# Richardson Electronics, LTD.: Form 10-Q for the period ended Feb 28, 2009

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2009-04-09
- Accepted by EDGAR: Apr 9, 2009, 17:03 ET
- Period: 2009-02-28
- Accession: 0001193125-09-076593
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000119312509076593/d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000119312509076593/

## Management's discussion and analysis

As filed, 29,807 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. 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. You should consider carefully the risk factors described in our Annual Report on Form 10-K, in addition to the other information included and incorporated by reference in this Quarterly Report on Form 10-Q.

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 unaudited condensed consolidated financial statements and the accompanying notes thereto appearing elsewhere herein. This section is organized as follows:

- **Business Overview**
- **Results of Continuing Operations –** an analysis and comparison of our consolidated results of operations for the three and nine month periods ended February 28, 2009, and March 1, 2008, as reflected in our unaudited condensed consolidated statements of operations and comprehensive income (loss).
- **Liquidity, Financial Position, and Capital Resources –** a discussion of our primary sources and uses of cash for the nine month period ended February 28, 2009, and March 1, 2008, and a discussion of selected changes in our financial position.

### BUSINESS OVERVIEW

Richardson Electronics, Ltd. (“we”, “us”, and “our”) was originally incorporated in the state of Illinois in 1947 and is currently incorporated in the state of Delaware. We are a global provider of engineered solutions and a global distributor of electronic components to the radio frequency (“RF”), wireless and power conversion, electron device, and display systems markets. Utilizing our core engineering and manufacturing capabilities, we are committed to a strategy of providing specialized technical expertise and value-added products, or “engineered solutions,” in response to our customers’ needs. These solutions include products which we manufacture or modify and products which are manufactured to our specifications by independent manufacturers under our own private labels. Additionally, we provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, and logistics for end products of our customers. Design-in support includes component modifications or the identification of lower-cost product alternatives or complementary products.

Our products include RF and microwave components, power semiconductors, electron tubes, microwave generators, and data display monitors. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, and communication applications.

Our sales and marketing, product management, and purchasing functions are organized as follows:

*RF, Wireless & Power Division (“*RFPD”) serves the global RF and wireless communications market, including infrastructure, wireless networks, and the power conversion market.

*Electron Device Group (“*EDG”) provides engineered solutions and distributes electronic components to customers in diverse markets including the steel, automotive, textile, plastics, semiconductor manufacturing, and broadcast industries.

*Canvys* (formerly the Display Systems Group or “DSG”) provides global integrated display products, systems and digital signage solutions serving financial, corporate enterprise, healthcare, and industrial markets.

We currently have operations in the following major geographic regions:

- North America;
- Asia/Pacific;
- Europe; and
- Latin America.

During the second quarter of fiscal 2009, we renamed our DSG business unit to Canvys. This change from DSG to Canvys signifies its evolution to a market-driven solutions group.

During the first quarter of fiscal 2009, we moved our Cathode Ray Tube (“CRT”) product line from our Canvys segment to our EDG segment. As a result of implementing a new business plan for Canvys during the third quarter of fiscal 2008, we felt that the CRT product line more closely aligned with the existing EDG business model. Prior period segment information has been restated to reflect this change.

The recent capital and credit market crisis is adversely affecting the U.S. and global economies. Slower economic growth could lead to lower demand for the products we sell. Lower demand for our products could also lead to lower margins on the products that we sell. In addition, our customers may not be able to pay, or may delay payment of accounts receivable that we are owed. Management believes it has taken steps to mitigate this risk through heightened collection efforts.

### RESULTS OF CONTINUING OPERATIONS

### Overview – Three Months Ended February 28, 2009

- Net sales for the third quarter of fiscal 2009 were $110.3 million, down 20.6%, compared to net sales of $138.9 million during the third quarter of last year.
- Gross margin as a percent of net sales decreased to 21.5% during the third quarter of fiscal 2009, compared to 22.5% during the third quarter of last year. The gross margin percent of 21.5% includes $2.0 million of additional inventory reserves recorded during the third quarter.
- SG&A expenses decreased to $27.7 million during the third quarter of fiscal 2009, including $1.2 million of severance expense and $0.7 million of expense related to the write-off of a note receivable, compared to $32.0 million during the third quarter of last year.
- Operating loss during the third quarter of fiscal 2009 was $9.7 million, compared to an operating loss of $0.7 million during the third quarter of last year.
- Net loss during the third quarter of fiscal 2009 was $11.4 million versus a net loss of $2.2 million during the third quarter of last year.

