UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberDecember 2, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ To__________To
Commission File Number: 0-12906
RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)
Delaware | 36-2096643 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
40W267 Keslinger Road, P.O. Box 393 LaFox, Illinois 60147-0393 | |
(Address of principal executive offices) |
40W267 Keslinger Road, P.O.Box 393 LaFox, Illinois 60147-0393(Address of principal executive offices)
Registrant’s telephone number, including area code: (630) 208-2200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months or(or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | ☐ | Accelerated Filer | ☒ | |
Non-Accelerated Filer | ☐ (Do not check if a smaller reporting company) | Smaller Reporting Company | ☐ | |
Emerging Growth Company | ☐ | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of October 10, 2017,January 9, 2018, there were outstanding 10,712,04410,789,544 shares of Common Stock, $0.05 par value and 2,136,919 shares of Class B Common Stock, $0.05 par value, which are convertible into Common Stock of the registrant on a share for share basis.
TABLE OF CONTENTS
PART I. | FINANCIAL INFORMATION |
ITEM 1. | FINANCIAL STATEMENTS |
Richardson Electronics, Ltd.Consolidated Balance Sheets(in thousands, except per share amounts)
Unaudited | Audited | |||||||
September 2, 2017 | May 27, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 56,429 | $ | 55,327 | ||||
Accounts receivable, less allowance of $381 and $398, respectively | 19,260 | 20,782 | ||||||
Inventories, net | 46,136 | 42,749 | ||||||
Prepaid expenses and other assets | 3,373 | 3,070 | ||||||
Investments - current | 2,424 | 6,429 | ||||||
Total current assets | 127,622 | 128,357 | ||||||
Non-current assets: | ||||||||
Property, plant and equipment, net | 16,178 | 15,813 | ||||||
Goodwill | 6,332 | 6,332 | ||||||
Intangible assets, net | 3,334 | 3,441 | ||||||
Non-current deferred income taxes | 1,141 | 1,102 | ||||||
Investments - non-current | 2,514 | 2,419 | ||||||
Total non-current assets | 29,499 | 29,107 | ||||||
Total assets | $ | 157,121 | $ | 157,464 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 13,382 | $ | 15,933 | ||||
Accrued liabilities | 9,173 | 8,311 | ||||||
Total current liabilities | 22,555 | 24,244 | ||||||
Non-current liabilities: | ||||||||
Non-current deferred income tax liabilities | 158 | 158 | ||||||
Other non-current liabilities | 743 | 735 | ||||||
Total non-current liabilities | 901 | 893 | ||||||
Total liabilities | 23,456 | 25,137 | ||||||
Stockholders’ equity | ||||||||
Common stock, $0.05 par value; issued and outstanding 10,712 shares at September 2, 2017, and at May 27, 2017 | 535 | 535 | ||||||
Class B common stock, convertible, $0.05 par value; issued and outstanding 2,137 shares at September 2, 2017 and at May 27, 2017 | 107 | 107 | ||||||
Preferred stock, $1.00 par value, no shares issued | — | — | ||||||
Additional paid-in-capital | 59,537 | 59,436 | ||||||
Common stock in treasury, at cost, no shares at September 2, 2017, and at May 27, 2017 | — | — | ||||||
Retained earnings | 68,463 | 69,333 | ||||||
Accumulated other comprehensive income | 5,023 | 2,916 | ||||||
Total stockholders’ equity | 133,665 | 132,327 | ||||||
Total liabilities and stockholders’ equity | $ | 157,121 | $ | 157,464 |
Richardson Electronics, Ltd. |
Consolidated Balance Sheets |
(in thousands, except per share amounts) |
Unaudited | Audited | |||||||
December 2, 2017 | May 27, 2017 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 54,453 | $ | 55,327 | ||||
Accounts receivable, less allowance of $373 and $398, respectively | 21,016 | 20,782 | ||||||
Inventories, net | 48,059 | 42,749 | ||||||
Prepaid expenses and other assets | 3,729 | 3,070 | ||||||
Investments - current | 4,136 | 6,429 | ||||||
Total current assets | 131,393 | 128,357 | ||||||
Non-current assets: | ||||||||
Property, plant and equipment, net | 17,275 | 15,813 | ||||||
Goodwill | 6,332 | 6,332 | ||||||
Intangible assets, net | 3,231 | 3,441 | ||||||
Non-current deferred income taxes | 1,069 | 1,102 | ||||||
Investments - non-current | 686 | 2,419 | ||||||
Total non-current assets | 28,593 | 29,107 | ||||||
Total assets | $ | 159,986 | $ | 157,464 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 15,224 | $ | 15,933 | ||||
Accrued liabilities | 8,645 | 8,311 | ||||||
Total current liabilities | 23,869 | 24,244 | ||||||
Non-current liabilities: | ||||||||
Non-current deferred income tax liabilities | 158 | 158 | ||||||
Other non-current liabilities | 903 | 735 | ||||||
Total non-current liabilities | 1,061 | 893 | ||||||
Total liabilities | 24,930 | 25,137 | ||||||
Stockholders’ equity | ||||||||
Common stock, $0.05 par value; issued and outstanding 10,790 shares at December 2, 2017 and 10,712 shares at May 27, 2017 | 535 | 535 | ||||||
Class B common stock, convertible, $0.05 par value; issued and outstanding 2,137 shares at December 2, 2017 and at May 27, 2017 | 107 | 107 | ||||||
Preferred stock, $1.00 par value, no shares issued | — | — | ||||||
Additional paid-in-capital | 59,745 | 59,436 | ||||||
Common stock in treasury, at cost, no shares at December 2, 2017 and at May 27, 2017 | — | — | ||||||
Retained earnings | 69,368 | 69,333 | ||||||
Accumulated other comprehensive income | 5,301 | 2,916 | ||||||
Total stockholders’ equity | 135,056 | 132,327 | ||||||
Total liabilities and stockholders’ equity | $ | 159,986 | $ | 157,464 |
Richardson Electronics, Ltd.
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(in thousands, except per share amounts)
Three Months Ended | ||||||||
September 2, 2017 | August 27, 2016 | |||||||
Statements of Comprehensive Income (Loss) | ||||||||
Net sales | $ | 36,995 | $ | 33,373 | ||||
Cost of sales | 24,847 | 23,133 | ||||||
Gross profit | 12,148 | 10,240 | ||||||
Selling, general, and administrative expenses | 12,324 | 12,327 | ||||||
Gain on disposal of assets | (191 | ) | — | |||||
Operating income (loss) | 15 | (2,087 | ) | |||||
Other (income) expense: | ||||||||
Investment/interest income | (134 | ) | (11 | ) | ||||
Foreign exchange loss | 201 | 278 | ||||||
Other, net | (4 | ) | (1 | ) | ||||
Total other expense | 63 | 266 | ||||||
Loss before income taxes | (48 | ) | (2,353 | ) | ||||
Income tax provision | 64 | 497 | ||||||
Net loss | (112 | ) | (2,850 | ) | ||||
Foreign currency translation gain, net of tax | 2,121 | 379 | ||||||
Fair value adjustments on investments (loss) gain | (14 | ) | 7 | |||||
Comprehensive income (loss) | $ | 1,995 | $ | (2,464 | ) | |||
Loss per share: | ||||||||
Common shares - Basic | $ | (0.01 | ) | $ | (0.23 | ) | ||
Class B common shares - Basic | $ | (0.01 | ) | $ | (0.20 | ) | ||
Common shares - Diluted | $ | (0.01 | ) | $ | (0.23 | ) | ||
Class B common shares - Diluted | $ | (0.01 | ) | $ | (0.20 | ) | ||
Weighted average number of shares: | ||||||||
Common shares - Basic | 10,712 | 10,703 | ||||||
Class B common shares - Basic | 2,137 | 2,141 | ||||||
Common shares - Diluted | 10,712 | 10,703 | ||||||
Class B common shares - Diluted | 2,137 | 2,141 | ||||||
Dividends per common share | $ | 0.060 | $ | 0.060 | ||||
Dividends per Class B common share | $ | 0.054 | $ | 0.054 |
Three Months Ended | Six Months Ended | |||||||||||||||
December 2, 2017 | November 26, 2016 | December 2, 2017 | November 26, 2016 | |||||||||||||
Statements of Comprehensive Income (Loss) | ||||||||||||||||
Net sales | $ | 39,082 | $ | 33,827 | $ | 76,077 | $ | 67,200 | ||||||||
Cost of sales | 25,708 | 22,863 | 50,555 | 45,996 | ||||||||||||
Gross profit | 13,374 | 10,964 | 25,522 | 21,204 | ||||||||||||
Selling, general and administrative expenses | 12,602 | 13,368 | 24,926 | 25,695 | ||||||||||||
Gain on disposal of assets | — | — | (191 | ) | — | |||||||||||
Operating income (loss) | 772 | (2,404 | ) | 787 | (4,491 | ) | ||||||||||
Other (income) expense: | ||||||||||||||||
Investment/interest income | (36 | ) | (51 | ) | (170 | ) | (62 | ) | ||||||||
Foreign exchange loss (gain) | 115 | (181 | ) | 316 | 97 | |||||||||||
Other, net | (11 | ) | 17 | (15 | ) | 16 | ||||||||||
Total other expense (income) | 68 | (215 | ) | 131 | 51 | |||||||||||
Income (loss) from continuing operations before income taxes | 704 | (2,189 | ) | 656 | (4,542 | ) | ||||||||||
Income tax provision | 532 | 333 | 596 | 830 | ||||||||||||
Income (loss) from continuing operations | 172 | (2,522 | ) | 60 | (5,372 | ) | ||||||||||
Income from discontinued operations | 1,496 | — | 1,496 | — | ||||||||||||
Net income (loss) | 1,668 | (2,522 | ) | 1,556 | (5,372 | ) | ||||||||||
Foreign currency translation gain (loss), net of tax | 230 | (2,623 | ) | 2,351 | (2,244 | ) | ||||||||||
Fair value adjustments on investments gain | 48 | 6 | 34 | 13 | ||||||||||||
Comprehensive income (loss) | $ | 1,946 | $ | (5,139 | ) | $ | 3,941 | $ | (7,603 | ) | ||||||
Net income (loss) per Common share - Basic: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.01 | $ | (0.20 | ) | $ | — | $ | (0.43 | ) | ||||||
