring Plan, restructuring
charges of $2,222 were recorded in selling, general, and administrative
expenses (SG&A). Severance costs of $917 were paid during fiscal 2007.
During fiscal 2007, the employee severance costs were adjusted $54
decreasing SG&A due to the difference between estimated severance costs
and actual payouts. The remaining balance payable as of June 2, 2007 has
been included in accrued liabilities. Restructuring charges of $130 were
recorded and paid for discontinued operations during fiscal 2007 related to
the Company’s 2007 Restructuring Plan. As of June 2, 2007, the following
table depicts the amounts associated with the activity related to the 2007
Restructuring Plan by reportable segment:
2007 Restructuring Plan — Fiscal 2007
2005 Restructuring Plan — Fiscal 2005
Restructuring
Liability
May 29, 2004
Reserve
Recorded
Fiscal 2005
Payments
Fiscal 2005
Adjustment
to Reserve
Fiscal 2005
Restructuring
Liability
May 28, 2005
Employee severance costs:
—
RFPD $
—
EDG
DSG
—
Corporate —
—
$
Total
$
909
325
416
368
$ 2,018
$ (392)
(142)
(186)
(298)
$ (1,018)
$ (199)
—
—
—
$ (199)
$
$
318
183
230
70
801
2005 Restructuring Plan — Fiscal 2006
Restructuring
Liability
May 28, 2005
Reserve
Recorded
Fiscal 2006
Payments
Fiscal 2006
Adjustment
to Reserve
Fiscal 2006
Restructuring
Liability
June 3, 2006
Employee severance costs:
RFPD $
EDG
DSG
Corporate
$
Total
318
183
230
70
801
$ — $ (289)
(73)
(227)
(78)
$ — $ (667)
—
—
—
$
(29)
(110)
(3)
22
$ (120)
$ —
—
—
14
14
$
2005 Restructuring Plan — Fiscal 2007
Restructuring
Liability
June 3, 2006
Reserve
Recorded
Fiscal 2007
Payments
Fiscal 2007
Adjustment
to Reserve
Fiscal 2007
Restructuring
Liability
June 2, 2007
Restructuring
Liability
June 3, 2006
Reserve
Recorded
Fiscal 2007
Payments
Fiscal 2007
Adjustment
to Reserve
Fiscal 2007
Restructuring
Liability
June 2, 2007
Employee severance costs:
Corporate $
$
Total
14
14
$ — $
$ — $
(14)
(14)
$
$
—
—
$ —
$ —
Employee severance costs:
—
RFPD $
—
EDG
DSG
—
Corporate —
—
$
Total
$
432
436
67
1,287
$ 2,222
$ (244)
(57)
(67)
(549)
$ (917)
$
$
—
—
—
(54)
(54)
$
188
379
—
684
$ 1,251
As a result of the Company’s fiscal 2005 restructuring initiative (2005
Restructuring Plan), a restructuring charge, including severance costs of
$2,018 was recorded in SG&A in the third quarter of fiscal 2005. During
the fourth quarter of fiscal 2005, the employee severance costs were
adjusted, resulting in a $199 decrease in SG&A due to the difference
between estimated severance costs and the actual payouts. During fiscal
2006, the employee severance costs were adjusted $120, decreasing
SG&A, due to the difference between estimated severance costs and
actual payouts. Severance costs of $667 and $1,018 were paid in fiscal
2006 and 2005, respectively. During the fiscal 2007, severance costs of
$14 were paid. Terminations affected over 60 employees across various
business functions, operating units, and geographic regions. Restructur-
ing charges related to the Company’s 2005 restructuring initiative for
discontinued operations was $147, net of adjustments, of which $90 was
paid in fiscal 2005 and $57 was paid in fiscal 2006. As of June 2, 2007,
the following table depicts the amounts associated with the activity related
to the 2005 Restructuring Plan by reportable segment:
Note F — Acquisitions
Fiscal 2007: The Company made no acquisitions during fiscal 2007.
Fiscal 2006: In June 2005, the Company acquired Kern located in
Germany, a leading display technology company in Europe. The cash outlay
for Kern was $6,550, net of cash acquired. In addition, on October 1, 2005,
the Company acquired certain assets of Image Systems Corporation (Image
Systems), a subsidiary of CSI in Hector, Minnesota, which is a specialty
supplier of displays, display controllers, and calibration software for the
healthcare market. The initial cash outlay for Image Systems was $250. Both
Kern and Image Systems were integrated into DSG. The acquisitions were
not deemed material under SFAS 141, Business Combinations, to include
pro-forma effects of the acquisitions.
Fiscal 2005: The aggregate cash outlay in 2005 for business acquisi-
tions was $971. A $545 earn out payment was made in the first quarter of
fiscal 2005 associated with the Pixelink acquisition made in fiscal 1999 as the
business unit achieved certain operating performance criteria. In December
2004, the Company acquired the assets of Evergreen Trading Company, a
distributor of passive components in China. The aggregate acquisition price
was $426, which was paid in cash. Evergreen Trading Company was
integrated into RFPD. The acquisitions were not deemed material under
SFAS 141, Business Combinations, to include pro-forma effects
of the acquisitions.
3 7
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Note G — Disposal of Assets
On April 5, 2007, the Company sold real estate and a building located in
the United Kingdom for $1,882. The Company recorded a pre tax gain on
sale of $1,494 during the fourth quarter of fiscal 2007 with respect to the sale
of this property.
On December 29, 2006, the Company sold approximately 1.5 acres of
real estate and a building located in Geneva, Illinois for $3,050. The
Company recorded a gain of $2,473 during the third quarter of fiscal 2007
with respect to the sale of this property.
