# Richardson Electronics, LTD.: Form 10-Q for the period ended Feb 28, 2015

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2015-04-10
- Accepted by EDGAR: Apr 9, 2015, 17:31 ET
- Period: 2015-02-28
- Accession: 0000355948-15-000009
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000035594815000009/rell_10qxfy2015xq3x2282015.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000035594815000009/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-02-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-11-30 to 2015-02-28 | $33.5m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2014-06-01 to 2015-02-28 | $102.0m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2014-11-30 to 2015-02-28 | $23.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2014-06-01 to 2015-02-28 | $71.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2014-11-30 to 2015-02-28 | $9.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2014-06-01 to 2015-02-28 | $30.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2014-11-30 to 2015-02-28 | $12.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2014-06-01 to 2015-02-28 | $36.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-11-30 to 2015-02-28 | −$2.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-06-01 to 2015-02-28 | −$5.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2014-11-30 to 2015-02-28 | −$31.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2014-06-01 to 2015-02-28 | −$965.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-11-30 to 2015-02-28 | −$2.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2014-06-01 to 2015-02-28 | −$3.3m | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2014-11-30 to 2015-02-28 | −$5.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2014-06-01 to 2015-02-28 | −$8.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2014-11-30 to 2015-02-28 | $1.3m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2014-06-01 to 2015-02-28 | $3.3m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2014-11-30 to 2015-02-28 | $808.0k | us-gaap:PaymentsOfDividends |
| Dividends paid | 9 months, 2014-06-01 to 2015-02-28 | $2.5m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2014-11-30 to 2015-02-28 | $1.3m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 9 months, 2014-06-01 to 2015-02-28 | $3.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2015-02-28 | $78.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-02-28 | $160.0m | us-gaap:AssetsCurrent |
| Total assets | at 2015-02-28 | $183.1m | us-gaap:Assets |
| Current liabilities | at 2015-02-28 | $19.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-02-28 | $23.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2015-02-28 | $159.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,681 characters.

*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 25, 2014. 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-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 February 28, 2015, and March 1, 2014
- **Results of Continuing Operations –** an analysis and comparison of our consolidated results of operations for the three and nine months ended February 28, 2015, and March 1, 2014, as reflected in our consolidated statements of comprehensive income (loss)
- **Liquidity, Financial Position, and Capital Resources –** a discussion of our primary sources and uses of cash for the nine months ended February 28, 2015, and March 1, 2014, and a discussion of changes in our financial position

### Business Overview

Richardson Electronics, Ltd. (“we”, “us”, “the Company”, and “our”) is incorporated in the state of Delaware. We are a leading global provider of engineered solutions, power grid and microwave tubes and related components, and customized display solutions, serving customers in the alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. Our 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.

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.

During the first quarter of fiscal 2015, we created a new strategic business unit called Richardson Healthcare (“Healthcare”). As hospitals remain under pressure to reduce costs while serving a much larger customer base, there is a growing demand for independent sources of high value replacement parts for diagnostic imaging. Having access to parts that are tested and in stock enables hospitals to terminate expensive service contracts with the Original Equipment Manufacturers ("OEM") and instead use third party service providers or in house technicians. With our global infrastructure, technical sales team, and experience servicing the healthcare market, we are well positioned to take advantage of this market opportunity. Over time, our plan is to expand our position from being the leader in power grid tubes to a key player in the high growth, high profile healthcare industry.

We have three operating segments, which we define as follows:

Electron Device Group (“EDG”) provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. EDG 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. EDG also offers its customers technical services for both microwave and industrial equipment.

Canvys provides customized display solutions serving the corporate enterprise, financial, industrial, and OEM markets.

Healthcare manufactures, distributes and services high value replacement parts for the healthcare market including hospitals, medical centers, independent service organizations, and multi-vendor service providers. Products include power grid tubes, hydrogen thyratrons, klystrons, magnetrons; Image Systems medical displays and workstations for picture archiving and communication systems ("PACS"); visual solutions for operating rooms/surgical environments; digital radiography solutions including replacement flat panel detectors and upgrades; and additional replacement components 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 February 28, 2015

