# Richardson Electronics, LTD.: Form 10-Q for the period ended Mar 2, 2019

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2019-04-11
- Accepted by EDGAR: Apr 11, 2019, 12:01 ET
- Period: 2019-03-02
- Accession: 0001564590-19-011336
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000156459019011336/rell-10q_20190302.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000156459019011336/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-02.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-12-02 to 2019-03-02 | $39.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2018-06-03 to 2019-03-02 | $124.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2018-12-02 to 2019-03-02 | $26.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2018-06-03 to 2019-03-02 | $85.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2018-12-02 to 2019-03-02 | $12.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-06-03 to 2019-03-02 | $39.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2018-12-02 to 2019-03-02 | $13.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2018-06-03 to 2019-03-02 | $39.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-12-02 to 2019-03-02 | −$798.0k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-06-03 to 2019-03-02 | −$398.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2018-12-02 to 2019-03-02 | $305.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-06-03 to 2019-03-02 | $754.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-12-02 to 2019-03-02 | −$1.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-06-03 to 2019-03-02 | −$951.0k | us-gaap:NetIncomeLoss |
| Operating cash flow | 3 months, 2018-12-02 to 2019-03-02 | −$2.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2018-06-03 to 2019-03-02 | −$5.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-12-02 to 2019-03-02 | $974.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2018-06-03 to 2019-03-02 | $3.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2018-12-02 to 2019-03-02 | $771.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2018-06-03 to 2019-03-02 | $2.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2019-03-02 | $33.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-02 | $128.9m | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-02 | $158.0m | us-gaap:Assets |
| Current liabilities | at 2019-03-02 | $25.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-03-02 | $26.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2019-03-02 | $131.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 27,750 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 August 2, 2018. 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 2, 2019 and March 3, 2018.
- **Results of Operations –** an analysis and comparison of our consolidated results of operations for the three and nine month periods ended March 2, 2019 and March 3, 2018, as reflected in our consolidated statements of comprehensive (loss) income.
- **Liquidity, Financial Position and Capital Resources –** a discussion of our primary sources and uses of cash for the nine month periods ended March 2, 2019 and March 3, 2018, 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 markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, all-in-ones, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

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 major geographic regions: North America, Asia/Pacific, Europe and Latin America.

### RESULTS OF OPERATIONS

### Financial Summary – Three Months Ended March 2, 2019

- The third quarter of fiscal 2019 and fiscal 2018 each contained 13 weeks.
- Net sales for the third quarter of fiscal 2019 were $39.0 million, a decrease of 6.3%, compared to net sales of $41.6 million during the third quarter of fiscal 2018.
- Gross margin decreased to 31.5% during the third quarter of fiscal 2019 compared to 33.8% during the third quarter of fiscal 2018.
- Selling, general and administrative expenses were $13.1 million, or 33.6% of net sales, for the third quarter of fiscal 2019 compared to $13.1 million, or 31.4% of net sales, for the third quarter of fiscal 2018.
- Operating loss during the third quarter of fiscal 2019 was $0.8 million compared to an operating income of $1.0 million in the third quarter of fiscal 2018.
- Net loss during the third quarter of fiscal 2019 was $1.1 million compared to net income of $0.5 million during the third quarter of fiscal 2018.

### Financial Summary – Nine Months Ended March 2, 2019

- The first nine months of fiscal 2019 and fiscal 2018 contained 39 and 40 weeks, respectively.
- Net sales for the first nine months of fiscal 2019 were $124.5 million, an increase of 5.7%, compared to net sales of $117.7 million during the first nine months of fiscal 2018.
- Gross margin decreased to 31.5% during the first nine months of fiscal 2019 compared to 33.6% during the first nine months of fiscal 2018.
- Selling, general and administrative expenses were $39.6 million, or 31.8% of net sales, for the first nine months of fiscal 2019, compared to $38.0 million, or 32.3% of net sales, for the first nine months of fiscal 2018.
- Operating loss during the first nine months of fiscal 2019 was $0.4 million compared to an operating income of $1.8 million in the first nine months of fiscal 2018.
- Loss from continuing operations during the first nine months of fiscal 2019 was $1.0 million compared to income from continuing operations of $0.6 million in the first nine months of fiscal 2018.
- There was no income (loss) from discontinued operations during the first nine months of fiscal 2019. Income from discontinued operations during the first nine months of fiscal 2018 was $1.5 million.
- Net loss during the first nine months of fiscal 2019 was $1.0 million compared to net income of $2.1 million during the first nine months of fiscal 2018.

