# Richardson Electronics, LTD.: Form 10-Q for the period ended Mar 3, 2018

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2018-04-12
- Accepted by EDGAR: Apr 12, 2018, 14:50 ET
- Period: 2018-03-03
- Accession: 0001387131-18-001554
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000138713118001554/rell-10q_030318.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000138713118001554/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-03-03.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2017-12-03 to 2018-03-03 | $27.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2017-05-28 to 2018-03-03 | $78.1m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2017-12-03 to 2018-03-03 | $14.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2017-05-28 to 2018-03-03 | $39.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2017-12-03 to 2018-03-03 | $13.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2017-05-28 to 2018-03-03 | $38.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-12-03 to 2018-03-03 | $967.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2017-05-28 to 2018-03-03 | $1.8m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2017-12-03 to 2018-03-03 | $488.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2017-05-28 to 2018-03-03 | $1.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-12-03 to 2018-03-03 | $527.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2017-05-28 to 2018-03-03 | $2.1m | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2017-12-03 to 2018-03-03 | $2.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2017-05-28 to 2018-03-03 | −$292.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2017-12-03 to 2018-03-03 | $1.5m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2017-05-28 to 2018-03-03 | $4.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2018-03-03 | $59.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-03-03 | $134.8m | us-gaap:AssetsCurrent |
| Total assets | at 2018-03-03 | $163.4m | us-gaap:Assets |
| Current liabilities | at 2018-03-03 | $25.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-03-03 | $26.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2018-03-03 | $136.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,382 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 31, 2017. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.*

*In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-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 March 3, 2018 and February 25, 2017.
- **Results of Operations –** an analysis and comparison of our consolidated results of operations for the three and nine month periods ended March 3, 2018 and February 25, 2017, as reflected in our consolidated statements of comprehensive income (loss).
- **Liquidity, Financial Position and Capital Resources –** a discussion of our primary sources and uses of cash for the three and nine month periods ended March 3, 2018, and February 25, 2017, 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 flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.

Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing, and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, medical, and communication applications.

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

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

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical original equipment manufacturers (“OEM”) markets.

Healthcare manufactures, refurbishes and distributes high value replacement parts for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations, and multi-vendor service providers. Products include Diagnostic Imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads, and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings, and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.

We currently have operations in the following geographic regions: North America, Asia/Pacific, Europe and Latin America.

### RESULTS OF OPERATIONS

### Financial Summary – Three Months Ended March 3, 2018

- Net sales for the third quarter of fiscal 2018 were $41.6 million, an increase of 28.9%, compared to net sales of $32.3 million during the third quarter of fiscal 2017.
- Gross margin increased to 33.8% during the third quarter of fiscal 2018, compared to 33.1% during the third quarter of fiscal 2017.
- Selling, general and administrative expenses were $13.1 million, or 31.4% of net sales, for the third quarter of fiscal 2018, compared to $12.0 million, or 37.1% of net sales, for the third quarter of fiscal 2017.
- Operating income during the third quarter of fiscal 2018 was $1.0 million, compared to an operating loss of $1.3 million in the third quarter of fiscal 2017.
- Net income during the third quarter of fiscal 2018 was $0.5 million, compared to net loss of $1.4 million during the third quarter of fiscal 2017.

### Financial Summary – Nine Months Ended March 3, 2018

- The first nine months of fiscal 2018 and 2017 contained 40 and 39 weeks, respectively.
- Net sales for the first nine months of fiscal 2018 were $117.7 million, an increase of 18.3%, compared to net sales of $99.5 million during the first nine months of fiscal 2017.
- Gross margin increased to 33.6% during the first nine months of fiscal 2018, compared to 32.1% during the first nine months of fiscal 2017.
- Selling, general and administrative expenses were $38.0 million, or 32.3% of net sales, for the first nine months of fiscal 2018, compared to $37.7 million, or 37.9% of net sales, for the first nine months of fiscal 2017.
- Operating income during the first nine months of fiscal 2018 was $1.8 million, compared to an operating loss of $5.8 million in the first nine months of fiscal 2017.
- Income from continuing operations during the first nine months of fiscal 2018 was $0.6 million, compared to loss from continuing operations of $6.8 million in the first nine months of fiscal 2017.
- Income from discontinued operations during the first nine months of fiscal 2018 was $1.5 million. There was no income (loss) from discontinued operations during the first nine months of fiscal 2017.
- Net income during the first nine months of fiscal 2018 was $2.1 million, compared to net loss of $6.8 million during the first nine months of fiscal 2017.

