Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
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.
During the first quarter of fiscal 2015, we created a new strategic business unit called Richardson Healthcare (“Healthcare”). As hospitals remain under pressure to reduce costs while serving a much larger customer base, there is a growing demand for independent sources of high-value replacement parts for diagnostic imaging. Having access to parts that are tested and in stock enables hospitals to terminate expensive service contracts with the Original Equipment Manufacturers (“OEM”) and instead use third party service providers or in-house technicians. With our global infrastructure, technical sales team, and experience servicing the healthcare market, we are well positioned to take advantage of this market opportunity. Over time, our plan is to expand our position from being the leader in power grid tubes to a key player in the high-growth, high-profile healthcare industry.
We have three operating and reportable segments, which we define as follows:
The Power and Microwave Technologies Group (“PMT”), formerly called the Electron Device Group (“EDG”) prior to July 2015, provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical OEM markets.
Healthcare manufactures, refurbishes and distributes high value replacement parts for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations, and multi-vendor service providers. Products include Diagnostic Imaging replacement parts including CT and MRI tubes, hydrogen thyratrons, klystrons, magnetrons; replacement flat panel detectors and upgrades; and additional replacement components currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings, and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe, and Latin America.
Customer Concentration:
No one customer represented more than 10% of our total accounts receivable balance as of May 27, 2017. One customer represented $3.8 million, or 15%, of our total accounts receivable balance, as of May 28, 2016. This receivable was collected in the first month of our fiscal 2017. No one customer represented more than 10% of net sales for either fiscal 2017 or fiscal 2016.
Supplier Concentration:
One of our suppliers represented 14% of our total cost of sales as of May 27, 2017, and 15% as of May 28, 2016. The amount owed to this supplier was approximately $2.3 million as of May 27, 2017, and $2.2 million as of May 28, 2016.
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP for all fiscal years presented.
The consolidated financial statements include our wholly owned subsidiaries. All intercompany transactions and account balances have been eliminated in consolidation.
Our fiscal year 2017 began on May 29, 2016, and ended on May 27, 2017. Unless otherwise noted, all references to a particular year in this document shall mean our fiscal year.
3.
|
SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES
|
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management continuously evaluates its critical accounting policies and estimates, including the allowance for doubtful accounts, revenue recognition, inventory obsolescence, goodwill and other intangible assets, loss contingencies, and income taxes. Management bases the estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, however, actual results could differ from those estimates.
Fair Values of Financial Instruments:
The fair values of financial instruments are determined based on quoted market prices and market interest rates as of the end of the reporting period. Our financial instruments include investments, accounts receivable, accounts payable, and accrued liabilities. The fair values of these financial instruments approximate carrying values at May 27, 2017, and May 28, 2016.
Cash and Cash Equivalents:
We consider short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, and that have a maturity of three months or less, when purchased, to be cash equivalents. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate the fair market value of these assets.
Allowance for Doubtful Accounts:
Our allowance for doubtful accounts includes estimated losses that result from uncollectible receivables. The estimates are influenced by the following: continuing credit evaluation of customers’ financial conditions; aging of receivables, individually and in the aggregate; a large number of customers which are widely dispersed across geographic areas; collectability and delinquency history by geographic area; and the fact that no single customer accounts for more than 10% of net sales. Significant changes in one or more of these considerations may require adjustments affecting net income and net carrying value of accounts receivable. The allowance for doubtful accounts was approximately $0.4 million as of both May 27, 2017, and as of May 28, 2016.
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.
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.
Foreign Currency Translation:
The functional currency is the local currency at all foreign locations, with the exception of Hong Kong, which the functional currency is the US dollar. Balance sheet items for our foreign entities, included in our consolidated balance sheet are translated into U.S. dollars at end-of-period spot rates. Gains and losses resulting from translation of foreign subsidiary financial statements are credited or charged directly to accumulated other comprehensive income/(loss), a component of stockholders’ equity. Revenues and expenses are translated at the current rate on the date of the transaction. Gains and losses resulting from foreign currency transactions are included in income. Foreign currency translation reflected in our consolidated statements of comprehensive loss was a loss of $0.6 million during fiscal 2017, a loss of $0.2 million during fiscal 2016, and a gain of $0.2 million during fiscal 2015.
Shipping and Handling Fees and Costs:
Shipping and handling costs billed to customers are reported as revenue and the related costs are reported as a component of cost of sales.
Inventories, net:
Our worldwide inventories are stated at the lower of cost or market, generally using a weighted-average cost method. Our net inventories include approximately $36.0 million of finished goods, $5.3 million of raw materials, and $1.4 million of work-in-progress as of May 27, 2017, as compared to approximately $40.0 million of finished goods, $4.4 million of raw materials, and $1.0 million of work-in-progress as of May 28, 2016. The inventory reserve as of May 27, 2017, was $3.5 million compared to $3.4 million as of May 28, 2016.
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.
We recorded provisions to our inventory reserves of $0.5 million, $0.7 million, and $0.2 million during fiscal 2017, 2016, and 2015, respectively, which were included in cost of sales. The provisions were principally for obsolete and slow moving parts. The parts were written down to estimated realizable value.
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.
Investments:
As of May 27, 2017, we have invested in time deposits and certificates of deposit (“CD”) in the amount of $8.2 million. Of this, $6.4 million mature in less than twelve months and $1.8 million mature in greater than twelve months. As of May 28, 2016, we had approximately $9.5 million invested in time deposits and CD’s. Of this, $2.3 million mature in less than twelve months and $7.2 million mature in greater than twelve months. The fair value of these investments is the face value of each time deposit and CD.
We also have investments in equity securities, all of which are classified as available-for-sale and are carried at their fair value based on quoted market prices. Our investments, which are included in non-current assets, had a carrying amount of $0.6 million at May 27, 2017 and at May 28, 2016. Proceeds from the sale of securities were $0.3 million during fiscal 2017, $0.3 million during fiscal 2016 and $0.2 million during fiscal 2015. We reinvested proceeds from the sale of securities, and the cost of the equity securities sold was based on a specific identification method. Gross realized gains and losses on those sales were less than $0.1 million during fiscal 2017, 2016, and 2015. Net unrealized holding losses during fiscal 2017, 2016, and 2015, were less than $0.1 million and have been included in accumulated comprehensive loss during its respective fiscal year.
Discontinued Operations:
During fiscal 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of our RF, Wireless, and Power Division (“RFPD”), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. (“Arrow”) in exchange for $238.8 million, (“the Transaction”). In accordance with Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements - Discontinued Operations (“ASC 205-20”), we reported the financial results of RFPD as a discontinued operation.
During fiscal 2017, the Company disposed of, by sale, the PACS Display business. Based on our assessment of the criteria that must be met to qualify a disposal transaction as a discontinued operation set forth in Accounting Standards Update 2014-08, the disposal of the PACS Display business does not qualify as a discontinued operation.
