Richardson Electronics, Ltd 10-Q for FY2020 Q3
Richardson Electronics, Ltd. (RELL)
About this 10-Q
Richardson Electronics, Ltd filed this 10-Q on April 9, 2020, covering the quarter ended February 29, 2020 (FY2020 Q3).
Headline figures
Quarter ended February 29, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $38.25M
- down 2.0% from $39.02M a year earlier
- Net loss
- $93K
- compared with a net loss of $1.08M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 29, 2020
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from To
Commission File Number: 0-12906
RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)
|
Delaware |
36-2096643 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
40W267 Keslinger Road, P.O. Box 393
LaFox, Illinois 60147-0393
(Address of principal executive offices)
Registrant’s telephone number, including area code: (630) 208-2200
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
Common stock, $0.05 Par Value |
|
RELL |
|
NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer |
☐ |
|
Accelerated Filer |
☒ |
|
Non-Accelerated Filer |
☐ |
|
Smaller Reporting Company |
☒ |
|
Emerging Growth Company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of April 7, 2020, there were outstanding 11,038,235 shares of Common Stock, $0.05 par value and 2,096,919 shares of Class B Common Stock, $0.05 par value, which are convertible into Common Stock of the registrant on a share for share basis.
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5 |
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7 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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19 |
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24 |
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25 |
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1
Richardson Electronics, Ltd.
(in thousands, except per share amounts)
|
|
|
Unaudited |
|
|
Audited |
|
||
|
|
|
February 29, 2020 |
|
|
June 1, 2019 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
30,875 |
|
|
$ |
42,019 |
|
|
Accounts receivable, less allowance of $194 and $339, respectively |
|
|
23,074 |
|
|
|
24,296 |
|
|
Inventories, net |
|
|
56,677 |
|
|
|
53,232 |
|
|
Prepaid expenses and other assets |
|
|
2,910 |
|
|
|
3,067 |
|
|
Investments - current |
|
|
13,000 |
|
|
|
8,000 |
|
|
Total current assets |
|
|
126,536 |
|
|
|
130,614 |
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
17,999 |
|
|
|
19,111 |
|
|
Intangible assets, net |
|
|
2,572 |
|
|
|
2,763 |
|
|
Lease ROU asset |
|
|
3,727 |
|
|
|
— |
|
|
Non-current deferred income taxes |
|
|
574 |
|
|
|
529 |
|
|
Total non-current assets |
|
|
24,872 |
|
|
|
22,403 |
|
|
Total assets |
|
$ |
151,408 |
|
|
$ |
153,017 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
14,675 |
|
|
$ |
16,943 |
|
|
Accrued liabilities |
|
|
11,002 |
|
|
|
11,273 |
|
|
Lease liability current |
|
|
1,566 |
|
|
|
— |
|
|
Total current liabilities |
|
|
27,243 |
|
|
|
28,216 |
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
Non-current deferred income tax liabilities |
|
|
314 |
|
|
|
212 |
|
|
Lease liability non-current |
|
|
2,204 |
|
|
|
— |
|
|
Other non-current liabilities |
|
|
742 |
|
|
|
832 |
|
|
Total non-current liabilities |
|
|
3,260 |
|
|
|
1,044 |
|
|
Total liabilities |
|
|
30,503 |
|
|
|
29,260 |
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
Common stock, $0.05 par value; issued and outstanding 11,038 shares at February 29, 2020 and 10,957 shares at June 1, 2019 |
|
|
552 |
|
|
|
547 |
|
|
Class B common stock, convertible, $0.05 par value; issued and outstanding 2,097 shares at February 29, 2020 and June 1, 2019 |
|
|
105 |
|
|
|
105 |
|
|
Preferred stock, $1.00 par value, no shares issued |
|
|
— |
|
|
|
— |
|
|
Additional paid-in-capital |
|
|
61,593 |
|
|
|
61,012 |
|
|
Common stock in treasury, at cost, no shares at February 29, 2020 and June 1, 2019 |
|
|
— |
|
|
|
— |
|
|
Retained earnings |
|
|
56,819 |
|
|
|
59,703 |
|
|
Accumulated other comprehensive income |
|
|
1,836 |
|
|
|
2,390 |
|
|
Total stockholders’ equity |
|
|
120,905 |
|
|
|
123,757 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
151,408 |
|
|
$ |
153,017 |
|
2
Unaudited Consolidated Statements of Comprehensive Loss
(in thousands, except per share amounts)
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
||||
|
Statements of Comprehensive Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
38,249 |
|
|
$ |
39,018 |
|
|
$ |
118,536 |
|
|
$ |
124,489 |
|
|
Cost of sales |
|
|
25,579 |
|
|
|
26,719 |
|
|
|
80,235 |
|
|
|
85,266 |
|
|
Gross profit |
|
|
12,670 |
|
|
|
12,299 |
|
|
|
38,301 |
|
|
|
39,223 |
|
|
Selling, general and administrative expenses |
|
|
12,659 |
|
|
|
13,097 |
|
|
|
38,667 |
|
|
|
39,621 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
Operating income (loss) |
|
|
11 |
|
|
|
(798 |
) |
|
|
(367 |
) |
|
|
(398 |
) |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment/interest income |
|
|
(97 |
) |
|
|
(155 |
) |
|
|
(340 |
) |
|
|
(402 |
) |
|
Foreign exchange loss |
|
|
28 |
|
|
|
130 |
|
|
|
117 |
|
|
|
205 |
|
|
Other, net |
|
|
(8 |
) |
|
|
— |
|
|
|
(24 |
) |
|
|
(4 |
) |
|
Total other income |
|
|
(77 |
) |
|
|
(25 |
) |
|
|
(247 |
) |
|
|
(201 |
) |
|
Income (loss) before income taxes |
|
|
88 |
|
|
|
(773 |
) |
|
|
(120 |
) |
|
|
(197 |
) |
|
Income tax provision |
|
|
181 |
|
|
|
305 |
|
|
|
438 |
|
|
|
754 |
|
|
Net loss |
|
|
(93 |
) |
|
|
(1,078 |
) |
|
|
(558 |
) |
|
|
(951 |
) |
|
Foreign currency translation (loss) gain, net of tax |
|
|
(60 |
) |
|
|
541 |
|
|
|
(554 |
) |
|
|
(1,240 |
) |
|
Comprehensive loss |
|
$ |
(153 |
) |
|
$ |
(537 |
) |
|
$ |
(1,112 |
) |
|
$ |
(2,191 |
) |
|
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares - Basic |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
Class B common shares - Basic |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
Common shares - Diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
Class B common shares - Diluted |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
Weighted average number of shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares – Basic |
|
|
11,038 |
|
|
|
10,953 |
|
|
|
11,022 |
|
|
|
10,911 |
|
|
Class B common shares – Basic |
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,108 |
|
|
Common shares – Diluted |
|
|
11,038 |
|
|
|
10,953 |
|
|
|
11,022 |
|
|
|
10,911 |
|
|
Class B common shares – Diluted |
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,108 |
|
|
Dividends per common share |
|
$ |
0.060 |
|
|
$ |
0.060 |
|
|
$ |
0.180 |
|
|
$ |
0.180 |
|
|
Dividends per Class B common share |
|
$ |
0.054 |
|
|
$ |
0.054 |
|
|
$ |
0.162 |
|
|
$ |
0.162 |
|
3
Unaudited Consolidated Statements of Cash Flows
(in thousands)
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
||||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(93 |
) |
|
$ |
(1,078 |
) |
|
$ |
(558 |
) |
|
$ |
(951 |
) |
|
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
856 |
|
|
|
794 |
|
|
|
2,514 |
|
|
|
2,350 |
|
|
Inventory provisions |
|
|
221 |
|
|
|
203 |
|
|
|
502 |
|
|
|
568 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
Share-based compensation expense |
|
|
157 |
|
|
|
176 |
|
|
|
527 |
|
|
|
571 |
|
|
Deferred income taxes |
|
|
76 |
|
|
|
113 |
|
|
|
51 |
|
|
|
268 |
|
|
Change in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(760 |
) |
|
|
(478 |
) |
|
|
1,066 |
|
|
|
(576 |
) |
|
Inventories |
|
|
(754 |
) |
|
|
(1,484 |
) |
|
|
(4,173 |
) |
|
|
(3,315 |
) |
|
Prepaid expenses and other assets |
|
|
(56 |
) |
|
|
614 |
|
|
|
146 |
|
|
|
332 |
|
|
Accounts payable |
|
|
(726 |
) |
|
|
(1,561 |
) |
|
|
(2,091 |
) |
|
|
(5,442 |
) |
|
Accrued liabilities |
|
|
152 |
|
|
|
309 |
|
|
|
(238 |
) |
|
|
880 |
|
|
Other |
|
|
2 |
|
|
|
(86 |
) |
|
|
(107 |
) |
|
|
88 |
|
|
Net cash used in operating activities |
|
|
(925 |
) |
|
|
(2,478 |
) |
|
|
(2,360 |
) |
|
|
(5,227 |
) |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(430 |
) |
|
|
(974 |
) |
|
|
(1,244 |
) |
|
|
(3,166 |
) |
|
Proceeds from maturity of investments |
|
|
— |
|
|
|
2,300 |
|
|
|
8,000 |
|
|
|
2,300 |
|
|
Purchases of investments |
|
|
— |
|
|
|
(12,500 |
) |
|
|
(13,000 |
) |
|
|
(17,800 |
) |
|
Net cash used in investing activities |
|
|
(430 |
) |
|
|