18

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change for the third quarter and first nine months of fiscal 2018 and 2017 were as follows (*in thousands):*

| Net Sales | Three Months Ended March 3, 2018 | February 25, 2017 | FY18 vs. FY17 % Change |
| --- | ---: | ---: | ---: |
| PMT | $31,869 | $24,763 | 28.7% |
| Canvys | 7,585 | 4,824 | 57.2% |
| Healthcare | 2,191 | 2,726 | -19.6% |
| Total | $41,645 | $32,313 | 28.9% |

|  | Nine Months Ended March 3, 2018 | February 25, 2017 | FY18 vs. FY17 % Change |
| --- | ---: | ---: | ---: |
| PMT | $91,056 | $75,373 | 20.8% |
| Canvys | 20,057 | 14,883 | 34.8% |
| Healthcare | 6,609 | 9,257 | -28.6% |
| Total | $117,722 | $99,513 | 18.3% |

During the third quarter of fiscal 2018 consolidated net sales increased 28.9% compared to the third quarter of fiscal 2017. Sales for PMT increased 28.7%, sales for Canvys increased 57.2% and sales for Healthcare decreased 19.6%. The increase in PMT was due to specialty products engineered and manufactured in LaFox which are sold to the semiconductor capital market and new technology partners in power conversion and RF and microwave components. The increase for Canvys was due to increased customer demand in both our North American and European markets. The decrease in Richardson Healthcare was primarily due to the sale of the PACS display business at the end of fiscal 2017, partially offset by higher sales of equipment and certified and refurbished CT tubes.

During the first nine months of fiscal 2018 consolidated net sales increased 18.3% compared to the first nine months of fiscal 2017. Sales for PMT increased 20.8%, sales for Canvys increased 34.8% and sales for Healthcare decreased 28.6%. The increase in PMT was due to specialty products engineered and manufactured in LaFox which are sold to the semiconductor capital market, new technology partners in power conversion and RF and microwave components, complemented by increased sales of power grid tubes. The increase for Canvys was due to increased customer demand in both our North American and European markets. The decrease in Richardson Healthcare was primarily due to the sale of the PACS display business at the end of fiscal 2017, partially offset by higher sales of equipment and certified and refurbished CT tubes.

Gross profit by segment and percent of net sales for the third quarter and first nine months of fiscal 2018 and 2017 were as follows (*in thousands):*

| Gross Profit | Three Months Ended March 3, 2018 | % of Net Sales | February 25, 2017 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $10,656 | 33.4% | $8,075 | 32.6% |
| Canvys | 2,571 | 33.9% | 1,331 | 27.6% |
| Healthcare | 840 | 38.3% | 1,286 | 47.2% |
| Total | $14,067 | 33.8% | $10,692 | 33.1% |

|  | Nine Months Ended March 3, 2018 | % of Net Sales | February 25, 2017 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $30,492 | 33.5% | $23,803 | 31.6% |
| Canvys | 6,245 | 31.1% | 4,222 | 28.4% |
| Healthcare | 2,852 | 43.2% | 3,871 | 41.8% |
| Total | $39,589 | 33.6% | $31,896 | 32.1% |

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

Consolidated gross profit increased to $14.1 million during the third quarter of fiscal 2018, compared to $10.7 million during the third quarter of fiscal 2017. Consolidated gross margin as a percentage of net sales increased to 33.8% during the third quarter of fiscal 2018, from 33.1% during the third quarter of fiscal 2017, primarily due to favorable product mix for PMT and favorable product mix and lower costs on selected products for Canvys.

Consolidated gross profit increased to $39.6 million during the first nine months of fiscal 2018, compared to $31.9 million during the first nine months of fiscal 2017. Consolidated gross margin as a percentage of net sales increased to 33.6% during the first nine months of fiscal 2018, from 32.1% during the first nine months of fiscal 2017, primarily due to favorable product mix for PMT, favorable product mix and lower costs on selected products for Canvys and the sale of the PACS display business, which generated lower margins in our Healthcare business.

### Power and Microwave Technologies Group

PMT net sales increased 28.7% to $31.9 million during the third quarter of fiscal 2018, from $24.8 million during the third quarter of fiscal 2017. The increase was due to specialty products engineered and manufactured in LaFox which are sold to the semiconductor capital market and new technology partners in power conversion and RF and microwave components. Gross margin as a percentage of net sales increased to 33.4% during the third quarter of fiscal 2018, as compared to 32.6% during the third quarter of fiscal 2017, due to favorable product mix.