### Overview – Nine Months Ended February 28, 2009

- Net sales for the first nine months of fiscal 2009 were $381.8 million, down 7.6%, compared to net sales of $413.3 million during the first nine months of last year.
- Gross margin as a percent of net sales decreased slightly to 23.5% during the first nine months of fiscal 2009, compared to 23.6% during the first nine months of last year.
- SG&A decreased to $84.1 million during the first nine months of fiscal 2009, compared to $93.3 million during the first nine months of last year.
- Operating loss during the first nine months of fiscal 2009 was $0.3 million, compared to operating income of $4.4 million during the first nine months of last year.
- Net loss during the first nine months of fiscal 2009 was $1.8 million, compared to a net loss of $3.2 million during the first nine months of last year.

### Net Sales and Gross Profit Analysis

During the third quarter and first nine months of fiscal 2009, consolidated net sales decreased 20.6% and 7.6%, respectively, as all three segments experienced a decline compared to prior year.

Net sales by segment and percent change during the third quarter and first nine months of fiscal 2009 and 2008 were as follows (*in thousands):*

| Net Sales Third Quarter | FY 2009 | FY 2008 | % Change |
| --- | ---: | ---: | ---: |
| RFPD | $80,565 | $93,415 | (13.8)% |
| EDG | 17,993 | 25,915 | (30.6)% |
| Canvys | 11,743 | 18,506 | (36.5)% |
| Corporate | 15 | 1,030 |  |
| Total | $110,316 | $138,866 | (20.6)% |
| **Nine Months** |  |  |  |
| RFPD | $270,882 | $273,207 | (0.9)% |
| EDG | 65,254 | 80,765 | (19.2)% |
| Canvys | 45,676 | 55,880 | (18.3)% |
| Corporate | 2 | 3,464 |  |
| Total | $381,814 | $413,316 | (7.6)% |

23

Consolidated gross profit decreased during both the third quarter and first nine months of fiscal 2009 as compared to the third quarter and first nine months of fiscal 2008. Consolidated gross margin as a percentage of net sales declined to 21.5% and 23.5% during the third quarter and first nine months of fiscal 2009, respectively, as compared to 22.5% and 23.6% during the third quarter and first nine months of fiscal 2008, respectively, due primarily to sales within our higher-margin businesses, specifically EDG and Canvys, declining at a faster rate than sales for RFPD. We incurred inventory write-downs of $2.0 million and $2.8 million during the third quarter of fiscal 2009 and 2008, respectively. EDG and Canvys incurred inventory write-downs of $0.2 million and $1.8 million, respectively, during the third quarter of fiscal 2009, due primarily to exiting certain markets and product lines, low-margin customers, and the analog to digital broadcast conversion. RFPD and Canvys incurred inventory write-downs of $0.9 million and $1.9 million, respectively, during the third quarter of fiscal 2008, due primarily to the exiting of certain geographic markets and low-margin customers.

Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs, and other provisions. Corporate gross profit includes certain freight costs and other miscellaneous charges.

Gross profit by segment and percent of segment net sales during the third quarter and first nine months of fiscal 2009 and 2008 were as follows (*in thousands):*

| Gross Profit Third Quarter | FY 2009 | % of Net Sales | FY 2008 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| RFPD | $17,786 | 22.1% | $20,990 | 22.5% |
| EDG | 5,383 | 29.9% | 8,375 | 32.3% |
| Canvys | 636 | 5.4% | 2,316 | 12.5% |
| Corporate | (79) |  | (440) |  |
| Total | $23,726 | 21.5% | $31,241 | 22.5% |
| **Nine Months** |  |  |  |  |
| RFPD | $59,955 | 22.1% | $62,457 | 22.9% |
| EDG | 20,823 | 31.9% | 26,077 | 32.3% |
| Canvys | 9,122 | 20.0% | 10,028 | 17.9% |
| Corporate | (277) |  | (883) |  |
| Total | $89,623 | 23.5% | $97,679 | 23.6% |

