# Richardson Electronics, LTD.: Form 10-Q for the period ended Feb 27, 2016

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2016-04-07
- Accepted by EDGAR: Apr 7, 2016, 15:09 ET
- Period: 2016-02-27
- Accession: 0001387131-16-004902
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000138713116004902/rell-10q_022716.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000138713116004902/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2016-02-27.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-11-29 to 2016-02-27 | $31.3m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2015-05-31 to 2016-02-27 | $102.4m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-11-29 to 2016-02-27 | $21.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2015-05-31 to 2016-02-27 | $71.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2015-11-29 to 2016-02-27 | $9.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2015-05-31 to 2016-02-27 | $31.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2015-11-29 to 2016-02-27 | $12.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-05-31 to 2016-02-27 | $37.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-11-29 to 2016-02-27 | −$2.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-05-31 to 2016-02-27 | −$6.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2015-11-29 to 2016-02-27 | $111.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-05-31 to 2016-02-27 | $742.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-11-29 to 2016-02-27 | −$2.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-05-31 to 2016-02-27 | −$6.6m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2015-11-29 to 2016-02-27 | 12,842,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-05-31 to 2016-02-27 | 13,117,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2015-11-29 to 2016-02-27 | −$5.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2015-05-31 to 2016-02-27 | −$14.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2015-11-29 to 2016-02-27 | $1.3m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2015-05-31 to 2016-02-27 | $3.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2015-11-29 to 2016-02-27 | $758.0k | us-gaap:PaymentsOfDividends |
| Dividends paid | 9 months, 2015-05-31 to 2016-02-27 | $2.3m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2015-05-31 to 2016-02-27 | $5.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2016-02-27 | $60.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2016-02-27 | $133.2m | us-gaap:AssetsCurrent |
| Total assets | at 2016-02-27 | $164.0m | us-gaap:Assets |
| Current liabilities | at 2016-02-27 | $20.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2016-02-27 | $22.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2016-02-27 | $141.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,424 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 28, 2015. 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 27, 2016, and February 28, 2015.
- **Results of Operations –** an analysis and comparison of our consolidated results of operations for the three and nine month periods ended February 27, 2016, and February 28, 2015, as reflected in our consolidated statements of comprehensive loss.
- **Liquidity, Financial Position, and Capital Resources –** a discussion of our primary sources and uses of cash for the three and nine month periods ended February 27, 2016, and February 28, 2015, and a discussion of changes in our financial position.

### 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 displays, flat panel detector solutions and replacement parts 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.

On June 15, 2015, Richardson Electronics, Ltd (“the Company”), acquired certain assets of International Medical Equipment and Services, Inc. (“IMES”), for a purchase price of $12.2 million. This includes the purchase of inventory, receivables, fixed assets, and certain other assets of the Company. The Company did not acquire any liabilities of IMES. The total consideration paid excludes transaction costs and is subject to post close adjustments.

IMES, based in South Carolina, provides reliable, cost-saving solutions worldwide for major brands of CT and MRI equipment. This acquisition positions Richardson Healthcare to provide cost effective diagnostic imaging replacement parts and training to hospitals, diagnostic imaging centers, medical institutions, and independent service organizations. IMES offers an extensive selection of replacement parts, as well as an interactive training center, on-site test bays and experienced technicians who provide 24/7 customer support. Replacement parts are readily available and triple tested to provide peace of mind when uptime is critical. IMES core operations will remain in South Carolina. Richardson Healthcare plans to expand IMES’ replacement parts and training offerings geographically to leverage the Company’s global infrastructure.

We have three operating segments which we define as follows:

Power and Microwave Technologies Group (“PMT”), launched in July 2015, combines Electron Device Group’s (“EDG”) 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, 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 North America, Asia/Pacific, Europe, and Latin America.

### RESULTS OF OPERATIONS

### Financial Summary – Three Months Ended February 27, 2016

- Net sales for the third quarter of fiscal 2016 were $31.3 million, a decrease of 6.5%, compared to net sales of $33.5 million during the third quarter of fiscal 2015.
- Gross margin increased to 31.2% during the third quarter of fiscal 2016, compared to 29.3% during the third quarter of fiscal 2015.
- Selling, general, and administrative expenses decreased to $12.5 million, or 39.9% of net sales, for the third quarter of fiscal 2016, compared to $12.6 million, or 37.5% of net sales, for the third quarter of fiscal 2015.
- Operating loss during the third quarter of fiscal 2016 was flat to the third quarter of fiscal 2015 at $2.7 million.
- Net loss during the third quarter of fiscal 2016 was $2.9 million, compared to net loss of $2.2 million, during the third quarter of fiscal 2015.