On May 26, 2005, the Company completed the sale of approximately
205 acres of undeveloped real estate adjoining its headquarters in LaFox,
Illinois. The Company recorded a gain of $9,907 during the fourth quarter of
fiscal 2005 with respect to the sale of this property.
Note H — Debt Financing
Long-term debt consists of the following:
73/4% notes, due December 2011
8% notes, due June 2011
Multi-currency revolving credit agreement, due
October 2009 (7.72% at June 2, 2007 and
6.95% at June 3, 2006)
Other
Total debt
Less: current portion
Long-term debt
June 2,
2007
$ 44,683
11,000
June 3,
2006
$ 44,683
25,000
65,711
—
121,394
(65,711)
$ 55,683
54,797
36
124,516
(14,016)
$ 110,500
At June 2, 2007, the Company maintained $55,683 in long-term
debt, primarily in the form of two series of convertible notes. The credit
agreement balance of $65,711 is classified as current as of June 2, 2007
due to the obligation to pay off the credit agreement with the proceeds
from the SSD/Burtek sale. The Company entered into a new $40,000
credit agreement (new credit agreement) on July 27, 2007 which includes
a Euro subfacility ($15,000) and a Singapore subfacility ($5,000). This
new credit agreement expires in July 2010 and bears interest at appli-
cable LIBOR, SIBOR, or prime rates plus a margin varying with certain
quarterly borrowings under the new credit agreement. This new credit
agreement is secured by a lien on the Company’s assets and also
contains only one financial covenant related to the ratio of senior funded
debt to cash flow. The commitment fee related to the new credit agree-
ment is 0.25% per annum payable quarterly on the average daily unused
portion of the aggregate commitment.
On September 8, 2006, the Company purchased $6,000 of the 8%
notes, and on December 8, 2006, the Company purchased $8,000 of the
8% notes. The purchases were financed through additional borrowings
under the Company’s existing credit agreement. As the 8% notes are
subordinate to the credit agreement, the Company received a waiver from
its lending group to permit the purchases. The Company recorded costs
associated with the retirement of long-term debt of $2,540 in connection
with the purchases, which includes the write-off of previously capitalized
deferred financing costs of $625.
On November 21, 2005, the Company sold $25,000 in aggregate
principal amount of 8% notes due 2011 pursuant to an indenture dated
November 21, 2005. The 8% notes bear interest at a rate of 8% per
annum. Interest is due on June 15 and December 15 of each year. The
8% notes are convertible at the option of the holder, at any time on or
prior to maturity, into shares of the Company’s common stock at a price
equal to $10.31 per share, subject to adjustment in certain circumstances.
In addition, the Company may elect to automatically convert the 8% notes
into shares of common stock if the trading price of the common stock
exceeds 150% of the conversion price of the 8% notes for at least 20
trading days during any 30 trading day period subject to a payment of
three years of interest if the Company elects to convert the 8% notes prior
to December 20, 2008.
The indenture provides that on or after December 20, 2008, the
Company has the option of redeeming the 8% notes, in whole or in part,
for cash, at a redemption price equal to 100% of the principal amount of
the 8% notes to be redeemed, plus accrued and unpaid interest, if any, to,
but excluding, the redemption date. Holders may require the Company to
repurchase all or a portion of their 8% notes for cash upon a change-of-
control event, as described in the indenture, at a repurchase price equal
to 100% of the principal amount of the 8% notes to be repurchased, plus
accrued and unpaid interest, if any, to, but excluding the repurchase date.
The 8% notes are unsecured and subordinate to the Company’s existing
and future senior debt. The 8% notes rank on parity with the Company’s
existing 73/4% convertible senior subordinated notes (73/4% notes) due
December 2011.
On February 15, 2005, the Company issued the 73/4% notes pursuant
to an indenture dated February 14, 2005. The 73/4% notes bear interest at
the rate of 73/4% per annum. Interest is due on June 15 and December 15
of each year. The 73/4% notes are convertible at the option of the holder,
at any time on or prior to maturity, into shares of the Company’s common
stock at a price equal to $18.00 per share, subject to adjustment in
certain circumstances. On or after December 19, 2006, the Company
may elect to automatically convert the 73/4% notes into shares of common
stock if the trading price of the common stock exceeds 125% of the
conversion price of the 73/4% notes for at least twenty trading days during
any thirty trading day period ending within five trading days prior to the
automatic conversion notice. The 73/4% notes are unsecured and
subordinated to the Company’s existing and future senior debt. The 73/4%
notes rank on parity with the Company’s 8% notes.
In October 2004, the Company renewed its credit agreement with
the current lending group in the amount of approximately $109,000. On
August 4, 2006, the Company amended its credit agreement and
decreased the facility to approximately $97,900 (the size of the credit line
varies based on fluctuations in foreign currency exchange rates). The
credit agreement was terminated on July 27, 2007. The portion of the
credit line available for the Company to borrow is limited by the amount of
collateral and certain covenants in the credit agreement. The credit
agreement is principally secured by the Company’s trade receivables and
inventory. The credit agreement bears interest at applicable LIBOR rates
plus a margin, varying with certain financial performance criteria. At June
2, 2007, the applicable margin was 2.00%, $65,711 was outstanding
under the credit agreement, outstanding letters of credit were $412, the
3 8
In the following table, the estimated fair values of the Company’s
73/4% notes and 8% notes are based on quoted market prices at the end
fiscal year 2007 and 2006. The fair values of the bank term loans are
based on carrying value.