(11,174 |
) |
|
|
(6,244 |
) |
|
|
(18,666 |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
— |
|
|
|
16 |
|
|
|
59 |
|
|
|
219 |
|
|
Cash dividends paid |
|
|
(776 |
) |
|
|
(771 |
) |
|
|
(2,326 |
) |
|
|
(2,305 |
) |
|
Payment of financing lease principal |
|
|
(46 |
) |
|
|
— |
|
|
|
(121 |
) |
|
|
— |
|
|
Net cash used in financing activities |
|
|
(822 |
) |
|
|
(755 |
) |
|
|
(2,388 |
) |
|
|
(2,086 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(2 |
) |
|
|
417 |
|
|
|
(152 |
) |
|
|
(617 |
) |
|
Decrease in cash and cash equivalents |
|
|
(2,179 |
) |
|
|
(13,990 |
) |
|
|
(11,144 |
) |
|
|
(26,596 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
33,054 |
|
|
|
47,859 |
|
|
|
42,019 |
|
|
|
60,465 |
|
|
Cash and cash equivalents at end of period |
|
$ |
30,875 |
|
|
$ |
33,869 |
|
|
$ |
30,875 |
|
|
$ |
33,869 |
|
4
Unaudited Consolidated Statement of Stockholders’ Equity
(in thousands, except per share amounts)
|
|
|
Common |
|
|
Class B Common |
|
|
Par Value |
|
|
Additional Paid In Capital |
|
|
Common Stock in Treasury |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income |
|
|
Total |
|
||||||||
|
Balance June 1, 2019: |
|
|
10,957 |
|
|
|
2,097 |
|
|
$ |
652 |
|
|
$ |
61,012 |
|
|
$ |
— |
|
|
$ |
59,703 |
|
|
$ |
2,390 |
|
|
$ |
123,757 |
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(558 |
) |
|
|
— |
|
|
|
(558 |
) |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(554 |
) |
|
|
(554 |
) |
|
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
335 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
335 |
|
|
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
192 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
192 |
|
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
10 |
|
|
|
— |
|
|
|
1 |
|
|
|
58 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
59 |
|
|
Restricted stock issuance |
|
|
71 |
|
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.180 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,986 |
) |
|
|
— |
|
|
|
(1,986 |
) |
|
Class B ($0.162 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(340 |
) |
|
|
— |
|
|
|
(340 |
) |
|
Balance February 29, 2020: |
|
|
11,038 |
|
|
|
2,097 |
|
|
$ |
657 |
|
|
$ |
61,593 |
|
|
$ |
— |
|
|
$ |
56,819 |
|
|
$ |
1,836 |
|
|
$ |
120,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2019: |
|
|
11,038 |
|
|
|
2,097 |
|
|
$ |
657 |
|
|
$ |
61,436 |
|
|
$ |
— |
|
|
$ |
57,688 |
|
|
$ |
1,896 |
|
|
$ |
121,677 |
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(93 |
) |
|
|
— |
|
|
|
(93 |
) |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(60 |
) |
|
|
(60 |
) |
|
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
121 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
121 |
|
|
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
36 |
|
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Restricted stock issuance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(662 |
) |
|
|
— |
|
|
|
(662 |
) |
|
Class B ($0.054 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(114 |
) |
|
|
— |
|
|
|
(114 |
) |
|
Balance February 29, 2020: |
|
|
11,038 |
|
|
|
2,097 |
|
|
$ |
657 |
|
|
$ |
61,593 |
|
|
$ |
— |
|
|
$ |
56,819 |
|
|
$ |
1,836 |
|
|
$ |
120,905 |
|
5
|
|
|
Common |
|
|
Class B Common |
|
|
Par Value |
|
|
Additional Paid In Capital |
|
|
Common Stock in Treasury |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Income |
|
|
Total |
|
||||||||
|
Balance June 2, 2018: |
|
|
10,806 |
|
|
|
2,137 |
|
|
$ |
647 |
|
|
$ |
60,061 |
|
|
$ |
— |
|
|
$ |
70,107 |
|
|
$ |
4,366 |
|
|
$ |
135,181 |
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(951 |
) |
|
|
— |
|
|
|
(951 |
) |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,240 |
) |
|
|
(1,240 |
) |
|
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
226 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
226 |
|
|
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
345 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
345 |
|
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
40 |
|
|
|
— |
|
|
|
2 |
|
|
|
217 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
219 |
|
|
Restricted stock issuance |
|
|
70 |
|
|
|
— |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Converted Class B to common |
|
|
40 |
|
|
|
(40 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.180 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,963 |
) |
|
|
— |
|
|
|
(1,963 |
) |
|
Class B ($0.162 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(342 |
) |
|
|
— |
|
|
|
(342 |
) |
|
Balance March 2, 2019: |
|
|
10,956 |
|
|
|
2,097 |
|
|
$ |
652 |
|
|
$ |
60,846 |
|
|
$ |
— |
|
|
$ |
66,851 |
|
|
$ |
3,126 |
|
|
$ |
131,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 1, 2018: |
|
|
10,953 |
|
|
|
2,097 |
|
|
$ |
652 |
|
|
$ |
60,654 |
|
|
$ |
— |
|
|
$ |
68,700 |
|
|
$ |
2,585 |
|
|
$ |
132,591 |
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,078 |
) |
|
|
— |
|
|
|
(1,078 |
) |
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
541 |
|
|
|
541 |
|
|
Share-based compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
90 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
90 |
|
|
Stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
86 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
86 |
|
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
Restricted stock issuance |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Converted Class B to common |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Dividends paid to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common ($0.06 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(657 |
) |
|
|
— |
|
|
|
(657 |
) |
|
Class B ($0.054 per share) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(114 |
) |
|
|
— |
|
|
|
(114 |
) |
|
Balance March 2, 2019: |
|
|
10,956 |
|
|
|
2,097 |
|
|
$ |
652 |
|
|
$ |
60,846 |
|
|
$ |
— |
|
|
$ |
66,851 |
|
|
$ |
3,126 |
|
|
$ |
131,475 |
|
6
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE COMPANY
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 capabilities, power grid and microwave tube business with new RF, Wireless and disruptive power technologies. As a manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. 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 5G, 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. 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.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements.
Our fiscal quarter ends on the Saturday nearest the end of the quarter-ending month. The third quarter of fiscal 2020 and fiscal 2019 both contained 13 weeks. The first nine months of fiscal 2020 and fiscal 2019 both contained 39 weeks.
In the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results of interim periods have been made. All inter-company transactions and balances have been eliminated. The unaudited consolidated financial statements presented herein include the accounts of our wholly owned subsidiaries. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results of our operations for the three and nine months ended February 29, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending May 30, 2020.
The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 1, 2019, that we filed on August 5, 2019.
7
3. CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Inventories, net: Our consolidated inventories were stated at the lower of cost and net realizable value, generally using a weighted-average cost method. Our net inventories include approximately $50.9 million of finished goods, $3.6 million of raw materials and $2.2 million of work-in-progress as of February 29, 2020, as compared to approximately $47.2 million of finished goods, $4.2 million of raw materials and $1.8 million of work-in-progress as of June 1, 2019.
At this time, we do not anticipate any material risks or uncertainties related to possible future inventory write-downs. Provisions for obsolete or slow moving inventories are recorded based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in the industry, or market conditions differ from management’s estimates, additional provisions may be necessary. Inventory reserves were approximately $4.9 million as of February 29, 2020 and $4.6 million as of June 1, 2019.