PMT net sales increased 20.8% to $91.1 million during the first nine months of fiscal 2018, from $75.4 million during the first nine months of fiscal 2017. The increase included sales of specialty products engineered and manufactured in LaFox which are sold primarily into the semiconductor capital equipment market, sales from new technology partners in power conversion and RF and microwave components, complemented by increased sales of power grid tubes. Gross margin as a percentage of net sales increased to 33.5% during the first nine months of fiscal 2018, as compared to 31.6% during the nine months of fiscal 2017, due to favorable product mix and favorable manufacturing results from our LaFox production facility.

### Canvys

Canvys net sales increased 57.2% to $7.6 million during the third quarter of fiscal 2018, from $4.8 million during the third quarter of fiscal 2017 due to increased customer demand in both our North American and European markets. Gross margin as a percentage of net sales increased to 33.9% during the third quarter of fiscal 2018 as compared to 27.6% during the third quarter of fiscal 2017, due to favorable product mix and lower costs on selected products sold.

Canvys net sales increased 34.8% to $20.1 million during the first nine months of fiscal 2018, from $14.9 million during the first nine months of fiscal 2017 due to increased customer demand in both our North American and European markets. Gross margin as a percentage of net sales increased to 31.1% during the first nine months of fiscal 2018 as compared to 28.4% during the first nine months of fiscal 2017, due to favorable product mix and lower costs on selected products sold.

### Healthcare

Healthcare net sales decreased 19.6% to $2.2 million during the third quarter of fiscal 2018, from $2.7 million during the third quarter of fiscal 2017 primarily due to the sale of the PACS display business at the end of fiscal 2017, partially offset by higher sales of equipment and certified and refurbished CT tubes. Gross margin as a percentage of net sales decreased to 38.3% during the third quarter of fiscal 2018 as compared to 47.2% during the third quarter of fiscal 2017 due to an unfavorable product mix that favored equipment sales.

Healthcare net sales decreased 28.6% to $6.6 million during the first nine months of fiscal 2018, from $9.3 million during the first nine months of fiscal 2017 primarily due to the sale of the PACS display business at the end of fiscal 2017, partially offset by higher sales of equipment and certified and refurbished CT tubes. Gross margin as a percentage of net sales increased to 43.2% during the first nine months of fiscal 2018 as compared to 41.8% during the first nine months of fiscal 2017 due to the sale of the PACS display business, which generated lower margins, offset partially by an unfavorable product mix that favored equipment sales.

### Selling, General, and Administrative Expenses

Selling, general and administrative expenses increased to $13.1 million during the third quarter of fiscal 2018 from $12.0 million in the third quarter of fiscal 2017. The increase was due to higher compensation and other expenses mostly related to the increase in net sales as well as higher research and development costs and other incremental expenses for Richardson Healthcare. Operating expenses as a percent of sales decreased to 31.4% in the third quarter of fiscal 2018 from 37.1% in the third quarter of fiscal 2017.

Selling, general and administrative expenses increased to $38.0 million during the first nine months of fiscal 2018 from $37.7 million during the first nine months of fiscal 2017. The increase was due to higher compensation and other expenses mostly related to the increase in net sales as well as higher research and development costs and other incremental expenses to support our growth strategies in Richardson Healthcare. The increase was partially offset by a charge of $1.3 million in the second quarter of fiscal 2017 for severance expense related to a reduction in workforce.

### Other Income/Expense

Other income/expense was less than $0.1 million during the third quarter of fiscal 2018, compared to expense of $0.1 million during the third quarter of fiscal 2017. Other income/expense during the third quarter of fiscal 2018 included $0.2 million of foreign exchange losses and $0.2 million of investment/interest income. Other expense during the third quarter of fiscal 2017 included $0.2 million of foreign exchange losses and $0.1 million of investment/interest 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 $0.1 million of expense during the first nine months of fiscal 2018, compared to expense of $0.2 million during the first nine months of fiscal 2017. Other expense during the first nine months of fiscal 2018 included $0.5 million of foreign exchange losses partially offset by $0.4 million of investment/interest income. 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. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

### Income Tax Provision

We recorded an income tax provision from continuing operations of $1.1 million and $0.8 million for the first nine months of fiscal 2018 and the first nine months of fiscal 2017, respectively. The effective income tax rate from continuing operations during the first nine months of fiscal 2018 was a tax provision of 65.0%, as compared to a tax provision of (13.7%) during the first nine months of fiscal 2017. The difference in rate during the first nine months of fiscal 2018, as compared to the first nine months of fiscal 2017, reflects the change in the overall loss realized through the third quarter in each respective period, changes in our geographical distribution of income (loss), the recording of provision to return true-ups of various foreign jurisdictions, the accrual of an uncertain tax position with respect to a German audit and our positions with respect to permanent reinvestment of foreign earnings under ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). The 65.0% effective income tax rate differs from the federal statutory rate of 29.2% as a result of our geographical distribution of income (loss), the recording of a valuation allowance against the increase in our U.S. state and federal net deferred tax assets, recognition of an uncertain tax position and preliminary tax assessments with respect to the income tax audit in Germany.