### RF, Wireless & Power Division

RFPD net sales decreased 13.8% and 0.9% to $80.6 million and $270.9 million during the third quarter and first nine months of fiscal 2009, respectively, from $93.4 million and $273.2 million during the third quarter and first nine months of fiscal 2008, respectively. The decline in net sales, which was the result of the weakened economic conditions, included declines in both the net sales of our network access and passive/interconnect products, partially offset by an increase in infrastructure products. Infrastructure net sales increased 1.2% and 9.4% to $24.9 million and $77.0 million during the third quarter and first nine months of fiscal 2009, respectively, from $24.6 million and $70.4 million during the third quarter and first nine months of fiscal 2008, respectively. The net sales growth for infrastructure products was in Asia/Pacific, which was due primarily to the reorganization of the mobile telecom industry in China, which included the deployment of the next infrastructure build-out of the Time Division-Synchronous Code Division Multiple Access (“TD-SCDMA”). Gross margin as a percent of net sales decline to 22.1% during both the third quarter and first nine months of fiscal 2009 from 22.5% and 22.9% during the third quarter and first nine months of fiscal 2008, respectively. The decline in gross margin as a percent of net sales was due primarily to the lower margins generated from the TD-SCDMA project in China. During the third quarter of fiscal 2008, RFPD incurred inventory write-downs of $0.9 million.

### Electron Device Group

EDG net sales decreased 30.6% and 19.2% to $18.0 million and $65.3 million during the third quarter and first nine months of fiscal 2009, respectively, from $25.9 million and $80.8 million during the third quarter and first nine months of fiscal 2008, respectively, due primarily to a decline in semiconductor fabrication equipment products. The semiconductor fabrication equipment industry has experienced an overall decline during the past couple of years, in addition to the weakening global economy. In terms of geographic regions, North America experienced a decline in tube sales, during both the third quarter and first nine months of fiscal 2009, primarily due to the conversion from analog to digital television which is scheduled to take place in June 2009. Gross margin as a percent of net sales decreased to 29.9% and 31.9% during the third quarter and first nine months of fiscal 2009, respectively, as compared to 32.3% during both the third quarter and first nine months of fiscal 2008. The decline in gross margin as a percentage of net sales for both periods was due primarily to $0.2 million of inventory write-downs during the third quarter of fiscal 2009 related to the broadcast conversion from analog to digital and higher levels of unabsorbed manufacturing costs.

### Canvys

Canvys net sales decreased 36.5% and 18.3% to $11.7 million and $45.7 million during the third quarter and first nine month of fiscal 2009, respectively, from $18.5 million and $55.9 million during the third quarter and first nine months of fiscal 2008, respectively, due primarily to a decline in medical imaging and digital signage products. The decline of both product lines was due primarily to lower capital investments as a result of the weakening global economy. During the third quarter of fiscal 2008, Canvys implemented a new business plan, part of which included exiting unprofitable market segments and the distribution of low margin business, and realigning sales and marketing operations for better utilization. Gross margin declined to 5.4% during the third quarter of fiscal 2009 from 12.5% during the third quarter of fiscal 2008, due primarily to inventory write-downs. The inventory write-downs of $1.8 million (15.4% of net sales) during the third quarter of fiscal 2009 had a larger impact on our gross margin percentage as compared to the inventory write-downs of $1.9 million (10.3% of net sales) during the third quarter of fiscal 2008, due primarily to the 36.5% decline in net sales. Gross margin increased to 20.0% during the first nine months of fiscal 2009 from 17.9% during the first nine months of fiscal 2008, which was due primarily to shifts in customer and geographic mix.

### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased during the third quarter and first nine months of fiscal 2009 to $27.7 million and $84.1 million, respectively, from $32.0 million and $93.3 million during the third quarter and first nine months of fiscal 2008, respectively. The decrease in SG&A expense during the third quarter and first nine months of fiscal 2009 was due primarily to a decline in consulting, employee-related (including severance), travel, and facility expenses, partially offset by an increase in bad debt expense and the write-off of a note receivable. SG&A as a percent of net sales increased to 25.1% of net sales during the third quarter of fiscal 2009, as compared with 23.1% during the third quarter of fiscal 2008, which was due primarily to the 20.6% decline in net sales during the third quarter. SG&A as a percentage of net sales decreased to 22.0% during the first nine months of fiscal 2009, as compared with 22.6% of net sales during the first nine months of fiscal 2008.