Revenue Recognition: Our product sales are recognized as revenue upon shipment, when title passes to the customer, when delivery has occurred or services have been rendered and when collectability is reasonably assured. We also record estimated discounts and returns based on our historical experience. Our products are often manufactured to meet the specific design needs of our customers’ applications. Our engineers work closely with customers to ensure that our products will meet their needs. Our customers are under no obligation to compensate us for designing the products we sell.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, which amends guidance for revenue recognition. ASU 2014-09 is principles based guidance that can be applied to all contracts with customers, enhancing comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the guidance is that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance details the steps entities should apply to achieve the core principle. In August 2015, the FASB issued an amendment to defer the effective date for all entities by one year. For public entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016. Companies have the option of using either a full or modified retrospective approach in applying this standard. During fiscal 2016 and 2017, the FASB issued four additional updates which further clarify the guidance provided in ASU 2014-09.
Effective June 3, 2018, the Company adopted the standard using the modified retrospective method to all contracts. As a result, financial information for the reporting period beginning June 3, 2018 was reported under the new standard, while comparative financial information has not been adjusted and continues to be reported in accordance with the previous standard. The adoption of this standard did not impact the timing of revenue recognition for our customer sales. The adoption did not result in the recognition of a cumulative adjustment to beginning retained earnings, nor did it have a material impact on the consolidated financial statements. For the Company, the most significant impact of the new standard is the addition of required disclosures within the notes to the financial statements.
Loss Contingencies: We accrue a liability for loss contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. If we determine that there is at least a reasonable possibility that a loss may have been incurred, we will include a disclosure describing the contingency.
Intangible Assets: Intangible assets are initially recorded at their fair market values determined on quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on a straight-line basis or over their projected future cash flows and are tested for impairment when events or changes in circumstances occur that indicate possible impairment. Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with our acquisitions.
Income Taxes: We recognize deferred tax assets and liabilities based on the differences between financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and determine the need for a valuation allowance based on a number of factors, including both positive and negative evidence. These factors include historical taxable income or loss, projected future taxable income or loss, the expected timing of the reversals of existing temporary differences and the implementation of tax planning strategies. In circumstances where we, or any of our affiliates, have incurred three years of cumulative losses which constitute significant negative evidence, positive evidence of equal or greater significance is needed to overcome the negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards.
8
Accrued Liabilities: Accrued liabilities consisted of the following (in thousands):
|
|
|
February 29, 2020 |
|
|
June 1, 2019 |
|
||
|
Compensation and payroll taxes |
|
$ |
3,406 |
|
|
$ |
2,846 |
|
|
Accrued severance |
|
|
439 |
|
|
|
520 |
|
|
Professional fees |
|
|
604 |
|
|
|
471 |
|
|
Deferred revenue |
|
|
1,916 |
|
|
|
2,260 |
|
|
Other accrued expenses |
|
|
4,637 |
|
|
|
5,176 |
|
|
Accrued Liabilities |
|
$ |
11,002 |
|
|
$ |
11,273 |
|
4. REVENUE RECOGNITION
Richardson has a number of defined revenue streams across our reportable segments. For each of these revenue streams, all products are typically sold directly by the Company to the end customer. Distribution is the Company’s largest revenue stream. The distribution business does not include a separate service bundled with the product sold or sold on top of the product. Distribution typically includes products purchased from our suppliers, stocked in our warehouses and then sold to our customers. Revenue is recognized when control of the promised goods is transferred to our customers, which is simultaneous with the title transferring to the customer, in an amount that reflects the transaction price consideration that we expect to receive in exchange for those goods. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits from the goods. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. Generally, our contracts require our customers to pay for goods after we deliver products to them. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America subject to customary credit checks.
The Company also sells products that are manufactured or assembled in our manufacturing facility. These products can either be built to the customer’s prints/designs or are products that we stock in our warehouse to sell to any customer that places an order. The manufacturing business does not include a separate service bundled with the product sold or sold in addition to the product.
The Company recognizes services revenue when the repair, installation or training is performed. Based on our analysis of services revenue, ASU 2014-09 has an immaterial impact on the timing, amount or characterization of services revenue recognized by the Company. The services we provide are relatively short in duration and typically completed in one to two weeks. Therefore, at each reporting date, the amount of unbilled work performed is insignificant. The services revenue has consistently accounted for less than 5% of the Company’s total revenues and is expected to continue at that level.
Contracts with customers
A contract is an agreement between two or more parties that creates enforceable rights and obligations. A revenue contract exists for us once a customer purchase order is received, reviewed and accepted. Prior to accepting a customer purchase order, we review the credit worthiness of the customer. Purchase orders are deemed to meet the collectability criterion once the customer’s credit is approved. Contract assets arise when the Company transfers a good or performs a service in advance of receiving consideration from the customer and contract liabilities arise when the Company receives consideration from its customer in advance of performance.
Contract Liabilities: Contract liabilities and revenue recognized were as follows (in thousands):
|
|
|
June 1, 2019 |
|
|
Additions |
|
|
Revenue Recognized |
|
|
February 29, 2020 |
|
||||
|
Contract liabilities (deferred revenue) |
|
$ |
2,260 |
|
|
$ |
1,610 |
|
|
$ |
(1,954 |
) |
|
$ |
1,916 |
|
The Company receives advance payments or deposits from our customers before revenue is recognized, resulting in contract liabilities. Contract liabilities are included in accrued liabilities in the consolidated balance sheets.
9
Performance obligations and satisfaction of performance obligation in the contract
Each accepted purchase order identifies a distinct good or service as the performance obligation. The goods are generally standard products we purchased from a supplier and stocked on our shelves. They can also be customized products purchased from a supplier or products that are customized or have value added to them in-house prior to shipping to the customer. Our contracts for customized products generally include termination provisions if a customer cancels its order. However, we recognize revenue at a point in time because the termination provisions do not require, upon cancelation, the customer to pay fees that are commensurate with the work performed. Each purchase order explicitly states the goods or service that we promise to transfer to the customer. The promises to the customer are limited only to those goods or service. The performance obligation is our promise to deliver both goods that were produced by the Company and resale of goods that we purchase from our suppliers. Our shipping and handling activities for destination shipments are performed prior to the customer obtaining control. As such, they are not a separate promised service. For shipping point, Richardson is making the election under ASC 606-10-25-18B to account for shipping and handling as activities to fulfill the promise to transfer the goods. The goods we provide to our customers are distinct in that our customers benefit from the goods we sell them through use in their own processes. Our customers are generally not resellers, but rather businesses that incorporate our products into their processes from which they generate an economic benefit. The goods are also distinct in that each item sold to the customer is clearly identified on both the purchase order and resulting invoice. Each product we sell benefits the customer independently of the other products. Each item on each purchase order from the customer can be used by the customer unrelated to any other products we provide to the customer.
Determine the transaction price and variable consideration
The transaction price for each product is the amount invoiced to the customer. Each product on a purchase order is a separate performance obligation with an observable standalone selling price. The transaction price is a fixed price per unit, except for the variable consideration. The Company elects to exclude sales tax from the transaction price. With the exception of sale with right of return, variable consideration has been identified only in the form of customer early payment discounts, which are immaterial to the Company’s financial statements. Although there is not a material impact on our financial statements, we will continue to account for customer discounts when they are taken by the customer and address further if they grow.
Recognize revenue when the entity satisfies a performance obligation
We recognize revenue when title transfers to the customer, at the shipping point for FOB shipping contracts and at the customer’s delivery location for FOB destination contracts. We believe that the transfer of title best represents when the customer obtains control of the goods. Prior to that date, we do not have right to payment, and the significant risks and rewards remain with us. The significant risks and rewards of ownership of the inventory transfer simultaneously with the transfer of title. The customer’s acceptance of the goods is based on objective measurements, not subjective.
Additional considerations
Sale with right of return:
Our return policy is available to customers in our terms and conditions found on our website www.rell.com. The policy varies by business unit. The Company allows returns with prior written authorization and we allow returns within 10 days of shipment for replacement parts.
The Company maintains a reserve for returns based on historical trends that covers all contracts and revenue streams using the expected value method because we have a large number of contracts with similar characteristics, which is considered variable consideration. The reserve for returns creates a refund liability on our balance sheet as a contra Trade Accounts Receivable as well as an asset in inventory. We value the inventory at cost due to there being minimal or no costs to the Company as we generally require the customer to pay freight and we typically do not have costs associated with activities such as relabeling or repackaging.