On December 22, 2017, the U.S. government enacted new tax legislation, Tax Cuts and Jobs Act (the “Act”). The primary provisions of the Act expected to impact the Company in fiscal 2018 are a reduction to the U.S. corporate income tax rate from 35% to 21% and a transition from a worldwide corporate tax system to a territorial tax system. The reduction in the corporate income tax rate requires the Company to remeasure its net deferred tax assets to the new corporate tax rate and the transition to a territorial tax system requires payment of a one-time tax on deemed repatriation of undistributed and previously untaxed non-U.S. earnings. Primarily as a result of those provisions of the Act, the Company recorded a deferred remeasurement impact of approximately $1.6 million, which was fully offset by the valuation allowance movement. Additionally, the estimated deemed earnings repatriation tax, net of available foreign tax credits brought back as part of the deemed repatriation, was $3.5 million. The Company does not anticipate any cash tax payments due to the foreign tax credit carryforwards available to fully offset the provisional deemed repatriation tax.

The 21% corporate income tax rate was effective January 1, 2018. Based on the Company’s June 2, 2018 fiscal year end, the U.S. statutory income tax rate for fiscal 2018 will be approximately 29.2%.

The tax impact recorded for the Act during the third quarter of fiscal 2018 was provisional as outlined below and may change. The Company completed a preliminary assessment of earnings that could be repatriated based on reinvestment needs of non-U.S. operations and earnings available for repatriation. The estimated withholding tax that would be incurred from the repatriation of those earnings is included in the third quarter of fiscal 2018 provisional income tax expense. The Company continues to analyze the provisions of the Act addressing the net deferred tax asset remeasurement and its calculations, the deemed earnings repatriation, including the determination of undistributed non-U.S. earnings, and evaluate potential Company actions, including repatriating additional non-U.S. earnings and actions that could affect the Company’s fiscal year ended 2018 U.S. taxable income. In addition, the Company continues to monitor potential legislative action and regulatory interpretations of the Act.

Based on the effective date of certain provisions, the Company will be subject to additional requirements of the Act beginning in fiscal 2019. Those provisions include a tax on global intangible low-taxed income (GILTI), a tax determined by base erosion tax benefits (BEAT) from certain payments between a U.S. corporation and foreign subsidiaries, a limitation of certain executive compensation, a deduction for foreign derived intangible income (FDII) and interest expense limitations. The Company has not completed its analysis of those provisions and the estimated impact. The Company also has not determined its accounting policy to treat the taxes due on GILTI as a period cost or include in the determination of deferred taxes.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 that allows for a measurement period up to one year after the enactment date of the Act to complete the accounting requirements. The Company will complete the adjustments related to the Act within the allowed period.

We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. Due to the deemed earnings repatriation tax, the outside basis difference for which the historic balance has primarily related has been reduced. The deferred tax liability on the outside basis difference is now primarily withholding tax. Accordingly, we have reduced the deferred tax liability from $5.7 million as of the second quarter of fiscal 2018 to $0.2 million as of the third quarter of fiscal 2018 on foreign earnings of $47.2 million.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2007 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We are currently under examination in Thailand (fiscal 2008 through 2011). We are also under examination in the state of Illinois for fiscal years 2014 and 2015. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2015 and the Netherlands beginning in fiscal 2011.

On September 12, 2017, the Company received an income tax refund from the State of Illinois of approximately $2.0 million, which was inclusive of interest earned. The refund was a result of the conclusion of the Illinois amended return related to the sale of the RF, Wireless and Power Division in 2011. A net benefit of $1.5 million, which includes $0.5 million of professional fee costs incurred to pursue the refund, was recognized in the second quarter of fiscal 2018 in discontinued operations.