### (Gain) Loss on disposal of assets

(Gain) loss on disposal of assets was a loss of $5.8 million and $5.9 million during the third quarter and first nine months of fiscal 2009, respectively, as compared to a gain of $0.1 million during both the third quarter and first nine months of fiscal 2008. See Note 4 “Asset Disposals” of our unaudited condensed consolidated financial statements for additional discussion on disposal of assets.

### Other (Income) Expense

Other (income) expense was an expense of $1.1 million during the third quarter of fiscal 2009 as compared to an expense of $1.2 million during the third quarter of fiscal 2008. Other (income) expense was $0.4 million of income during the first nine months of fiscal 2009 as compared to an expense of $6.6 million the first nine months of fiscal 2008, respectively. The change to income from expense during the first nine months of fiscal 2009 was due primarily to favorable changes in foreign currency exchange rates, a gain related to the retirement of a portion of our long-term debt, and a decrease in interest expense. Other (income) expense included a foreign exchange gain of $2.6 million during the first nine months of fiscal 2009 as compared to a foreign exchange loss of $1.6 million during the first nine months of fiscal 2008. The first nine months of fiscal 2009 included a gain of $0.8 million related to the retirement of $3.3 million of our 8% notes. See Note 8 “Debt” of our unaudited condensed consolidated financial statements for additional discussion on the retirement. Interest expense decreased to $1.1 million and $3.5 million during the third quarter and first nine months of fiscal 2009, respectively, as compared to $1.4 million and $5.6 million during the third quarter and first nine months of fiscal 2008, respectively. See Note 8 “Debt” of our unaudited condensed consolidated financial statements for additional discussion on interest expense.

### Income Tax Provision

The effective income tax rate for the third quarter and first nine months of fiscal 2009 was a provision of 5.2% and 1806.8%, respectively, as compared with a provision of 14.1% and 47.7% for the third quarter and first nine months of fiscal 2008, respectively. The difference between the effective tax rates as compared to the U.S. federal statutory rate of 34% primarily results from our geographical distribution of taxable income or losses and valuation allowances related to net operating losses. For the first nine months of fiscal 2009, we incurred tax expense due to an increase in valuation allowances related to an increase in net operating losses of approximately $7.0 million. We realized a tax benefit from the reduction in tax reserves of approximately $1.0 million, including interest and penalties. The tax provision for the first nine months of fiscal 2009 includes $0.6 million related to prior years income tax of one of our foreign jurisdictions.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. We are no longer subject to either U.S. federal, state, or local tax examinations by tax authorities for years prior to fiscal year 2004. With few exceptions, we are no longer subject to non-U.S. income tax examinations by tax authorities for years prior to fiscal year 2002. Our primary foreign tax jurisdictions are the United Kingdom, Germany, Singapore, and the Netherlands. We have tax years open in Singapore beginning in fiscal year 2002; in the Netherlands, Germany and the U.S. beginning in fiscal year 2004; and in the United Kingdom beginning in fiscal year 2006.

As of February 28, 2009, our worldwide liability for uncertain tax positions, excluding interest and penalties, is $4.4 million as compared to $5.0 million as of May 31, 2008. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited condensed consolidated statements of operations and comprehensive income (loss). The net liability for uncertain tax positions decreased in the three months ended February 28, 2009, primarily due to closure of certain statutes of limitation.

It is reasonably possible that there will be a change in the unrecognized tax benefits, excluding interest and penalties, in the range of $0 to approximately $1.0 million due to the expiration of various statutes of limitations within the next 12 months.

### Net Income (Loss) and Per Share Data

Net loss during the third quarter of fiscal 2009 was $11.4 million, or $0.65 per diluted common share and $0.58 per Class B diluted common share as compared to a net loss of $2.2 million during the third quarter of fiscal 2008, or $0.12 per diluted common share and $0.11 per Class B diluted common share. Net loss during the first nine months of fiscal 2009 was $1.8 million, or $0.10 per diluted common share and $0.09 per Class B diluted common share as compared with a net loss of $3.2 million during the first nine months of fiscal 2008, or $0.18 per diluted common share and $0.16 per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

We have financed our growth and cash needs largely through income from operations, borrowings under the revolving credit facilities, issuance of convertible senior subordinated notes, and sale of assets. Liquidity is reduced by working capital requirements, debt service, capital expenditures, dividends, and business acquisitions. Liquidity is increased by proceeds from borrowings, disposition of businesses and assets, and improved working capital management.

