# Richardson Electronics, LTD.: Form 10-Q for the period ended Feb 25, 2017

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2017-04-06
- Accepted by EDGAR: Apr 6, 2017, 13:41 ET
- Period: 2017-02-25
- Accession: 0001387131-17-001965
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000138713117001965/rell-10q_022517.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000138713117001965/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-02-25.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2016-11-27 to 2017-02-25 | $32.3m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2016-05-29 to 2017-02-25 | $99.5m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2016-11-27 to 2017-02-25 | $21.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2016-05-29 to 2017-02-25 | $67.6m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2016-11-27 to 2017-02-25 | $10.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2016-05-29 to 2017-02-25 | $31.9m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2016-11-27 to 2017-02-25 | $12.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2016-05-29 to 2017-02-25 | $37.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2016-11-27 to 2017-02-25 | −$1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2016-05-29 to 2017-02-25 | −$5.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2016-11-27 to 2017-02-25 | −$10.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2016-05-29 to 2017-02-25 | $820.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2016-11-27 to 2017-02-25 | −$1.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2016-05-29 to 2017-02-25 | −$6.8m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2016-11-27 to 2017-02-25 | 12,847,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2016-05-29 to 2017-02-25 | 12,845,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2016-11-27 to 2017-02-25 | −$1.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2016-05-29 to 2017-02-25 | −$3.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2016-11-27 to 2017-02-25 | $764.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2016-05-29 to 2017-02-25 | $4.1m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2016-11-27 to 2017-02-25 | $758.0k | us-gaap:PaymentsOfDividends |
| Dividends paid | 9 months, 2016-05-29 to 2017-02-25 | $2.3m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2017-02-25 | $51.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-02-25 | $124.6m | us-gaap:AssetsCurrent |
| Total assets | at 2017-02-25 | $153.3m | us-gaap:Assets |
| Current liabilities | at 2017-02-25 | $21.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-02-25 | $22.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2017-02-25 | $131.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,265 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 29, 2016. 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 25, 2017, and February 27, 2016.
- **Results of Operations –** an analysis and comparison of our consolidated results of operations for the three and nine month periods ended February 25, 2017, and February 27, 2016, 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 25, 2017, and February 27, 2016, 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.

We have three operating and reportable segments which we define as follows:

Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions, power grid and microwave tube business with new RF and power technologies. As a manufacturer and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and 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 25, 2017

- Net sales for the third quarter of fiscal 2017 were $32.3 million, an increase of 3.3%, compared to net sales of $31.3 million during the third quarter of fiscal 2016.
- Gross margin increased to 33.1% during the third quarter of fiscal 2017, compared to 31.2% during the third quarter of fiscal 2016.
- Selling, general, and administrative expenses were $12.0 million, or 37.1% of net sales, for the third quarter of fiscal 2017, compared to $12.5 million, or 39.9% of net sales, for the third quarter of fiscal 2016.
- Operating loss during the third quarter of fiscal 2017 was $1.3 million, compared to an operating loss of $2.7 million in the third quarter of fiscal 2016.
- Net loss during the third quarter of fiscal 2017 was $1.4 million, compared to net loss of $2.9 million, during the third quarter of fiscal 2016.

### Financial Summary – Nine Months Ended February 25, 2017

- Net sales for the first nine months of fiscal 2017 were $99.5 million, a decrease of 2.9%, compared to net sales of $102.4 million during the first nine months of fiscal 2016.
- Gross margin increased to 32.1% during the first nine months of fiscal 2017, compared to 30.7% during the first nine months of fiscal 2016.
- Selling, general, and administrative expenses were $37.7 million, or 37.9% of net sales, for the first nine months of fiscal 2017, compared to $37.9 million, or 37.0% of net sales, for the first nine months of fiscal 2016.
- Operating loss during the first nine months of fiscal 2017 was $5.8 million, compared to an operating loss of $6.2 million in the first nine months of fiscal 2016.

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- Net loss during the first nine months of fiscal 2017 was $6.8 million, compared to net loss of $6.6 million, during the first nine months of fiscal 2016.