Income from discontinued operations | 0.12 | — | 0.12 | — | ||||||||||||
Total net income (loss) per Common share - Basic | $ | 0.13 | $ | (0.20 | ) | $ | 0.12 | $ | (0.43 | ) | ||||||
Net income (loss) per Class B common share - Basic: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.01 | $ | (0.18 | ) | $ | — | $ | (0.38 | ) | ||||||
Income from discontinued operations | 0.11 | — | 0.11 | — | ||||||||||||
Total net income (loss) per Class B common share - Basic | $ | 0.12 | $ | (0.18 | ) | $ | 0.11 | $ | (0.38 | ) | ||||||
Net income (loss) per Common share - Diluted: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.01 | $ | (0.20 | ) | $ | — | $ | (0.43 | ) | ||||||
Income from discontinued operations | 0.12 | — | 0.12 | — | ||||||||||||
Total net income (loss) per Common share – Diluted | $ | 0.13 | $ | (0.20 | ) | $ | 0.12 | $ | (0.43 | ) | ||||||
Net income (loss) per Class B common share - Diluted: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.01 | $ | (0.18 | ) | $ | — | $ | (0.38 | ) | ||||||
Income from discontinued operations | 0.11 | — | 0.11 | — | ||||||||||||
Total net income (loss) per Class B common share - Diluted | $ | 0.12 | $ | (0.18 | ) | $ | 0.11 | $ | (0.38 | ) | ||||||
Weighted average number of shares: | ||||||||||||||||
Common shares – Basic | 10,755 | 10,703 | 10,734 | 10,703 | ||||||||||||
Class B common shares – Basic | 2,137 | 2,141 | 2,137 | 2,141 | ||||||||||||
Common shares – Diluted | 10,789 | 10,703 | 10,764 | 10,703 | ||||||||||||
Class B common shares – Diluted | 2,137 | 2,141 | 2,137 | 2,141 | ||||||||||||
Dividends per common share | $ | 0.060 | $ | 0.060 | $ | 0.120 | $ | 0.120 | ||||||||
Dividends per Class B common share | $ | 0.054 | $ | 0.054 | $ | 0.108 | $ | 0.108 |
3
Richardson Electronics, Ltd.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Three Months Ended | ||||||||
September 2, 2017 | August 27, 2016 | |||||||
Operating activities: | ||||||||
Net loss | $ | (112 | ) | $ | (2,850 | ) | ||
Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
Depreciation and amortization | 732 | 715 | ||||||
Inventory provisions | 162 | 43 | ||||||
Gain on sale of investments | (25 | ) | (2 | ) | ||||
Gain on disposal of assets | (191 | ) | — | |||||
Share-based compensation expense | 101 | 103 | ||||||
Deferred income taxes | (4 | ) | (158 | ) | ||||
Change in assets and liabilities: | ||||||||
Accounts receivable | 2,047 | 3,555 | ||||||
Income tax receivable | — | (13 | ) | |||||
Inventories | (2,613 | ) | 368 | |||||
Prepaid expenses and other assets | (258 | ) | 41 | |||||
Accounts payable | (2,755 | ) | (2,338 | ) | ||||
Accrued liabilities | 726 | (1,144 | ) | |||||
Other | (267 | ) | 5 | |||||
Net cash used in operating activities | (2,457 | ) | (1,675 | ) | ||||
Investing activities: | ||||||||
Capital expenditures | (1,015 | ) | (2,064 | ) | ||||
Proceeds from sale of assets | 276 | — | ||||||
Proceeds from maturity of investments | 4,000 | 1,465 | ||||||
Proceeds from sales of available-for-sale securities | 151 | 88 | ||||||
Purchases of available-for-sale securities | (151 | ) | (88 | ) | ||||
Other | (3 | ) | (3 | ) | ||||
Net cash provided by (used in) investing activities | 3,258 | (602 | ) | |||||
Financing activities: | ||||||||
Cash dividends paid | (758 | ) | (758 | ) | ||||
Net cash used in financing activities | (758 | ) | (758 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 1,059 | 69 | ||||||
Increase (decrease) in cash and cash equivalents | 1,102 | (2,966 | ) | |||||
Cash and cash equivalents at beginning of period | 55,327 | 60,454 | ||||||
Cash and cash equivalents at end of period | $ | 56,429 | $ | 57,488 |
Three Months Ended | Six Months Ended | |||||||||||||||
December 2, 2017 | November 26, 2016 | December 2, 2017 | November 26, 2016 | |||||||||||||
Operating activities: | ||||||||||||||||
Net income (loss) | $ | 1,668 | $ | (2,522 | ) | $ | 1,556 | $ | (5,372 | ) | ||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 735 | 602 | 1,467 | 1,317 | ||||||||||||
Inventory provisions | 125 | 66 | 287 | 109 | ||||||||||||
Loss (gain) on sale of investments | 1 | 8 | (24 | ) | 6 | |||||||||||
Gain on disposal of assets | — | — | (191 | ) | — | |||||||||||
Share-based compensation expense | 208 | 176 | 309 | 279 | ||||||||||||
Deferred income taxes | 66 | (151 | ) | 62 | (309 | ) | ||||||||||
Change in assets and liabilities: | ||||||||||||||||
Accounts receivable | (1,735 | ) | 379 | 312 | 3,934 | |||||||||||
Income tax receivable | — | 8 | — | (5 | ) | |||||||||||
Inventories | (2,021 | ) | 1,115 | (4,634 | ) | 1,483 | ||||||||||
Prepaid expenses and other assets | (357 | ) | (1,082 | ) | (615 | ) | (1,041 | ) | ||||||||
Accounts payable | 1,757 | (883 | ) | (998 | ) | (3,221 | ) | |||||||||
Accrued liabilities | (517 | ) | 2,006 | 209 | 862 | |||||||||||
Other | 264 | 13 | (3 | ) | 18 | |||||||||||
Net cash provided by (used in) operating activities | 194 | (265 | ) | (2,263 | ) | (1,940 | ) | |||||||||
Investing activities: | ||||||||||||||||
Capital expenditures | (1,720 | ) | (1,235 | ) | (2,735 | ) | (3,299 | ) | ||||||||
Proceeds from sale of assets | — | — | 276 | — | ||||||||||||
Proceeds from maturity of investments | 4,177 | 2,117 | 8,177 | 3,582 | ||||||||||||
Purchases of investments | (3,943 | ) | (2,136 | ) | (3,943 | ) | (2,136 | ) | ||||||||
Proceeds from sales of available-for-sale securities | 114 | 59 | 265 | 147 | ||||||||||||
Purchases of available-for-sale securities | (114 | ) | (59 | ) | (265 | ) | (147 | ) | ||||||||
Other | (2 | ) | (3 | ) | (5 | ) | (6 | ) | ||||||||
Net cash (used in) provided by investing activities | (1,488 | ) | (1,257 | ) | 1,770 | (1,859 | ) | |||||||||
Financing activities: | ||||||||||||||||
Cash dividends paid | (763 | ) | (757 | ) | (1,521 | ) | (1,515 | ) | ||||||||
Net cash used in financing activities | (763 | ) | (757 | ) | (1,521 | ) | (1,515 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 81 | (1,098 | ) | 1,140 | (1,029 | ) | ||||||||||
Decrease in cash and cash equivalents | (1,976 | ) | (3,377 | ) | (874 | ) | (6,343 | ) | ||||||||
Cash and cash equivalents at beginning of period | 56,429 | 57,488 | 55,327 | 60,454 | ||||||||||||
Cash and cash equivalents at end of period | $ | 54,453 | $ | 54,111 | $ | 54,453 | $ | 54,111 |
Richardson Electronics, Ltd.
Unaudited Consolidated Statement of Stockholders’ Equity
(in thousands)thousands, except per share amounts)
Common | Class B Common | Par Value | Additional Paid In Capital | Common Stock in Treasury | Retained Earnings | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||||||||
Balance May 27, 2017: | 10,712 | 2,137 | $ | 642 | $ | 59,436 | $ | — | $ | 69,333 | $ | 2,916 | $ | 132,327 | ||||||||||||||||||
Comprehensive income (loss) | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | (112 | ) | — | (112 | ) | ||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | 2,121 | 2,121 | ||||||||||||||||||||||||
Fair value adjustments on investments | — | — | — | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||||||||
Share-based compensation: | ||||||||||||||||||||||||||||||||
Stock options | — | — | — | 101 | — | — | — | 101 | ||||||||||||||||||||||||
Dividends paid to: | ||||||||||||||||||||||||||||||||
Common ($0.06 per share) | — | — | — | — | — | (643 | ) | — | (643 | ) | ||||||||||||||||||||||
Class B ($0.054 per share) | — | — | — | — | — | (115 | ) | — | (115 | ) | ||||||||||||||||||||||
Balance September 2, 2017: | 10,712 | 2,137 | $ | 642 | $ | 59,537 | $ | — | $ | 68,463 | $ | 5,023 | $ | 133,665 |
Common | Class B Common | Par Value | Additional Paid In Capital | Common Stock in Treasury | Retained Earnings | Accumulated Other Comprehensive Income | Total | |||||||||||||||||||||||||
Balance May 27, 2017: | 10,712 | 2,137 | $ | 642 | $ | 59,436 | $ | — | $ | 69,333 | $ | 2,916 | $ | 132,327 | ||||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 1,556 | — | 1,556 | ||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | — | 2,351 | 2,351 | ||||||||||||||||||||||||
Fair value adjustments on investments | — | — | — | — | — | — | 34 | 34 | ||||||||||||||||||||||||
Share-based compensation: | ||||||||||||||||||||||||||||||||
Restricted stock | 78 | — | — | 23 | — | — | — | 23 | ||||||||||||||||||||||||
Stock options | — | — | — | 286 | — | — | — | 286 | ||||||||||||||||||||||||
Dividends paid to: | ||||||||||||||||||||||||||||||||
Common ($0.12 per share) | — | — | — | — | — | (1,290 | ) | — | (1,290 | ) | ||||||||||||||||||||||
Class B ($0.108 per share) | — | — | — | — | — | (231 | ) | — | (231 | ) | ||||||||||||||||||||||
Balance December 2, 2017: | 10,790 | 2,137 | $ | 642 | $ | 59,745 | $ | — | $ | 69,368 | $ | 5,301 | $ | 135,056 |
5
RICHARDSON ELECTRONICS, LTD.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
Richardson Electronics, Ltd. is a leading global provider of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high value flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.
Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing, and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, medical, and communication applications.
We have three operating and reportable segments, which we define as follows:
Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions, power grid and microwave tube business with new RF and power technologies. As a manufacturer and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical original equipment manufacturers (“OEM”) markets.
Healthcare manufactures, refurbishes and distributes high value replacement parts for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations, and multi-vendor service providers. Products include Diagnostic Imaging replacement parts includingfor CT and MRI tubes,systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads, and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; replacement flat panel detectors anddetector upgrades; and additional replacement componentssolutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings, and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe, and Latin America.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements.
Our fiscal quarter ends on the Saturday nearest the end of the quarter-ending month. The second quarter of fiscal 2018 and fiscal 2017 both contained 13 weeks. The first threesix months of fiscal 2018 and fiscal 2017 contained 1427 and 1326 weeks, respectively.
In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results of interim periods have been made. All inter-company transactions and balances have been eliminated. The unaudited consolidated financial statements presented herein include the accounts of our wholly owned subsidiaries. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of our operations for the three and six months ended SeptemberDecember 2, 2017, are not necessarily indicative of the results that may be expected for the fiscal year ending June 2, 2018.
The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended May 27, 2017, that we filed on July 31, 2017.
3. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Inventories, net:Our consolidated inventories are stated at the lower of cost or market, generally using a weighted-average cost method. Our net inventories include approximately $38.6$39.9 million of finished goods, $5.7$5.8 million of raw materials and $1.8$2.4 million of work-in-progress as of SeptemberDecember 2, 2017, as compared to approximately $36.0 million of finished goods, $5.3 million of raw materials and $1.4 million of work-in-progress as of May 27, 2017.
At this time, we do not anticipate any material risks or uncertainties related to possible future inventory write-downs. Provisions for obsolete or slow moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in the industry, or market conditions differ from management’s estimates, additional provisions may be necessary. Inventory reserves were approximately $3.6 million as of SeptemberDecember 2, 2017 and $3.5 million as of May 27, 2017.
Revenue Recognition:Our product sales are recognized as revenue upon shipment, when title passes to the customer, when delivery has occurred or services have been rendered and when collectability is reasonably assured. We also record estimated discounts and returns based on our historical experience. Our products are often manufactured to meet the specific design needs of our customers’ applications. Our engineers work closely with customers to ensure that our products will meet their needs. Our customers are under no obligation to compensate us for designing the products we sell.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, which amends guidance for revenue recognition. ASU 2014-09 is principles based guidance that can be applied to all contracts with customers, enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance details the steps entities should apply to achieve the core principle. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. For public entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016 and 2017, the FASB issued four additional updates which further clarify the guidance provided in ASU 2014-09.
We are evaluating the impact of the new standard on our financial statements using a three-phase approach (assessment, conversion and implementation). We are significantlycontinue to work through our assessment phase. However,phase and further evaluation is needed in order to determine whether or not the new revenue recognition standard will have a material impact on our financial statements and related disclosures upon adoption. We expecthave undertaken a detailed analysis of our various contracts with customers and revenue streams. The Company has engaged a third party to finalizeassist in evaluating the assessment phase in the second quarterimpact of fiscal year 2018.this new standard on its consolidated financial statements and related disclosures. We will complete the conversion and implementation phases by the end of fiscal year 2018 in conjunction with future interpretative guidance.
Loss Contingencies: We accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency.
Intangible Assets:Intangible assets are initially recorded at their fair market values determined on quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on a straight-line basis or over their projected future cash flows and are tested for impairment when events or changes in circumstances occur that indicate possible impairment.
Income Taxes:We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These 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 we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, a new accounting standard update intended to simplify several aspects of the accounting for share-based payment transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Specifically, the update requires that excess tax benefits and tax deficiencies (the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax expense or benefit in the consolidated statements of comprehensive income (loss), introducing a new element of volatility to the provision for income taxes. This update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company adopted the ASU on May 28, 2017. Effective with the adoption of the ASU all share-based awards continue to be accounted for as equity awards, excess tax benefits recognized on stock-based compensation expense are reflected in the consolidated statements of comprehensive income (loss) as a component of the provision for income taxes on a prospective basis, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in the consolidated statements of cash flows on a prospective basis and the Company has elected to continue to estimate expected forfeitures over the course of a vesting period. The adoption of the ASU had no impact on the retained earnings, other components of equity or net assets as of the beginning of the period of adoption.
Accrued Liabilities:Accrued liabilities consist of the following (in thousands):
September 2, 2017 | May 27, 2017 | ||||||
Compensation and payroll taxes | $ | 3,421 | $ | 3,250 | |||
Accrued severance (1) | 485 | 706 | |||||
Professional fees | 455 | 535 | |||||
Deferred revenue | 1,907 | 1,460 | |||||
Other accrued expenses | 2,905 | 2,360 | |||||
Accrued Liabilities | $ | 9,173 | $ | 8,311 |
December 2, 2017 | May 27, 2017 | |||||||
Compensation and payroll taxes | $ | 3,006 | $ | 3,250 | ||||
Accrued severance (1) | 410 | 706 | ||||||
Professional fees | 603 | 535 | ||||||
Deferred revenue | 1,716 | 1,460 | ||||||
Other accrued expenses | 2,910 | 2,360 | ||||||
Accrued Liabilities | $ | 8,645 | $ | 8,311 |
(1) In the second quarter of fiscal year 2017, the Company executed a reduction in headcount to streamline operations and reduce costs and recorded $1.3 million of expense included in selling, general and administrative expenses for employee termination costs payable to terminated employees with employment and/or separation agreements with the Company. The changes in the severance accrual for the first threesix months of fiscal year 2018 included payments of $0.2$0.3 million.
4. GOODWILL AND INTANGIBLE ASSETS
The carrying value of goodwill was $6.3 million as of SeptemberDecember 2, 2017 and May 27, 2017.
Goodwill is initially recorded based on the premium paid for acquisitions and is subsequently tested for impairment, using the first day of our fourth quarter as the measurement date. We test goodwill for impairment annually and whenever events or circumstances indicates an impairment may have occurred, such as a significant adverse change in the business climate, loss of key personnel or a decision to sell or dispose of a reporting unit. The goodwill balance in its entirety relates to our IMES reporting unit which is included in our Healthcare segment.
Intangible assets are initially recorded at their fair market values determined on quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on a straight-line basis or over their projected future cash flows and are tested for impairment when events or changes in circumstances occur that indicate possible impairment.
Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with our acquisitions. Intangible assets subject to amortization are as follows (in thousands):
September 2, 2017 | May 27, 2017 | ||||||
Gross Amounts: | |||||||
Trade Name | $ | 659 | $ | 659 | |||
Customer Relationships(1) | 3,400 | 3,397 | |||||
Non-compete Agreements | 177 | 177 | |||||
Technology | 230 | 230 | |||||
Total Gross Amounts | $ | 4,466 | $ | 4,463 | |||
Accumulated Amortization: | |||||||
Trade Name | $ | 493 | $ | 441 | |||
Customer Relationships | 489 | 446 | |||||
Non-compete Agreements | 92 | 84 | |||||
Technology | 58 | 51 | |||||
Total Accumulated Amortization | $ | 1,132 | $ | 1,022 | |||
Net Intangibles | $ | 3,334 | $ | 3,441 |
December 2, 2017 | May 27, 2017 | |||||||
Gross Amounts: | ||||||||
Trade Name | $ | 659 | $ | 659 | ||||
Customer Relationships(1) | 3,411 | 3,397 | ||||||
Non-compete Agreements | 177 | 177 | ||||||
Technology | 230 | 230 | ||||||
Total Gross Amounts | $ | 4,477 | $ | 4,463 | ||||
Accumulated Amortization: | ||||||||
Trade Name | $ | 546 | $ | 441 | ||||
Customer Relationships | 536 | 446 | ||||||
Non-compete Agreements | 100 | 84 | ||||||
Technology | 64 | 51 | ||||||
Total Accumulated Amortization | $ | 1,246 | $ | 1,022 | ||||
Net Intangibles | $ | 3,231 | $ | 3,441 |
(1) Change from prior periods reflect impact of foreign currency translation.
The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table (in thousands):
Fiscal Year | Amortization Expense | Amortization Expense | ||||||
Remaining 2018 | $ | 324 | $ | 216 | ||||
2019 | 245 | 245 | ||||||
2020 | 257 | 257 | ||||||
2021 | 245 | 245 | ||||||
2022 | 252 | 253 | ||||||
Thereafter | 2,011 | 2,015 | ||||||
Total amortization expense | $ | 3,334 | $ | 3,231 |
The weighted average number of years of amortization expense remaining is 15.816.1 years.
5. INVESTMENTS
As of SeptemberDecember 2, 2017, we had approximately $4.3$4.1 million invested in time deposits and certificates of deposit (“CD”). Of these, $2.4 million which mature in less than twelve months and $1.9 million mature in more than twelve months. The fair value of these investments is equal to the face value of each time deposit and CD.
As of May 27, 2017, we havehad invested in time deposits and certificates of deposit in the amount of $8.2 million. Of this, $6.4 million mature in less than twelve months and $1.8 million mature in greater than twelve months. The fair value of these investments is the face value of each time deposit and CD.
We also havehad investments in equity securities, all of which are classified as available-for-sale and are carried at their fair value based on quoted market prices. Our investments, which are included in non-current assets, had a carrying amount of $0.7 million and $0.6 million as of SeptemberDecember 2, 2017 and as of May 27, 2017.2017, respectively. Proceeds from the sale of securities were $0.2 million and $0.1 million during the first quarterssecond quarter of fiscal 2018 and during the second quarter of fiscal 2017, respectively.2017. We reinvested proceeds from the sale of securities, and the cost of the equity securities sold was based on a specific identification method. Gross realized gains on those sales were less than $0.1 million during the firstsecond quarter of fiscal 2018 and during the firstsecond quarter of fiscal 2017. Net unrealized holding gains of less than $0.1 million during the firstsecond quarter of fiscal 2018 and during the firstsecond quarter of fiscal 2017 have been included in accumulated other comprehensive income (loss).