Goodwill and Other Intangible Assets:
We test goodwill for impairment annually and whenever events or circumstances indicate an impairment may have occurred, such as a significant adverse change in the business climate, loss of key personnel or a decision to sell or dispose of a reporting unit.
During the fourth quarter of each fiscal year, our goodwill balances are reviewed for impairment using the first day of our fourth quarter as the measurement date. If after reviewing the totality of events or circumstances as provided in ASU 2011-08 we determine that it is not likely that the fair value of a reporting unit exceeds its carrying amount, then we test for impairment through the application of a fair value based test. We estimate the fair value of each of our reporting units based on projected future operating results, market approach, and discounted cash flows.
Our goodwill impairment testing follows the two-step process as defined in ASC 350. The first step in the process compares the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss to be recognized. In the second step, the fair value of the reporting unit resulting from the first step of the evaluation is allocated to the fair value of all of the assets and liabilities of the reporting unit in order to determine an implied goodwill value. This allocation is similar to the purchase price allocation performed in purchase accounting. If the carrying amount of the goodwill reported exceeds the implied goodwill value, an impairment loss should be recognized in an amount equal to that excess.
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 on a straight-line basis over their useful lives. Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements, and technology acquired in connection with the acquisitions.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost, net of accumulated depreciation. Improvements and replacements are capitalized while expenditures for maintenance and repairs are charged to expense as incurred. Provisions for depreciation are computed using the straight-line method over the estimated useful life of the asset. Depreciation expense was approximately $2.4 million, $2.0 million, and $1.7 million during fiscal 2017, 2016, and 2015, respectively. Property, plant and equipment consist of the following (
in thousands
):
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Land and improvements
|
|
$
|
1,301
|
|
|
$
|
1,301
|
|
Buildings and improvements
|
|
|
19,885
|
|
|
|
19,023
|
|
Computer and communications equipment
|
|
|
8,551
|
|
|
|
6,810
|
|
Construction in progress
|
|
|
2,063
|
|
|
|
2,721
|
|
Machinery and other equipment
|
|
|
10,387
|
|
|
|
8,080
|
|
|
|
$
|
42,187
|
|
|
$
|
37,935
|
|
Accumulated depreciation
|
|
|
(26,374
|
)
|
|
|
(24,949
|
)
|
Property, plant, and equipment, net
|
|
$
|
15,813
|
|
|
$
|
12,986
|
|
Construction in progress includes $1.9 million related to our Healthcare growth initiatives. All projects are expected to be completed before the end of fiscal 2018.
Supplemental disclosure information of the estimated useful life of the assets:
Land improvements
|
10 years
|
Buildings and improvements
|
10 - 30 years
|
Computer and communications equipment
|
3 - 10 years
|
Machinery and other equipment
|
3 - 10 years
|
We review all property, plant, and equipment for impairment when events or changes in circumstances occur which indicate a possible impairment may exist. We have concluded that our property, plant, and equipment as of May 27, 2017, were not impaired.
Accrued Liabilities:
Accrued liabilities consist of the following (
in thousands
):
|
|
May 27, 2017
|
|
|
May 28, 2016
|
|
Compensation and payroll taxes
|
|
$
|
3,250
|
|
|
$
|
3,404
|
|
Accrued severance(1)
|
|
|
706
|
|
|
|
650
|
|
Professional fees
|
|
|
535
|
|
|
|
775
|
|
Deferred revenue
|
|
|
1,460
|
|
|
|
1,879
|
|
Other accrued expenses
|
|
|
2,360
|
|
|
|
2,427
|
|
Accrued Liabilities
|
|
$
|
8,311
|
|
|
$
|
9,135
|
|
(1) In the second quarter of fiscal year 2017, the Company executed a reduction in headcount to streamline operations and reduce costs and recorded $1.3 million of expense included in selling, general and administrative expenses for employee termination costs payable to terminated employees with employment and/or separation agreements with the Company. The changes in the severance accrual for fiscal year 2017 included provisions and payments of $1.3 million and $1.2 million, respectively.
Warranties:
We offer warranties for the limited number of specific products we manufacture. We also provide extended warranties for some products we sell that lengthen the period of coverage specified in the manufacturer’s original warranty. 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, the extended warranty period, and warranty experience.
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.
Changes in the warranty reserve during fiscal 2017 and 2016 were as follows (
in thousands
):
|
|
Warranty Reserve
|
|
Balance at May 30, 2015
|
|
$
|
188
|
|
Accruals for products sold
|
|
|
108
|
|
Utilization
|
|
|
(86
|
)
|
Balance at May 28, 2016
|
|
$
|
210
|
|
Accruals for products sold
|
|
|
89
|
|
Utilization
|
|
|
(78
|
)
|
Recovery
|
|
|
(115
|
)
|
Balance at May 27, 2017
|
|
$
|
106
|
|
Other Non-Current Liabilities:
Other non-current liabilities of $0.7 million at May 27, 2017, and $1.0 million at May 28, 2016, primarily represent employee-benefits obligations in various non-US locations.
Share-Based Compensation:
We measure and recognize compensation cost at fair value for all share-based payments, including stock options. We estimate fair value using the Black-Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected life, and dividends. Compensation cost is recognized using a graded-vesting schedule over the applicable vesting period. Share-based compensation expense totaled approximately $0.4 million during fiscal 2017, $0.5 million during fiscal 2016, and $0.7 million during fiscal 2015.
Stock options granted generally vest over a period of five years and have contractual terms to exercise of 10 years. A summary of stock option activity is as follows (
in thousands, except option prices and years):
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Options Outstanding at May 31, 2014
|
|
|
1,065
|
|
|
$
|
10.37
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
225
|
|
|
|
9.92
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(47
|
)
|
|
|
6.53
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(34
|
)
|
|
|
11.42
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(72
|
)
|
|
|
11.19
|
|
|
|
|
|
|
|
|
|
Options Outstanding at May 30, 2015
|
|
|
1,137
|
|
|
$
|
10.35
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
122
|
|
|
|
5.88
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(28
|
)
|
|
|
5.18
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(105
|
)
|
|
|
10.98
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(107
|
)
|
|
|
9.97
|
|
|
|
|
|
|
|
|
|
Options Outstanding at May 28, 2016
|
|
|
1,019
|
|
|
$
|
9.93
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
190
|
|
|
|
6.90
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(5
|
)
|
|
|
5.61
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(43
|
)
|
|
|
8.39
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(88
|
)
|
|
|
11.17
|
|
|
|
|
|
|
|
|
|
Options Outstanding at May 27, 2017
|
|
|
1,073
|
|
|
$
|
9.38
|
|
|
|
6.0
|
|
|
$
|
85
|
|
Options Vested at May 27, 2017
|
|
|
628
|
|
|
$
|
10.21
|
|
|
|
4.4
|
|
|
$
|
68
|
|
There were 5,000 stock options exercised during fiscal 2017, with cash received of less than $0.1 million. The total intrinsic value of options exercised totaled less than $0.1 million during fiscal 2017 and 2016 and $0.2 million during fiscal 2015. The weighted average fair value of stock option grants was $1.14 during fiscal 2017, $1.21 during fiscal 2016, and $3.71 during fiscal 2015. As of May 27, 2017, total unrecognized compensation costs related to unvested stock options was approximately $0.9 million which is expected to be recognized over the remaining weighted average period of approximately three to four years. The total grant date fair value of stock options vested during fiscal 2017 was $0.5 million.