Cash and cash equivalents were $32.6 million as of February 28, 2009, as compared to $40.0 million as of May 31, 2008.

#### Cash Flows from Operating Activities

Cash provided by operating activities during the first nine months of fiscal 2009 was $1.6 million, due primarily to lower accounts receivable, partially offset by higher inventory balances, lower accounts payable and lower accrued liability balances. The decline in accounts receivable balances of $8.7 million, excluding the impact of foreign currency exchange of $8.2 million, during the first nine months of fiscal 2009 was due primarily to a decline in sales volume. The increase in inventory balances of $6.2 million, excluding the impact of foreign currency exchange of $5.0 million, during the first nine months of fiscal 2009 was due primarily to inventory purchased during the first half of the fiscal year for anticipated future sales growth, partially offset by write-downs of $2.0 million. The decrease in accounts payable balances of $2.8 million, excluding the impact of foreign currency exchange of $2.1 million, during the first nine months of fiscal 2009 was due primarily to a reduction in inventory purchased during the third quarter of fiscal 2009. The decline in accrued liability balances of $3.7 million, excluding the impact of foreign currency exchange of $0.8 million, during the first nine months of fiscal 2009 was due primarily to the timing and payment of accrued payroll.

Cash provided by operating activities during the first nine months of fiscal 2008 was $8.3 million, due primarily to lower inventory, lower accounts receivable, and higher accounts payable balances, partially offset by lower accrued liability balances. The decline in inventory balances of $8.7 million, excluding the impact of foreign currency exchange of $5.8 million, during the first nine months of fiscal 2008 was due primarily to the implementation of stricter purchasing discipline and write-downs of $2.8 million. The decline in accounts receivable balances of $7.8 million, excluding the impact of foreign currency exchange of $5.9 million, during the first nine months of fiscal 2008 was due primarily to improved cash collections. The increase in accounts payable balances of $1.7 million, excluding the impact of foreign currency exchange of $1.5 million, during the first nine months of fiscal 2008 was due primarily to negotiating payment terms with many of our vendors. The decline in accrued liabilities balances of $5.9 million, excluding the impact of foreign exchange of $0.3 million, during the first nine months of fiscal 2008 was due primarily to the timing of payments of interest on long-term debt.

#### Cash Flows from Investing Activities

Net cash used by investing activities was $0.7 million during the first nine months of fiscal 2009, due primarily to capital expenditures of $0.9 million and partially offset by proceeds from the sales of assets of $0.2 million.

Net cash used in investing activities was $3.1 million during the first nine months of fiscal 2008, due primarily to capital expenditures of $4.2 million for information technology projects and building improvements, partially offset by proceeds from the sale of assets of $1.0 million.

#### Cash Flows from Financing Activities

Net cash used in financing activities of $3.4 million during the first nine months of fiscal 2009 and net cash provided by financing activities of $4.5 million during the first nine months of fiscal 2008, are summarized in the following table (*in thousands):*

|  | Nine Months Ended February 28, 2009 | March 1, 2008 |
| --- | ---: | ---: |
| Net debt borrowings on revolving credit agreement | $— | $10,000 |
| Net debt payments on multi-currency revolving credit agreement (“credit agreement”) | — | (65,711) |
| Retirement of long-term debt | (2,364) | — |
| Use of restricted cash to pay down credit agreement | — | 61,899 |
| Cash dividends paid | (1,057) | (1,756) |
| Other | 5 | 45 |
| Cash provided by (used in) financing activities | $(3,416) | $4,477 |

As of February 28, 2009 we maintained $52.4 million in long-term debt in the form of two series of convertible notes. On November 7, 2008, we retired $3.3 million of the 8% notes at approximately 71% of par value, which resulted in a gain of $0.8 million, net of deferred financing costs of $0.1 million. As the revolving credit agreement allows us to retire up to $15.0 million of our outstanding notes, we did not need to obtain a waiver from our lending group to permit the retirement of $3.3 million of the 8% notes. The retirement was financed through the use of cash available as of November 7, 2008.