### Financial Summary – Nine Months Ended February 27, 2016

- Net sales for the first nine months of fiscal 2016 were $102.4 million, an increase of 0.4%, compared to net sales of $102.0 million during the first nine months of fiscal 2015.
- Gross margin increased to 30.7% during the first nine months of fiscal 2016, compared to 30.3% during the first nine months of fiscal 2015.
- Selling, general, and administrative expenses increased to $37.9 million, or 37.0% of net sales, for the first nine months of fiscal 2016, compared to $36.4 million, or 35.6% of net sales, for the first nine months of fiscal 2015.
- Operating loss during the first nine months of fiscal 2016 was $6.2 million, compared to an operating loss of $5.4 million during the first nine months of fiscal 2015.
- Net loss during the first nine months of fiscal 2016 was $6.6 million, compared to net loss of $3.3 million, during the first nine months of fiscal 2015.

18

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change for the third quarter and first nine months of fiscal 2016 and 2015 were as follows (*in thousands):*

| Net Sales | Three Months Ended February 27, 2016 February 28, 2015 | FY16 vs. FY15 % Change |
| --- | ---: | ---: |
| PMT | $23,008 $25,207 | -8.7% |
| Canvys | 5,190 6,236 | -16.8% |
| Healthcare | 3,093 2,028 | 52.5% |
| Total | $31,291 $33,471 | -6.5% |
|  | **Nine Months Ended** | **FY16 vs. FY15** |
|  | **February 27, 2016** **February 28, 2015** | **% Change** |
| PMT | $75,365 $79,432 | -5.1% |
| Canvys | 17,773 18,110 | -1.9% |
| Healthcare | 9,310 4,469 | 108.3% |
| Total | $102,448 $102,011 | 0.4% |

During the third quarter of fiscal 2016 consolidated net sales decreased 6.5% compared to the third quarter of fiscal 2015. Sales for PMT decreased 8.7%, sales for Canvys decreased 16.8%, and sales for Healthcare increased 52.5%, which was due to the acquisition of IMES. The declines in both PMT and Canvys included uncontrollable delays in shipping backlog.

During the first nine months of fiscal 2016 consolidated net sales increased 0.4% compared to the first nine months of fiscal 2015. Sales for PMT decreased 5.1%, sales for Canvys decreased 1.9%, and sales for Healthcare increased 108.3%, which was due to the acquisition of IMES.

Gross profit by segment and percent change for the third quarter and first nine months of fiscal 2016 and 2015 were as follows (*in thousands):*

| Gross Profit | Three Months Ended February 27, 2016 | % of Net Sales | February 28, 2015 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $7,140 | 31.0% | $7,680 | 30.5% |
| Canvys | 1,204 | 23.2% | 1,621 | 26.0% |
| Healthcare | 1,406 | 45.5% | 499 | 24.6% |
| Total | $9,750 | 31.2% | $9,800 | 29.3% |
|  | **Nine Months Ended** |  |  |  |
|  | **February 27, 2016** | **% of Net Sales** | **February 28, 2015** | **% of Net Sales** |
| PMT | $22,793 | 30.2% | $24,904 | 31.4% |
| Canvys | 4,439 | 25.0% | 4,929 | 27.2% |
| Healthcare | 4,215 | 45.3% | 1,087 | 24.3% |
| Total | $31,447 | 30.7% | $30,920 | 30.3% |

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 of $9.8 million during the third quarter of fiscal 2016 was flat compared to the third quarter of fiscal 2015. Consolidated gross margin as a percentage of net sales increased to 31.2% during the third quarter of fiscal 2016, from 29.3% during the third quarter of fiscal 2015, primarily due to higher margins associated with the sale of diagnostic imaging replacement parts in the Healthcare business.

Consolidated gross profit was $31.4 million during the first nine months of fiscal 2016, compared to $30.9 million during the first nine months of fiscal 2015. Consolidated gross margin as a percentage of net sales increased to 30.7% during the first nine months of fiscal 2016, from 30.3% during the first nine months of fiscal 2015, primarily due to shifts in product and geographic mix and foreign exchange fluctuations which were offset by higher margins and sales of IMES products.

### Power and Microwave Technologies Group

PMT net sales decreased 8.7% to $23.0 million during the third quarter of fiscal 2016, from $25.2 million during the third quarter of fiscal 2015. The decline included sales of capacitors, tubes sold into the broadcast market, and specialty products manufactured in LaFox which are sold primarily into the semiconductor capital equipment market. The sales decline was partially offset by higher sales of power conversion and RF and microwave components.. Gross margin as a percentage of net sales increased to 31.0% during the third quarter of fiscal 2016, as compared to 30.5% during the third quarter of fiscal 2015, due to a shift in product mix.