The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Expected volatility
|
|
|
25.41
|
%
|
|
|
32.21
|
%
|
|
|
46.12
|
%
|
Risk-free interest rate
|
|
|
1.46
|
%
|
|
|
1.78
|
%
|
|
|
2.12
|
%
|
Expected lives (years)
|
|
|
6.50
|
|
|
|
6.50
|
|
|
|
6.47
|
|
Annual cash dividend
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
|
$
|
0.24
|
|
The expected volatility assumptions are based on historical experience commensurate with the expected term. The risk-free interest rate is based on the yield of a treasury note with a remaining term equal to the expected life of the stock option.
The expected stock option life assumption is based on the Securities and Exchange Commission’s (“SEC”) guidance in Staff Accounting Bulletin (“SAB”) No. 107 (“SAB No. 107”). On December 21, 2007, the SEC issued SAB No. 110 stating that they will continue to accept SAB No. 107, past the original expiration date of December 31, 2007. For stock options granted during fiscal years 2017, 2016, and 2015, we believe that our historical stock option experience does not provide a reasonable basis upon which to estimate expected term. We utilized the Safe Harbor option, or Simplified Method, to determine the expected term of these options in accordance with SAB No. 107 for options granted. We intend to continue to utilize the Simplified Method for future grants in accordance with SAB No. 110 until such time that we believe that our historical stock option experience will provide a reasonable basis to estimate an expected term.
The following table summarizes information about stock options outstanding at May 27, 2017 (
in thousands, except option prices and years
):
|
|
|
Outstanding
|
|
|
Vested
|
|
Exercise Price Range
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Life
|
|
|
Aggregate Intrinsic
Value
|
|
|
Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Life
|
|
|
Aggregate Intrinsic
Value
|
|
$5.03 to $8.58
|
|
|
|
429
|
|
|
$
|
6.28
|
|
|
|
6.5
|
|
|
$
|
85
|
|
|
|
168
|
|
|
$
|
5.84
|
|
|
|
2.6
|
|
|
$
|
68
|
|
$9.48 to $11.14
|
|
|
|
350
|
|
|
$
|
10.50
|
|
|
|
6.7
|
|
|
$
|
—
|
|
|
|
184
|
|
|
$
|
10.62
|
|
|
|
6.5
|
|
|
$
|
—
|
|
$11.50 to $13.76
|
|
|
|
294
|
|
|
$
|
12.55
|
|
|
|
4.3
|
|
|
$
|
—
|
|
|
|
276
|
|
|
$
|
12.60
|
|
|
|
4.2
|
|
|
$
|
—
|
|
Total
|
|
|
|
1,073
|
|
|
$
|
9.38
|
|
|
|
6.0
|
|
|
$
|
85
|
|
|
|
628
|
|
|
$
|
10.21
|
|
|
|
4.4
|
|
|
$
|
68
|
|
As of May 27, 2017, we did not have any unvested restricted shares.
Compensation effects arising from issuing stock awards have been charged against income and recorded as additional paid-in-capital in the consolidated statements of stockholder’s equity during fiscal 2017, 2016, and 2015.
The Employees’ 2011 Long-Term Incentive Compensation Plan authorizes the issuance of up to 1,500,000 shares as incentive stock options, non-qualified stock options, or stock awards. Under this plan, 850,000 shares are reserved for future issuance. The Plan authorizes the granting of stock options at the fair market value at the date of grant. Generally, these options become exercisable over five years and expire up to 10 years from the date of grant.
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.
The per share amounts presented in the consolidated statements of comprehensive loss are based on the following (
amounts in thousands, except per share amounts
):
|
|
For the Fiscal Year Ended
|
|
|
|
May 27, 2017
|
|
|
May 28, 2016
|
|
|
May 30, 2015
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
|
Basic
|
|
|
Diluted
|
|
Numerator for Basic and Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(6,928
|
)
|
|
$
|
(6,928
|
)
|
|
$
|
(6,766
|
)
|
|
$
|
(6,766
|
)
|
|
$
|
(5,528
|
)
|
|
$
|
(5,528
|
)
|
Less dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
2,567
|
|
|
|
2,567
|
|
|
|
2,615
|
|
|
|
2,615
|
|
|
|
2,794
|
|
|
|
2,794
|
|
Class B common stock
|
|
|
464
|
|
|
|
464
|
|
|
|
464
|
|
|
|
464
|
|
|
|
466
|
|
|
|
466
|
|
Undistributed losses
|
|
$
|
(9,959
|
)
|
|
$
|
(9,959
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(8,788
|
)
|
|
$
|
(8,788
|
)
|
Common stock undistributed losses
|
|
$
|
(8,440
|
)
|
|
$
|
(8,440
|
)
|
|
$
|
(8,367
|
)
|
|
$
|
(8,367
|
)
|
|
$
|
(7,539
|
)
|
|
$
|
(7,539
|
)
|
Class B common stock undistributed losses
|
|
|
(1,519
|
)
|
|
|
(1,519
|
)
|
|
|
(1,478
|
)
|
|
|
(1,478
|
)
|
|
|
(1,249
|
)
|
|
|
(1,249
|
)
|
Total undistributed losses
|
|
$
|
(9,959
|
)
|
|
$
|
(9,959
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(8,788
|
)
|
|
$
|
(8,788
|
)
|
Loss from discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(31
|
)
|
|
$
|
(31
|
)
|
Less dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
2,567
|
|
|
|
2,567
|
|
|
|
2,615
|
|
|
|
2,615
|
|
|
|
2,794
|
|
|
|
2,794
|
|
Class B common stock
|
|
|
464
|
|
|
|
464
|
|
|
|
464
|
|
|
|
464
|
|
|
|
466
|
|
|
|
466
|
|
Undistributed losses
|
|
$
|
(3,031
|
)
|
|
$
|
(3,031
|
)
|
|
$
|
(3,079
|
)
|
|
$
|
(3,079
|
)
|
|
$
|
(3,291
|
)
|
|
$
|
(3,291
|
)
|
Common stock undistributed losses
|
|
$
|
(2,567
|
)
|
|
$
|
(2,567
|
)
|
|
$
|
(2,615
|
)
|
|
$
|
(2,615
|
)
|
|
$
|
(2,823
|
)
|
|
$
|
(2,823
|
)
|
Class B common stock undistributed losses
|
|
|
(464
|
)
|
|
|
(464
|
)
|
|
|
(464
|
)
|
|
|
(464
|
)
|
|
|
(468
|
)
|
|
|
(468
|
)
|
Total undistributed losses
|
|
$
|
(3,031
|
)
|
|
$
|
(3,031
|
)
|
|
$
|
(3,079
|
)
|
|
$
|
(3,079
|
)
|
|
$
|
(3,291
|
)
|
|
$
|
(3,291
|
)
|
Net loss
|
|
$
|
(6,928
|
)
|
|
$
|
(6,928
|
)
|
|
$
|
(6,766
|
)
|
|
$
|
(6,766
|
)
|
|
$
|
(5,559
|
)
|
|
$
|
(5,559
|
)
|
Less dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
2,567
|
|
|
|
2,567
|
|
|
|
2,615
|
|
|
|
2,615
|
|
|
|
2,794
|
|
|
|
2,794
|
|
Class B common stock
|
|
|
464
|
|
|
|
464
|
|
|
|
464
|
|
|
|
464
|
|
|
|
466
|
|
|
|
466
|
|
Undistributed losses
|
|
$
|
(9,959
|
)
|
|
$
|
(9,959
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(8,819
|
)
|
|
$
|
(8,819
|
)
|
Common stock undistributed losses
|
|
$
|
(8,440
|
)
|
|
$
|
(8,440
|
)
|
|
$
|
(8,367
|
)
|
|
$
|
(8,367
|
)
|
|
$
|
(7,565
|
)
|
|
$
|
(7,565
|
)
|
Class B common stock undistributed losses
|
|
|
(1,519
|
)
|
|
|
(1,519
|
)
|
|
|
(1,478
|
)
|
|
|
(1,478
|
)
|
|
|
(1,254
|
)
|
|
|
(1,254
|
)
|
Total undistributed losses
|
|
$
|
(9,959
|
)
|
|
$
|
(9,959
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(9,845
|
)
|
|
$
|
(8,819
|
)
|
|
$
|
(8,819
|
)
|
Denominator for Basic and Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock weighted average shares
|
|
|
10,705
|
|
|
|
10,705
|
|
|
|
10,908
|
|
|
|
10,908
|
|
|
|
11,682
|
|
|
|
11,682
|
|
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS
|
|
|
2,140
|
|
|
|
2,140
|
|
|
|
2,141
|
|
|
|
2,141
|
|
|
|
2,151
|
|
|
|
2,151