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change for the third quarter and first nine months of fiscal 2019 and fiscal 2018 were as follows (*in thousands):*

| Net Sales | Three Months Ended March 2, 2019 | March 3, 2018 | FY19 vs. FY18 % Change |
| --- | ---: | ---: | ---: |
| PMT | $29,725 | $31,869 | -6.7% |
| Canvys | 6,954 | 7,585 | -8.3% |
| Healthcare | 2,339 | 2,191 | 6.8% |
| Total | $39,018 | $41,645 | -6.3% |

|  | Nine Months Ended March 2, 2019 | March 3, 2018 | FY19 vs. FY18 % Change |
| --- | ---: | ---: | ---: |
| PMT | $96,822 | $91,056 | 6.3% |
| Canvys | 20,625 | 20,057 | 2.8% |
| Healthcare | 7,042 | 6,609 | 6.6% |
| Total | $124,489 | $117,722 | 5.7% |

During the third quarter of fiscal 2019, consolidated net sales decreased 6.3% compared to the third quarter of fiscal 2018. Sales for PMT decreased 6.7%, sales for Canvys decreased 8.3% and sales for Healthcare increased 6.8%. The decrease in PMT was mainly due to a continued slowdown in the wafer fab markets, however the decline was slightly offset by strong growth in our new technology partners in RF and microwave components and market share gains in the RF and microwave tube business. The decrease in Canvys was due to several large non-recurring orders that shipped in the third quarter of fiscal 2018. The increase in Healthcare was due to higher equipment sales.

During the first nine months of fiscal 2019, consolidated net sales increased 5.7% compared to the first nine months of fiscal 2018. Sales for PMT increased 6.3%, sales for Canvys increased 2.8% and sales for Healthcare increased 6.6%. The increase in PMT was due to strong growth with new technology partners relating to 5G infrastructure rollout and market share gains in our legacy tube business. The increase in Canvys was due to increased customer demand in our North American and European markets, partially offset by unfavorable foreign exchange rates. The increase in Healthcare was due to ALTA750 TM tube sales and equipment sales.

Gross profit by segment and percent of net sales for the third quarter and first nine months of fiscal 2019 and fiscal 2018 were as follows (*in thousands):*

| Gross Profit | Three Months Ended March 2, 2019 | % of Net Sales | March 3, 2018 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $9,406 | 31.6% | $10,656 | 33.4% |
| Canvys | 2,281 | 32.8% | 2,571 | 33.9% |
| Healthcare | 612 | 26.2% | 840 | 38.3% |
| Total | $12,299 | 31.5% | $14,067 | 33.8% |

|  | Nine Months Ended March 2, 2019 | % of Net Sales | March 3, 2018 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $30,520 | 31.5% | $30,492 | 33.5% |
| Canvys | 6,726 | 32.6% | 6,245 | 31.1% |
| Healthcare | 1,977 | 28.1% | 2,852 | 43.2% |
| Total | $39,223 | 31.5% | $39,589 | 33.6% |

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 decreased to $12.3 million during the third quarter of fiscal 2019 compared to $14.1 million during the third quarter of fiscal 2018. Consolidated gross margin as a percentage of net sales decreased to 31.5% during the third quarter of fiscal 2019 from 33.8% during the third quarter of fiscal 2018, primarily due to unfavorable product mix and comparison to positive manufacturing variances for PMT last year, unfavorable product mix as well as unfavorable foreign exchange rates for Canvys and higher percentage of equipment sales as well as higher costs associated with tube development and the write down of some inventory to market value for Healthcare.

Consolidated gross profit decreased to $39.2 million during the first nine months of fiscal 2019 compared to $39.6 million during the first nine months of fiscal 2018. Consolidated gross margin as a percentage of net sales decreased to 31.5% during the first nine months of fiscal 2019 from 33.6% during the first nine months of fiscal 2018, primarily due to unfavorable product mix and manufacturing variances for PMT, a higher percent of equipment sales and manufacturing variances for Healthcare, partially offset by favorable product mix and lower costs on selected products for Canvys.