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change for the third quarter and first nine months of fiscal 2017 and 2016 were as follows (*in thousands):*

| Net Sales | Three Months Ended February 25, 2017 | February 27, 2016 | FY17 vs. FY16 % Change |
| --- | ---: | ---: | ---: |
| PMT | $24,763 | $23,008 | 7.6% |
| Canvys | 4,824 | 5,190 | -7.1% |
| Healthcare | 2,726 | 3,093 | -11.9% |
| Total | $32,313 | $31,291 | 3.3% |

|  | Nine Months Ended February 25, 2017 | February 27, 2016 | FY17 vs. FY16 % Change |
| --- | ---: | ---: | ---: |
| PMT | $75,373 | $75,365 | 0.0% |
| Canvys | 14,883 | 17,773 | -16.3% |
| Healthcare | 9,257 | 9,310 | -0.6% |
| Total | $99,513 | $102,448 | -2.9% |

During the third quarter of fiscal 2017 consolidated net sales increased 3.3% compared to the third quarter of fiscal 2016. Sales for PMT increased 7.6%, sales for Canvys decreased 7.1 %, and sales for Healthcare decreased 11.9%. The increase in PMT was due to new technology partners in power conversion and RF and microwave components. The decline in Canvys was primarily due to declines in overall demand from key original equipment manufacturers. The decrease in Richardson Healthcare was due to lower sales of displays and detectors and availability of harvested CT Tubes.

During the first nine months of fiscal 2017 consolidated net sales decreased 2.9% compared to the first nine months of fiscal 2016. Sales for PMT were flat, sales for Canvys decreased 16.3%, and sales for Healthcare decreased by 0.6%. The decline in Canvys was primarily due to declines in overall demand from key original equipment manufacturers. The decrease in Richardson Healthcare was due to lower Display and Detector sales, offset by higher sales of IMES spare parts.

Gross profit by segment and percent change for the third quarter and first nine months of fiscal 2017 and 2016 were as follows (*in thousands):*

| Gross Profit | Three Months Ended February 25, 2017 | % of Net Sales | February 27, 2016 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $8,075 | 32.6% | $7,140 | 31.0% |
| Canvys | 1,331 | 27.6% | 1,204 | 23.2% |
| Healthcare | 1,286 | 47.2% | 1,406 | 45.5% |
| Total | $10,692 | 33.1% | $9,750 | 31.2% |

|  | Nine Months Ended February 25, 2017 | % of Net Sales | February 27, 2016 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $23,803 | 31.6% | $22,793 | 30.2% |
| Canvys | 4,222 | 28.4% | 4,439 | 25.0% |
| Healthcare | 3,871 | 41.8% | 4,215 | 45.3% |
| Total | $31,896 | 32.1% | $31,447 | 30.7% |

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Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs, unabsorbed manufacturing labor and overhead, and other provisions.

Consolidated gross profit increased to $10.7 million during the third quarter of fiscal 2017, compared to $9.8 million during the third quarter of fiscal 2016. Consolidated gross margin as a percentage of net sales increased to 33.1% during the third quarter of fiscal 2017, from 31.2% during the third quarter of fiscal 2016, primarily due to product mix and scrap metal recoveries from our Brive, France production facility for PMT, and product mix and lower inventory reserve requirements for Canvys.

Consolidated gross profit increased to $31.9 million during the first nine months of fiscal 2017, compared to $31.4 million during the first nine months of fiscal 2016. Consolidated gross margin as a percentage of net sales increased to 32.1% during the first nine months of fiscal 2017, from 30.7% during the first nine months of fiscal 2016, primarily due to favorable product mix and scrap metal recoveries from our Brive, France production facility for PMT, and favorable product mix for Canvys.

### Power and Microwave Technologies Group

PMT net sales of $24.8 million increased 7.6% during the third quarter of fiscal 2017, compared to $23.0 million in the third quarter of fiscal 2016. The increase included sales from new technology partners in power conversion and RF and microwave components, products sold in laser applications, and specialty products manufactured in LaFox which are sold primarily into the semiconductor capital equipment market. The sales increase was partially offset by lower sales of Electron devices sold into the aviation market. Gross margin as a percentage of net sales increased to 32.6% during the third quarter of fiscal 2017, as compared to 31.0% during the third quarter of fiscal 2016, due to product mix and scrap metal recoveries from our Brive, France production facility.

PMT net sales were $75.4 million during the first nine months of fiscal 2017 and during the first nine months of fiscal 2016. Sales increased from new technology partners in power conversion and RF and microwave components, Electron devices sold into the aviation market and products sold in laser applications. The sales increase was offset by lower sales of Electron devices sold into the industrial power, laser, radar, medical, and marine industries as well as lower sales of specialty products manufactured in LaFox which were sold primarily into the semiconductor capital equipment market during the first two quarters. Gross margin as a percentage of net sales increased to 31.6% during the first nine months of fiscal 2017, as compared to 30.2% during the nine months of fiscal 2016, due to product mix and scrap metal recoveries from our Brive, France production facility.