- Net sales for the third quarter of fiscal 2015 were $33.5 million, an increase of 1.8%, compared to net sales of $32.9 million during the third quarter of fiscal 2014.
- Gross margin was 29.3% of net sales during the third quarter of both fiscal 2015 and 2014.
- Selling, general, and administrative expenses increased to $12.6 million, or 37.5% of net sales, for the third quarter of fiscal 2015, compared to $10.5 million for the second quarter of fiscal 2014, or 32.0% of net sales. Operating expenses for the third quarter of fiscal 2015 include $1.5 million related to the Company's IT implementation and $1.2 million related to its engineered solutions and healthcare growth initiatives.
- Operating loss during the third quarter of fiscal 2015 was $2.7 million, compared to operating loss of $0.9 million, during the third quarter of fiscal 2014.
- Loss from continuing operations during the third quarter of fiscal 2015 was $2.2 million, compared to loss from continuing operations during the third quarter of fiscal 2014 of $0.1 million.
- Net loss during the third quarter of fiscal 2015 was $2.2 million, compared to net loss of $0.5 million, during the third quarter of fiscal 2014.

### Financial Summary – Nine Months Ended February 28, 2015

- Net sales for the first nine months of fiscal 2015 were $102.0 million, a decrease of 0.6%, compared to net sales of $102.6 million during the first nine months of fiscal 2014.
- Gross margin increased slightly to 30.3% during the first nine months of fiscal 2015, compared to 30.1% from the first nine months of fiscal 2014.
- Selling, general, and administrative expenses increased to $36.4 million, or 35.6% of net sales, for the first nine months of fiscal 2015, compared to $31.1 million, or 30.3% of net sales, for the first nine months of fiscal 2014.
- Operating loss during the first nine months of fiscal 2015 was $5.4 million, compared to an operating loss of $0.2 million, during the first nine months of fiscal 2014.
- Loss from continuing operations during the first nine months of fiscal 2015 was $3.4 million, compared to income from continuing operations of $2.5 million, or $0.17 per diluted common share, during the first nine months of fiscal 2014.
- Net loss during the first nine months of fiscal 2015 was $3.3 million, compared to net income of $2.0 million, or $0.13 per diluted common share, during the first nine months of fiscal 2014.

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change for the third quarter and first nine months of fiscal 2015 and 2014 were as follows (*in thousands):*

| Net Sales | Three Months Ended February 28, 2015 | March 1, 2014 | FY15 vs. FY14 % Change |
| --- | ---: | ---: | ---: |
| EDG | $25,207 | $24,193 | 4.2% |
| Canvys | 6,236 | 6,732 | (7.4)% |
| Healthcare | 2,028 | 1,959 | 3.5% |
| Total | $33,471 | $32,884 | 1.8% |
|  | **Nine Months Ended** |  |  |
|  | **February 28, 2015** | **March 1, 2014** | **% Change** |
| EDG | $79,432 | $75,835 | 4.7% |
| Canvys | 18,110 | 21,769 | (16.8)% |
| Healthcare | 4,469 | 4,973 | (10.1)% |
| Total | $102,011 | $102,577 | (0.6)% |

During the third quarter of fiscal 2015, consolidated net sales increased 1.8% compared to the third quarter of fiscal 2014. Sales for Canvys declined by 7.4%, while sales for EDG and Healthcare increased by 4.2% and 3.5%, respectively, compared to the third quarter of fiscal 2014. During the first nine months of fiscal 2015 consolidated net sales decreased 0.6% compared to the first nine months of fiscal 2014. Sales for Canvys and Healthcare declined by 16.8% and 10.1%, respectively, while sales for EDG increased 4.7% compared to the first nine months of fiscal 2014.

Gross profit by segment and percent of segment net sales for the third quarter and first nine months of fiscal 2015 and 2014 were as follows (*in thousands):*

| Gross Profit | Three Months Ended February 28, 2015 | % of Net Sales | March 1, 2014 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| EDG | $7,680 | 30.5% | $7,139 | 29.5% |
| Canvys | 1,621 | 26.0% | 1,945 | 28.9% |
| Healthcare | 499 | 24.6% | 567 | 28.9% |
| Total | $9,800 | 29.3% | $9,651 | 29.3% |
|  | **Nine Months Ended** |  |  |  |
|  | **February 28, 2015** | **% of Net Sales** | **March 1, 2014** | **% of Net Sales** |
| EDG | $24,904 | 31.4% | $23,505 | 31.0% |
| Canvys | 4,929 | 27.2% | 5,970 | 27.4% |
| Healthcare | 1,087 | 24.3% | 1,375 | 27.6% |
| Total | $30,920 | 30.3% | $30,850 | 30.1% |

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 was $9.8 million during the third quarter of fiscal 2015, compared to $9.7 million during the third quarter of fiscal 2014. Consolidated gross margin as a percentage of net sales remained flat at 29.3% during the third quarter of fiscal 2015, compared to the third quarter of fiscal 2014. In addition, gross margin included $0.2 million related to unabsorbed manufacturing labor and overhead from continuing operations during the third quarter of fiscal 2015 and fiscal 2014.