### Power and Microwave Technologies Group

PMT net sales decreased 6.7% to $29.7 million during the third quarter of fiscal 2019 from $31.9 million during the third quarter of fiscal 2018. The decrease was due to a decline in the wafer fab market, however the decline was mostly offset by strong growth from our new technology partners in the RF and microwave components as well as market share gains in the RF and microwave tube business. Gross margin as a percentage of net sales decreased to 31.6% during the third quarter of fiscal 2019 as compared to 33.4% during the third quarter of fiscal 2018, due to unfavorable product mix and manufacturing variances in comparison to positive manufacturing variances last year.

PMT net sales increased 6.3% to $96.8 million during the first nine months of fiscal 2019 from $91.1 million during the first nine months of fiscal 2018. The increase was due to strong sales growth with our new technology partners supporting 5G infrastructure and market share gains in our legacy tube business. Gross margin as a percentage of net sales decreased to 31.5% during the first nine months of fiscal 2019 as compared to 33.5% during the first nine months of fiscal 2018, due to unfavorable product mix and manufacturing variances.

### Canvys

Canvys net sales decreased 8.3% to $6.9 million during the third quarter of fiscal 2019 from $7.6 million during the third quarter of fiscal 2018 due to several large non-recurring orders that shipped in the third quarter of fiscal 2018. Gross margin as a percentage of net sales decreased to 32.8% during the third quarter of fiscal 2019 as compared to 33.9% during the third quarter of fiscal 2018, due to unfavorable product mix.

Canvys net sales increased 2.8% to $20.6 million during the first nine months of fiscal 2019 from $20.1 million during the first nine months of fiscal 2018 due to increased customer demand in both the North American and European markets, partially offset by unfavorable foreign exchange rates. Gross margin as a percentage of net sales increased to 32.6% during the first nine months of fiscal 2019 as compared to 31.1% during the first nine months of fiscal 2018, due to favorable product mix and lower costs on selected products sold.

### Healthcare

Healthcare net sales increased 6.8% to $2.3 million during the third quarter of fiscal 2019 from $2.2 million during the third quarter of fiscal 2018 due to higher equipment sales. Gross margin as a percentage of net sales decreased to 26.2% during the third quarter of fiscal 2019 as compared to 38.3% during the third quarter of fiscal 2018 due to a higher percentage of equipment sales, costs associated with tube development and the write down of some inventory to market value.

Healthcare net sales increased 6.6% to $7.0 million during the first nine months of fiscal 2019 from $6.6 million during the first nine months of fiscal 2018 due to ALTA750 TM tube sales and equipment sales. Gross margin as a percentage of net sales decreased to 28.1% during the first nine months of fiscal 2019 as compared to 43.2% during the first nine months of fiscal 2018 due to a higher percent of equipment sales and manufacturing variances.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses were $13.1 million during both the third quarter of fiscal 2019 and the third quarter of fiscal 2018. During the third quarter of fiscal 2019, the Company incurred $0.1 million in severance expense associated with actions to further reduce costs as well as $0.2 million of higher legal expenses. These expenses were offset by lower incentive compensation expenses.

Selling, general and administrative expenses increased to $39.6 million during the first nine months of fiscal 2019 from $38.0 million during the first nine months of fiscal 2018. The increase was due to additional compensation and other expenses related to the increase in net sales earlier in the year as well as the higher legal, severance and bad debt expense.

### Other Income/Expense

Other income/expense was less than $0.1 million of income during both the third quarter of fiscal 2019 and the third quarter of fiscal 2018. Other income/expense during the third quarter of fiscal 2019 included $0.1 million of investment/interest income offset by $0.1 million of foreign exchange losses. Other income/expense during the third quarter of fiscal 2018 included $0.2 million of investment/interest income offset by $0.2 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.

Other income/expense was $0.2 million of income during the first nine months of fiscal 2019 compared to expense of $0.1 million during the first nine months of fiscal 2018. Other income during the first nine months of fiscal 2019 included $0.4 million of investment/interest income partially offset by $0.2 million of foreign exchange losses. 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.