6. WARRANTIES
We offer warranties for the limited number of specific products we manufacture. We also provide extended warranties for some products we sell that lengthen the period of coverage specified in the manufacturer’s original warranty. Our warranty terms generally range from one to three years.
We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expense related to our warranty obligations as cost of sales in our consolidated statements of comprehensive income (loss). Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. With respect to new products, estimates are based generally on knowledge of the products, the extended warranty period and warranty experience.
Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. Warranty reserves are included in accrued liabilities on our consolidated balance sheets. The warranty reserves are determined based on known product failures, historical experience and other available evidence. Warranty reserves were approximately $0.1 million as of both SeptemberDecember 2, 2017 and as of May 27, 2017.
7. LEASE OBLIGATIONS, OTHER COMMITMENTS AND CONTINGENCIES
We lease certain warehouse and office facilities and office equipment under non-cancelable operating leases. Rent expense was $0.4$0.9 million during the first threesix months of fiscal 2018 and $0.5$1.0 million during the first threesix months of fiscal 2017. Our future lease commitments for minimum rentals, including common area maintenance charges and property taxes during the next five years are as follows (in thousands):
Fiscal Year | Payments | |||
Remaining 2018 | $ | 1,254 | ||
2019 | 1,511 | |||
2020 | 1,146 | |||
2021 | 824 | |||
2022 | 173 | |||
Thereafter | 195 |
Fiscal Year | Payments | |||
Remaining 2018 | $ | 887 | ||
2019 | 1,613 | |||
2020 | 1,162 | |||
2021 | 827 | |||
2022 | 174 | |||
Thereafter | 195 |
8. INCOME TAXES
We recorded an income tax provision from continuing operations of $0.1$0.6 million and $0.5$0.8 million for the first threesix months of fiscal 2018 and the first three months of fiscal 2017, respectively. The effective income tax rate from continuing operations during the first threesix months of fiscal 2018 was a tax provision of (133.3%),90.9% as compared to a tax provision of (21.1%(18.3%) during the first threesix months of fiscal 2017. The difference in rate during the first threesix months of fiscal 2018, as compared to the first threesix months of fiscal 2017, reflects the change in the overall loss realized through the firstsecond quarter in each respective period, changes in our geographical distribution of income (loss), the recording of provision to return true-ups of various foreign jurisdictions, the accrual of an uncertain tax position with respect to the ongoing German audit and our positions with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). The (133.3%)90.9% effective income tax rate differs from the federal statutory rate of 34.0% as a result of our geographical distribution of income (loss) and, the recording of a valuation allowance against the increase in our U.S. state and federal net deferred tax assets.assets and recognition of an uncertain tax position and preliminary tax assessments with respect to the income tax audit in Germany.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2007 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We are currently under examination in Germany (fiscal 2011 through 2014) and Thailand (fiscal 2008 through 2011). We are also under examination in the state of Illinois for fiscal years 2014 and 2015. Our primary foreign tax jurisdictions are Germany and the Netherlands. During the second quarter of fiscal 2018, the examination in Germany of years 2012-2014 resulted in preliminary findings and a tax assessment and additional uncertain tax position reserve for open tax years have been recorded in the amount of $0.2 million. We have tax years open in Germany beginning in fiscal 20112015 and the Netherlands beginning in fiscal 2011.
On September 12, 2017, the Company received an income tax refund from the State of Illinois of approximately $2.0 million, which was inclusive of interest earned. The refund was a result of the conclusion of the Illinois amended return related to the sale of the RF, Wireless and Power Division in 2011. A net benefit of $1.5 million, which includes $0.5 million of professional fee costs incurred to pursue the refund, was recognized in the second quarter of fiscal 2018 in discontinued operations.
We have historically determined that certain undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. Accordingly, we have provided a deferred tax liability totaling $5.7 million as of SeptemberDecember 2, 2017, on foreign earnings of $39.5 million. In addition, asAs of SeptemberDecember 2, 2017, approximately $6.4 million balance of cumulative positive earnings of some of our foreign subsidiaries are still considered permanently reinvested pursuant to ASC 740-30. Due to various tax attributes that are continuously changing, it is not practicable to determine what, if any, tax liability mightmay exist if such earnings were to be repatriated.
We had noAs of December 2, 2017, our worldwide liability for uncertain tax positions related to continuing operations was $0.1 million, excluding interest and penalties, as of September 2, 2017 andcompared to $0.0 as of May 27, 2017. There is noThe change in recordedto the uncertain tax positions duringfor the firstsecond quarter of fiscal 2018.2018 was as a result of the preliminary German audit assessments and the related exposure for the open years. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited consolidated statements of income (loss). It is not expected that there will be a change to unrecognized tax benefits within the next 12 months.
The valuation allowance against the net deferred tax assets has increased to $9.2$9.5 million as of SeptemberDecember 2, 2017 driven primarily by the Illinois income tax rate increase and the impact on the overall federal and Illinois deferred tax assets as well as additional domestic federal and state net deferred tax assets generated during the first quartertwo quarters of fiscal year 2018 due to additional losses in the U.S. jurisdiction of $0.5 million.jurisdiction. The valuation allowance against the net deferred tax assets that will more likely than not be realized was $8.5 million as of May 27, 2017. A full valuation allowance on the U.S. and state deferred tax assets will be maintained until sufficient positive evidence related to sources of future taxable income exists to support a reversal of the valuation allowance. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
9. CALCULATION OF EARNINGS PER SHARE
We have authorized 17,000,000 shares of common stock, and 3,000,000 shares of Class B common stock. The Class B common stock has 10 votes per share and has transferability restrictions; however, Class B common stock 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 Class A common stock cash dividends.
In accordance with ASC 260-10, Earnings Per Share (“ASC 260”), our 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 participation percentage which reflects the dividend rights of each class of stock. Basic and diluted earnings per share were computed using the two-class method as prescribed in ASC 260. 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 which is 90% of the amount of Class A common stock cash dividends.
The earnings per share (“EPS”) presented in our unaudited consolidated statements of comprehensive income (loss) are based on the following amounts (in thousands, except per share amounts):
Three Months Ended | ||||||||||||||||||||||||||||||||
For the Three Months Ended | December 2, 2017 | November 26, 2016 | ||||||||||||||||||||||||||||||
�� | September 2, 2017 | August 27, 2016 | ||||||||||||||||||||||||||||||
Basic | Diluted | Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||||||
Numerator for Basic and Diluted EPS: | ||||||||||||||||||||||||||||||||
Net loss | $ | (112 | ) | $ | (112 | ) | $ | (2,850 | ) | $ | (2,850 | ) | ||||||||||||||||||||
Income (loss) from continuing operations | $ | 172 | $ | 172 | $ | (2,522 | ) | $ | (2,522 | ) | ||||||||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||||||
Common stock | 643 | 643 | 641 | 641 | 647 | 647 | 641 | 641 | ||||||||||||||||||||||||
Class B common stock | 115 | 115 | 116 | 116 | 116 | 116 | 116 | 116 | ||||||||||||||||||||||||
Undistributed losses | $ | (870 | ) | $ | (870 | ) | $ | (3,607 | ) | $ | (3,607 | ) | $ | (591 | ) | $ | (591 | ) | $ | (3,279 | ) | $ | (3,279 | ) | ||||||||
Common stock undistributed losses | $ | (738 | ) | $ | (738 | ) | $ | (3,057 | ) | $ | (3,057 | ) | $ | (501 | ) | $ | (501 | ) | $ | (2,779 | ) | $ | (2,779 | ) | ||||||||
Class B common stock undistributed losses | (132 | ) | (132 | ) | (550 | ) | (550 | ) | (90 | ) | (90 | ) | (500 | ) | (500 | ) | ||||||||||||||||
Total undistributed losses | $ | (870 | ) | $ | (870 | ) | $ | (3,607 | ) | $ | (3,607 | ) | $ | (591 | ) | $ | (591 | ) | $ | (3,279 | ) | $ | (3,279 | ) | ||||||||
Income from discontinued operations | $ | 1,496 | $ | 1,496 | $ | — | $ | — | ||||||||||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||||||
Common stock | 647 | 647 | — | — | ||||||||||||||||||||||||||||
Class B common stock | 116 | 116 | — | — | ||||||||||||||||||||||||||||
Undistributed earnings | $ | 733 | $ | 733 | $ | — | $ | — | ||||||||||||||||||||||||
Common stock undistributed earnings | $ | 622 | $ | 622 | — | — | ||||||||||||||||||||||||||
Class B common stock undistributed earnings | 111 | 111 | — | — | ||||||||||||||||||||||||||||
Total undistributed earnings | $ | 733 | $ | 733 | $ | — | $ | — | ||||||||||||||||||||||||
Net income (loss) | $ | 1,668 | $ | 1,668 | $ | (2,522 | ) | $ | (2,522 | ) | ||||||||||||||||||||||
Less dividends: | ||||||||||||||||||||||||||||||||
Common stock | 647 | 647 | 641 | 641 | ||||||||||||||||||||||||||||
Class B common stock | 116 | 116 | 116 | 116 | ||||||||||||||||||||||||||||
Undistributed earnings (losses) | $ | 905 | $ | 905 | $ | (3,279 | ) | $ | (3,279 | ) | ||||||||||||||||||||||
Common stock undistributed earnings (losses) | $ | 768 | $ | 768 | $ | (2,779 | ) | $ | (2,779 | ) | ||||||||||||||||||||||
Class B common stock undistributed earnings (losses) | 137 | 137 | (500 | ) | (500 | ) | ||||||||||||||||||||||||||
Total undistributed earnings (losses) | $ | 905 | $ | 905 | $ | (3,279 | ) | $ | (3,279 | ) | ||||||||||||||||||||||
Denominator for basic and diluted EPS: | ||||||||||||||||||||||||||||||||
Common stock weighted average shares | 10,712 | 10,712 | 10,703 | 10,703 | 10,755 | 10,755 | 10,703 | 10,703 | ||||||||||||||||||||||||
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS | 2,137 | 2,137 | 2,141 | 2,141 | 2,137 | 2,137 | 2,141 | 2,141 | ||||||||||||||||||||||||
Effect of dilutive securities | ||||||||||||||||||||||||||||||||
Dilutive stock options | — | — | 34 | — | ||||||||||||||||||||||||||||
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions | 12,849 | 12,844 | 12,926 | 12,844 | ||||||||||||||||||||||||||||
Net loss per share: | ||||||||||||||||||||||||||||||||
Income (loss) from continuing operations per share: | ||||||||||||||||||||||||||||||||
Common stock | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.23 | ) | $ | (0.23 | ) | $ | 0.01 | $ | 0.01 | $ | (0.20 | ) | $ | (0.20 | ) | ||||||||||
Class B common stock | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.20 | ) | $ | (0.20 | ) | $ | 0.01 | $ | 0.01 | $ | (0.18 | ) | $ | (0.18 | ) | ||||||||||
Income from discontinued operations per share: | ||||||||||||||||||||||||||||||||
Common stock | $ | 0.12 | $ | 0.12 | $ | — | $ | — | ||||||||||||||||||||||||
Class B common stock | $ | 0.11 | $ | 0.11 | $ | — | $ | — | ||||||||||||||||||||||||
Net income (loss) per share: | ||||||||||||||||||||||||||||||||
Common stock | $ | 0.13 | $ | 0.13 | $ | (0.20 | ) | $ | (0.20 | ) | ||||||||||||||||||||||
Class B common stock | $ | 0.12 | $ | 0.12 | $ | (0.18 | ) | $ | (0.18 | ) |
Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for the firstsecond quarter of fiscal 20182017 was 893.