Consolidated gross profit was $30.9 million during the first nine months of fiscal 2015, compared to $30.9 million during the first nine months of fiscal 2014. Consolidated gross margin as a percentage of net sales slightly increased to 30.3% during the first nine months of fiscal 2015, from 30.1% during the first nine months of fiscal 2014. In addition, gross margin included $0.5 million related to unabsorbed manufacturing labor and overhead from continuing operations during the first nine months of fiscal 2015 and fiscal 2014.

### IT System and Infrastructure

Since 2011, we have been operating under the terms of a transition services agreement (“TSA”) with Arrow Electronics. On March 1, 2015, we went live on our new global IT platform and subsequently provided notice of termination of the TSA to Arrow effective April 30, 2015.

During the first nine months of our fiscal year 2015, we have incurred $1.7 million in additional capital spending related to our new IT platform. Our operating expenses for the first nine months included $4.4 million of IT expenses. This includes $1.4 million under the terms of our TSA, which terminates April 30, 2015, as well as $3.1 million of expenses associated with development and training for our new IT system, infrastructure, and support.

### Electron Device Group

Net sales for EDG increased 4.2% to $25.2 million during the third quarter of fiscal 2015, compared to $24.2 million during the third quarter of fiscal 2014. The increase in net sales was driven by continued strong bookings during the first and second quarters for market share gains in continuous wave magnetrons and other related assemblies primarily into the semiconductor capital equipment market. In addition, sales increased as a result of market share gains in industrial consumable products, medical, avionics, and marine applications in Europe. Gross margin as a percentage of net sales increased to 30.5% during the third quarter of fiscal 2015, as compared to 29.5% during the third quarter of fiscal 2014 primarily due to shifts in product mix.

Net sales for EDG increased 4.7% to $79.4 million during the first nine months of fiscal 2015, compared to $75.8 million during the first nine months of fiscal 2014. Net sales of continuous wave magnetrons and related assemblies sold primarily into the semiconductor wafer fabrication market increased while net sales of tubes grew in the laser, aviation, and marine markets, offset by declines primarily in the industrial market. Gross margin as a percentage of net sales increased to 31.4% during the first nine months of fiscal 2015, as compared to 31.0% during the first nine months of fiscal 2014 primarily due to shifts in product mix.

### Canvys

Canvys net sales decreased 7.4% to $6.2 million during the third quarter of fiscal 2015, from $6.7 million during the third quarter of fiscal 2014. Sales in our North America and Europe OEM markets were down due to delays in new programs as well as the loss of several customers that concluded programs or changed to lower cost solutions. Gross margin as a percentage of net sales decreased to 26.0% during the third quarter of fiscal 2015, compared to 28.9% during the third quarter of fiscal 2014 due to currency exchange rates and shift in product mix.

Canvys net sales decreased 16.8% to $18.1 million during the first nine months of fiscal 2015, from $21.8 million during the first nine months of fiscal 2014. Sales in our North America and Europe OEM markets were down due to delays in new programs which hurt Canvys’ ability to recover from the loss of several customers that concluded programs or changed to lower cost solutions. Gross margin as a percentage of net sales decreased slightly to 27.2% during the first nine months of fiscal 2015, compared to 27.4% during the first nine months of fiscal 2014 reflecting shifts in product mix and more recent currency exchange impact.

### Healthcare

Healthcare (previously part of our Canvys business) net sales increased 3.5% to $2.028 million during the third quarter of fiscal 2015, from $1.959 million during the third quarter of fiscal 2014. Sales were up slightly due to several large PACS display replacement projects. Gross margin as a percentage of net sales decreased to 24.6% during the third quarter of fiscal 2015, compared to 28.9% during the third quarter of fiscal 2014 due to competitive pricing pressure and shifts in product mix.