### Income Tax Provision

We recorded an income tax provision of $0.8 million and $1.1 million for the first nine months of fiscal 2019 and the first nine months of fiscal 2018, respectively. The effective income tax rate during the first nine months of fiscal 2019 was a tax provision of (383.3)%, as compared to a tax provision of 65.0% during the first nine months of fiscal 2018. The difference in rate during the first nine months of fiscal 2019, as compared to the first nine months of fiscal 2018, reflects the change in 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 and our positions with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas. The (383.3)% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the movement of the valuation allowance against 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 2008 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). 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 2012.

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

Net loss during the third quarter of fiscal 2019 was $1.1 million or ($0.08) per diluted common share and ($0.08) per Class B diluted common share as compared to net income of $0.5 million during the third quarter of fiscal 2018 or $0.04 per diluted common share and $0.04 per Class B diluted common share.

Net loss during the first nine months of fiscal 2019 was $1.0 million or ($0.07) per diluted common share and ($0.07) per Class B diluted common share as compared to net income, including income from discontinued operations of $1.5 million, of $2.1 million during the first nine months of fiscal 2018 or $0.17 per diluted common share and $0.15 per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

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

Cash and cash equivalents were $33.9 million at March 2, 2019. Investments included CDs classified as short-term investments of $15.5 million. Total cash and investments were $49.4 million at March 2, 2019. Cash and investments at March 2, 2019 consisted of $25.1 million in North America, $15.0 million in Europe, $0.9 million in Latin America and $8.4 million in Asia/Pacific. We repatriated $2.3 million total cash from our entities in Japan and Korea in the first quarter of fiscal 2019 and $5.9 million total cash from our entities in Germany and France in the third quarter of fiscal 2019.

Cash and cash equivalents were $60.5 million at June 2, 2018. We had no investments at June 2, 2018. Cash and cash equivalents at June 2, 2018 consisted of $26.5 million in North America, $20.2 million in Europe, $1.0 million in Latin America and $12.8 million in Asia/Pacific. We repatriated $21.2 million of foreign cash to our U.S. parent company in fiscal 2018, $17.7 million from our Hong Kong entity and the remainder from our entities in Singapore, Italy and Taiwan.

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 net income (loss) adjusted for non-cash items and changes in our operating assets and liabilities.

Operating activities used $5.2 million of cash during the first nine months of fiscal 2019. We had net loss of $1.0 million during the first nine months of fiscal 2019, which included non-cash stock-based compensation expense of $0.6 million associated with the issuance of stock option and restricted stock awards, $0.6 million for inventory reserve provisions and depreciation and amortization expense of $2.4 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities resulted in a use of cash of $8.0 million during the first nine months of fiscal 2019, net of foreign currency exchange gains and losses, included a decrease of $5.4 million in accounts payable, an increase in inventory of $3.3 million, an increase in accounts receivable of $0.6 million partially offset by an increase in accrued liabilities of $0.9 million and a decrease of $0.3 million in prepaid expenses and other assets. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services. The inventory increase was due to growth in supplying replacement systems and parts to the Healthcare market as well as an increase in components for the production of the ALTA 750 TM CT Tube.

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.

### Cash Flows from Investing Activities

The cash flow used in investing activities consisted primarily of purchases of investments and capital expenditures.

Cash used in investing activities of $18.7 million during the first nine months of fiscal 2019 included $17.8 million from purchases of investments and $3.2 million in capital expenditures partially offset by proceeds from the maturities of investments of $2.3 million. Capital expenditures relates primarily to our Healthcare growth initiatives, a new air conditioner unit for the global headquarters, investments in our LaFox manufacturing operation and capital used for our IT system.

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.

Our purchases of investments consisted of 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 consisted primarily of cash dividends paid.

Cash used in financing activities of $2.1 million during the first nine months of fiscal 2019 resulted from $2.3 million of cash used to pay dividends partially offset by $0.2 million of proceeds from the issuance of common stock from stock option exercises.

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

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, 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 June 2, 2018, filed August 2, 2018.

## 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 2, 2019.

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 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 165 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 June 2, 2018, filed August 2, 2018.

Filed Apr 11, 2019.
Source: SEC EDGAR, the filing index for accession 0001564590-19-011336. Last ingested by Listed: Nov 2, 2026, 11:55 ET. No prices; not investment advice.