June 2, 2007
June 3, 2006
Carrying
Value
$ 44,683
11,000
Fair
Value
$ 45,074
12,024
Carrying
Value
Fair
Value
$ 44,683 $ 36,840
23,841
25,000
65,711
—
—
121,394
(65,711)
$ 55,683
65,711
—
—
122,809
(65,711)
$ 57,098
54,797
—
36
124,516
(14,016)
54,797
—
36
115,514
(13,367)
$ 110,500 $102,147
73/4% notes
8% notes
Multi-currency revolving
credit agreement
Financial instruments
Other
Total
Less: current portion
Total
The Company’s ability to service its debt and meet its other
obligations as they come due is dependent on its future financial and
operating performance. This performance is subject to various factors,
including factors beyond the Company’s control such as changes in
global and regional economic conditions, changes in its industry or the
end markets for its products, changes in interest or currency exchange
rates, inflation in raw materials, energy, and other costs.
Aggregate maturities of debt during the next five years are:
$65,711 in fiscal 2008, $0 in fiscal 2009, $0 in fiscal 2010, $0 in fiscal
2011, $55,683 in fiscal 2012, and $0 thereafter. Cash payments for
interest were $11,142, $9,026, and $9,131, in fiscal 2007, 2006, and
2005, respectively.
Note I — Lease Obligations,
Other Commitments, and Contingency
The Company leases certain warehouse and office facilities and
office equipment under non-cancelable operating leases. Rent expense
for fiscal 2007, 2006, and 2005 was $4,177, $4,000, and $3,458,
respectively. At June 2, 2007, future lease commitments for minimum
rentals, including common area maintenance charges and property taxes,
are $3,830 in fiscal 2008, $2,539 in fiscal 2009, $1,705 in fiscal 2010,
$1,027 in fiscal 2011, $673 in fiscal 2012 and $775 thereafter.
unused line was $31,739, and the available credit line was limited to $743
due to covenants related to maximum permitted leverage ratios. The
commitment fee related to the credit agreement is 0.25% per annum
payable quarterly on the average daily unused portion of the aggregate
commitment. The Company’s credit agreement consisted of the following
facilities as of June 2, 2007:
U.S. Facility
Canada Facility
UK Facility
Euro Facility
Japan Facility
Total
Capacity
$
$
77,500
2,261
8,909
6,727
2,465
97,862
Amount
Outstanding
$ 46,400
2,150
8,790
6,727
1,644
$ 65,711
Interest Rate
8.25 %
6.00 %
7.66 %
5.92 %
2.72 %
7.72 %
Note: Due to maximum permitted leverage ratios, the amount of the unused line cannot be calculated
on a facility-by-facility basis.
On March 3, 2007, the Company was not in compliance with credit
agreement covenants with respect to the leverage ratio. On April 5, 2007,
the Company received a waiver from its lending group for the default.
On January 19, 2007, the Company executed an amendment to the
credit agreement to facilitate the implementation of a European cash
sweeping program. In addition, the amendment decreased the
Company’s Canada Facility and increased the Company’s U.S. Facility
by approximately $7,500.
At March 4, 2006, the Company was not in compliance with credit
agreement covenants with respect to the leverage ratio, fixed charge
coverage ratio and tangible net worth covenants. On August 4, 2006, the
Company received a waiver from its lending group for the defaults and
executed an amendment to the credit agreement. In addition, the
amendment also (i) permitted the purchase of $14,000 of the 8% notes;
(ii) adjusted the minimum required fixed charge coverage ratio for the first
quarter of fiscal 2007; (iii) adjusted the minimum tangible net worth
requirement; (iv) permitted certain sales transactions contemplated by the
Company; (v) eliminated the Company’s Sweden Facility; (vi) reduced the
Company’s Canada Facility by approximately $5,400; (vii) changed the
definition of “Adjusted EBITDA” for covenant purposes; and (viii) provided
that the Company maintain excess availability on the borrowing base of
not less than $20,000 until the Company filed its Form 10-Q for the
quarter ended March 4, 2006, at which time the Company will maintain
excess availability of the borrowing base of not less than $10,000.
At September 3, 2005, the Company was not in compliance with
credit agreement covenants with respect to the tangible net worth
covenant due solely to the additional goodwill recorded as a result of the
Kern acquisition. On October 12, 2005, the Company received a waiver
from its lending group for the default and executed an amendment to
the credit agreement. The amendment changed the minimum tangible net
worth requirement to adjust for the goodwill associated with the
Kern acquisition.
3 9
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Note J — Income Taxes
The components of income (loss) before income taxes are:
The provisions for income taxes consist of the following:
United States
Foreign
Income before income taxes
Fiscal Year Ended
June 2,
2007
$ (14,242)
16,424
2,182
$
June 3,
2006
$ (6,975)
8,501
$ 1,526
May 28,
2005
$ (2,681)
4,968
2,287
$
The provision for income taxes differs from income taxes computed
at the federal statutory tax rate of 34% in fiscal 2007, 2006, and 2005 as a
result of the following items:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Fiscal Year Ended
June 2,
2007
June 3,
2006
May 28,
2005
$
—
—
3,170
3,170
$
—
—
3,019
3,019
$
—
151
3,210
3,361
(2,040)
(185)
(311)
(2,536)
634
1,926
198
393
2,517
$ 5,536
16,540
1,254
(88)
17,706
$ 21,067
Fiscal Year Ended
Total deferred
Income tax provision
$
Federal statutory rate
Effect of:
State income taxes,
net of federal tax benefit
Export benefit
Foreign income inclusion
U.S. income inclusion from
foreign restructuring
Foreign taxes at other rates
Tax refund from
foreign tax appeal
Net increase in valuation
allowance for deferred
tax assets
Unrepatriated earnings
Other
Effective tax rate
June 2,
2007
34.0%
June 3,
2006
34.0%
May 28,
2005
34.0%
(20.2)
—
108.8
68.2
(97.9)
(16.0)
—
—
—
(5.4)
(3.7)
(7.4)
—
—
(12.2)
—
(65.4)
—
(64.9)
—
1.1
29.1%
415.6
—
—
362.8%
704.0
215.0
(8.6)
921.1%
The effective income tax rates for fiscal 2007 and 2006 were 29.1%
and 362.8%, respectively. The difference between the effective tax rates as
compared to the U.S. federal statutory rate of 34% primarily results from
the Company’s geographical distribution of taxable income or losses,
foreign branch income subject to U.S. tax and valuation allowances related
to net operating losses.