PMT net sales decreased 5.1% to $75.4 million during the first nine months of fiscal 2016, from $79.4 million during the first nine months of fiscal 2015. The decline included sales of capacitors, tubes sold into the broadcast market, and specialty products manufactured in LaFox which are sold primarily into the semiconductor capital equipment market. Currency fluctuations also hurt sales. Gross margin as a percentage of net sales decreased to 30.2% during the first nine months of fiscal 2016, as compared to 31.4% during the first nine months of fiscal 2015, due to an increase in unabsorbed labor and overhead costs in our LaFox manufacturing facility along with a shift in product mix and currency fluctuations.

### Canvys

Canvys net sales decreased 16.8% to $5.2 million during the third quarter of fiscal 2016, from $6.2 million during the third quarter of fiscal 2015 primarily due to uncontrollable delays in shipping backlog. Sales in our North America and Europe markets both decreased. Gross margin as a percentage of net sales decreased to 23.2% during the third quarter of fiscal 2016 as compared to 26.0% during the third quarter of fiscal 2015, due to continued price pressure and currency fluctuations along with write downs taken resulting from inventory obsolescence.

Canvys net sales decreased 1.9% to $17.8 million during the first nine months of fiscal 2016, from $18.1 million during the first nine months of fiscal 2015. Sales in our North American market decreased due to low overall demand from key customers which was partially offset by an increase in our European market during the first nine months of fiscal year 2016. Gross margin as a percentage of net sales decreased to 25.0% during the first nine months of fiscal 2016 as compared to 27.2% during the first nine months of fiscal 2015, due to continued price pressure and currency fluctuations along with write downs taken resulting from inventory obsolescence.

### Healthcare

Healthcare net sales increased 52.5% to $3.1 million during the third quarter of fiscal 2016, from $2.0 million during the third quarter of fiscal 2015. Sales increased due to the acquisition of IMES. Gross margin as a percentage of net sales increased to 45.5% during the third quarter of fiscal 2016 as compared to 24.6% during the third quarter of fiscal 2015 due to product mix. The IMES products carry significantly higher margins than the PACS display sales.

Healthcare net sales increased 108.3% to $9.3 million during the first nine months of fiscal 2016, from $4.5 million during the first nine months of fiscal 2015. Sales increased due to the acquisition of IMES. Gross margin as a percentage of net sales increased to 45.3% during the first nine months of fiscal 2016 as compared to 24.3% during the first nine months of fiscal 2015 due to product mix. The IMES products carry significantly higher margins than the PACS display sales.

### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) decreased to $12.5 million during the third quarter of fiscal 2016 from $12.6 million during the third quarter of fiscal 2015. The decrease in SG&A was due to $0.8 million decrease in IT services, $0.6 million in our other support functions, and $0.1 million in Canvys partially offset by an increase of $1.4 million related to IMES and additional investments in our Richardson Healthcare to support its growth.

Selling, general, and administrative expenses (“SG&A”) increased to $37.9 million during the first nine months of fiscal 2016 from $36.4 million during the first nine months of fiscal 2015. The increase in SG&A was due to $3.9 million of expenses related to IMES and additional investments in our Richardson Healthcare to support its growth objectives partially offset by reductions of $1.7 million in IT service expense, $0.2 million in our other support functions, $0.2 million in PMT, and $0.3 million in Canvys.

### Other Income/Expense

Other income/expense was $0.1 million of expense during the third quarter of fiscal 2016, compared to income of $0.5 million during the third quarter of fiscal 2015. Other income/expense during the third quarter of fiscal 2016 included $0.3 million of foreign exchange losses partially offset by $0.1 million of investment and interest income, and $0.1 million of other income. Other income/expense during the third quarter of fiscal 2015 included $0.2 million of investment and interest income and $0.3 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 $0.4 million of income during the first nine months of fiscal 2016, compared to income of $1.1 million during the first nine months of fiscal 2015. Other income/expense during the first nine months of fiscal 2016 included $0.4 million of investment and interest income and $0.1 million of other income partially offset by $0.1 million of foreign exchange losses. Other income/expense during the first nine months of fiscal 2015 included $0.7 million of investment and interest income and $0.3 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.