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions
|
|
|
|
|
|
|
12,845
|
|
|
|
|
|
|
|
13,049
|
|
|
|
|
|
|
|
13,833
|
|
Loss from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
(0.55
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.41
|
)
|
Class B common stock
|
|
$
|
(0.49
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.36
|
)
|
Income from discontinued operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Class B common stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
(0.55
|
)
|
|
$
|
(0.55
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.41
|
)
|
Class B common stock
|
|
$
|
(0.49
|
)
|
|
$
|
(0.49
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.36
|
)
|
Note: Common stock options that were anti-dilutive and not included in diluted earnings per common share for fiscal 2017, fiscal 2016, and fiscal 2015 were 848; 890; and 881 respectively.
New Accounting Pronouncements
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.
We are evaluating the impact of the new standard on our financial statements using a three-phase approach (assessment, conversion and implementation). We are in our primary assessment stage, which included identifying revenue streams, contracts and responsible parties who create and manage those accounts, quantifying the impact of identified contracts on the financial statements and identifying internal control changes. We are in the initial stage of our assessment phase and therefore further evaluation is needed to determine the impact on our financial statements, related disclosures and controls upon adoption. We expect to finalize the primary assessment phase in the first quarter of fiscal 2018. We will complete the conversion and implementation phases during fiscal 2018 in conjunction with future interpretative guidance.
In July 2015, the FASB issued ASU No. 2015-11 (“ASU 2015-11”), Simplifying the Measurement of Inventory. ASU 2015-11 requires inventory within the scope of the ASU (e.g., first-in, first-out (“FIFO”) or average cost) to be measured using the lower of cost and net realizable value. Inventory excluded from the scope of the ASU (i.e., last-in, first-out (“LIFO”) or the retail inventory method) will continue to be measured at the lower of cost or market. The ASU also amends some of the other guidance in Topic 330, “Inventory,” to more clearly articulate the requirements for the measurement and disclosure of inventory. However, those amendments are not intended to result in any changes to current practice. ASU 2015-11 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect adoption of ASU 2015-11 to have a material impact on the Company’s consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 eliminates the prior US GAAP guidance in Topic 740, Income Taxes, that required an entity to separate deferred tax liabilities and assets between current and noncurrent amounts in a classified balance sheet. The amendments in ASU 2015-17 require that all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. In order to simplify presentation of deferred tax balances, the Company adopted this standard prospectively in the quarter ended August 27, 2016, which did not have a material impact on the Company’s results of operations, cash flows or stockholders’ equity. Periods prior to August 27, 2016 were not retrospectively adjusted.
In February 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases. 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 finance 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. The Company is currently evaluating the potential impact of the adoption of ASU 2016-02 on the Company’s consolidated financial statements. Upon adoption, the Company expects that the amounts recognized for the ROU asset and lease liability in the balance sheets may be material.
In March 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 introduces targeted amendments intended to simplify the accounting for stock compensation. ASU 2016-09 will directly impact the tax administration of equity plans. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted and any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company expects to adopt ASU 2016-09 in the first quarter of fiscal 2018, at which time we will evaluate the potential impact of the adoption of this standard on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04 (“ASU 2017-04”), Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. ASU 2017-04 will be effective for fiscal years and interim periods beginning after December 15, 2019. ASU 2017-04 is required to be applied prospectively and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.
On June 15, 2015, Richardson Electronics, Ltd (“the Company”), acquired certain assets of International Medical Equipment and Services, Inc. (“IMES”), for a purchase price of $12.2 million. This includes the purchase of inventory, receivables, fixed assets, and certain other assets of the Company. The Company did not acquire any liabilities of IMES. The total consideration paid excludes transaction costs.
IMES, based in South Carolina, provides reliable, cost-saving solutions worldwide for major brands of CT and MRI equipment. This acquisition positions Richardson Healthcare to provide cost effective diagnostic imaging replacement parts and training to hospitals, diagnostic imaging centers, medical institutions, and independent service organizations. IMES offers an extensive selection of replacement parts, as well as an interactive training center, on-site test bays and experienced technicians who provide 24/7 customer support. Replacement parts are readily available and triple tested to provide peace of mind when uptime is critical. IMES core operations have remained in South Carolina. Richardson Healthcare plans to expand IMES’ replacement parts and training offerings geographically to leverage the Company’s global infrastructure. During the fourth quarter of fiscal 2016, IMES opened up their first foreign location in Amsterdam.
The consideration paid by the Company to IMES at closing was $12.2 million in cash. The following table summarizes the fair values of the assets acquired at the date of the closing of the acquisition
(in thousands)
:
Accounts receivable
|
|
$
|
737
|
|
Inventories
|
|
|
1,420
|
|
Property, plant and equipment
|
|
|
230
|
|
Goodwill
|
|
|
6,332
|
|
Other intangibles
|
|
|
3,490
|
|
Net assets acquired
|
|
$
|
12,209
|
|
Intangible assets include trade names with an estimated life of 3 years for $0.6 million, customer relationships with an estimated life of 20 years for $2.5 million, non-compete agreements with an estimated life of 5 years for $0.2 million, and technology with an estimated life of 10 years for $0.2 million.