While the valuation allowance increased $1,800 from June 3, 2006 to
June 2, 2007, the Company recognized a tax benefit of $1,416 related to
the valuation allowance because of the allocation of taxes between
continuing operations and discontinued operations required by U.S.
generally accepted accounting principles. This tax benefit reduced the
effective tax rate by 64.9% as of June 2, 2007. For fiscal 2006, the tax
benefit related to net operating losses was limited by the requirement for a
valuation allowance of $6,340 which increased the effective income tax
rate by 415.6%.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company’s deferred tax assets
and liabilities at June 2, 2007 and June 3, 2006 are as follows:
Deferred tax assets:
Intercompany profit in inventory
NOL carryforwards -
foreign and domestic
Inventory valuation
Goodwill - impaired assets
Alternative minimum tax
credit carryforward
Severance reserve
Other
Subtotal
Valuation allowance -
foreign and domestic
Net deferred tax assets after
valuation allowance
June 2,
2007
June 3,
2006
$
—
$
238
18,764
9,245
1,671
1,189
656
2,627
34,152
12,431
13,965
1,981
1,189
1,074
1,954
32,832
(27,640)
(25,840)
6,512
6,992
Deferred tax liabilities:
Accelerated depreciation
Goodwill - non-impaired assets
Other
Subtotal
Net deferred tax assets
$
(3,358)
(537)
(97)
(3,992)
2,520
(3,275)
(450)
(440)
(4,165)
2,827
$
Supplemental disclosure of deferred tax asset information:
Domestic
Foreign
$ 30,127
4,025
$
$ 27,783
5,049
$
4 0
Note J — Income Taxes (cont’d)
At June 2, 2007, domestic federal net operating loss carryforwards
(NOL) amount to approximately $38,101. These federal NOL’s expire
between 2024 and 2027. Domestic state net operating loss carryforwards
(NOL) amount to approximately $49,600. These state NOL’s expire
between 2007 and 2027. Foreign net operating loss carryforwards total
approximately $11,572 with various or indefinite expiration dates. In fiscal
2006, the Company re-evaluated the realization of certain deferred tax
assets, resulting in an additional valuation allowance of $2,227. The
Company believes that in order to reverse the recorded valuation
allowance in any subsidiary, the Company would likely need to have
positive cumulative earnings in that subsidiary for the three-year period
preceding the year of the reversal. The Company also has an alternative
minimum tax credit carryforward at June 2, 2007, in the amount of $1,189
that has an indefinite carryforward period.
Income taxes paid, including foreign estimated tax payments, were
$2,530, $1,916, and $565 in fiscal 2007, 2006, and 2005, respectively.
At the end of fiscal 2004, all of the cumulative positive earnings of the
Company’s foreign subsidiaries, amounting to $35.1 million, were
considered permanently reinvested pursuant to APB No. 23, Accounting
for Income Taxes-Special Areas. As such, U.S. taxes were not provided
on these amounts. In fiscal 2005, because of a strategic decision, the
Company determined that approximately $12.9 million of one of its foreign
subsidiaries’ earnings could no longer be considered permanently
reinvested as those earnings may be distributed in future years. Based on
management’s potential future plans regarding this subsidiary, it was
determined that these earnings would no longer meet the specific
requirements for permanent reinvestment under APB No. 23. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income tax and foreign withhold-
ing taxes. As such, the Company established a deferred tax liability of
approximately $4.9 million during fiscal 2005. The Company revised its
estimate of the deferred tax liability of $4.9 million at June 3, 2006 based
on changes in management’s potential future plans for this subsidiary
during fiscal 2006. In fiscal 2006, the Company revised its strategy and as
of June 3, 2006 concluded that the undistributed earnings of this
subsidiary were considered permanently reinvested outside the United
States. The reversal of the $4.9 million deferred tax liability in fiscal 2006
resulted in an additional valuation allowance in the same amount and,
therefore, did not affect the fiscal 2006 tax provision. Cumulative positive
earnings of the Company’s foreign subsidiaries were still considered
permanently reinvested pursuant to APB No. 23 and amounted to $125.8
million at June 2, 2007. Due to various tax attributes that are continually
changing, it is not possible to determine what, if any, tax liability might
exist if such earnings were to be repatriated.
During fiscal 2005, the Canadian taxing authority proposed an
income tax assessment for fiscal 1998 through fiscal 2002. The Company
appealed the income tax assessment; however, the Company paid the
entire tax liability in fiscal 2005 to the Canadian taxing authority to avoid
additional interest and penalties if the Company’s appeal was denied. The
payment was recorded as an increase to income tax provision in fiscal
2005. In May 2006, the appeal was settled in the Company’s favor. The
Company recorded a reduction to income tax provision for approximately
$1,000 related to the appeal settlement and subsequently received the
refund during fiscal 2007.
On October 22, 2004, the President signed the American Jobs
Creation Act of 2004 (the Act). The Act provides a deduction for income
from qualified domestic production activities, which will be phased in from
2005 through 2010. In return, the Act also provides for a two-year phase
out ending December 31, 2006 of the existing extraterritorial income
exclusion (ETI) for foreign sales that was viewed to be inconsistent with
the international trade protocols by the European Union. The Company
did not receive a tax benefit from the current ETI in fiscal 2007. When this
benefit is fully phased out, it will have no impact on the rate.