12
Six Months Ended | ||||||||||||||||
December 2, 2017 | November 26, 2016 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Numerator for Basic and Diluted EPS: | ||||||||||||||||
Income (loss) from continuing operations | $ | 60 | $ | 60 | $ | (5,372 | ) | $ | (5,372 | ) | ||||||
Less dividends: | ||||||||||||||||
Common stock | 1,290 | 1,290 | 1,283 | 1,283 | ||||||||||||
Class B common stock | 231 | 231 | 232 | 232 | ||||||||||||
Undistributed losses | $ | (1,461 | ) | $ | (1,461 | ) | $ | (6,887 | ) | $ | (6,887 | ) | ||||
Common stock undistributed losses | $ | (1,239 | ) | $ | (1,239 | ) | $ | (5,836 | ) | $ | (5,836 | ) | ||||
Class B common stock undistributed losses | (222 | ) | (222 | ) | (1,051 | ) | (1,051 | ) | ||||||||
Total undistributed losses | $ | (1,461 | ) | $ | (1,461 | ) | $ | (6,887 | ) | $ | (6,887 | ) | ||||
Income from discontinued operations | $ | 1,496 | $ | 1,496 | $ | — | $ | — | ||||||||
Less dividends: | ||||||||||||||||
Common stock | 1,290 | 1,290 | — | — | ||||||||||||
Class B common stock | 231 | 231 | — | — | ||||||||||||
Undistributed losses | $ | (25 | ) | $ | (25 | ) | $ | — | $ | — | ||||||
Common stock undistributed losses | $ | (21 | ) | $ | (21 | ) | $ | — | $ | — | ||||||
Class B common stock undistributed losses | (4 | ) | (4 | ) | — | — | ||||||||||
Total undistributed losses | $ | (25 | ) | $ | (25 | ) | $ | — | $ | — | ||||||
Net income (loss) | $ | 1,556 | $ | 1,556 | $ | (5,372 | ) | $ | (5,372 | ) | ||||||
Less dividends: | ||||||||||||||||
Common stock | 1,290 | 1,290 | 1,283 | 1,283 | ||||||||||||
Class B common stock | 231 | 231 | 232 | 232 | ||||||||||||
Undistributed earnings (losses) | $ | 35 | $ | 35 | $ | (6,887 | ) | $ | (6,887 | ) | ||||||
Common stock undistributed earnings (losses) | $ | 30 | $ | 30 | $ | (5,836 | ) | $ | (5,836 | ) | ||||||
Class B common stock undistributed earnings (losses) | 5 | 5 | (1,051 | ) | (1,051 | ) | ||||||||||
Total undistributed earnings (losses) | $ | 35 | $ | 35 | $ | (6,887 | ) | $ | (6,887 | ) | ||||||
Denominator for basic and diluted EPS: | ||||||||||||||||
Common stock weighted average shares | 10,734 | 10,734 | 10,703 | 10,703 | ||||||||||||
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS | 2,137 | 2,137 | 2,141 | 2,141 | ||||||||||||
Effect of dilutive securities | ||||||||||||||||
Dilutive stock options | 30 | — | ||||||||||||||
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions | 12,901 | 12,844 | ||||||||||||||
Income (loss) from continuing operations per share: | ||||||||||||||||
Common stock | $ | — | $ | — | $ | (0.43 | ) | $ | (0.43 | ) | ||||||
Class B common stock | $ | — | $ | — | $ | (0.38 | ) | $ | (0.38 | ) | ||||||
Income from discontinued operations per share: | ||||||||||||||||
Common stock | $ | 0.12 | $ | 0.12 | $ | — | $ | — | ||||||||
Class B common stock | $ | 0.11 | $ | 0.11 | $ | — | $ | — | ||||||||
Net income (loss) per share: | ||||||||||||||||
Common stock | $ | 0.12 | $ | 0.12 | $ | (0.43 | ) | $ | (0.43 | ) | ||||||
Class B common stock | $ | 0.11 | $ | 0.11 | $ | (0.38 | ) | $ | (0.38 | ) | ||||||
Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for the first six months of fiscal 2017 were 920 and 838, respectively.was 893.
13
10.
SEGMENT REPORTING
In accordance with ASC 280-10, Segment Reporting, we have identified three operating and reportable segments as follows:
Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions, power grid and microwave tube business with new RF and power technologies. As a manufacturer and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical original equipment manufacturers (“OEM”) markets.
Healthcare manufactures, refurbishes and distributes high value replacement parts for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations, and multi-vendor service providers. Products include Diagnostic Imaging replacement parts includingfor CT and MRI tubes,systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads, and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; replacement flat panel detectors anddetector upgrades; and additional replacement componentssolutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings, and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.
The CEO evaluates performance and allocates resources primarily based on the gross profit of each segment.
Operating results by segment are summarized in the following table (in thousands):
Three Months Ended | ||||||||
September 2, 2017 | August 27, 2016 | |||||||
PMT | ||||||||
Net Sales | $ | 29,124 | $ | 25,381 | ||||
Gross Profit | 9,574 | 7,455 | ||||||
Canvys | ||||||||
Net Sales | $ | 5,765 | $ | 4,620 | ||||
Gross Profit | 1,546 | 1,348 | ||||||
Healthcare | ||||||||
Net Sales | $ | 2,106 | $ | 3,372 | ||||
Gross Profit | 1,028 | 1,437 |
Three Months Ended | Six Months Ended | |||||||||||||||
December 2, | November 26, | December 2, | November 26, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
PMT | ||||||||||||||||
Net Sales | $ | 30,063 | $ | 25,229 | $ | 59,187 | $ | 50,610 | ||||||||
Gross Profit | 10,262 | 8,273 | 19,836 | 15,728 | ||||||||||||
Canvys | ||||||||||||||||
Net Sales | $ | 6,707 | $ | 5,439 | $ | 12,472 | $ | 10,059 | ||||||||
Gross Profit | 2,128 | 1,543 | 3,674 | 2,891 | ||||||||||||
Healthcare | ||||||||||||||||
Net Sales | $ | 2,312 | $ | 3,159 | $ | 4,418 | $ | 6,531 | ||||||||
Gross Profit | 984 | 1,148 | 2,012 | 2,585 |
Geographic net sales information is primarily grouped by customer destination into five areas: North America; Asia/Pacific; Europe; Latin America; and Other.
Net sales and gross profit by geographic region are summarized in the following table (in thousands):
Three Months Ended | ||||||||
September 2, 2017 | August 27, 2016 | |||||||
Net Sales | ||||||||
North America | $ | 15,063 | $ | 13,049 | ||||
Asia/Pacific | 7,010 | 7,655 | ||||||
Europe | 12,500 | 10,264 | ||||||
Latin America | 2,419 | 2,390 | ||||||
Other (1) | 3 | 15 | ||||||
Total | $ | 36,995 | $ | 33,373 | ||||
Gross Profit | ||||||||
North America | $ | 5,606 | $ | 4,885 | ||||
Asia/Pacific | 2,380 | 2,558 | ||||||
Europe | 4,105 | 3,029 | ||||||
Latin America | 964 | 917 | ||||||
Other (1) | (907 | ) | (1,149 | ) | ||||
Total | $ | 12,148 | $ | 10,240 |
Three Months Ended | Six Months Ended | |||||||||||||||
December 2, | November 26, | December 2, | November 26, | |||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net Sales | ||||||||||||||||
North America | $ | 15,846 | $ | 14,059 | $ | 30,909 | $ | 27,108 | ||||||||
Asia/Pacific | 7,457 | 6,621 | 14,467 | 14,276 | ||||||||||||
Europe | 13,615 | 11,204 | 26,115 | 21,468 | ||||||||||||
Latin America | 2,141 | 1,956 | 4,560 | 4,346 | ||||||||||||
Other (1) | 23 | (13 | ) | 26 | 2 | |||||||||||
Total | $ | 39,082 | $ | 33,827 | $ | 76,077 | $ | 67,200 | ||||||||
Gross Profit | ||||||||||||||||
North America | $ | 6,186 | $ | 4,947 | $ | 11,792 | $ | 9,832 | ||||||||
Asia/Pacific | 2,545 | 2,369 | 4,925 | 4,927 | ||||||||||||
Europe | 4,484 | 3,747 | 8,589 | 6,776 | ||||||||||||
Latin America | 854 | 777 | 1,818 | 1,694 | ||||||||||||
Other (1) | (695 | ) | (876 | ) | (1,602 | ) | (2,025 | ) | ||||||||
Total | $ | 13,374 | $ | 10,964 | $ | 25,522 | $ | 21,204 |
(1) Other includes primarily net sales not allocated to a specific geographical region, unabsorbed value-add costs and other unallocated expenses.