Healthcare net sales decreased 10.1% to $4.5 million during the first nine months of fiscal 2015, from $5.0 million during the first nine months of fiscal 2014. Sales were down in the PACS display market driven by longer product lifecycles and pressure on capital budgets causing hospitals to defer many PACS display refresh projects. Gross margin as a percentage of net sales decreased to 24.3% during the first nine months of fiscal 2015, compared to 27.6% during the first nine months of fiscal 2014 due to competitive pricing pressure and shifts in product mix.

### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) increased to $12.6 million during the third quarter of fiscal 2015 compared to $10.5 million during the third quarter of fiscal 2014. The $2.1 million increase includes $1.5 million of expense related to our IT implementation and $1.2 million of expense for our microwave generator, power conversion, and healthcare growth initiatives. SG&A as a percentage of sales from continuing operations increased to 37.5% during the third quarter of fiscal 2015 from 32.0% during the third quarter of fiscal 2014.

Selling, general, and administrative expenses (“SG&A”) increased to $36.4 million during the first nine months of fiscal 2015 compared to $31.1 million during the first nine months of fiscal 2014. The $5.3 million increase includes $3.1 million of expense related to our IT implementation and $2.9 million of expense for our microwave generator, power conversion, and healthcare growth initiatives. SG&A as a percentage of sales from continuing operations increased to 35.6% during the first nine months of fiscal 2015 from 30.3% during the first nine months of fiscal 2014.

### Other Income/Expense

Other income/expense was income of $0.5 million during the third quarter of fiscal 2015, compared to income of $0.7 million during the third quarter of fiscal 2014. The third quarter of fiscal 2015 was due primarily to investment income of $0.2 million and foreign exchange of $0.3 million. 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 income of $1.1 million during the first nine months of fiscal 2015, compared to income of $3.3 million during the first nine months of fiscal 2014. The $1.1 million in the first nine months of fiscal 2015 was primarily due to investment income of $0.7 million and foreign exchange of $0.3 million. The $3.3 million in the first nine months of fiscal 2014 included an anti-trust class action lawsuit settlement of $2.6 million and investment income of $0.8 million, partially offset by foreign exchange loss of $0.1 million. 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

The effective income tax rate from continuing operations during the first nine months of fiscal 2015 was a tax benefit of 22.0%, as compared to a tax provision of 17.5% during the first nine months of fiscal 2014. The difference in rate during the first nine months of fiscal 2015, as compared to the first nine months of fiscal 2014, reflects the impact of changes in our geographical distribution of income (loss), the recording of additional valuation allowance against all of our U.S. state net deferred tax assets, and our positions with respect to ASC 740-30, *Income Taxes - Other Considerations or Special Areas* ("ASC 740-30"). The 22.0% effective income tax rate differs from the federal statutory rate of 34.0% as a result of our geographical distribution of income (loss), the deferred tax impact of the change in the statutory tax rates in Japan and the United Kingdom, the reduction in uncertain tax positions as a result of settling an income tax audit in Italy, the recording of a tax benefit related to compensation expense, and the recording of a valuation allowance against all of our U.S. state net deferred tax assets.

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 also currently under examination in Germany (fiscal 2008 through 2010) and Thailand (fiscal 2008 through 2011). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2007 and the Netherlands beginning in fiscal 2009.

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 $5.0 million as of February 28, 2015, on foreign earnings of $37.5 million. In addition, as of February 28, 2015, approximately $34.6 million 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 might exist if such earnings were to be repatriated.

We have no liability recorded in any tax jurisdiction for uncertain tax positions related to continuing operations as of February 28, 2015, and March 1, 2014.

It is not expected that there will be a change in the unrecognized tax benefits within the next 12 months.

### Net Income (loss) and Per share Data

Net loss during the third quarter of fiscal 2015 was $2.2 million, as compared to net loss of $0.5 million during the third quarter of fiscal 2014.

Net loss during the first nine months of fiscal 2015 was $3.3 million, as compared to net income of $2.0 million during the first nine months of fiscal 2014, or $0.13 per diluted common share and $0.13 per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

Our cash needs have been primarily financed through prior year earnings. Cash and cash equivalents for the third quarter ended February 28, 2015, were $78.4 million. In addition, CDs and time deposits classified as short-term investments were $23.7 million and long-term investments were $11.8 million, including equity securities of $0.6 million. Cash and investments at February 28, 2015, consisted of $54.9 million in North America, $17.7 million in Europe, $0.6 million in Latin America, and $40.6 million in Asia/Pacific. At May 31, 2014, cash and cash equivalents were $102.8 million. In addition, CDs and time deposits classified as short-term investments were $31.7 million and long-term investments were $1.5 million, including equity securities of $0.5 million. Cash and investments at May 31, 2014, consisted of $71.8 million in North America, $20.5 million in Europe, $0.9 million in Latin America, and $42.8 million in Asia/Pacific.