In June 2006, the FASB issued FIN 48. FIN 48 was issued to clarify
the accounting for uncertainty in tax positions taken or expected to be
taken in a tax return. Under FIN 48, the tax benefit from an uncertain tax
position may be recognized only if it is more likely than not that the tax
position will be sustained upon examination by tax authorities. The
Company plans to adopt FIN 48 for annual periods beginning June 3,
2007. The Company is currently evaluating the potential impact that the
adoption of FIN 48 will have on its consolidated financial statements and
at this time no material adjustments are anticipated.
Note K — Stockholders’ Equity
The Company has authorized 30,000 shares of common stock,
10,000 shares of Class B common stock, and 5,000 shares of preferred
stock. The Class B common stock has ten votes per share. The Class B
common stock has transferability restrictions; however, it may be
converted into common stock on a share-for-share basis at any time. With
respect to dividends and distributions, shares of common stock and Class
B common stock rank equally and have the same rights, except that
Class B common stock is limited to 90% of the amount of common stock
cash dividends.
Total common stock issued and outstanding, excluding Class B
common stock at June 2, 2007, was 14,741 shares, net of treasury
shares of 1,179. An additional 8,939 shares of common stock have been
reserved for the potential conversion of the convertible notes and Class B
common stock and for future issuance under the Employee Stock
Purchase Plan and Employee and Non-Employee Director Stock Option
Plan.
The Employee Stock Purchase Plan (ESPP) provides substantially
all employees an opportunity to purchase common stock of the Company
at 85% of the stock price at the beginning or the end of the year,
whichever is lower. At June 2, 2007, the plan had 62 shares reserved for
future issuance.
The Employees’ 2001 Incentive Compensation Plan authorizes the
issuance of up to 900 shares as incentive stock options, non-qualified
stock options, or stock awards. Under this plan and predecessor plans,
1,802 shares are reserved for future issuance. The Plan authorizes the
granting of incentive stock options at the fair market value at the date of
grant. Generally, these options become exercisable over staggered
periods and expire up to ten years from the date of grant.
4 1
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
On May 31, 2007, the Company completed the sale of the SSD/
Burtek strategic business unit to Honeywell International Inc. for $80,000.
After transaction expenses paid through June 2, 2007, net cash proceeds
from the sale were $78,114. The transaction resulted in an after tax gain
of $41,565 after additional transactions costs of $2,464 were accrued as
of June 2, 2007. The Company has used the net proceeds received and
will continue to use the net proceeds classified as restricted cash from the
sale to pay down debt outstanding under its credit agreement. The
Company presents SSD/Burtek as a discontinued operation in accor-
dance with the criteria of SFAS No. 144, and prior period results and
disclosures have been restated to reflect this reporting.
Accounts receivable, inventory, and goodwill 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:
Net Sales
Gross
Profit
Direct
Operating
Contribution
Assets
$ 369,936
101,191
82,111
$ 553,238
$
84,338
32,942
19,145
$ 136,425
$ 48,650
20,948
1,194
$ 70,792
$ 124,594
47,229
37,116
$ 208,939
$ 334,131
94,443
95,010
$ 523,584
$
75,834
30,438
24,509
$ 130,781
$ 47,194
19,644
9,156
$ 75,994
$ 116,102
42,878
37,568
$ 196,548
$ 296,334
92,174
78,078
$ 466,586
$
64,853
29,401
17,865
$ 112,119
$ 34,225
17,682
7,793
$ 59,700
$ 98,592
44,119
25,064
$ 167,775
Fiscal 2007
RFPD
EDG
DSG
Total
Fiscal 2006
RFPD
EDG
DSG
Total
Fiscal 2005
RFPD
EDG
DSG
Total
On June 16, 2005, the Board of Directors of the Company adopted
the 2006 Stock Option Plan for Non-Employee Directors which authorizes
the issuance of up to 400 shares as non-qualified stock options. Under
this plan, 400 shares of common stock have been reserved for future
issuances relating to stock options exercisable based on the passage of
time. Each option is exercisable over a period of time from its date of
grant at the market value on the grant date and expires after 10 years.
This plan replaces the 1996 Stock Option Plan for Non-Employee
Directors which was terminated on June 16, 2005.
Note L — Employee Retirement Plans
The Company’s domestic employee retirement plans consist of a
profit sharing plan and a stock ownership plan (ESOP). Annual contribu-
tions in cash or Company stock are made at the discretion of the Board of
Directors. In addition, the profit sharing plan has a 401(k) provision
whereby the Company matches 50% of employee contributions up to 4%
of base pay. Charges to expense for discretionary and matching contribu-
tions to these plans were $1,152, $723, and $729 for fiscal 2007, 2006,
and 2005, respectively. Such amounts include contributions in stock of
$548 for fiscal 2007, based on the stock price at the date contributed, or
June 2, 2007. Shares are included in the calculation of earnings per share
and dividends are paid to the ESOP from the date the shares are
contributed. Foreign employees are covered by a variety of government
mandated programs.
Note M — Segment and Geographic Information
The following disclosures are made in accordance with the SFAS
No. 131, Disclosures about Segments of an Enterprise and Related
Information. The Company’s strategic business units (SBUs) in fiscal
2007 are: RFPD, EDG, and DSG.
RFPD serves the global RF and wireless communications
market, including infrastructure, and wireless networks, and power
conversion market.
EDG provides engineered solutions and distributes electronic
components to customers in diverse markets including the steel,
automotive, textile, plastics, semiconductor manufacturing, and
broadcast industries.
DSG is a global provider of integrated display products and systems
to the public information, financial, point-of-sale, industrial, and
healthcare markets.