Goodwill recognized represents value the Company expects to be created by combining the operations of IMES with the Company’s operations, including the expansion into markets within existing business segments and geographic regions, access to new customers and potential cost savings and synergies.
Goodwill related to the acquisition is deductible for tax purposes.
In connection with the acquisition of IMES, the Company also entered into an Employment, Non-Disclosure, and Non-Compete Agreement (“Employment Agreement”) with Lee A. McIntyre III as the Company’s Executive Vice President, IMES. During the term of his employment, Mr. McIntyre will earn an annual base salary of $300,000. In addition to his base salary, he will be entitled to an annual bonus equal to 20% of the EBITDA of IMES provided that the EBITDA of the business is at least $2.0 million inclusive of the bonus payment. The annual bonus payment will terminate after five years. For fiscal year 2017, Lee McIntyre did not receive a bonus as the minimum EBITDA needed was not achieved.
The following unaudited pro forma information represents the Company’s results of operations as if the acquisitions had occurred as of June 1, 2014:
$ in thousands, except per share amounts
|
|
For the year ended
May 30, 2015
|
|
Net sales
|
|
$
|
145,136
|
|
Net loss
|
|
$
|
(3,666
|
)
|
Earnings per share:
|
|
|
|
|
Common shares - Basic
|
|
$
|
(0.27
|
)
|
Class B common shares - Basic
|
|
$
|
(0.24
|
)
|
Common shares - Diluted
|
|
$
|
(0.27
|
)
|
Class B common shares - Diluted
|
|
$
|
(0.24
|
)
|
The pro forma results have been prepared for informational purposes only and include adjustments to amortize acquired intangible assets with finite life and reflect foregone interest income on cash paid for the acquisitions. These pro forma results do not purport to be indicative of the results of operations that would have occurred had the purchases been made as of the beginning of the periods presented or of the results of operations that may occur in the future. The financial results for the fiscal year ended May 28, 2016, includes the financial results for IMES from June 15, 2015, through May 28, 2016. The financial transactions for IMES from May 31, 2015, through June 14, 2015, were deemed immaterial for illustrating pro forma financial statements. IMES net sales were $7.9 million and $7.6 million for fiscal 2017 and fiscal 2016, respectively. The gross profit was $3.7 million and $4.4 million, or 46.5% and 57.2% of net sales during fiscal 2017 and fiscal 2016, respectively.
5.
|
DISCONTINUED OPERATIONS
|
There were no discontinued operations in either fiscal year 2017 or fiscal year 2016. In fiscal year 2015, the Company recorded an income tax provision of less than $0.1 million due to an income tax audit as a result of the Transaction.
6.
|
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 $0.6 million. Rental expense related to this lease amounted to $0.1 million for the fiscal years ended
May 27, 2017 and May 28, 2016. 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 nine months of the expiration of the initial term.
On October 16, 2014, the Company repurchased
50,000 Class B shares from the Richardson Wildlife Foundation, an Illinois not-for-profit corporation, at a negotiated price of
$9.91 per share. Edward Richardson, Chairman and CEO of the Company, also serves as President of the Richardson Wildlife Foundation.
These shares were repurchased pursuant to the Company’s share repurchase authorization approved by its Board of Directors.
Mr. Richardson filed a Form 4 to record the gifting of his Class B shares.
7.
|
GOODWILL AND INTANGIBLE ASSETS
|
Goodwill
There was $6.3 million of goodwill reported on our balance sheet at both May 27, 2017 and May 28, 2016. The goodwill balance in its entirety relates to our IMES reporting unit which is included in the Healthcare segment.
Goodwill is initially recorded based on the premium paid for acquisitions and is subsequently tested for impairment, using the first day of our fourth quarter as the measurement date. We test goodwill for impairment annually and whenever events or circumstances indicates an impairment may have occurred, such as a significant adverse change in the business climate, loss of key personnel or a decision to sell or dispose of a reporting unit.
After reviewing the totality of events or circumstances as provided in ASU 2011-08, we determined that it was not more likely than not that the fair value for the IMES reporting unit exceeded its carrying value. Accordingly, the first step of the two step goodwill impairment test as described in FASB ASC 350-20-35 was performed. We performed the first step of the two step impairment test using the income method, which is based on a discounted future cash flow approach that uses the significant assumptions of projected revenue, projected operational profit, terminal growth rates, and the cost of capital.
The results of our goodwill impairment test as of February 26, 2017 indicated that the value of goodwill attributed to our IMES reporting unit was not impaired. Since the acquisition of IMES in June 2015, there have been no fundamental changes in the business or market that would indicate a significant decline in the fair value since the acquisition date. In the two years since acquisition, the Company has made significant investments in the IMES business, including $6 million in capital expenditures that are expected to increase IMES’ product offerings and result in increased future sales, operating profit and cash flows.
Management’s projections used to estimate the undiscounted cash flows included increasing sales volumes from new product offerings being developed and expanded sales into new geographies and operational improvements designed to reduce costs. Changes in any of the significant assumptions used, including if the Company does not successfully achieve its operating plan, which is dependent on the creation of new product offerings, can materially affect the expected cash flows, and such impacts could result in a material non-cash impairment charge of goodwill and other long lived assets.
Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically, projected operating results and cash flows have not always been achieved.
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 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 as well as amortization expense are as follows
(in thousands)
:
|
|
Intangible Assets Subject to
Amortization as of
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Gross Amounts:
|
|
|
|
|
|
|
|
|
Trade Name
|
|
$
|
659
|
|
|
$
|
659
|
|
Customer Relationships
|
|
|
3,397
|
|
|
|
3,434
|
|
Non-compete Agreements
|
|
|
177
|
|
|
|
177
|
|
Technology
|
|
|
230
|
|
|
|
230
|
|
Total Gross Amounts
|
|
$
|
4,463
|
|
|
$
|
4,500
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
|
|
Trade Name
|
|
$
|
441
|
|
|
$
|
231
|
|
Customer Relationships
|
|
|
446
|
|
|
|
374
|
|
Non-compete Agreements
|
|
|
84
|
|
|
|
55
|
|
Technology
|
|
|
51
|
|
|
|
22
|
|
Total Accumulated Amortization
|
|
$
|
1,022
|
|
|
$
|
682
|
|
|
|
|
|
|
|
|
|
|
Net Intangibles
|
|
$
|
3,441
|
|
|
$
|
3,818
|
|
We determined that intangible assets were not impaired as of May 27, 2017 on the basis that no adverse events or changes in circumstances were identified that could indicate that the carrying amounts of such assets may not be recoverable.