The reserve is considered immaterial at each balance sheet date for further consideration. Returns for defective product are typically covered by our supplier’s warranty, thus, returns for defective product are not factored into our reserve.
Warranties:
We offer warranties for the limited number of specific products we manufacture. Our warranty terms generally range from one to three years. We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of sale. Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty reserve. With respect to new products, estimates are based generally on knowledge of the products and warranty experience, if a sufficient history exists. See Note 7, Warranties, for further information regarding the impact of warranties concerning ASU 2014-09.
10
Principal versus agent considerations:
Principal versus agent guidance was considered for customized products that are provided by our suppliers versus manufactured by the Company. Richardson acts as the principal as we are responsible for satisfying the performance obligation. We have primary responsibility for fulfilling the contract, we have inventory risk prior to delivery to our customer, we establish prices, our consideration is not in the form of a commission and we bear the credit risk. The Company recognizes revenue in the gross amount of consideration.
See Note 11, Segment Reporting, for a disaggregation of revenue by reportable segment and geographic region, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance and to make resource allocation and other decisions for the Company.
5. INTANGIBLE ASSETS
Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives and are tested for impairment when events or changes in circumstances occur that indicate possible impairment.
Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology acquired in connection with our acquisitions. Intangible assets subject to amortization were as follows (in thousands):
|
|
|
February 29, 2020 |
|
|
June 1, 2019 |
|
||
|
Gross Amounts: |
|
|
|
|
|
|
|
|
|
Trade Name |
|
$ |
659 |
|
|
$ |
659 |
|
|
Customer Relationships(1) |
|
|
3,398 |
|
|
|
3,394 |
|
|
Non-compete Agreements |
|
|
177 |
|
|
|
177 |
|
|
Technology |
|
|
230 |
|
|
|
230 |
|
|
Total Gross Amounts |
|
$ |
4,464 |
|
|
$ |
4,460 |
|
|
Accumulated Amortization: |
|
|
|
|
|
|
|
|
|
Trade Name |
|
$ |
659 |
|
|
$ |
659 |
|
|
Customer Relationships |
|
|
955 |
|
|
|
796 |
|
|
Non-compete Agreements |
|
|
155 |
|
|
|
139 |
|
|
Technology |
|
|
123 |
|
|
|
103 |
|
|
Total Accumulated Amortization |
|
$ |
1,892 |
|
|
$ |
1,697 |
|
|
Net Intangible Assets |
|
$ |
2,572 |
|
|
$ |
2,763 |
|
|
(1) |
Change from prior periods reflect impact of foreign currency translation. |
The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table (in thousands):
|
Fiscal Year |
|
Amortization Expense |
|
|
|
Remaining 2020 |
|
$ |
64 |
|
|
2021 |
|
|
245 |
|
|
2022 |
|
|
252 |
|
|
2023 |
|
|
245 |
|
|
2024 |
|
|
232 |
|
|
Thereafter |
|
|
1,534 |
|
|
Total amortization expense |
|
$ |
2,572 |
|
The weighted average number of years of amortization expense remaining is 13.9 years.
6. INVESTMENTS
As of February 29, 2020, we had $13.0 million invested in a CD which matures in less than twelve months. The fair value of the investment was equal to the face value of the CD.
As of June 1, 2019, we had $8.0 million invested in CDs which mature in less than twelve months. The fair value of these investments was equal to the face value of the CDs.
11
We offer warranties for the limited number of specific products we manufacture. Our warranty terms generally range from one to three years.
We estimate the cost to perform under the warranty obligation and recognize this estimated cost at the time of the related product sale. We record expense related to our warranty obligations as cost of sales in our consolidated statements of comprehensive loss. Each quarter, we assess actual warranty costs incurred on a product-by-product basis and compare the warranty costs to our estimated warranty obligation. With respect to new products, estimates are based generally on knowledge of the products and warranty experience, if a sufficient history exists.
Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. Warranty reserves are included in accrued liabilities on our consolidated balance sheets. The warranty reserves are determined based on known product failures, historical experience and other available evidence. Warranty reserves were approximately $0.5 million as of February 29, 2020 and $0.3 million as of June 1, 2019.
8. LEASE OBLIGATIONS, OTHER COMMITMENTS AND CONTINGENCIES
In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases (“Topic 842”). ASU 2016-02 establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.
ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company elects the practical expedients (which must be elected as a package and applied consistently to all of our leases) for which we will not reassess: (1) whether any expired or existing contracts are or contains leases, (2) the lease classification for any expired or existing leases and (3) the initial indirect costs for any existing leases. We have also elected the practical expedient to combine lease and non-lease components for all of our leases. We have adopted an accounting policy to not apply the requirements of Topic 842 to leases with a term of 12 months or less, which the Company has within our facility leases. Short-term leases will be reassessed if events occur that disqualify them from short-term status.
The new standard was effective for the Company on June 2, 2019. The FASB issued ASU 2018-11, targeted improvements to Topic 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of Topic 842 as the date of initial application of transition. We adopted the new standard applying the new transition method allowed under ASU 2018-11. As a result of adopting Topic 842, at February 29, 2020, we recognized operating right-of-use assets of $3.3 million, financing right-of-use assets of $0.4 million, operating lease liabilities of $3.4 million and financing lease liabilities of $0.4 million. Existing deferred rent of $0.1 million was recorded as an offset to our gross operating lease right-of-use assets. Several leases include renewal clauses which vary in length and may not include specific rent renewal amounts. The Company will revise the value of the right of use assets and associated lease liabilities when the Company is reasonably certain it will renew the lease. The standard did not have a material impact on our results of operations or cash flows.
The gross amounts of assets and liabilities related to both operating and financing leases at February 29, 2020 were as follows (in thousands):
|
Lease Type |
|
Amount |
|
|
|
Operating lease ROU asset |
|
$ |
3,303 |
|
|
Financing lease ROU asset |
|
|
424 |
|
|
Total Lease ROU asset |
|
$ |
3,727 |
|
|
|
|
|
|
|
|
Operating lease liability current |
|
$ |
1,412 |
|
|
Financing lease liability current |
|
|
154 |
|
|
Total lease liability current |
|
$ |
1,566 |
|
|
|
|
|
|
|
|
Operating lease liability non-current |
|
$ |
1,998 |
|
|
Financing lease liability non-current |
|
|
206 |
|
|
Total lease liability non-current |
|
$ |
2,204 |
|
12
The components of lease costs were as follows (in thousands):
|
Lease Type |
|
Classification |
|
Three Months Ended February 29, 2020 |
|
|
Nine Months Ended February 29, 2020 |
|
||
|
Consolidated operating lease expense |
|
Operating expenses |
|
$ |
481 |
|
|
$ |
1,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated financing lease amortization |
|
Operating expenses |
|
|
23 |
|
|
|
39 |
|
|
Consolidated financing lease interest |
|
Interest expense |
|
|
4 |
|
|
|
18 |
|
|
Consolidated financing lease expense |
|
|
|
|
27 |
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease cost |
|
|
|
$ |
508 |
|
|
$ |
1,484 |
|
The Company recorded $0.4 million and $1.3 million of lease expense in the third quarter and first nine months of fiscal 2019, respectively.