We entered into a revolving credit agreement on July 27, 2007, which included a Euro sub-facility of $15.0 million and a Singapore sub-facility of $5.0 million. Pursuant to an amendment to the revolving credit agreement entered into on February 29, 2008, the Euro sub-facility and Singapore sub-facility individual limits were increased to $20.0 million each; however, the total amount of the combined Euro sub-facility and Singapore sub-facility is limited to $25.0 million. The U.S. facility is reduced by the amounts drawn on the Euro sub-facility and Singapore sub-facility, maintaining a total capacity of $40.0 million on the revolving credit agreement. This revolving credit agreement expires in July 2010 and bears interest at applicable LIBOR, SIBOR, or prime rates plus a margin varying with certain quarterly borrowings under the revolving credit agreement. This revolving credit agreement is secured by a lien on our U.S. assets and also contains a financial covenant requiring us to maintain a leverage ratio of less than 2.0 to 1.0. Pursuant to an amendment to the revolving credit agreement entered into on November 29, 2007, the leverage ratio was increased to 3.0 to 1.0 for the fiscal quarters ended December 1, 2007, and March 1, 2008. The commitment fee related to the revolving credit agreement is 0.25% per annum payable quarterly on the average daily unused portion of the aggregate commitment. As of February 28, 2009, there were no amounts outstanding under the revolving credit agreement. Outstanding letters of credit were approximately $0.1 million and we also had $1.1 million reserved for usage on our commercial credit card program, leaving an unused line of $38.8 million as of February 28, 2009. Based on our loan covenants, actual available credit as of February 28, 2009, was $40.0 million.

Pursuant to an amendment to the revolving credit agreement entered into on July 29, 2008, the definition of the leverage ratio was modified to exclude the goodwill impairment charge in the calculation of adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”), for the fiscal year ended May 31, 2008. We were in compliance with our loan covenants as of May 31, 2008, without this amendment to our revolving credit agreement.

We believe that the existing sources of liquidity, including current cash, as well as cash provided by operating activities, supplemented as necessary with funds available under credit arrangements, will provide sufficient resources to meet known capital requirements and working capital needs for the fiscal year ending May 30, 2009.

## Market risk

As filed, 1,178 characters.

### Risk Management and Market Sensitive Financial Instruments

Certain operations, assets, and liabilities of ours are denominated in foreign currencies subjecting us to foreign currency exchange risk. In addition, some of our debt financing varies with market rates exposing us to the market risk from changes in interest rates. In order to provide the user of these financial statements guidance regarding the magnitude of these risks, the Securities and Exchange Commission requires us to provide certain quantitative disclosures based upon hypothetical assumptions. Specifically, these disclosures require the calculation of the effect of a 10% increase in market interest rates and an unfavorable 10% change in the U.S. dollar against foreign currencies on the reported net earnings and financial position. We believe that there were no material changes in our market risk since our fiscal year ended May 31, 2008. For an additional description of our market risk, see “Item 7A – Quantitative and Qualitative Disclosures about Market Risk – Risk Management and Market Sensitive Financial Instruments” in our Annual Report on Form 10-K for the fiscal year ended May 31, 2008.

## Controls and procedures

As filed, 1,517 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) as of February 28, 2009. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported on a timely basis and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure. Based upon this evaluation, the Chief Executive Officer and the 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 third quarter of fiscal 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 1,359 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended May 31, 2008, which could materially affect our business, financial condition or future results. There have been no material changes in the risk factors from those described in our Annual Report, except as set forth below:

***Current worldwide economic conditions may adversely affect our business, operating results and financial condition.***

As widely reported, global financial markets have been experiencing extreme disruptions in recent months, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that there will not be further deterioration in the global financial markets and decreased consumer confidence in economic conditions. We are unable to predict the likely duration and severity of the current disruptions in the financial markets and the adverse global economic conditions, and if the current uncertainty continues or economic conditions further deteriorate, our business, operating results and financial condition could be materially and adversely affected.

Filed Apr 9, 2009.
Source: SEC EDGAR, the filing index for accession 0001193125-09-076593. Last ingested by Listed: Nov 10, 2026, 23:29 ET. No prices; not investment advice.