The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table
(in thousands)
:
|
|
|
Amortization
Expense
|
|
Fiscal Year
|
|
|
|
|
|
2018
|
|
|
$
|
432
|
|
2019
|
|
|
|
245
|
|
2020
|
|
|
|
257
|
|
2021
|
|
|
|
245
|
|
2022
|
|
|
|
252
|
|
Thereafter
|
|
|
|
2,010
|
|
Total amortization expense
|
|
|
$
|
3,441
|
|
The amortization expense associated with the intangible assets totaled approximately $0.4 million during fiscal 2017, $0.4 million during fiscal 2016 and $0.1 million during fiscal 2015. The weighted average number of years of amortization expense remaining is 15.1 years.
8.
|
LEASE OBLIGATIONS, OTHER COMMITMENTS, AND CONTINGENCIES
|
We lease certain warehouse and office facilities and office equipment under non-cancelable operating leases. Rent expense for fiscal 2017, 2016, and 2015 was $1.9 million, $2.0 million, and $1.8 million, respectively. Our future lease commitments for minimum rentals, including common area maintenance charges and property taxes during the next five years are as follows
(in thousands)
:
Fiscal Year
|
|
Payments
|
|
2018
|
|
$
|
1,607
|
|
2019
|
|
|
1,407
|
|
2020
|
|
|
1,108
|
|
2021
|
|
|
805
|
|
2022
|
|
|
161
|
|
Thereafter
|
|
|
183
|
|
Loss from continuing operations before income taxes includes the following components (
in thousands
):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
United States
|
|
$
|
(8,150
|
)
|
|
$
|
(7,274
|
)
|
|
$
|
(9,287
|
)
|
Foreign
|
|
|
2,034
|
|
|
|
1,054
|
|
|
|
2,293
|
|
Loss before income taxes
|
|
$
|
(6,116
|
)
|
|
$
|
(6,220
|
)
|
|
$
|
(6,994
|
)
|
The provision (benefit) for income taxes for fiscal 2017, 2016, and 2015 consists of the following (
in thousands
):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(117
|
)
|
|
$
|
—
|
|
|
$
|
(326
|
)
|
State
|
|
|
3
|
|
|
|
17
|
|
|
|
14
|
|
Foreign
|
|
|
1,035
|
|
|
|
441
|
|
|
|
191
|
|
Total current
|
|
$
|
921
|
|
|
$
|
458
|
|
|
$
|
(121
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,964
|
)
|
State
|
|
|
—
|
|
|
|
—
|
|
|
|
530
|
|
Foreign
|
|
|
(109
|
)
|
|
|
88
|
|
|
|
89
|
|
Total deferred
|
|
$
|
(109
|
)
|
|
$
|
88
|
|
|
$
|
(1,345
|
)
|
Income tax provision (benefit)
|
|
$
|
812
|
|
|
$
|
546
|
|
|
$
|
(1,466
|
)
|
The differences between income taxes at the U.S. federal statutory income tax rate of 34% and the reported income tax provision (benefit) for fiscal 2017, 2016, and 2015 are summarized as follows:
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax benefit
|
|
|
4.8
|
|
|
|
4.2
|
|
|
|
5.3
|
|
Foreign income inclusion
|
|
|
(20.7
|
)
|
|
|
(0.4
|
)
|
|
|
(1.6
|
)
|
Foreign taxes at other rates
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
4.4
|
|
Permanent tax differences
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
(0.5
|
)
|
Intercompany items
|
|
|
—
|
|
|
|
—
|
|
|
|
2.2
|
|
Tax reserves
|
|
|
0.9
|
|
|
|
(6.0
|
)
|
|
|
0.8
|
|
Additional U.S. tax on undistributed foreign earnings
|
|
|
15.8
|
|
|
|
(32.7
|
)
|
|
|
(0.5
|
)
|
Net increase in valuation allowance for deferred tax assets
|
|
|
(46.6
|
)
|
|
|
(11.4
|
)
|
|
|
(27.3
|
)
|
Return to provision adjustments
|
|
|
(2.0
|
)
|
|
|
3.9
|
|
|
|
4.0
|
|
Other
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
Effective tax rate
|
|
|
(13.3
|
)%
|
|
|
(8.8
|
)%
|
|
|
20.9
|
%
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Our deferred tax assets and liabilities reflect continuing operations as of May 27, 2017 and May 28, 2016. Significant components are as follows
(in thousands)
:
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
NOL carryforwards - foreign and domestic
|
|
$
|
7,870
|
|
|
$
|
9,089
|
|
Inventory valuations
|
|
|
1,141
|
|
|
|
1,141
|
|
Goodwill
|
|
|
325
|
|
|
|
798
|
|
Foreign tax credits
|
|
|
3,808
|
|
|
|
304
|
|
Severance reserve
|
|
|
227
|
|
|
|
34
|
|
Foreign capital loss
|
|
|
1,142
|
|
|
|
1,079
|
|
Other
|
|
|
2,048
|
|
|
|
2,167
|
|
Subtotal
|
|
$
|
16,561
|
|
|
$
|
14,612
|
|
Valuation allowance - foreign and domestic
|
|
|
(8,557
|
)
|
|
|
(5,871
|
)
|
Net deferred tax assets after valuation allowance
|
|
$
|
8,004
|
|
|
$
|
8,741
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation
|
|
$
|
(1,356
|
)
|
|
$
|
(973
|
)
|
Tax on undistributed foreign earnings
|
|
|
(5,738
|
)
|
|
|
(6,702
|
)
|
Other
|
|
|
35
|
|
|
|
(175
|
)
|
Subtotal
|
|
$
|
(7,059
|
)
|
|
$
|
(7,850
|
)
|
Net deferred tax assets
|
|
$
|
945
|
|
|
$
|
891
|
|
Supplemental disclosure of deferred tax assets :
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
6,937
|
|
|
$
|
4,190
|
|
Foreign
|
|
$
|
2,565
|
|
|
$
|
2,549
|
|
Total
|
|
$
|
9,502
|
|
|
$
|
6,739
|
|
As of May 27, 2017, we had approximately $4.2 million of net deferred tax assets related to federal net operating loss (“NOL”) carryforwards, compared to $5.7 million as of May 28, 2016. Net deferred tax assets related to domestic state NOL carryforwards amounted to approximately $3.0 million, compared to $2.7 million during fiscal 2016. Net deferred tax assets related to foreign NOL carryforwards totaled approximately $0.7 million with various or indefinite expiration dates. The amount of net deferred tax assets related to foreign NOL carryforwards was $0.6 million for fiscal 2016. We also have a domestic net deferred tax asset of $3.8 million of foreign tax credit carryforwards as of May 27, 2017, compared to $0.3 million as of May 28, 2016. The changes in balances from prior year for the federal NOL carryforwards was driven by current year taxable losses which was offset by income that was generated from a dividend from Richardson Electronics China during the first quarter of fiscal 2017. The dividend also drove the increase in the foreign tax credit carryforward. We do not have any alternative minimum tax credit carryforward as of May 27, 2017.