The approximate future minimum lease payments under operating and financing leases at February 29, 2020 were as follows (in thousands):
|
Fiscal Year |
|
Operating Leases |
|
|
Financing Leases |
|
|
Total |
|
|||
|
Remaining 2020 |
|
$ |
410 |
|
|
$ |
45 |
|
|
$ |
455 |
|
|
2021 |
|
|
1,470 |
|
|
|
181 |
|
|
|
1,651 |
|
|
2022 |
|
|
698 |
|
|
|
151 |
|
|
|
849 |
|
|
2023 |
|
|
468 |
|
|
|
— |
|
|
|
468 |
|
|
2024 |
|
|
326 |
|
|
|
— |
|
|
|
326 |
|
|
Thereafter |
|
|
303 |
|
|
|
— |
|
|
|
303 |
|
|
Total lease payments |
|
|
3,675 |
|
|
|
377 |
|
|
|
4,052 |
|
|
Less imputed interest |
|
|
265 |
|
|
|
17 |
|
|
|
282 |
|
|
Net minimum lease payments |
|
$ |
3,410 |
|
|
$ |
360 |
|
|
$ |
3,770 |
|
The approximate future minimum lease payments under operating and financing leases at June 1, 2019 were as follows (in thousands):
|
Fiscal Year (1) |
|
Operating Leases |
|
|
|
2020 |
|
$ |
1,586 |
|
|
2021 |
|
|
1,367 |
|
|
2022 |
|
|
509 |
|
|
2023 |
|
|
340 |
|
|
2024 |
|
|
289 |
|
|
Thereafter |
|
|
234 |
|
|
(1) |
On June 2, 2019, the Company elected the modified retrospective method of transition to adopt the new lease standard Topic 842, which resulted in no restatement of prior period results. At June 1, 2019, prior to adoption of the new lease standard, operating lease obligations were not included as a liability on the balance sheet. Therefore, the operating lease obligations were included in the table for comparative purposes only and the total lease liability was not included as it is not applicable. |
The weighted average remaining lease terms and interest rates of leases held by the Company as of February 29, 2020 were as follows:
|
Lease Type |
|
Weighted Average Remaining Lease Term in Years |
|
Weighted Average Interest Rate |
|
|
Operating leases |
|
3.4 |
|
4.6% |
|
|
Financing leases |
|
2.1 |
|
4.6% |
|
13
The cash outflows of the leasing activity of the Company as lessee for the nine months ending February 29, 2020 were as follows (in thousands):
|
Cash Flow Source |
|
Classification |
|
Amount |
|
|
|
Operating cash flows from operating leases |
|
Operating activities |
|
$ |
621 |
|
|
Operating cash flows from financing leases |
|
Operating activities |
|
|
108 |
|
|
Finance cash flows from financing leases |
|
Financing activities |
|
|
121 |
|
9. INCOME TAXES
We recorded an income tax provision of $0.4 million and $0.8 million for the first nine months of fiscal 2020 and the first nine months of fiscal 2019, respectively. The effective income tax rate during the first nine months of fiscal 2020 was a tax provision of (365.1)% as compared to a tax provision of (383.3)% during the first nine months of fiscal 2019. The difference in rate during the first nine months of fiscal 2020 as compared to the first nine months of fiscal 2019 reflects changes in our geographical distribution of income (loss). The (365.1)% 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 2009 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. 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. Germany is currently under audit for fiscal years 2015 through 2018.
We have historically determined that certain undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S. We have provided a deferred tax liability totaling $0.3 million as of February 29, 2020. As of June 1, 2019, the deferred tax liability totaled $0.2 million.
As of February 29, 2020, our worldwide liability for uncertain tax positions related to continuing operations was $0.1 million, excluding interest and penalties as compared to $0.1 million liabilities for uncertain tax positions as of June 1, 2019. There was no change in recorded uncertain tax positions during the first nine months of fiscal 2020. We record penalties and interest related to uncertain tax positions in the income tax expense line item within the consolidated statements of comprehensive loss.
The valuation allowance against the net deferred tax assets that will more likely than not be realized was $12.0 million as of February 29, 2020. The valuation allowance against the net deferred tax assets was $11.7 million as of June 1, 2019 as no material additional domestic federal and state net deferred tax assets were generated during the third quarter of fiscal 2020 from losses in the U.S. jurisdiction. A full valuation allowance on the U.S. and state deferred tax assets will be maintained until sufficient positive evidence related to sources of future taxable income exists to support a reversal of the valuation allowance. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
10. CALCULATION OF EARNINGS PER SHARE
We have authorized 17,000,000 shares of common stock, and 3,000,000 shares of Class B common stock. The Class B common stock has 10 votes per share and has transferability restrictions; however, Class B common stock may be converted into common stock on a share-for-share basis at any time. With respect to dividends and distributions, shares of common stock and Class B common stock rank equally and have the same rights, except that Class B common stock cash dividends are limited to 90% of the amount of Class A common stock cash dividends.
In accordance with ASC 260-10, Earnings Per Share (“ASC 260”), our Class B common stock is considered a participating security requiring the use of the two-class method for the computation of basic and diluted earnings per share. The two-class computation method for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Basic and diluted earnings per share were computed using the two-class method as prescribed in ASC 260. The shares of Class B common stock are considered to be participating convertible securities since the shares of Class B common stock are convertible on a share-for-share basis into shares of common stock and may participate in dividends with common stock according to a predetermined formula which is 90% of the amount of Class A common stock cash dividends.
14
The earnings per share (“EPS”) presented in our unaudited consolidated statements of comprehensive loss were based on the following amounts (in thousands, except per share amounts):
|
|
|
Three Months Ended |
|
|||||||||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
||||||||||
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
||||
|
Numerator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(93 |
) |
|
$ |
(93 |
) |
|
$ |
(1,078 |
) |
|
$ |
(1,078 |
) |
|
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
662 |
|
|
|
662 |
|
|
|
657 |
|
|
|
657 |
|
|
Class B common stock |
|
|
114 |
|
|
|
114 |
|
|
|
114 |
|
|
|
114 |
|
|
Undistributed losses |
|
$ |
(869 |
) |
|
$ |
(869 |
) |
|
$ |
(1,849 |
) |
|
$ |
(1,849 |
) |
|
Common stock undistributed losses |
|
$ |
(742 |
) |
|
$ |
(742 |
) |
|
$ |
(1,577 |
) |
|
$ |
(1,577 |
) |
|
Class B common stock undistributed losses |
|
|
(127 |
) |
|
|
(127 |
) |
|
|
(272 |
) |
|
|
(272 |
) |
|
Total undistributed losses |
|
$ |
(869 |
) |
|
$ |
(869 |
) |
|
$ |
(1,849 |
) |
|
$ |
(1,849 |
) |
|
Denominator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock weighted average shares |
|
|
11,038 |
|
|
|
11,038 |
|
|
|
10,953 |
|
|
|
10,953 |
|
|
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS |
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,097 |
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions |
|
|
|
|
|
|
13,135 |
|
|
|
|
|
|
|
13,050 |
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
|
Class B common stock |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.08 |
) |
Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for the third quarter of fiscal 2020 and fiscal 2019 were 1,000 and 1,084, respectively.
15
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
||||||||||
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
||||
|
Numerator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(558 |
) |
|
$ |
(558 |
) |
|
$ |
(951 |
) |
|
$ |
(951 |
) |
|
Less dividends: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
1,986 |
|
|
|
1,986 |
|
|
|
1,963 |
|
|
|
1,963 |
|
|
Class B common stock |
|
|
340 |
|
|
|
340 |
|
|
|
342 |
|
|
|
342 |
|
|
Undistributed losses |
|
$ |
(2,884 |
) |
|
$ |
(2,884 |
) |
|
$ |
(3,256 |
) |
|
$ |
(3,256 |
) |
|
Common stock undistributed losses |
|
$ |
(2,462 |
) |
|
$ |
(2,462 |
) |
|
$ |
(2,774 |
) |
|
$ |
(2,774 |
) |
|
Class B common stock undistributed losses |
|
|
(422 |
) |
|
|
(422 |
) |
|
|
(482 |
) |
|
|
(482 |
) |
|
Total undistributed losses |
|
$ |
(2,884 |
) |
|
$ |
(2,884 |
) |
|
$ |
(3,256 |
) |
|
$ |
(3,256 |
) |
|
Denominator for Basic and Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock weighted average shares |
|
|
11,022 |
|
|
|
11,022 |
|
|
|
10,911 |
|
|
|
10,911 |
|
|
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS |
|
|
2,097 |
|
|
|
2,097 |
|
|
|
2,108 |
|
|
|
2,108 |
|
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions |
|
|
|
|
|
|
13,119 |
|
|
|
|
|
|
|
13,019 |
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
Class B common stock |
|
$ |
(0.04 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for the first nine months of fiscal 2020 and fiscal 2019 were 943 and 918, respectively.
11. SEGMENT REPORTING
In accordance with ASC 280-10, Segment Reporting, we have identified three reportable segments as follows:
PMT combines our core engineered solutions capabilities, power grid and microwave tube business with new RF, Wireless and disruptive power technologies. As a manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. 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 5G, 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. 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.
16
The CEO evaluates performance and allocates resources primarily based on the gross profit of each segment.