(1) | Other includes primarily net sales not allocated to a specific geographical region, unabsorbed value-add costs and other unallocated expenses. |
We sell our products to customers in diversified industries and perform periodic credit evaluations of our customers’ financial condition. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements based on monthly reviews of outstanding accounts.
11. LITIGATION
We are involved in several pending judicial proceedings concerning matters arisingOn December 5, 2017, Steven H. Busch filed a Verified Stockholder Derivative Complaint against Edward J. Richardson, Paul Plante, Jacques Belin, James Benham, Kenneth Halverson, and the Company in the ordinary courseDelaware Court of business. WhileChancery, captioned Steven H. Busch v. Edward J. Richardson, et al., C.A. No. 2017-0868-AGB. The lawsuit alleges claims for breach of fiduciary duty by the outcomeCompany’s directors and challenges the decision of litigationa special committee of the Company’s Board to refuse Mr. Busch’s demand that the Company’s Board, among other things, rescind the Company’s May 2013 repurchase of stock from Mr. Richardson and May 2013 and October 2014 repurchases of Company stock from the Richardson Wildlife Foundation. The Company believes the lawsuit to be without merit and that a loss is subject to uncertainties,not probable or estimable based on the information available at the time the financial statements were issued, we determined disclosure of contingencies relating to any of our pending judicial proceedings was not necessary because there was less than a reasonable possibility that a material loss will be incurred.issued.
12. FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures(“ (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists; therefore requiring an entity to develop its own assumptions.
As of SeptemberDecember 2, 2017 and May 27, 2017, we held investments that are required to be measured at fair value on a recurring basis. Our investments consist of time deposits and CDs, where face value is equal to fair value, and equity securities of publicly traded companies for which market prices are readily available.
Investments measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of SeptemberDecember 2, 2017 and May 27, 2017, were as follows (in thousands):
Level 1 | ||||
September 2, 2017 | ||||
Time deposits/CDs | $ | 4,301 | ||
Equity securities | 637 | |||
Total | $ | 4,938 | ||
May 27, 2017 | ||||
Time deposits/CDs | $ | 8,226 | ||
Equity securities | 622 | |||
Total | $ | 8,848 |
Level 1 | ||||
December 2, 2017 | ||||
Time deposits/CDs | $ | 4,136 | ||
Equity securities | 686 | |||
Total | $ | 4,822 | ||
May 27, 2017 | ||||
Time deposits/CDs | $ | 8,226 | ||
Equity securities | 622 | |||
Total | $ | 8,848 |
13. Related Party Transaction
On June 15, 2015, the Company entered into a lease agreement for the IMES facility with LDL, LLC. The Executive Vice President of IMES, Lee A. McIntyre III (former owner of IMES), has an ownership interest in LDL, LLC. The lease agreement provides for monthly payments over five years with total future minimum lease payments of $0.4 million. Rental expense related to this lease amounted to less than $0.1 million for the threesix months ended SeptemberDecember 2, 2017 and August 27,for the six months ended November 26, 2016. The Company shall be entitled to extend the term of the lease for a period of an additional five years by notifying the landlord in writing of its intention to do so within nine months of the expiration of the initial term.
14. SUBSEQUENT EVENT
On September 12,December 22, 2017, the Company received an income tax refund from the State of Illinois of approximately $2.0 million, which was inclusive of interest earned. The refund was a resultTax Cuts and Jobs Act (“TCJA”) enacted significant changes to many elements of the conclusionUnited States Federal Internal Revenue Code. Due to the recent enactment of the Illinois amended return relatedTCJA and expected further rulemaking and future regulatory guidance, a comprehensive estimate of the overall tax impact to the sale of RFPD in 2011. A net benefit of $1.5 million, which includes $0.5 million of professional fee costs incurred to pursueCompany cannot be made at this time. However, the refund, will be recognizedCompany anticipates that in the secondthird quarter of fiscal 2018, the TCJA will potentially result in discontinued operations.a discrete tax impact related to revaluing our U.S. federal deferred tax assets and liabilities, a discrete tax impact associated with currently including incremental earnings from our non-U.S. entities in the U.S. federal income tax base and a change to the Company’s fiscal 2018 estimated annual tax rate due to the tax rate reduction. These changes will impact the Company’s fiscal 2018 third quarter deferred income tax assets and liabilities on the Consolidated Balance Sheet. Certain adjustments, but not all, will be offset by an adjustment to the valuation allowance. The impact on the Company’s cash flow from operations cannot be reasonably determined at this time.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. The terms “may,” “should,” “could,” “anticipate,” “believe,” “continues,” “estimate,” “expect,” “intend,” “objective,” “plan,” “potential,” “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in Item 1A, of our Annual Report on Form 10-K filed on July 31, 2017. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.
In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non- publicnon-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts, or opinions, such reports are not our responsibility.
INTRODUCTION
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition, critical accounting policies and estimates and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:
● | Business Overview – a brief synopsis of our Company for the periods ended |
● | Results of Operations– an analysis and comparison of our consolidated results of operations for the three and six month periods ended |
● | Liquidity, Financial Position and Capital Resources– a discussion of our primary sources and uses of cash for the three and six month periods ended |
Business Overview
Richardson Electronics, Ltd. is a leading global provider of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high value flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.
Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing, and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, medical, and communication applications.
We have three operating and reportable segments which we define as follows:
Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions, power grid and microwave tube business with new RF and power technologies. As a manufacturer and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical original equipment manufacturers (“OEM”) markets.
Healthcare manufactures, refurbishes and distributes high value replacement parts for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations, and multi-vendor service providers. Products include Diagnostic Imaging replacement parts includingfor CT and MRI tubes,systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads, and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; replacement flat panel detectors anddetector upgrades; and additional replacement componentssolutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings, and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.
RESULTS OF CONTINUING OPERATIONS
Financial Summary – Three Months Ended SeptemberDecember 2, 2017
● | Net sales for the |
● | Gross margin increased to |
● | Selling, general and administrative expenses were | |
● | Operating income during the second quarter of fiscal 2018 was $0.8 million, compared to an operating loss of $2.4 million in the second quarter of fiscal 2017. | |
● | Income from continuing operations during the second quarter of fiscal 2018 was $0.2 million, compared to loss from continuing operations of $2.5 million in the second quarter of fiscal 2017. | |
● | Income from discontinued operations during the second quarter of fiscal 2018 was $1.5 million. There was no income (loss) from discontinued operations during the second quarter of fiscal 2017. | |
● | Net income during the second quarter of fiscal 2018 was $1.7 million, compared to net loss of $2.5 million during the second quarter of fiscal 2017. | |
Financial Summary – Six Months Ended December 2, 2017
● | The first six months of fiscal 2018 and 2017 contained 27 and 26 weeks, respectively. |
● | Net sales for the first six months of fiscal 2018 were $76.1 million, an increase of 13.2%, compared to net sales of $67.2 million during the first six months of fiscal 2017. | |
● | Gross margin increased to 33.5% during the first six months of fiscal 2018, compared to 31.6% during the first six months of fiscal 2017. | |
● | Selling, general and administrative expenses were $24.9 million, or 32.8% of net sales, for the first |
● | Operating income during the first |
● | ||
● | Income from discontinued operations during the first six months of fiscal 2018 was $1.5 million. There was no income (loss) from discontinued operations during the first six months of fiscal 2017. | |
● | Net income during the first six months of fiscal 2018 was $1.6 million, compared to net loss of | |
18
Net Sales and Gross Profit Analysis
Net sales by segment and percent change for the second quarter and first quartersix months of fiscal 2018 and 2017 were as follows (in thousands):
Net Sales | Three Months Ended | FY18 vs. FY17 | Three Months Ended | FY18 vs. FY17 | |||||||||||||||||||
September 2, 2017 | August 27, 2016 | % Change | December 2, 2017 | November 26, 2016 | % Change | ||||||||||||||||||
PMT | $ | 29,124 | $ | 25,381 | 14.7 | % | $ | 30,063 | $ | 25,229 | 19.2 | % | |||||||||||
Canvys | 5,765 | 4,620 | 24.8 | % | 6,707 | 5,439 | 23.3 | % | |||||||||||||||
Healthcare | 2,106 | 3,372 | -37.5 | % | 2,312 | 3,159 | -26.8 | % | |||||||||||||||
Total | $ | 36,995 | $ | 33,373 | 10.9 | % | $ | 39,082 | $ | 33,827 | 15.5 | % |
Six Months Ended | FY18 vs. FY17 | |||||||||||
December 2, 2017 | November 26, 2016 | % Change | ||||||||||
PMT | $ | 59,187 | $ | 50,610 | 16.9 | % | ||||||
Canvys | 12,472 | 10,059 | 24.0 | % | ||||||||
Healthcare | 4,418 | 6,531 | -32.4 | % | ||||||||
Total | $ | 76,077 | $ | 67,200 | 13.2 | % |
During the firstsecond quarter of fiscal 2018 consolidated net sales increased 10.9%15.5% compared to the firstsecond quarter of fiscal 2017. Sales for PMT increased 14.7%19.2%, sales for Canvys increased 24.8%23.3% and sales for Healthcare decreased 37.5%26.8%. The increase in PMT was due to sales of power grid tubes as well as specialty products manufactured in LaFox which are sold into the semiconductor capital equipment market and sales from new technology partners in power conversion and RF and microwave components. The increase for PMTCanvys was primarily due to increasesincreased customer demand in market share and for Canvys was due to overall demand from key original equipment manufacturers.our European market. The decrease in Richardson Healthcare was due to the sale of the PACS display business at the end of fiscal 2017 which accounted for $1.4 million inwas partially offset by higher sales inof certified pre-owned CT tubes.
During the first quartersix months of fiscal 2018 consolidated net sales increased 13.2% compared to the first six months of fiscal 2017. Sales for PMT increased 16.9%, sales for Canvys increased 24.0%, and sales for Healthcare decreased 32.4%. The increase in PMT was due to specialty products manufactured in LaFox sold to the semiconductor capital market and new technology partners in power conversion and RF and microwave components. The increase for Canvys was due to increased customer demand in our North American and European markets. The decrease in Richardson Healthcare was due to the sale of the PACS display business at the end of fiscal 2017 which was partially offset by higher sales of refurbished equipment and certified pre-owned CT tubes.