### Cash Flows from Operating Activities

Cash flow from operating activities reflects our net loss, adjusted for non-cash items, and changes in our operating assets and liabilities.

Operating activities used $8.0 million of cash during the first nine months of fiscal 2015. We had a net loss of $3.3 million during the first nine months of fiscal 2015, which included non-cash stock-based compensation expense of $0.5 million associated with the issuance of stock option awards and depreciation and amortization expense of $1.2 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities, net of effects of acquired businesses, used $5.8 million of cash during the first nine months of fiscal 2015, due primarily to the increase in our inventory of $4.4 million, an increase in our prepaids of $0.7 million, a decrease in our accounts payable of $0.4 million, and an increase in our accounts receivable of $2.7 million, partially offset by a decrease in our income tax receivable of $2.9 million. The increase in our inventory of $4.4 million, net of foreign exchange rate impact on inventory of $2.3 million, was due to increased purchases to support some of our future growth initiatives. The decrease in our accounts payable of $0.4 million relates primarily to timing of payments to some of our major suppliers. Our accounts receivable balance was a use of cash of $2.7 million, net of foreign exchange rate impact on accounts receivables of $1.9 million, caused by shifts in our customer mix by geography.

Operating activities, which include our discontinued operations, used $1.4 million of cash during the first nine months of fiscal 2014. We had net income of $2.0 million during the first nine months of fiscal 2014, which included non-cash stock-based compensation expense of $0.6 million associated with the issuance of stock option awards and depreciation and amortization expense of $0.8 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities, net of effects of acquired businesses, used $4.7 million of cash during the first nine months of fiscal 2014, due primarily to a decrease in our accounts payable of $3.2 million, and an increase in our accounts receivable of $1.5 million, partially offset by a decrease in our long-term tax liabilities of $0.3 million. The decrease in our accounts payable relates primarily to the timing of payments to some of our major suppliers. The increase in our accounts receivables of $1.5 million was due primarily to a slight increase in our day sales outstanding caused primarily by a shift in customer mix by geography.

### Cash Flows from Investing Activities

The cash flow from investing activities has consisted primarily of purchases and maturities of investments and capital expenditures.

Cash used in investing activities of $5.5 million during the first nine months of fiscal 2015 included proceeds from the maturities of investments of $32.0 million, offset by the purchase of investments of $34.1 million, and $3.3 million in capital expenditures.

Cash provided by investing activities of $6.7 million during the first nine months of fiscal 2014 included proceeds from the maturities of investments of $258.3 million, offset by the purchase of investments of $248.9 million, $1.0 million for the acquisition of WVS, and $1.8 million in capital expenditures.

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 primarily consists of repurchases of common stock and cash dividends paid.

Cash used in financing activities of $6.1 million during the first nine months of fiscal 2015 resulted from $3.9 million of cash used to repurchase common stock under our share repurchase authorization and $2.5 million of cash used to pay dividends, offset by $0.3 million of proceeds from the issuance of common stock due mainly to stock options exercised.

Cash used in financing activities of $11.1 million during the first nine months of fiscal 2014 resulted from $8.7 million of cash used to repurchase common stock under our share repurchase authorization and $2.5 million of cash used to pay dividends, offset by $0.2 million of proceeds from the issuance of common stock due mainly to stock options exercised.

All payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions, and other factors that the Board may deem relevant.

We believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs for the next 12 months.

## Market risk

As filed, 846 characters.

### 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” of our Annual Report on Form 10-K for the year ended May 31, 2014, filed July 25, 2014.

## Controls and procedures

As filed, 1,616 characters.

(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 February 28, 2015.

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

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 first nine months of fiscal 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 164 characters.

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 31, 2014, filed July 25, 2014.

Filed Apr 10, 2015.
Source: SEC EDGAR, the filing index for accession 0000355948-15-000009. Last ingested by Listed: Nov 10, 2026, 23:29 ET. No prices; not investment advice.