Operating results by segment are summarized in the following table (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
||||
|
PMT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
28,988 |
|
|
$ |
29,725 |
|
|
$ |
89,158 |
|
|
$ |
96,822 |
|
|
Gross Profit |
|
|
9,519 |
|
|
|
9,406 |
|
|
|
28,547 |
|
|
|
30,520 |
|
|
Canvys |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
7,200 |
|
|
$ |
6,954 |
|
|
$ |
22,333 |
|
|
$ |
20,625 |
|
|
Gross Profit |
|
|
2,362 |
|
|
|
2,281 |
|
|
|
7,268 |
|
|
|
6,726 |
|
|
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
2,061 |
|
|
$ |
2,339 |
|
|
$ |
7,045 |
|
|
$ |
7,042 |
|
|
Gross Profit |
|
|
789 |
|
|
|
612 |
|
|
|
2,486 |
|
|
|
1,977 |
|
Geographic net sales information is primarily grouped by customer destination into five areas: North America; Asia/Pacific; Europe; Latin America; and Other.
Net sales and gross profit by geographic region are summarized in the following table (in thousands):
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
||||
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
15,935 |
|
|
$ |
14,665 |
|
|
$ |
48,475 |
|
|
$ |
48,513 |
|
|
Asia/Pacific |
|
|
6,812 |
|
|
|
8,007 |
|
|
|
24,612 |
|
|
|
26,069 |
|
|
Europe |
|
|
12,438 |
|
|
|
13,612 |
|
|
|
38,572 |
|
|
|
41,761 |
|
|
Latin America |
|
|
3,057 |
|
|
|
2,702 |
|
|
|
6,894 |
|
|
|
8,075 |
|
|
Other (1) |
|
|
7 |
|
|
|
32 |
|
|
|
(17 |
) |
|
|
71 |
|
|
Total |
|
$ |
38,249 |
|
|
$ |
39,018 |
|
|
$ |
118,536 |
|
|
$ |
124,489 |
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
6,552 |
|
|
$ |
5,577 |
|
|
$ |
18,656 |
|
|
$ |
18,682 |
|
|
Asia/Pacific |
|
|
2,261 |
|
|
|
2,482 |
|
|
|
7,910 |
|
|
|
8,188 |
|
|
Europe |
|
|
4,011 |
|
|
|
4,403 |
|
|
|
12,157 |
|
|
|
13,141 |
|
|
Latin America |
|
|
994 |
|
|
|
990 |
|
|
|
2,338 |
|
|
|
3,011 |
|
|
Other (1) |
|
|
(1,148 |
) |
|
|
(1,153 |
) |
|
|
(2,760 |
) |
|
|
(3,799 |
) |
|
Total |
|
$ |
12,670 |
|
|
$ |
12,299 |
|
|
$ |
38,301 |
|
|
$ |
39,223 |
|
|
(1) |
Other includes primarily net sales not allocated to a specific geographical region, unabsorbed value-add costs and other unallocated expenses. |
We sell our products to customers in diversified industries and perform periodic credit evaluations of our customers’ financial condition. Terms are generally on open account, payable net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements based on monthly reviews of outstanding accounts.
12. LITIGATION
On October 15, 2018, Varex Imaging Corporation (“Varex”) filed its original Complaint (Case No. 1:18-cv-06911) against Richardson Electronics Ltd. (“Richardson”) in the Northern District of Illinois, which was subsequently amended on November 27, 2018. Varex alleged counts of infringement of U.S. Patent Nos. 6,456,692 and 6,519,317. Subsequently, on October 24, 2018, Varex filed a motion for preliminary injunction to stop the sale of Richardson’s ALTA750 TM product. Richardson filed an opposition to the preliminary injunction. In January 2019, the Court took evidence on the preliminary injunction issue. On September 30, 2019, the Court soundly denied Varex’s Motion for Preliminary Injunction. Richardson believes the lawsuit to be without merit and a loss is not probable or estimable based on the information at the time the financial statements were issued.
17
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists; therefore, an entity is required to develop its own assumptions.
As of February 29, 2020, we held an investment that was required to be measured at fair value on a recurring basis. Our investment consisted of a CD where face value was equal to fair value.
Investment measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of February 29, 2020 was as follows (in thousands):
|
|
|
Level 1 |
|
|
|
CD |
|
|
13,000 |
|
14. RELATED PARTY TRANSACTION
On June 15, 2015, the Company entered into a lease agreement for the IMES facility with LDL, LLC. The Executive Vice President of IMES, Lee A. McIntyre III (former owner of IMES), has an ownership interest in LDL, LLC. The lease agreement provides for monthly payments over five years with total future minimum lease payments of $0.8 million. Rental expense related to this lease amounted to $0.1 million for the nine months ended February 29, 2020 and for the nine months ended March 2, 2019. The Company shall be entitled to extend the term of the lease for a period of an additional five years by notifying the landlord in writing of its intention to do so within six months of the expiration of the initial term. The Company has extended the lease term for an additional five years, terminating on June 15, 2025.
15. SUBSEQUENT EVENT
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure.
The full impact of the COVID-19 outbreak continues to evolve subsequent to the quarter ended February 29, 2020 and as of the date these unaudited consolidated financial statements are issued. As such, the full magnitude that the pandemic will have on the Company’s financial condition, liquidity and future results of operations is uncertain. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry and workforce. As the spread of COVID-19 continues, our ability to meet customer demands for products may be impaired or, similarly, our customers may experience adverse business consequences due to COVID-19. Reduced demand for products or impaired ability to meet customer demand (including as a result of disruptions at our transportation service providers or vendors) could have a material adverse effect on our business, operations and financial performance. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not presently able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition or liquidity for fiscal year 2020.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide certain relief as a result of the COVID-19 outbreak. The Company is currently evaluating how these provisions in the CARES Act will impact its financial position, results of operations and cash flows.
18
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 this quarterly report on Form 10Q for the quarter ended February 29, 2020 as well as our Annual Report on Form 10-K filed on August 5, 2019. 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 |
|
|
• |
Results of Operations – an analysis and comparison of our consolidated results of operations for the three and nine month periods ended February 29, 2020 and March 2, 2019, 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 nine month periods ended February 29, 2020 and March 2, 2019, 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 capabilities, power grid and microwave tube business with new RF, Wireless and disruptive power technologies. As a manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. 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 5G, 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.
19
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 February 29, 2020
|
|
• |
The third quarter of fiscal 2020 and fiscal 2019 each contained 13 weeks. |
|
|
• |
Net sales during the third quarter of fiscal 2020 were $38.2 million, a decrease of 2.0%, compared to net sales of $39.0 million during the third quarter of fiscal 2019. |
|
|
• |
Gross margin increased to 33.1% during the third quarter of fiscal 2020 compared to 31.5% during the third quarter of fiscal 2019. |
|
|
• |
Selling, general and administrative expenses were $12.7 million, or 33.1% of net sales, during the third quarter of fiscal 2020 compared to $13.1 million, or 33.6% of net sales, during the third quarter of fiscal 2019. |
|
|
• |
Operating income during the third quarter of fiscal 2020 was $11,000 compared to an operating loss of $0.8 million during the third quarter of fiscal 2019. |
|
|
• |
Net loss during the third quarter of fiscal 2020 was $0.1 million compared to net loss of $1.1 million during the third quarter of fiscal 2019. |
Financial Summary – Nine Months Ended February 29, 2020
|
|
• |
The first nine months of fiscal 2020 and fiscal 2019 each contained 39 weeks. |
|
|
• |
Net sales during the first nine months of fiscal 2020 were $118.5 million, a decrease of 4.8%, compared to net sales of $124.5 million during the first nine months of fiscal 2019. |
|
|
• |
Gross margin increased to 32.3% during the first nine months of fiscal 2020 compared to 31.5% during the first nine months of fiscal 2019. |
|
|
• |
Selling, general and administrative expenses were $38.7 million, or 32.6% of net sales, during the first nine months of fiscal 2020 compared to $39.6 million, or 31.8% of net sales, during the first nine months of fiscal 2019. |
|
|
• |
Operating loss during the first nine months of fiscal 2020 was $0.4 million compared to an operating loss of $0.4 million during the first nine months of fiscal 2019. |
|
|
• |
Net loss during the first nine months of fiscal 2020 was $0.6 million compared to net loss of $1.0 million during the first nine months of fiscal 2019. |
20
Net Sales and Gross Profit Analysis
Net sales by segment and percent change during the third quarter and first nine months of fiscal 2020 and fiscal 2019 were as follows (in thousands):
|
Net Sales |
|
Three Months Ended |
|
|
FY20 vs. FY19 |
|
||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
|
% Change |
|
|||
|
PMT |
|
$ |
28,988 |
|
|
$ |
29,725 |
|
|
|
-2.5 |
% |
|
Canvys |
|
|
7,200 |
|
|
|
6,954 |
|
|
|
3.5 |
% |
|
Healthcare |
|
|
2,061 |
|
|
|
2,339 |
|
|
|
-11.9 |
% |
|
Total |
|
$ |
38,249 |
|
|
$ |
39,018 |
|
|
|
-2.0 |
% |
|
|
|
Nine Months Ended |
|
|
FY20 vs. FY19 |
|
||||||
|
|
|
February 29, 2020 |
|
|
March 2, 2019 |
|
|
% Change |
|
|||
|
PMT |
|
$ |
89,158 |
|
|
$ |
96,822 |
|
|
|
-7.9 |
% |
|
Canvys |
|
|
22,333 |
|
|
|
20,625 |
|
|
|
8.3 |
% |
|
Healthcare |
|
|
7,045 |
|
|
|
7,042 |
|
|
|
0.0 |
% |
|
Total |
|
$ |
118,536 |
|
|
$ |
124,489 |
|
|
|
-4.8 |
% |
During the third quarter of fiscal 2020, consolidated net sales decreased 2.0% compared to the third quarter of fiscal 2019. Sales for PMT decreased 2.5%, sales for Canvys increased 3.5% and sales for Healthcare decreased 11.9%. The decrease in PMT was mainly due to economic softness in the power grid tube business and the effect of the coronavirus on approximately 5% of our quarter’s shipments, partially offset by growth from our power conversion and RF and microwave components. The increase in Canvys was due to increased customer demand in its North American market. The decrease in Healthcare was due to lower equipment and non-core parts sales, partially offset by an increase in CT tube sales.