Gross profit by segment and percent of net sales for the second quarter and first quartersix months of fiscal 2018 and 2017 were as follows (in thousands):
Gross Profit | Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
September 2, 2017 | % of Net Sales | August 27, 2016 | % of Net Sales | December 2, 2017 | % of Net Sales | November 26, 2016 | % of Net Sales | ||||||||||||||||||||||
PMT | $ | 9,574 | 32.9 | % | $ | 7,455 | 29.4 | % | $ | 10,262 | 34.1 | % | $ | 8,273 | 32.8 | % | |||||||||||||
Canvys | 1,546 | 26.8 | % | 1,348 | 29.2 | % | 2,128 | 31.7 | % | 1,543 | 28.4 | % | |||||||||||||||||
Healthcare | 1,028 | 48.8 | % | 1,437 | 42.6 | % | 984 | 42.6 | % | 1,148 | 36.3 | % | |||||||||||||||||
Total | $ | 12,148 | 32.8 | % | $ | 10,240 | 30.7 | % | $ | 13,374 | 34.2 | % | $ | 10,964 | 32.4 | % |
Six Months Ended | ||||||||||||||||
December 2, 2017 | % of Net Sales | November 26, 2016 | % of Net Sales | |||||||||||||
PMT | $ | 19,836 | 33.5 | % | $ | 15,728 | 31.1 | % | ||||||||
Canvys | 3,674 | 29.5 | % | 2,891 | 28.7 | % | ||||||||||
Healthcare | 2,012 | 45.5 | % | 2,585 | 39.6 | % | ||||||||||
Total | $ | 25,522 | 33.5 | % | $ | 21,204 | 31.6 | % |
Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs, unabsorbed manufacturing labor and overhead, and other provisions.
Consolidated gross profit increased to $12.1$13.4 million during the firstsecond quarter of fiscal 2018, compared to $10.2$11.0 million during the firstsecond quarter of fiscal 2017. Consolidated gross profitmargin as a percentage of net sales increased to 32.8%34.2% during the firstsecond quarter of fiscal 2018, from 30.7%32.4% during the firstsecond quarter of fiscal 2017, primarily due to continued growthfavorable product mix for PMT, favorable product mix and market share gainslower costs on selected products for products with large engineering content that carry higher gross marginsCanvys and the sale of the PACS displaysdisplay business, which hadgenerated lower margins in our Healthcare business.
Consolidated gross profit increased to $25.5 million during the first six months of fiscal 2018, compared to $21.2 million during the first six months of fiscal 2017. Consolidated gross margin as a percentage of net sales increased to 33.5% during the first six months of fiscal 2018, from 31.6% during the first six months of fiscal 2017, primarily due to favorable product mix for PMT, favorable product mix and lower margin.costs on selected products for Canvys and the sale of the PACS display business, which generated lower margins in our Healthcare business.
Power and Microwave Technologies Group
PMT net sales increased 14.7%19.2% to $29.1$30.1 million during the firstsecond quarter of fiscal 2018, from $25.4$25.2 million during the firstsecond quarter of fiscal 2017. The increase included market share gains of Electron devices sold into the industrial and marine markets, growth of Electron devices in Laser products, increased sales of engineered solutionpower grid tubes as well as specialty products developedmanufactured in LaFox which are sold primarily into the semiconductor capital equipment market and increased sales offrom new technology partners in power conversion and RF and microwave components. Gross margin as a percentage of net sales increased to 32.9%34.1% during the firstsecond quarter of fiscal 2018, as compared to 29.4%32.8% during the firstsecond quarter of fiscal 2017, due to continued growthproduct mix and favorable manufacturing results from our LaFox production facility.
PMT net sales increased 16.9% to $59.2 million during the first six months of fiscal 2018, from $50.6 million during the first six months of fiscal 2017. The increase included sales of specialty products manufactured in LaFox which are sold primarily into the semiconductor capital equipment market share gains for products with large engineering content that carry higher gross margins.and sales from new technology partners in power conversion and RF and microwave components. Gross margin as a percentage of net sales increased to 33.5% during the first six months of fiscal 2018, as compared to 31.1% during the six months of fiscal 2017, due to favorable product mix.
Canvys
Canvys net sales increased 24.8%23.3% to $5.8$6.7 million during the firstsecond quarter of fiscal 2018, from $4.6$5.4 million during the firstsecond quarter of fiscal 2017 primarily due to increased customer demand in our European market. Gross margin as a percentage of net sales increased to 31.7% during the second quarter of fiscal 2018 as compared to 28.4% during the second quarter of fiscal 2017, due to a significant increase infavorable product mix and lower costs on selected products sold.
Canvys net sales increased 24.0% to $12.5 million during the first six months of fiscal 2018, from $10.1 million during the first six months of fiscal 2017 due to increased customer demand in both our North American and European markets. Gross margin as a percentage of net sales decreasedincreased to 26.8%29.5% during the first quartersix months of fiscal 2018 as compared to 29.2%28.7% during the first quartersix months of fiscal 2017, due to favorable product mix higher inbound freightand lower costs and increased lower margin engineering billings.on selected products sold.
Healthcare
Healthcare net sales decreased 37.5%26.8% to $2.1$2.3 million during the firstsecond quarter of fiscal 2018, from $3.4$3.2 million during the firstsecond quarter of fiscal 2017 due to the sale of the PACS display business at the end of fiscal 2017, partially offset by an increase in the sales of certified pre-owned CT tubes and equipment.Tubes. Gross margin as a percentage of net sales increased to 48.8%42.6% during the firstsecond quarter of fiscal 2018 as compared to 42.6%36.3% during the second quarter of fiscal 2017 due to the sale of the PACS display business, which generated lower margins.
Healthcare net sales decreased 32.4% to $4.4 million during the first quartersix months of fiscal 2018, from $6.5 million during the first six months of fiscal 2017 due to the sale of the PACS display business at the end of fiscal 2017, partially offset by an increase in the sales of certified pre-owned CT Tubes and Equipment. Gross margin as a percentage of net sales increased to 45.5% during the first six months of fiscal 2018 as compared to 39.6% during the first six months of fiscal 2017 due to the sale of the PACS display business, which generated lower margins.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses (“SG&A”&A“) decreased to $12.6 million during the firstsecond quarter of fiscal 2018 were flat at $12.3from $13.4 million compared to the firstsecond quarter of fiscal 2017. The decrease was due to a charge of $1.3 million in the second quarter of fiscal 2017 for severance expense related to a reduction in workforce, partially offset by higher research and development expenses as well as increased investment costs to support our growth strategies in PMT and Healthcare. Operating expenses as a percent of sales decreased to 32.2% in the current quarter from 35.7% last year when excluding the severance expense from the second quarter of fiscal 2017.
Selling, general and administrative expenses (“SG&A“) decreased to $24.9 million during the first six months of fiscal 2018 from $25.7 million during the first six months of fiscal 2017. The decrease was due to a charge of $1.3 million in the second quarter of fiscal 2017 for severance expense related to a reduction in workforce, partially offset by higher research and development expenses as well as increased investment costs to support our growth strategies in PMT and Healthcare.
Other Income/Expense
Other income/expense was $0.1 million of expense during the second quarter of fiscal 2018, compared to income of $0.2 million during the second quarter of fiscal 2017. Other expense during the second quarter of fiscal 2018 included $0.1 million of foreign exchange losses. Other income during the second quarter of fiscal 2017 included $0.2 million of foreign exchange gains. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.
Other income/expense was $0.1 million of expense during the first quartersix months of fiscal 2018, compared to expense of $0.3$0.1 million during the first quartersix months of fiscal 2017. Other income/expense during the first quartersix months of fiscal 2018 included $0.2$0.3 million of foreign exchange losses.losses partially offset by $0.2 million of investment/interest income. Other income/expense during the first quartersix months of fiscal 2017 included $0.3$0.1 million of foreign exchange losses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.
Income Tax Provision
We recorded an income tax provision from continuing operations of $0.1$0.6 million and $0.5$0.8 million for the first threesix months of fiscal 2018 and the first three months of fiscal 2017, respectively. The effective income tax rate from continuing operations during the first threesix months of fiscal 2018 was a tax provision of (133.3%),90.9% as compared to a tax provision of (21.1%(18.3%) during the first threesix months of fiscal 2017. The difference in rate during the first threesix months of fiscal 2018, as compared to the first threesix months of fiscal 2017, reflects the change in the overall loss realized through the firstsecond quarter in each respective period, changes in our geographical distribution of income (loss), the recording of provision to return true-ups of various foreign jurisdictions, the accrual of an uncertain tax position with respect to the ongoing German audit and our positions with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). The (133.3%)90.9% effective income tax rate differs from the federal statutory rate of 34.0% as a result of our geographical distribution of income (loss) and, the recording of a valuation allowance against the increase in our U.S. state and federal net deferred tax assets.
assets and recognition of an uncertain tax position and preliminary tax assessments with respect to the income tax audit in Germany.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2007 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We are currently under examination in Germany (fiscal 2011 through 2014) and Thailand (fiscal 2008 through 2011). We are also under examination in the state of Illinois for fiscal years 2014 and 2015. Our primary foreign tax jurisdictions are Germany and the Netherlands. During the second quarter of fiscal 2018, the examination in Germany of years 2012-2014 resulted in preliminary findings and a tax assessment and additional uncertain tax position reserve for open tax years have been recorded in the amount of $0.2 million. We have tax years open in Germany beginning in fiscal 20112015 and the Netherlands beginning in fiscal 2011.
Recently Issued Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, a new accounting standard update intended to simplify several aspects of the accounting for share-based payment transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Specifically, the update requires that excess tax benefits and tax deficiencies (the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax expense or benefit in the consolidated statements of comprehensive income (loss), introducing a new element of volatility to the provision for income taxes. This update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company adopted the ASU on May 28, 2017. Effective with the adoption of the ASU all share-based awards continue to be accounted for as equity awards, excess tax benefits recognized on stock-based compensation expense are reflected in the consolidated statements of comprehensive income (loss) as a component of the provision for income taxes on a prospective basis, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in the consolidated statements of cash flows on a prospective basis and the Company has elected to continue to estimate expected forfeitures over the course of a vesting period. The adoption of the ASU had no impact on the retained earnings, other components of equity or net assets as of the beginning of the period of adoption.