Each SBU is directed by a Vice President and General Manager
who reports to the Chief Executive Officer (CEO). The CEO 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.
4 2
Note M —
Segment and Geographic Information (cont’d)
Net sales, gross profit, operating income, and long-lived assets (net
property and other assets, excluding investments, other intangible assets,
and non-current deferred income taxes) are presented in the table below.
A reconciliation of net sales, gross profit, operating income, and
assets to the relevant consolidated amounts is as follows. Other assets
not identified include miscellaneous receivables, manufacturing
inventories, and other assets.
Fiscal Year Ended
June 2,
2007
June 3,
2006
May 28,
2005
Fiscal Year Ended
June 2,
2007
$ 553,238
4,053
$ 557,291
June 3,
2006
$ 523,584
5,513
$ 529,097
May 28,
2005
$ 466,586
6,557
$ 473,143
$ 136,425
$ 130,781
$ 112,119
(4,022)
$ 132,403
(2,291)
$ 128,490
(3,014)
$ 109,105
$ 70,792
$
75,994
$ 59,700
(4,022)
(11,633)
(50,909)
3,616
7,844
$
(2,291)
(19,231)
(46,215)
154
8,411
$
(3,014)
(19,065)
(40,527)
9,918
7,012
$
$ 208,939
$ 196,548
$ 167,775
79,335
25,815
29,703
5,032
17,010
18,868
30,070
8,215
24,301
20,010
30,677
5,493
Segment net sales
Corporate
Net sales
Segment gross profit
Manufacturing variances
and other costs
Gross profit
Segment direct
operating contribution
Manufacturing variances
and other costs
Regional selling expenses
Administrative expenses
Gain on disposal of assets
Operating income
Segment assets
Cash, cash equivalents,
and restricted cash
Other current assets
Net property
Other assets
Assets of discontinued
operations held for sale
Total assets
247
$ 349,071
38,588
$ 309,299
35,684
$ 283,940
Geographic net sales information is primarily grouped by customer
destination into five areas: North America, Asia/Pacific, Europe, Latin
America, and Corporate. Europe includes sales to the Middle East and
Africa. Net sales to Mexico are included as part of Latin America.
Corporate consists of freight and non-area specific sales.
Net Sales
North America
Asia/Pacific
Europe
Latin America
Corporate
Total
Gross Profit
North America
Asia/Pacific
Europe
Latin America
Corporate
Total
Operating Income
North America
Asia/Pacific
Europe
Latin America
Corporate
Total
Long-Lived Assets
North America
Asia/Pacific
Europe
Latin America
Total
$ 229,296
165,230
143,823
16,979
1,963
$ 557,291
$ 61,849
39,052
36,481
4,845
(9,824)
$ 132,403
$ 26,965
21,282
9,696
820
(50,919)
7,844
$
$ 227,926
147,993
129,212
18,601
5,365
$ 529,097
$ 217,275
124,763
109,626
16,476
5,003
$ 473,143
$ 59,059
35,532
35,161
5,411
(6,673)
$ 128,490
$ 56,517
29,683
30,116
4,746
(11,957)
$ 109,105
$ 32,156
20,628
9,364
95
(53,832)
8,411
$
$ 29,125
17,020
5,282
(521)
(43,894)
7,012
$
$ 26,837
1,092
2,642
1,193
$ 31,764
$ 25,983
1,468
2,592
1,078
$ 31,121
$ 26,654
1,120
2,593
1,265
$ 31,632
Historically, the Company has not tracked capital expenditures and
depreciation by SBU as the majority of the spending relates to Corporate
projects. In fiscal 2007, capital expenditures primarily related to the
implementation of various modules and upgrades of PeopleSoft and
facility improvements.
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 state-
ments based on periodic reviews of outstanding accounts, and actual
losses have been consistently within management’s estimates.
4 3
Notes to Consolidated Financial Statements
(In thousands, except per share amounts)
Note N — Litigation
Note O — Valuation and Qualifying Accounts
The Company is involved in several pending judicial proceedings
concerning matters arising in the ordinary course of its business. While
the outcome of litigation is subject to uncertainties, based on currently
available information, the Company believes that, in the aggregate, the
results of these proceedings will not have a material adverse effect on its
financial condition.
The following table presents the valuation and qualifying account
activity for the fiscal years ended June 2, 2007, June 3, 2006, and
May 28, 2005:
Description
Balance at
beginning
of period
Charged
to
expenses
Deductions
Balance
at end
of period
Year ended June 2, 2007:
Allowance for
doubtful accounts
Inventory overstock
reserve
Deferred tax
$ 1,965
$ 24,042
asset valuation
Warranty reserves
$ 25,840
836
$
Year ended June 3, 2006:
Allowance for
doubtful accounts
Inventory overstock
reserve
Deferred tax
$ 1,563
$ 26,109
asset valuation
Warranty reserves
$ 20,695
$ 1,439
Year ended May 28, 2005:
Allowance for
doubtful accounts
Inventory overstock
$ 2,060
reserve
$ 25,043
$
$
$
$
$
$
$
$
$
$
1,165(1)
$ 1,556(2)
$
1,574
859(3)
$ 2,690(7)
$ 22,211
1,800
629
$ —
$ 1,050(5)
$ 27,640
415
$
1,450(1)
$ 1,048(2)
$
1,965
830(3)
$ 2,897(7)
$ 24,042
5,145
932
$ —
$ 1,535(6)
$ 25,840
836
$
785(1)
$ 1,282(2)
$
1,563
3,358(3)
$ 2,292(7)
$ 26,109
Deferred tax asset
valuation
Warranty reserves
$ 4,040
802
$
$ 16,655(4)
$
958
$ —
$ 321(7)
$ 20,695
1,439
$
(1) Charges to bad debt expense.