During the first nine months of fiscal 2020, consolidated net sales decreased 4.8% compared to the first nine months of fiscal 2019. Sales for PMT decreased 7.9%, sales for Canvys increased 8.3% and sales for Healthcare were flat. The decrease in PMT was mainly due to economic softness in the power grid tube business and a slow ramp up in sales in the semiconductor wafer fab equipment business, partially offset by growth from our power conversion and RF and microwave components. The increase in Canvys was due to increased customer demand in its North American market.
Gross profit by segment and percent of net sales for the third quarter and first nine months of fiscal 2020 and fiscal 2019 were as follows (in thousands):
|
Gross Profit |
|
Three Months Ended |
|
|||||||||||||
|
|
|
February 29, 2020 |
|
|
% of Net Sales |
|
|
March 2, 2019 |
|
|
% of Net Sales |
|
||||
|
PMT |
|
$ |
9,519 |
|
|
|
32.8 |
% |
|
$ |
9,406 |
|
|
|
31.6 |
% |
|
Canvys |
|
|
2,362 |
|
|
|
32.8 |
% |
|
|
2,281 |
|
|
|
32.8 |
% |
|
Healthcare |
|
|
789 |
|
|
|
38.3 |
% |
|
|
612 |
|
|
|
26.2 |
% |
|
Total |
|
$ |
12,670 |
|
|
|
33.1 |
% |
|
$ |
12,299 |
|
|
|
31.5 |
% |
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
|
February 29, 2020 |
|
|
% of Net Sales |
|
|
March 2, 2019 |
|
|
% of Net Sales |
|
||||
|
PMT |
|
$ |
28,547 |
|
|
|
32.0 |
% |
|
$ |
30,520 |
|
|
|
31.5 |
% |
|
Canvys |
|
|
7,268 |
|
|
|
32.5 |
% |
|
|
6,726 |
|
|
|
32.6 |
% |
|
Healthcare |
|
|
2,486 |
|
|
|
35.3 |
% |
|
|
1,977 |
|
|
|
28.1 |
% |
|
Total |
|
$ |
38,301 |
|
|
|
32.3 |
% |
|
$ |
39,223 |
|
|
|
31.5 |
% |
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 $12.7 million during the third quarter of fiscal 2020 compared to $12.3 million during the third quarter of fiscal 2019. Consolidated gross margin as a percentage of net sales increased to 33.1% during the third quarter of fiscal 2020 from 31.5% during the third quarter of fiscal 2019, primarily due to favorable product mix and improved manufacturing efficiencies in both PMT and Healthcare.
21
Consolidated gross profit decreased to $38.3 million during the first nine months of fiscal 2020 compared to $39.2 million during the first nine months of fiscal 2019. Consolidated gross margin as a percentage of net sales increased to 32.3% during the first nine months of fiscal 2020 from 31.5% during the first nine months of fiscal 2019, primarily due to favorable product mix in Healthcare and improved manufacturing efficiencies in both PMT and Healthcare.
Power and Microwave Technologies Group
PMT net sales decreased 2.5% to $29.0 million during the third quarter of fiscal 2020 from $29.7 million during the third quarter of fiscal 2019. The decrease was mainly due to economic softness in the power grid tube business and the effect of the coronavirus on approximately 5% of our quarter’s shipments, partially offset by growth from our power conversion and RF and microwave components. Gross margin as a percentage of net sales increased to 32.8% during the third quarter of fiscal 2020 as compared to 31.6% during the third quarter of fiscal 2019 primarily due to favorable product mix and improved manufacturing efficiencies.
PMT net sales decreased 7.9% to $89.2 million during the first nine months of fiscal 2020 from $96.8 million during the first nine months of fiscal 2019. The decrease was mainly due to economic softness in the power grid tube business and a slow ramp up in sales in the semiconductor wafer fab equipment business, partially offset by growth from our power conversion and RF and microwave components. Gross margin as a percentage of net sales increased to 32.0% during the first nine months of fiscal 2020 as compared to 31.5% during the first nine months of fiscal 2019 due to improved manufacturing efficiencies.
Canvys
Canvys net sales increased 3.5% to $7.2 million during the third quarter of fiscal 2020 from $6.9 million during the third quarter of fiscal 2019 due to increased customer demand in its North American market. Gross margin as a percentage of net sales was 32.8% during the third quarter of fiscal 2020, the same as during the third quarter of fiscal 2019.
Canvys net sales increased 8.3% to $22.3 million during the first nine months of fiscal 2020 from $20.6 million during the first nine months of fiscal 2019 primarily due to increased customer demand in its North American market. Gross margin as a percentage of net sales decreased slightly to 32.5% during the first nine months of fiscal 2020 as compared to 32.6% during the first nine months of fiscal 2019.
Healthcare
Healthcare net sales decreased 11.9% to $2.1 million during the third quarter of fiscal 2020 from $2.3 million during the third quarter of fiscal 2019 due to lower equipment and non-core parts sales, partially offset by an increase in CT tube sales. Gross margin as a percentage of net sales increased to 38.3% during the third quarter of fiscal 2020 as compared to 26.2% during the third quarter of fiscal 2019 due to favorable product mix and improved manufacturing efficiencies.
Healthcare net sales were $7.0 million during the first nine months of fiscal 2020, the same as during the first nine months of fiscal 2019 due to higher CT tube sales offset by a decrease in equipment sales in Latin America. Gross margin as a percentage of net sales increased to 35.3% during the first nine months of fiscal 2020 as compared to 28.1% during the first nine months of fiscal 2019 due to favorable product mix and improved manufacturing efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to $12.7 million during the third quarter of fiscal 2020 from $13.1 million in the third quarter of fiscal 2019, primarily due to lower severance, legal and professional services expenses, partially offset by higher research and development expenses for Healthcare.
Selling, general and administrative expenses decreased to $38.7 million during the first nine months of fiscal 2020 from $39.6 million in the first nine months of fiscal 2019, primarily due to lower severance, legal and professional services expenses, partially offset by higher research and development expenses for Healthcare.
Other Income/Expense
Other income/expense was income of $0.1 million during the third quarter of fiscal 2020, compared to income of less than $0.1 million during the third quarter of fiscal 2019. Other income/expense during the third quarter of fiscal 2020 included $0.1 million of investment/interest income. 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. 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 income of $0.2 million during the first nine months of fiscal 2020, compared to income of $0.2 million during the first nine months of fiscal 2019. Other income/expense during the first nine months of fiscal 2020 included $0.3 million of investment/interest income partially offset by $0.1 million of foreign exchange losses. 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.