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. Accordingly, we have provided a deferred tax liability totaling $5.7 million and $6.7 million as of May 27, 2017 and May 28, 2016, respectively, on foreign earnings of $39.5 million and $48.7 million, respectively. The decrease year over year primarily relates to the realization of income from the Richardson Electronics China dividend which was previously accounted for at May 28, 2016 as part of our undistributed earnings liability for foreign subsidiaries. In addition, as of May 27, 2017, $6.4 million of cumulative positive earnings of some of our foreign subsidiaries are still considered permanently reinvested pursuant to ASC 740-30, Income Taxes - Other Considerations or Special Areas (“ASC 740-30”). Due to various tax attributes that are continuously changing, it is not practicable to determine what, if any, tax liability might exist if such earnings were to be repatriated.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 27, 2017. Such objective evidence limits the ability to consider subjective evidence such as future income projections. We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the repatriation of foreign earnings which we do not consider permanently reinvested in certain of our foreign subsidiaries. The weight of this positive evidence is not sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S. jurisdiction.
As of May 27, 2017, a valuation allowance of $8.5 million has been established to record only the portion of the deferred tax asset that will more likely than not be realized. There has been an increase in the valuation allowance from May 28, 2016 in the amount of $2.6 million. The valuation allowance relates to deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred. We also recorded a valuation allowance for all domestic federal and state net deferred tax assets considering the significant cumulative losses in the U.S. jurisdiction, the reversal of the deferred tax liability for foreign earnings, and no forecast of additional U.S. income. 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.
Income taxes paid, including foreign estimated tax payments, were $0.4 million, $0.7 million, and $0.5 million, during fiscal 2017, 2016, and 2015, respectively.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2007 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local, or non-U.S. tax jurisdictions. We are under examination in the state of Illinois for fiscal years 2011 through 2013. We are currently under examination in Germany (fiscal 2011 through 2014) and Thailand (fiscal 2008 through 2011). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2011 and the Netherlands beginning in fiscal 2011.
The uncertain tax positions from continuing operations as of May 27, 2017 and May 28, 2016, totaled $0.0 million and $0.1 million, respectively. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited consolidated statements of comprehensive loss. It is not expected that there will be a change in the unrecognized tax benefits within the next 12 months for which an amount can be determined.
The following table summarizes the activity related to the unrecognized tax benefits
(in thousands
):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Unrecognized tax benefits, beginning of period
|
|
$
|
2,000
|
|
|
$
|
2,000
|
|
Increase in positions taken in prior period
|
|
|
75
|
|
|
|
299
|
|
Decrease in positions due to settlements
|
|
|
(75
|
)
|
|
|
—
|
|
Decrease related to the expiration of statute of limitations
|
|
|
(117
|
)
|
|
|
(299
|
)
|
Unrecognized tax benefits, end of period
|
|
$
|
1,883
|
|
|
$
|
2,000
|
|
Unrecognized tax benefits for continuing and discontinued operations are as follows
(in thousands):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Continuing operations
|
|
$
|
—
|
|
|
$
|
117
|
|
Discontinued operations
(1)
|
|
|
1,883
|
|
|
|
1,883
|
|
|
|
$
|
1,883
|
|
|
$
|
2,000
|
|
(1)
|
Relates to an amended Illinois state income tax return related to the sale of RFPD.
|
|
10.
|
EMPLOYEE BENEFIT PLANS
|
Employee Profit Sharing Plan
: The employee profit sharing plan is a defined contribution profit sharing plan for employees. The profit sharing plan has a 401(k) provision whereby we match 50% of employee contributions up to 4.0% of pay. The Company suspended the match component for fiscal 2017. Charges to expense for matching contributions to this plan were $0.0 million, $0.4 million, and $0.3 million, during fiscal 2017, 2016, and 2015, respectively.
11.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
During the first quarter of fiscal 2015, we created a new strategic business unit called Healthcare. As hospitals remain under pressure to reduce costs while serving a much larger customer base, there is a growing demand for independent sources of high value replacement parts for diagnostic imaging. Having access to parts that are tested and in stock enables hospitals to terminate expensive service contracts with OEM and instead use third party service providers or in-house technicians. With our global infrastructure, technical sales team, and experience servicing the healthcare market, we are well positioned to take advantage of this market opportunity. Over time, our plan is to expand our position from being the leader in power grid tubes to a key player in the high-growth, high-profile Healthcare industry.
In accordance with ASC 280-10,
Segment Reporting
, we have identified three reportable segments: PMT and Canvys, and Healthcare.
The Power and Microwave Technologies Group (“PMT”), formerly called the Electron Device Group (“EDG”), prior to July 2015, provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar, and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical OEM markets.
Healthcare manufactures, refurbishes and distributes high value replacement parts for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations, and multi-vendor service providers. Products include Diagnostic Imaging replacement parts including CT and MRI tubes, hydrogen thyratrons, klystrons, magnetrons; replacement flat panel detectors and upgrades; and additional replacement components currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings, and training programs, we believe we can help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.
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
):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
PMT
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
104,226
|
|
|
$
|
105,554
|
|
|
$
|
105,748
|
|
Gross Profit
|
|
|
33,382
|
|
|
|
33,088
|
|
|
|
33,098
|
|
Canvys
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
20,534
|
|
|
$
|
23,453
|
|
|
$
|
24,645
|
|
Gross Profit
|
|
|
5,752
|
|
|
|
6,017
|
|
|
|
6,457
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
12,112
|
|
|
$
|
13,009
|
|
|
$
|
6,564
|
|
Gross Profit
|
|
|
4,749
|
|
|
|
5,730
|
|
|
|
1,583
|
|
A reconciliation of assets to the relevant consolidated amount is as follows (
in thousands
):
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Segment assets
|
|
$
|
80,105
|
|
|
$
|
84,863
|
|
Cash and cash equivalents
|
|
|
55,327
|
|
|
|
60,454
|
|
Investments - current
|
|
|
6,429
|
|
|
|
2,268
|
|
Other current assets
(1)
|
|
|
3,330
|
|
|
|
3,143
|
|
Net property, plant and equipment
|
|
|
8,752
|
|
|
|
8,333
|
|
Investments - non-current
|
|
|
2,419
|
|
|
|
7,799
|
|
Other assets - non-current deferred income taxes
|
|
|
1,102
|
|
|
|
1,270
|
|
Total assets
|
|
$
|
157,464
|
|
|
$
|
168,130
|
|
(1)
|
Other current assets include miscellaneous receivables, prepaid expenses, and current deferred income taxes.
|
Assets are not disclosed by reportable segment as the Company does not track assets by reportable segment and certain assets are not specific to any reportable segment.
Capital expenditures for our Healthcare segment during fiscal 2017 and 2016 were approximately $3.4 million and $2.9 million, respectively. In addition, we also had capital expenditures during fiscal 2017 and fiscal 2016 related to the Company’s new ERP system that are not specific to any particular reportable segment.