(2) Uncollectible amounts written off, net of recoveries and foreign currency translation.
(3) Charges to cost of sales.
(4) Tax provisions recorded to increase the valuation allowance related to deferred tax
assets in the U.S. ($15.9 million) and outside the U.S. ($0.8 million).
(5) Reserve adjustments of $0.5 million were recorded during fiscal 2007.
(6) An adjustment of $0.9 million was recorded during the second quarter of fiscal 2006.
(7) Inventory disposed of during the period.
4 4
Note P — Selected Quarterly Financial Data
(Unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal 2007(1)(2):
Net sales
Gross profit
Income (loss) from
$139,437
34,352
$137,714
33,034
$133,894
32,114
$146,246
32,903
Fiscal 2006(1)(3):
Net sales
Gross profit
Income (loss) from
$131,241
31,518
$127,569
32,351
$126,812
31,073
$143,475
33,548
continuing operations
(808)
1,330
1,524
(498)
continuing operations
1,225
(297)
(463)
(4,475)
Income (loss) from
discontinued operations
Net income (loss)
(291)
(1,099)
(248)
1,082
(487)
1,037
40,157
39,659
Income (loss) from
discontinued operations
Net income (loss)
595
1,820
590
293
(683)
(1,146)
866
(3,609)
Income (loss) from continuing operations:
Common stock - basic $ (0.05) $
Class B common
stock - basic
Common stock -
diluted
Class B common
stock - diluted
$ (0.05) $
$ (0.04) $
$ (0.04) $
0.08
0.07
0.08
0.07
$
$
$
$
0.09
$ (0.03)
0.08
$ (0.03)
Income (loss) from continuing operations:
$
0.07
$
Common stock - basic
Class B common
stock - basic
Common stock -
0.09
$ (0.03)
diluted
0.08
$ (0.03)
Class B common
stock - diluted
(0.02) $
(0.03) $ (0.26)
(0.02) $
(0.02) $ (0.24)
(0.02) $
(0.03) $ (0.26)
(0.02) $
(0.02) $ (0.24)
$
$
$
0.06
0.07
0.06
$
$
$
Income (loss) from discontinued operations:
Income (loss) from discontinued operations:
Common stock - basic $ (0.01) $
Class B common
stock - basic
Common stock -
diluted
Class B common
stock - diluted
$ (0.01) $
$ (0.02) $
$ (0.02) $
Net income (loss):
Common stock - basic $ (0.06) $
Class B common
stock - basic
Common stock -
diluted
Class B common
stock - diluted
$ (0.06) $
$ (0.06) $
$ (0.06) $
(0.02) $
(0.03) $
2.32
(0.01) $
(0.03) $
2.09
Common stock - basic
Class B common
stock - basic
Common stock -
(0.02) $
(0.03) $
2.32
diluted
(0.01) $
(0.03) $
2.09
Class B common
stock - diluted
0.06
0.06
0.06
0.06
$
$
$
$
0.06
0.05
0.06
0.05
$
$
$
$
2.29
2.06
2.29
2.06
Net income (loss):
Common stock - basic
Class B common
stock - basic
Common stock -
diluted
Class B common
stock - diluted
$
$
$
$
$
$
$
$
0.04
0.04
0.03
0.04
0.11
0.10
0.10
0.10
$
$
$
$
$
$
$
$
0.04
0.04
0.04
0.04
0.02
0.02
0.02
0.02
$
$
$
$
$
$
$
$
(0.04) $
0.05
(0.04) $
0.05
(0.04) $
0.05
(0.04) $
0.05
(0.07) $ (0.21)
(0.06) $ (0.19)
(0.07) $ (0.21)
(0.06) $ (0.19)
(1) Fiscal 2007 and fiscal 2006 includes the impact of disclosing SSD/Burtek as a
discontinued operation as defined under SFAS No. 144.
(2) In the third quarter of fiscal 2007, the Company sold approximately 1.5 acres of real
estate and a building located in Geneva, Illinois, and recorded a pre-tax gain of $2.5
million with respect to the sale of this property. In the fourth quarter of fiscal 2007, the
Company sold real estate and a building located in the United Kingdom, and recorded a
pre-tax gain on sale of $1.5 million with respect to the sale of this property.
(3) In the fourth quarter of fiscal 2006, the Company recorded severance costs of $2.7
million for certain employees whose termination costs became probable and estimable.
In the fourth quarter, the Company re-evaluated the realization of certain deferred tax
assets, resulting in an additional valuation allowance of $2.2 million.
4 5
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Richardson Electronics, Ltd.;
We have audited the accompanying consolidated
balance sheets of Richardson Electronics, Ltd. as of
June 2, 2007 and June 3, 2006, and the related consolidated
statements of operations, stockholders’ equity and
comprehensive income (loss), and cash flows for each of the
two years in the period ended June 2, 2007. These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Richardson Electronics, Ltd. at June 2,
2007 and June 3, 2006, and the consolidated results of its
operations and its cash flows for each of the two years in the
period ended June 2, 2007, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United
States), the effectiveness of Richardson Electronics, Ltd.’s
internal control over financial reporting as of June 2, 2007,
based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our
report dated August 16, 2007 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Chicago, Illinois
August 16, 2007
4 6
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Richardson Electronics, Ltd.;
We have audited the accompanying consolidated
statements of operations, stockholders’ equity and
comprehensive income (loss), and cash flows of Richardson
Electronics, Ltd. and subsidiaries for the year ended May 28,
2005. These consolidated financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the results of operation of Richardson Electronics, Ltd. and
subsidiaries and their cash flows for the year ended
May 28, 2005, in conformity with U.S. generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
August 26, 2005, except for the Stock-Based Compensation
and Earnings Per Share sections of Note A to the
consolidated financial statements, as to which the date is
February 1, 2006, the geographic and long-lived asset
information included in Note M to the consolidated financial
statements, as to which the date is August 30, 2006 and
Note B to the consolidated financial statements as to which
the date is August 16, 2007
4 7
Report of Independent Registered Public Accounting Firm
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, management’s assessment that
Richardson Electronics, Ltd. maintained effective internal
control over financial reporting as of June 2, 2007, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Richardson Electronics, Ltd.