### Income Tax Provision

The effective income tax rate during the first nine months of fiscal 2016 was a tax provision of (12.7%), as compared to a tax benefit of 22.0%, during the first nine months of fiscal 2015. The difference in rate during the first nine months of fiscal 2016, as compared to the first nine months of fiscal 2015, is primarily driven by the impact of recording a valuation allowance against all of our U.S. state and federal net deferred tax assets, changes in our geographical distribution of income (loss), and our recording of uncertain tax positions with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). The (12.7%), effective income tax rate differs from the federal statutory rate of 34.0%, because of the recording of a valuation allowance against all of our U.S. state and federal net deferred tax assets, our geographical distribution of income (loss), and the final settlement of an 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 year 2011 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local, or non-U.S. tax jurisdictions. The Company is currently under income tax audit in Illinois. The audit is currently in the initial stages and no assessments have been issued. We are also currently under examination in Thailand (fiscal 2008 through 2011). The Company was contacted by the French tax authorities in February of 2016. The taxing authorities are auditing fiscal years ending 2013, 2014, and 2015. The tax audit has not officially commenced during Q3 of FY16 and as such no issues have yet been identified. Our primary foreign tax jurisdictions are Germany and the Netherlands. After the closure of the Germany tax audit for fiscal years 2009 through 2011, resulting in a tax liability of $357K ($31K recorded during the third quarter of fiscal year 2016), we have tax years open in Germany beginning in fiscal year 2012 and the Netherlands beginning in fiscal year 2010.

### Net Loss and Per Share Data

Net loss during the third quarter of fiscal 2016 was $2.9 million, or ($0.23) per diluted common share and ($0.21) per Class B diluted common share, as compared to net loss of $2.2 million during the third quarter of fiscal 2015, or ($0.16) per diluted common share and ($0.15) per Class B diluted common share.

Net loss during the first nine months of fiscal 2016 was $6.6 million, or ($0.51) per diluted common share and ($0.46) per Class B diluted common share, as compared to net loss of $3.3 million during the first nine months of fiscal 2015, or ($0.24) per diluted common share and ($0.21) per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

Our growth and cash needs have been primarily financed through income from operations and cash on hand. Cash and cash equivalents for the third quarter ended February 27, 2016, were $60.2 million. In addition, CDs and time deposits classified as short-term investments were $3.5 million and long-term investments were $7.8 million, including equity securities of $0.5 million. Cash and investments at February 27, 2016, consisted of $17.1 million in North America, $14.0 million in Europe, $0.9 million in Latin America, and $39.5 million in Asia/Pacific. As of May 30, 2015, cash and cash equivalents were $74.5 million. In addition, CDs and time deposits classified as short-term investments were $23.7 million and long-term investments were $11.5 million, including equity securities of $0.6 million. Cash and investments as of May 30, 2015, consisted of $51.1 million in North America, $16.6 million in Europe, $0.7 million in Latin America, and $41.3 million in Asia/Pacific.

### Cash Flows from Operating Activities

The cash used in operating activities primarily resulted from our net loss, adjusted for non-cash items, and changes in our operating assets and liabilities.

Operating activities used $14.6 million of cash during the first nine months of fiscal 2016. We had net loss of $6.6 million during the first nine months of fiscal 2016, which included non-cash stock-based compensation expense of $0.4 million associated with the issuance of stock option awards and depreciation and amortization expense of $1.9 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, was a use of cash of $10.2 million during the first nine months of fiscal 2016, due primarily to the increase in inventories of $5.6 million, the decrease in our accounts payable of $3.0 million, and the decrease in accrued liabilities of $2.1 million. The increase, or use of cash, for our inventory was primarily due to purchases related to our growth initiatives and several large orders that are expected to ship during the fourth quarter. The decrease in accounts payable and accrued liabilities is due to larger purchases of fixed assets and inventory primarily related to our healthcare initiative where shorter payment terms are required.

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.

### Cash Flows from Investing Activities

The cash flow from investing activities has consisted primarily of purchases and maturities of investments, capital expenditures, and any business acquisition activity.

Cash provided by investing activities of $8.6 million during the first nine months of fiscal 2016, included proceeds from the maturities of investments of $25.6 million and proceeds from the sale of our building in Spain of $0.4 million, offset by the acquisition of IMES of $12.2 million, purchases of investments of $2.1 million, and $3.0 million in capital expenditures. Capital expenditures of $1.6 million relates primarily to our Healthcare growth initiatives and capital used for our new IT system.

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.

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 $7.2 million during the first nine months of fiscal 2016, resulted from $5.0 million of cash used to repurchase common stock under our share repurchase authorization and $2.3 million of cash used to pay dividends, offset by $0.1 million of proceeds from the issuance of common stock.

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.

Dividend payments for the first nine months of fiscal 2016 were approximately $2.3 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.

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 fiscal year ending May 27, 2017.

## 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 30, 2015, filed July 28, 2015.

## Controls and procedures

As filed, 1,612 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 27, 2016.

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 third quarter of fiscal 2016 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 30, 2015, filed July 28, 2015.

Filed Apr 7, 2016.
Source: SEC EDGAR, the filing index for accession 0001387131-16-004902. Last ingested by Listed: Nov 2, 2026, 11:55 ET. No prices; not investment advice.