### Canvys

Canvys net sales decreased 7.1% to $4.8 million during the third quarter of fiscal 2017, from $5.2 million during the third quarter of fiscal 2016 primarily due to a decrease in customer demand in our North America market. Gross margin as a percentage of net sales increased to 27.6% during the third quarter of fiscal 2017 as compared to 23.2% during the third quarter of fiscal 2016, due to favorable product mix and lower inventory reserves.

Canvys net sales decreased 16.3% to $14.9 million during the first nine months of fiscal 2017, from $17.8 million during the first nine months of fiscal 2016 primarily due to a significant decrease in customer demand in our North America market. Gross margin as a percentage of net sales increased to 28.4% during the first nine months of fiscal 2017 as compared to 25.0% during the first nine months of fiscal 2016, due to favorable product mix and lower inventory reserves.

### Healthcare

Healthcare net sales decreased 11.9% to $2.7 million during the third quarter of fiscal 2017, from $3.1 million during the third quarter of fiscal 2016 primarily due to decreases in the sales of displays and detectors and CT Tubes partially offset by an increase in sales of IMES products. Gross margin as a percentage of net sales increased to 47.2% during the third quarter of fiscal 2017 as compared to 45.5% during the third quarter of fiscal 2016 due to a product mix which favored more spare parts sales which typically carry higher margins.

Healthcare net sales were $9.3 million during the first nine months of fiscal 2017 and during the first nine months of fiscal 2016. An increase in the sales of IMES products was offset by lower Display and Detector sales. Gross margin as a percentage of net sales decreased to 41.8% during the first nine months of fiscal 2017 as compared to 45.3% during the first nine months of fiscal 2016 due to product mix.

### Selling, General, and Administrative Expenses

Selling, general, and administrative expenses (“SG&A“) decreased to $12.0 million during the third quarter of fiscal 2017 from $12.5 million in the third quarter of fiscal 2016. The decrease was due to lower salaries, benefits, and incentive compensation expenses as a result of the reduction in workforce that occurred during the second quarter of fiscal 2017, and a reduction of IT expenses compared to fiscal 2016.

Selling, general, and administrative expenses (“SG&A“) decreased to $37.7 million during the first nine months of fiscal 2017 from $37.9 million during the first nine months of fiscal 2016. The decrease was due to lower salaries and incentive compensation expenses, and a reduction of IT expenses compared to fiscal 2016, mostly offset by $1.3 million of severance expense related to a reduction in workforce during the second quarter of fiscal 2017.

### Other Income/Expense

Other income/expense was $0.1 million of expense for both the third quarter of fiscal 2017 and the third quarter of fiscal 2016. Other income during the third quarter of fiscal 2017 included $0.2 million of foreign exchange losses and $0.1 million of investment/interest income. 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/interest income, and $0.1 million of other income. 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 $0.2 million of expense during the first nine months of fiscal 2017, compared to income of $0.4 million during the first nine months of fiscal 2016. Other expense during the first nine months of fiscal 2017 included $0.3 million of foreign exchange losses and $0.1 million of investment/interest income. Other income during the first nine months of fiscal 2016 included $0.4 million of investment/interest income and $0.1 million of other income partially offset by $0.1 million of foreign exchange losses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

### Income Tax Provision

We recorded an income tax provision of $0.8 million and $0.7 million for the first nine months of fiscal 2017 and the first nine months of fiscal 2016, respectively. Overall, the Company has certain foreign jurisdictions that have operating profits while the U.S. continues to experience operating losses while maintaining a full valuation allowance. The effective income tax rate during the first nine months of fiscal 2017 was a tax provision of (13.7%), as compared to a tax provision of (12.7%) during the first nine months of fiscal 2016. The difference in rate during the first nine months of fiscal 2017, as compared to the first nine months of fiscal 2016, reflects the impact of changes in our geographical distribution of income (loss), the recording of provision to return true-ups of various foreign jurisdictions, and our positions with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). The (13.7%) effective income tax rate differs from the federal statutory rate of 34.0% as a result of our geographical distribution of income (loss), the recording of various provision to return true-ups in foreign jurisdictions, the closure of the French tax audit, and the recording of a valuation allowance against the increase in our U.S. state and federal 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 2006 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local, or non-U.S. tax jurisdictions. We are currently under examination in Germany (fiscal 2011 through 2014) and Thailand (fiscal 2008 through 2011). We are also under examination in the state of Illinois (fiscal 2011 through 2013). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2012 and the Netherlands beginning in fiscal 2010.