maintained, in all material respects, effective internal control
over financial reporting as of June 2, 2007, based on the
COSO criteria.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Richardson
Electronics, Ltd. as of June 2, 2007 and June 3, 2006, and
the related consolidated statements of operations,
stockholders’ equity and comprehensive income (loss) and
cash flows for each of the two years in the period ended
June 2, 2007 of Richardson Electronics, Ltd. and our
report dated August 16, 2007 expressed an unqualified
opinion thereon.
Ernst & Young LLP
Chicago, Illinois
August 16, 2007
The Board of Directors and Stockholders
Richardson Electronics, Ltd.;
We have audited management’s assessment, included
in the accompanying Management’s Report on Internal
Control over Financial Reporting (Item 9A(b)), that
Richardson Electronics, Ltd. maintained effective internal
control over financial reporting as of June 2, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Richardson
Electronics’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting. Our responsibility is to express an opinion
on management’s assessment and an opinion on the
effectiveness of the company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating management's assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we
considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and directors
of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
4 8
Stockholder Information
Market Price of Common Stock
The Company’s common stock is traded on The NASDAQ
Global Market under the trading symbol “RELL.” There is no
established public trading market for the Company’s
Class B common stock. As of August 14, 2007, there were
approximately 886 stockholders of record for their common
stock and approximately 18 stockholders of record for their
Class B common stock. The following table sets forth, for the
periods indicated, the high and low bid prices per share
of “RELL” common stock as reported on The NASDAQ
Global Market.
2007
2006
Fiscal Quarters
First
Second
Third
Fourth
High
$ 8.68
10.30
10.09
10.09
Low
$ 6.58
8.01
8.37
8.30
$
High
9.38
8.50
9.05
9.40
Low
$ 6.55
6.78
6.89
6.24
Annual dividend payments for fiscal 2007 amounted to $2.8
million. All future payments of dividends are at the discretion of
the board of directors and will depend on earnings, capital
requirements, operating conditions, and such other factors that
the board of directors may deem relevant. In each of the last
20 years, the Company has paid a quarterly dividend of $0.04
per common share and $0.036 per class B common share.
The Company currently expects to continue paying dividends
at this historical rate in fiscal 2008.
Corporate Office
Richardson Electronics, Ltd.
40W267 Keslinger Road • P.O. Box 393
LaFox, Illinois 60147-0393
(630) 208-2200
Internet: www.rell.com/investor.asp • E-mail: info@rell.com
Annual Meeting
We encourage stockholders to attend the annual meeting
scheduled for Tuesday, October 9, 2007, at 3:15 PM
at the Company’s corporate office. Further details are
available in your proxy materials.
Independent Auditors
Ernst & Young LLP
233 South Wacker Drive
Chicago, IL 60606
Transfer Agent and Registrar
LaSalle Bank
135 South LaSalle Street
Chicago, IL 60603
Equity Research Reports
21st Century Equity Research
Craig-Hallum Capital Group
William Blair & Company
Form 10-K and Other Information
A copy of the Company’s Annual Report on Form 10-K, filed
with the Securities and Exchange Commission, and the
Corporate Code of Conduct are available without charge
upon request. All inquiries should be addressed to the
Investor Relations Department, Richardson Electronics,
Ltd., 40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois
60147-0393. Press releases and other information can be
found on the Internet at the Company’s home page at
http://www.rell.com/investor.asp
4 9
Officers and Directors
Corporate Officers
Edward J. Richardson
Chairman of the Board, Chief Executive Officer
and President
Kyle C. Badger
Executive Vice President, General Counsel
and Secretary
Michael J. Bauer
Senior Vice President and
Chief Human Resources Officer
Board of Directors
Edward J. Richardson (1, 5)
Arnold R. Allen (5, 6)
Management Consultant
Jacques Bouyer (3,4,5, 6)
Retired Chief Executive Officer and
Chairman of the Board of Philips Components - France
Scott Hodes (3, 5, 6)
Partner, Law Firm of Bryan Cave LLP
Wendy S. Diddell
Executive Vice President, Corporate Development
Ad Ketelaars (5, 6)
Chief Executive Officer, NEC Philips Unified Solutions
Daniel Fujii
John R. Peterson (2,5, 6)
Interim Chief Financial Officer & Corporate Controller
Managing Director, Cleary Gull Inc.
Robert Heise
Vice President and General Manager,
Display Systems Group
Brad R. Knechtel
Executive Vice President, Supply Chain Management
Harold L. Purkey (2, 5, 6)
Retired Managing Director, First Union Securities, Inc.
Samuel Rubinovitz (1,2,3,4,5, 6)
Management Consultant, Director, LTX Corporation,
and Director, Kronos Corporation
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Stock Option Committee
(5) Strategic Planning Committee
(6) Nominating Committee
Kathleen M. McNally
Senior Vice President, Marketing Operations and
Customer Support
Gregory J. Peloquin
Executive Vice President and General Manager,
RF, Wireless & Power Division
Bart Petrini
Executive Vice President and General Manager,
Electron Device Group
William G. Seils
Of Counsel and Assistant Secretary
5 0
5 1