22
We recorded an income tax provision of $0.4 million and $0.8 million for the first nine months of fiscal 2020 and the first nine months of fiscal 2019, respectively. The effective income tax rate during the first nine months of fiscal 2020 was a tax provision of (365.1)% as compared to a tax provision of (383.3)% during the first nine months of fiscal 2019. The difference in rate during the first nine months of fiscal 2020 as compared to the first nine months of fiscal 2019 reflects changes in our geographical distribution of income (loss). The (365.1)% 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 2009 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. 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. Germany is currently under audit for fiscal years 2015 through 2018.
Net Loss and Per Share Data
Net loss during the third quarter of fiscal 2020 was $0.1 million or ($0.01) per diluted common share and ($0.01) per Class B diluted common share as compared to net loss of $1.1 million during the third quarter of fiscal 2019 or ($0.08) per diluted common share and ($0.08) per Class B diluted common share.
Net loss during the first nine months of fiscal 2020 was $0.6 million or ($0.04) per diluted common share and ($0.04) per Class B diluted common share as compared to net loss of $1.0 million during the first nine months of fiscal 2019 or ($0.07) per diluted common share and ($0.07) 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 $30.9 million at February 29, 2020. Investments included a CD classified as short-term investment of $13.0 million. Total cash and investment was $43.9 million at February 29, 2020. Cash, cash equivalents and investment at February 29, 2020 consisted of $27.7 million in North America, $10.2 million in Europe, $0.8 million in Latin America and $5.2 million in Asia/Pacific. We repatriated $4.4 million total cash from our entities in Germany and the Netherlands in the second quarter of fiscal 2020 and $1.5 million from our entity in Japan in the third quarter of fiscal 2020. A total of $7.5 million was repatriated to the United States in the first nine months of fiscal 2020 from several of our foreign entities, which includes the amounts mentioned above in the second and third quarters of fiscal 2020. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes. See Note 9 “Income Taxes” of the notes to our consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended June 1, 2019, filed with the SEC on August 5, 2019, for further information.
Cash, cash equivalents and investments were $50.0 million at June 1, 2019. Cash, cash equivalents and investments at June 1, 2019, consisted of $21.5 million in North America, $17.8 million in Europe, $0.9 million in Latin America and $9.8 million in Asia/Pacific. We repatriated $2.3 million total cash from our entities in Japan and Korea in fiscal 2019 and $5.9 million total cash from our entities in Germany and France in fiscal 2019.
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 loss adjusted for non-cash items and changes in our operating assets and liabilities.
Operating activities used $2.4 million of cash during the first nine months of fiscal 2020. We had a net loss of $0.6 million during the first nine months of fiscal 2020, which included non-cash stock-based compensation expense of $0.5 million associated with the issuance of stock option and restricted stock awards, $0.5 million for inventory reserve provisions and depreciation and amortization expense of $2.5 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 $5.4 million during the first nine months of fiscal 2020, net of foreign currency exchange gains and losses, included an increase in inventory of $4.2 million, a decrease of $2.1 million in accounts payable and a decrease in accrued liabilities of $0.2 million partially offset by a decrease in accounts receivable of $1.1 million. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services. The majority of the inventory increase was to support the continued growth of our electron tube and RF and Power Technologies groups.
23
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 primarily 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.
Cash Flows from Investing Activities
The cash flow used in investing activities consisted primarily of purchases of investments and capital expenditures partially offset by proceeds from the maturities of investments.
Cash used in investing activities of $6.2 million during the first nine months of fiscal 2020 included purchases of investments of $13.0 million and $1.2 million in capital expenditures, partially offset by proceeds from the maturities of investments of $8.0 million. Capital expenditures related primarily to capital used for our IT system, Healthcare and LaFox manufacturing businesses.
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.
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 used in financing activities consisted primarily of cash dividends paid.
Cash used in financing activities of $2.4 million during the first nine months of fiscal 2020 primarily resulted from cash used to pay dividends.
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.
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.
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 1, 2019, filed August 5, 2019.
24
|
(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 29, 2020.
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 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
25
On October 15, 2018, Varex Imaging Corporation (“Varex”) filed its original Complaint (Case No. 1:18-cv-06911) against Richardson Electronics Ltd. (“Richardson”) in the Northern District of Illinois, which was subsequently amended on November 27, 2018. Varex alleged counts of infringement of U.S. Patent Nos. 6,456,692 and 6,519,317. Subsequently, on October 24, 2018, Varex filed a motion for preliminary injunction to stop the sale of Richardson’s ALTA750 TM product. Richardson filed an opposition to the preliminary injunction. In January 2019, the Court took evidence on the preliminary injunction issue. On September 30, 2019, the Court soundly denied Varex’s Motion for Preliminary Injunction. Richardson believes the lawsuit to be without merit and a loss is not probable or estimable based on the information at the time the financial statements were issued.
The Company's operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended June 1, 2019, filed August 5, 2019. The following supplements and updates the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended June 1, 2019.
Major disruptions to our logistics capability or to the operations of our key vendors or customers could have a material adverse impact on our operations.
We operate our global logistics services through specialized and centralized distribution centers. We depend on third party transportation service providers for the delivery of products to our customers. A major interruption or disruption in service at any of our distribution centers, or a disruption at the operations of any of our significant vendors or customers, for any reason, including reasons beyond our control (such as natural disasters, pandemics (such as the outbreak of a novel strain of coronavirus, now known as COVID-19), work stoppages, power loss, cyber attacks, incidents of terrorism or other significant disruptions of services from our third party providers) could cause cancellations or delays in a significant number of shipments to customers and, as a result, could have a severe impact on our business, operations and financial performance.
In December 2019, an outbreak of COVID-19 virus originated in Wuhan, China, and has since spread to a number of other countries, including the United States. The outbreak and actions taken by the Chinese government resulted in travel restrictions and extended shutdowns of certain businesses in the region. As a result, we experienced cancellations and delays in shipments to our customers in China as well as receiving shipments from our vendors in China during our third quarter of fiscal 2020. On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency and the risks to the international community as the virus spreads globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in global exposure. In response, the governments of many countries, states, cities and other geographic regions (including areas in which we have operations) have taken preventative or protective actions, such as imposing restrictions on business operations and requiring individuals to stay at home. As the spread of the COVID-19 outbreak continues, our ability to meet customer demands for products may be impaired or, similarly, our customers may experience adverse business consequences due to COVID-19. A resulting reduced demand for products or impaired ability to meet customer demand (including as a result of disruptions at our transportation service providers or vendors) could cause a material adverse effect on our business, operations and financial performance. This is a very dynamic situation and we cannot at this time predict the extent to which the COVID-19 outbreak may impact our future results.
26
|
Exhibit Number |
|
Description |
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
31.1 |
|
Certification of Edward J. Richardson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2 |
|
Certification of Robert J. Ben pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32 |
|
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
101 |
|
The following financial information from our Quarterly Report on Form 10-Q for the third quarter of fiscal 2020, filed with the SEC on April 9, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Comprehensive Loss, (iii) the Unaudited Consolidated Statements of Cash Flows, (iv) the Unaudited Consolidated Statement of Stockholders’ Equity and (v) Notes to Unaudited Consolidated Financial Statements. |
27
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
RICHARDSON ELECTRONICS, LTD. |
|
|
|
|
|
|
Date: April 9, 2020 |
By: |
/s/ Robert J. Ben |
|
|
|
Robert J. Ben Chief Financial Officer and Chief Accounting Officer (on behalf of the Registrant and as Principal Financial Officer) |
28
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Edward J. Richardson, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Richardson Electronics, Ltd. for the period ended February 29, 2020; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: April 9, 2020 |
||
|
|
||
|
Signature: |
|
/s/ Edward J. Richardson |
|
|
||
|
Edward J. Richardson |
||
|
Chairman of the Board and Chief Executive Officer |
||
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Ben, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Richardson Electronics, Ltd. for the period ended February 29, 2020; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: April 9, 2020 |
||
|
|
||
|
Signature: |
|
/s/ Robert J. Ben |
|
|
||
|
Robert J. Ben |
||
|
Chief Financial Officer and Chief Accounting Officer |
||
Exhibit 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-Q for the period ended February 29, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Richardson, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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/s/ Edward J. Richardson |
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Edward J. Richardson |
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Chairman of the Board and Chief Executive Officer |
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April 9, 2020 |
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-Q for the period ended February 29, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Ben, Chief Financial Officer and Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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/s/ Robert J. Ben |
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Robert J. Ben |
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Chief Financial Officer and Chief Accounting Officer |
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April 9, 2020 |