Recently Adopted Accounting Standards

In March 2016, the FASB issued ASU No. 2016-09, “*Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”,* a new accounting standard update intended to simplify several aspects of the accounting for share-based payment transactions including: income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Specifically, the update requires that excess tax benefits and tax deficiencies (the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes) be recognized as income tax expense or benefit in the consolidated statements of comprehensive income (loss), introducing a new element of volatility to the provision for income taxes. This update is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company adopted the ASU on May 28, 2017. Effective with the adoption of the ASU all share-based awards continue to be accounted for as equity awards, excess tax benefits recognized on stock-based compensation expense are reflected in the consolidated statements of comprehensive income (loss) as a component of the provision for income taxes on a prospective basis, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in the consolidated statements of cash flows on a prospective basis and the Company has elected to continue to estimate expected forfeitures over the course of a vesting period. The adoption of the ASU had no impact on the retained earnings, other components of equity or net assets as of the beginning of the period of adoption.

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

Net income during the third quarter of fiscal 2018 was $0.5 million or $0.04 per diluted common share and $0.04 per Class B diluted common share, as compared to net loss of $1.4 million during the third quarter of fiscal 2017, or ($0.11) per diluted common share and ($0.10) per Class B diluted common share.

Net income, including income from discontinued operations of $1.5 million, during the first nine months of fiscal 2018 was $2.1 million, or $0.17 per diluted common share and $0.15 per Class B diluted common share, as compared to net loss of $6.8 million during the first nine months of fiscal 2017, or ($0.54) per diluted common share and ($0.48) per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

Our operations and cash needs have been primarily financed through income from operations and cash on hand.

Cash and cash equivalents were $59.9 million at March 3, 2018. Investments included CDs and time deposits classified as short-term investments of $0.2 million. Cash and investments at March 3, 2018, consisted of $9.4 million in North America, $19.4 million in Europe, $1.1 million in Latin America, and $30.2 million in Asia/Pacific.

Cash and cash equivalents were $55.4 million at May 27, 2017. Investments included CD’s and time deposits, classified as short-term investments were $6.4 million and long-term investments were $2.4 million including equity securities of $0.6 million. Cash and investments at May 27, 2017, consisted of $16.3 million in North America, $15.5 million in Europe, $1.5 million in Latin America and $30.9 million in Asia/Pacific. During the first quarter of fiscal 2017, we completed a cash repatriation of $11.3 million, which included a return of capital and dividend from our Chinese entity to our U.S. parent company.

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

### Cash Flows from Operating Activities

The cash used in operating activities primarily resulted from adjustments for non-cash items and changes in our operating assets and liabilities.

Operating activities used $0.3 million of cash during the first nine months of fiscal 2018. We had net income of $2.1 million during the first nine months of fiscal 2018, which included non-cash stock-based compensation expense of $0.4 million associated with the issuance of stock option and restricted stock awards and depreciation and amortization expense of $2.2 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 2018, net of foreign currency exchange gains and losses, included an increase in inventories of $5.2 million, a decrease of $0.4 million in accounts payable and an increase in prepaid expenses and other assets of $0.6 million, partially offset by an increase in accrued liabilities of $1.3 million. The inventory increase was due to the ongoing growth of our RF and power technologies business, increase in raw material and work in process supporting the semiconductor capital equipment market and growth in supplying replacement systems and parts to the Healthcare market. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services.

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.

### Cash Flows from Investing Activities

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

Cash provided by investing activities of $4.9 million during the first nine months of fiscal 2018 included proceeds from the maturities of investments of $12.1 million, partially offset by $3.9 million from purchases of investments and $4.2 million in capital expenditures. Capital expenditures relates primarily to our Healthcare growth initiatives, a new roof for part of our warehouse and capital used for our IT system.

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.

Our purchases and proceeds from investments consist of time deposits and CDs. Purchasing of future investments may vary from period to period due to interest and foreign currency exchange rates.

### Cash Flows from Financing Activities

The cash flow from financing activities consists of cash dividends paid.

Cash used in financing activities of $2.2 million during the first nine months of fiscal 2018 resulted from cash used to pay dividends.

Cash used in financing activities of $2.2 million during the first nine months of fiscal 2017 resulted from cash used to pay dividends.

Dividend payments for the first nine months of fiscal 2018 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.

## Market risk

As filed, 845 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 27, 2017, filed July 31, 2017.

## Controls and procedures

As filed, 1,607 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 March 3, 2018.

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 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 645 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 27, 2017, filed July 31, 2017.

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| --- | --- |
| **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 11, 2018, we issued a press release reporting results for our third quarter ended March 3, 2018, 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 12, 2018.
Source: SEC EDGAR, the filing index for accession 0001387131-18-001554. Last ingested by Listed: Nov 10, 2026, 23:29 ET. No prices; not investment advice.