Net LossIncome (Loss) and Per Share Data
Net lossincome, including income from discontinued operations of $1.5 million, during the firstsecond quarter of fiscal 2018 was $0.1$1.7 million or ($0.01)$0.13 per diluted common share and ($0.01)$0.12 per Class B diluted common share, as compared to net loss of $2.9$2.5 million during the firstsecond quarter of fiscal 2017, or ($0.23)0.20) per diluted common share and ($0.20)0.18) per Class B diluted common share.
Net income, including income from discontinued operations of $1.5 million, during the first six months of fiscal 2018 was $1.6 million, or $0.12 per diluted common share and $0.11 per Class B diluted common share, as compared to net loss of $5.4 million during the first six months of fiscal 2017, or ($0.43) per diluted common share and ($0.38) per Class B diluted common share.
LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES
Our operations and cash needs have been primarily financed through income from operations and cash on hand.
Cash and cash equivalents were $56.4$54.5 million at SeptemberDecember 2, 2017. Investments included CDs and time deposits classified as short-term investments were $2.4of $4.1 million and long-term investments were $2.5 million, includingin equity securities of $0.6$0.7 million. Cash and investments at SeptemberDecember 2, 2017, consisted of $13.3$8.8 million in North America, $16.5$17.6 million in Europe, $1.2$1.5 million in Latin America, and $30.4$31.4 million in Asia/Pacific.
Cash and cash equivalents were $55.4 million at May 27, 2017. Investments included CD’s and time deposits, classified as short-term investments were $6.4 million and long-term investments were $2.4 million including equity securities of $0.6 million. Cash and investments at May 27, 2017, consisted of $16.3 million in North America, $15.5 million in Europe, $1.5 million in Latin America and $30.9 million in Asia/Pacific. During the first quarter of fiscal 2017, we completed a cash repatriation of $11.3 million, which included a return of capital and dividend from our Chinese entity to our U.S. parent company.
We believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months.
Cash Flows from Operating Activities
The cash used in operating activities primarily resulted from our net loss, adjustedadjustments for non-cash items and changes in our operating assets and liabilities.
Operating activities used $2.5$2.3 million of cash during the first quartersix months of fiscal 2018. We had net lossincome of $0.1$1.6 million during the first quartersix months of fiscal 2018, which included non-cash stock-based compensation expense of $0.1$0.3 million associated with the issuance of stock option and restricted stock awards and depreciation and amortization expense of $0.7$1.5 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities during the first quartersix months of fiscal 2018, net of foreign currency exchange gains and losses, included an increase in inventories of $4.6 million, a decrease of $1.0 million in accounts payable and an increase in inventoriesprepaid expenses and other assets of $2.8 million$0.6 million. The inventory increase was due to the ongoing growth of our RF and $2.6 million, respectively, somewhat offset by a decrease in accounts receivable and anpower technologies business, increase in accrued liabilities of $2.0 millionraw material and $0.7 million, respectively.work in process supporting the semiconductor capital equipment market and growth in supplying replacement systems and parts to the Healthcare market. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services. The inventory increase was due to the ongoing growth of our RF and power technologies business, increase in the semiconductor capital equipment market and growth in supplying replacement parts to the Healthcare market. The decrease in receivables was primarily due to the collection of fiscal 2017 receivables during the first quarter of fiscal 2018.
Operating activities used $1.7$1.9 million of cash during the first quartersix months of fiscal 2017. We had net loss of $2.9$5.4 million during the first quartersix months of fiscal 2017, which included non-cash stock-based compensation expense of $0.1$0.3 million associated with the issuance of stock option awards, deferred income tax credit adjustment of $0.3 million, and depreciation and amortization expense of $0.7$1.3 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities during the first quartersix months of fiscal 2017, net of foreign currency exchange gains and losses, included decreasesan increase of $1.0 million in receivablesprepaid expenses and inventoriesa decrease of $3.6$3.2 million and $0.4 million, respectively,in accounts payable, partially offset by decreases in our accounts payablereceivables of $3.9 million, inventories of $1.6 million, and an increase in other accrued liabilities of $2.3 million and $1.1 million, respectively.$0.9 million. The decrease in receivables of $3.6$3.9 million was primarily due to the collection of a large receivable during the first quarter of fiscal 2017 that was invoiced during the fourth quarter of fiscal 2016. The inventory decrease was due to terminating our production at our Brive, France facility during the first quarter of fiscal 2017. Decreasesdecreases in selected electron tubes. The decrease in our accounts payable and liabilities werewas due to timing of payments for some of our larger vendors and also the result of having shorter payment terms for our Richardson Healthcare vendors.
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Cash Flows from Investing Activities
The cash flow from investing activities has consisted primarily of purchases and maturities of investments and capital expenditures.
Cash provided by investing activities of $3.3$1.8 million during the first quartersix months of fiscal 2018 included proceeds from the maturities of investments of $4.0$8.2 million, somewhatpartially offset by $1.0$3.9 million from purchases of investments and $2.7 million in capital expenditures. Capital expenditures relates primarily to our Healthcare growth initiatives, a new roof for part of our warehouse and capital used for our new IT system.
Cash used by investing activities of $0.6$1.9 million during the first quartersix months of fiscal 2017, included proceeds from the maturities of investments of $1.5$3.6 million, offset by $2.1 million from purchases of investments and $3.3 million in capital expenditures. Capital expenditures relaterelates primarily to our Healthcare growth initiatives and capital used for our new IT system.
Our purchases and proceeds from investments consist of time deposits and CDs. Purchasing of future investments may vary from period to period due to interest and foreign currency exchange rates.
Cash Flows from Financing Activities
The cash flow from financing activities consists of cash dividends paid.
Cash used in financing activities of $0.8$1.5 million during the first quartersix months of fiscal 2018 resulted from cash used to pay dividends.
Cash used in financing activities of $0.8$1.5 million during the first quartersix months of fiscal 2017, resulted from cash used to pay dividends.
Dividend payments for the first quartersix months of fiscal 2018 were approximately $0.8$1.5 million. All future payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions, and such other factors that the Board may deem relevant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Risk Management and Market Sensitive Financial Instruments
We are exposed to many different market risks with the various industries we serve. The primary financial risk we are exposed to is foreign currency exchange, as certain operations, assets and liabilities of ours are denominated in foreign currencies. We manage these risks through normal operating and financing activities.
The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks are set forth in Part I, Item 1A, “Risk Factors”Factors“ of our Annual Report on Form 10-K for the year ended May 27, 2017, filed July 31, 2017.
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
(a) | Evaluation of Disclosure Controls and Procedures |
Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of SeptemberDecember 2, 2017.
Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control over Financial Reporting
(b) | Changes in Internal Control over Financial Reporting |
There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the firstsecond quarter of fiscal 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1. LEGAL PROCEEDINGSOn December 5, 2017, Steven H. Busch filed a Verified Stockholder Derivative Complaint against Edward J. Richardson, Paul Plante, Jacques Belin, James Benham, Kenneth Halverson, and the Company in the Delaware Court of Chancery, captioned Steven H. Busch v. Edward J. Richardson, et al., C.A. No. 2017-0868-AGB. The lawsuit alleges claims for breach of fiduciary duty by the Company’s directors and challenges the decision of a special committee of the Company’s Board to refuse Mr. Busch’s demand that the Company’s Board, among other things, rescind the Company’s May 2013 repurchase of stock from Mr. Richardson and May 2013 and October 2014 repurchases of Company stock from the Richardson Wildlife Foundation. The Company believes the lawsuit to be without merit and that a loss is not probable or estimable based on the information available at the time the financial statements were issued.
From time to time we or our subsidiaries are involved in legal actions that arise in the ordinary course of our business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any current claims, including the above mentioned legal matters, will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
ITEM 1A. | RISK FACTORS |
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended May 27, 2017, filed July 31, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 5. | OTHER INFORMATION |
Results of Operation and Financial Condition and Declaration of Dividend
On October 11, 2017,January 10, 2018, we issued a press release reporting results for our firstsecond quarter ended SeptemberDecember 2, 2017, and the declaration of a cash dividend. A copy of the press release is furnished as Exhibit 99.1 to this Form 10-Q and incorporated by reference herein.
Submission of Matters to a Vote of Security Holders
We held our annual meeting of stockholders on October 10, 2017. At the annual meeting, our stockholders (i) elected each of the nominees listed below to the Company’s Board of Directors to serve for a term expiring at the 2018 Annual Meeting; (ii) ratified the selection of BDO USA, LLP as our independent registered public accounting firm for fiscal year 2018; (iii) approved, on an advisory basis, the compensation of the Company’s named executive officers, and (iv) approved, on an advisory basis, conducting an advisory vote on executive compensation annually.
The final results for the votes regarding each proposal are set forth below.
Nominee | For | Abstain/ Withhold | Broker Non-Votes | ||||||||
Edward J. Richardson | 27,868,600 | 808,914 | 2,153,425 | ||||||||
Jacques Belin | 27,936,226 | 741,288 | 2,153,425 | ||||||||
James Benham | 27,936,809 | 740,705 | 2,153,425 | ||||||||
Kenneth Halverson | 27,934,594 | 742,920 | 2,153,425 | ||||||||
Robert H. Kluge | 27,987,176 | 690,338 | 2,153,425 | ||||||||
Paul J. Plante | 27,475,546 | 1,201,968 | 2,153,425 |
ITEM 6. | EXHIBITS |
See exhibit index which is incorporated by reference herein.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD. | |||
Date: | By: | /s/ | Robert J. Ben |
| |||
Robert J. Ben Chief Financial Officer and Chief Accounting Officer | |||
(on behalf of the Registrant and as Principal Financial Officer) |
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EXHIBITS
EXHIBITS | ||
Exhibit Number | Description | |
3.1 | Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Annex III of the Proxy Statement dated August 22, | |
3.2 | Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2017). | |
31.1 | Certification of Edward J. Richardson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Robert J. Ben pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1 | Press release, dated | |
101 | The following financial information from our Quarterly Report on Form 10-Q for the |
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