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
):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
55,963
|
|
|
$
|
66,365
|
|
|
$
|
59,742
|
|
Asia/Pacific
|
|
|
27,997
|
|
|
|
24,564
|
|
|
|
24,605
|
|
Europe
|
|
|
44,296
|
|
|
|
44,634
|
|
|
|
44,425
|
|
Latin America
|
|
|
8,552
|
|
|
|
6,347
|
|
|
|
8,275
|
|
Other
(1)
|
|
|
64
|
|
|
|
106
|
|
|
|
(90
|
)
|
Total
|
|
$
|
136,872
|
|
|
$
|
142,016
|
|
|
$
|
136,957
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
20,597
|
|
|
$
|
23,506
|
|
|
$
|
20,352
|
|
Asia/Pacific
|
|
|
9,630
|
|
|
|
8,212
|
|
|
|
7,967
|
|
Europe
|
|
|
14,418
|
|
|
|
13,541
|
|
|
|
14,051
|
|
Latin America
|
|
|
3,250
|
|
|
|
2,397
|
|
|
|
3,082
|
|
Other
(1)
|
|
|
(4,012
|
)
|
|
|
(2,821
|
)
|
|
|
(4,314
|
)
|
Total
|
|
$
|
43,883
|
|
|
$
|
44,835
|
|
|
$
|
41,138
|
|
|
(1)
|
Other primarily includes 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.
Net assets by geographic region are summarized in the following table (in thousands):
|
|
Fiscal Year Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
62,085
|
|
|
$
|
65,832
|
|
|
$
|
76,153
|
|
Asia/Pacific
|
|
|
34,990
|
|
|
|
42,547
|
|
|
|
44,602
|
|
Europe
|
|
|
32,794
|
|
|
|
31,495
|
|
|
|
34,127
|
|
Latin America
|
|
|
2,458
|
|
|
|
1,801
|
|
|
|
1,770
|
|
Total
|
|
$
|
132,327
|
|
|
$
|
141,675
|
|
|
$
|
156,652
|
|
The Company has long-lived assets of $19.3 million as of May 27, 2017 and $16.8 million as of May 28, 2016. The long-lived assets, which include our fixed assets and intangibles, are primarily in the US. There are approximately $1.2 million of long-lived assets that belong to our foreign affiliates as of May 27, 2017 and $1.3 million as of May 28, 2016.
The Company had depreciation and amortization expense of $2.7 million, $2.4 million and $1.7 million for fiscal 2017, fiscal 2016 and fiscal 2015, respectively. The depreciation and amortization, which includes our fixed assets and intangibles, are primarily in the US. Depreciation and amortization expense that belong to our foreign affiliates was approximately $0.3 million for fiscal 2017, fiscal 2016 and fiscal 2015.
We are involved in several pending judicial proceedings concerning matters arising in the ordinary course of business. While the outcome of litigation is subject to uncertainties, based on information available at the time the financial statements were issued, we determined disclosure of contingencies relating to any of our pending judicial proceedings was not necessary because there was less than a reasonable possibility that a material loss had been incurred.
13.
|
FAIR VALUE MEASUREMENTS
|
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 requiring an entity to develop its own assumptions.
As of May 27, 2017, we held investments that are required to be measured at fair value on a recurring basis. Our investments consist of time deposits and CDs, where face value is equal to fair value, and equity securities of publicly traded companies for which market prices are readily available.
Investments measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of May 27, 2017 and May 28, 2016, were as follows (
in thousands
):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
May 27, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits/CDs
|
|
$
|
8,226
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities
|
|
|
622
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
8,848
|
|
|
$
|
—
|
|
|
$
|
—
|
|
May 28, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits/CDs
|
|
$
|
9,517
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities
|
|
|
550
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
10,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
14.
|
VALUATION AND QUALIFYING ACCOUNTS
|
The following table presents the valuation and qualifying account activity for fiscal year ended May 27, 2017, May 28, 2016, and May 30, 2015, (
in thousands
):
Description
|
|
Balance at
beginning
of period
|
|
Charged to
expense
|
|
Deductions
|
|
Balance at
end
of period
|
Year ended May 27, 2017
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
364
|
|
|
$
|
226
|
|
(1)
|
|
$
|
(192
|
)
|
(2)
|
|
$
|
398
|
|
Inventory provisions
|
|
|
3,380
|
|
|
|
456
|
|
(3)
|
|
|
380
|
|
(4)
|
|
|
3,456
|
|
Year ended May 28, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
283
|
|
|
$
|
228
|
|
(1)
|
|
$
|
(147
|
)
|
(2)
|
|
$
|
364
|
|
Inventory provisions
|
|
|
2,991
|
|
|
|
690
|
|
(3)
|
|
|
301
|
|
(4)
|
|
|
3,380
|
|
Year ended May 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
581
|
|
|
$
|
(221
|
)
|
(1)
|
|
$
|
77
|
|
(2)
|
|
$
|
283
|
|
Inventory provisions
|
|
|
3,141
|
|
|
|
228
|
|
(3)
|
|
|
378
|
|
(4)
|
|
|
2,991
|
|
Notes:
(1)
|
Charges to bad debt expense, net of bad debt recoveries.
|
(2)
|
Uncollectible amounts written off, net of recoveries and foreign currency translation.
|
(3)
|
Charges to cost of sales. Included in fiscal 2017 are inventory write-downs of $0.4 million for PMT and $0.1 million for Canvys, and less than $0.1 million for Healthcare.
|
(4)
|
Inventory disposed of or sold, net of foreign currency translation.
|
15.
|
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
Description
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
33,373
|
|
|
$
|
33,827
|
|
|
$
|
32,313
|
|
|
$
|
37,359
|
|
Gross profit
|
|
|
10,240
|
|
|
|
10,964
|
|
|
|
10,692
|
|
|
|
11,987
|
|
Loss from continuing operations
|
|
|
(2,850
|
)
|
|
|
(2,522
|
)
|
|
|
(1,431
|
)
|
|
|
(125
|
)
|
Net loss
|
|
|
(2,850
|
)
|
|
|
(2,522
|
)
|
|
|
(1,431
|
)
|
|
|
(125
|
)
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - basic
|
|
$
|
(0.23
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
Common stock - diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - basic
|
|
$
|
(0.23
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - basic
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
Common stock - diluted
|
|
$
|
(0.23
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.01
|
)
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
37,071
|
|
|
$
|
34,086
|
|
|
$
|
31,291
|
|
|
$
|
39,568
|
|
Gross profit
|
|
|
11,262
|
|
|
|
10,435
|
|
|
|
9,750
|
|
|
|
13,388
|
|
Loss from continuing operations
|
|
|
(1,399
|
)
|
|
|
(2,286
|
)
|
|
|
(2,926
|
)
|
|
|
(155
|
)
|
Net loss
|
|
|
(1,399
|
)
|
|
|
(2,286
|
)
|
|
|
(2,926
|
)
|
|
|
(155
|
)
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|
Common stock - diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock - basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - basic
|
|
$
|
(0.10
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|
Common stock - diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.01
|
)
|
Class B common stock - diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.01
|
)
|