### Net Loss and Per Share Data

Net loss during the third quarter of fiscal 2017 was $1.4 million, or ($0.11) per diluted common share and ($0.10) per Class B diluted common share, as compared to net loss of $2.9 million during the third quarter of fiscal 2016, or ($0.23) per diluted common share and ($0.21) per Class B diluted common share.

Net loss during the first nine months of fiscal 2017 was $6.8 million, or ($0.54) per diluted common share and ($0.48) per Class B diluted common share, as compared to net loss of $6.6 million during the first nine months of fiscal 2016, or ($0.51) per diluted common share and ($0.46) per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

Our growth and cash needs have been primarily financed through cash on hand.

Cash and cash equivalents at February 25, 2017, were $51.4 million. Investments included CDs and time deposits classified as short-term investments were $6.4 million and long-term investments were $2.4 million, including equity securities of $0.6 million. Cash and investments at February 25, 2017, consisted of $15.6 million in North America, $13.9 million in Europe, $1.2 million in Latin America, and $29.5 million in Asia/Pacific. During the first quarter of fiscal 2017, we completed a cash repatriation of $11.3 million, which included a return of capital and dividend from our Chinese entity to our U.S. parent company.

Cash and cash equivalents were $60.4 million at May 28, 2016. Investments included CDs and time deposits, classified as short-term investments were $2.3 million and long-term investments were $7.8 million including equity securities of $0.6 million. Cash and investments at May 28, 2016, consisted of $18.1 million in North America, $12.6 million in Europe, $0.7 million in Latin America, and $39.1 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 $3.2 million of cash during the first nine months of fiscal 2017. We had net loss of $6.8 million during the first nine months of fiscal 2017, which included non-cash stock-based compensation expense of $0.4 million associated with the issuance of stock option awards, deferred income tax credit adjustment of $0.2 million, and depreciation and amortization expense of $2.0 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities during the first nine months of fiscal 2017, net of foreign currency exchange gains and losses, included an increase of $1.0 million in prepaid expenses, a decrease of $2.4 million in accounts payable and a decrease in other accrued liabilities of $0.3 million, partially offset by decreases in receivables of $3.2 million and inventories of $1.9 million. The decrease in receivables of $3.2 million was primarily due to the collection of a large receivable during the first quarter of fiscal 2017 that was invoiced during the fourth quarter of fiscal 2016. The inventory decrease was due to decreases in selected electron tubes. The decrease in our accounts payable was due to timing of payments for some of our larger vendors and also the result of shorter payment terms for our Richardson Healthcare vendors.

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 shipped during the fourth quarter. The decrease in accounts payable and accrued liabilities was due to larger purchases of fixed assets and inventory primarily related to our Healthcare growth initiative where shorter payment terms are required.

### 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 used by investing activities of $2.6 million during the first nine months of fiscal 2017, included proceeds from the maturities of investments of $3.6 million, offset by $2.1 million from purchases of investments and $4.1 million in capital expenditures. Capital expenditures relates primarily to our Healthcare growth initiative and capital used for our new IT system.

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.

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 $2.2 million during the first nine months of fiscal 2017, resulted from cash used to pay dividends.

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.

Dividend payments for the first nine months of fiscal 2017 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 next twelve 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 28, 2016, filed July 29, 2016.

## 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 25, 2017.

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

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 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 648 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 28, 2016, filed July 29, 2016.

|  |  |
| --- | --- |
| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
| **ITEM 5.** | **OTHER INFORMATION** |

### Results of Operation and Financial Condition and Declaration of Dividend

On April 5, 2017, we issued a press release reporting results for our third quarter ended February 25, 2017, and the declaration of a cash dividend. A copy of the press release is furnished as Exhibit 99.1 to this Form 10-Q and incorporated by reference herein.

Filed Apr 6, 2017.
Source: SEC EDGAR, the filing index for accession 0001387131-17-001965. Last ingested by Listed: Nov 10, 2026, 23:29 ET. No prices; not investment advice.