Richardson Electronics, Ltd. — FY2017 Form 10-K
Business context and reporting period. The company supplies engineered electronics and power/microwave products, customized displays, and diagnostic-imaging replacement parts and services through PMT, Canvys, and Healthcare. Fiscal 2017 ran from May 29, 2016 to May 27, 2017. The filing is an annual report; it also presents fourth-quarter results.
Financial results and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $136.9 million | $142.0 million |
| Gross profit / margin | $43.9 million / 32.1% | $44.8 million / 31.6% |
| SG&A | $49.9 million | $51.6 million |
| Operating loss | $5.8 million | $6.6 million |
| Net loss | $6.9 million | $6.8 million |
| Operating cash flow | $1.8 million provided | $13.6 million used |
| Capital expenditures | $5.2 million | $4.8 million |
Fourth-quarter revenue was $37.4 million versus $39.6 million a year earlier; net loss was $0.1 million versus $0.2 million. Common-share loss per share for the year was $0.55; Class B loss per share was $0.49.
At year-end, cash and cash equivalents were $55.3 million, short- and long-term investments totaled approximately $8.8 million, and current assets were $128.4 million against current liabilities of $24.2 million. The balance sheet reports no borrowings; operating lease obligations totaled $5.3 million. Stockholders’ equity was $132.3 million. Cash declined $5.1 million during the year. Cash dividends paid were $3.0 million; quarterly dividends were $0.06 per common share and $0.054 per Class B share.
Material changes versus the prior year
- Revenue fell 3.6%; gross margin improved by 0.5 percentage points, while the net loss widened slightly.
- PMT revenue declined 1.3% to $104.2 million; Canvys fell 12.4% to $20.5 million, partly due to customer delays in North American program rollouts; Healthcare fell 6.9% to $12.1 million, including the impact of divesting its PACS display business during Q4.
- North American sales dropped 15.7% to $56.0 million. Asia/Pacific sales rose 14.0% and Latin American sales rose 34.7%.
- SG&A declined by $1.8 million, reflecting lower payroll and IT costs, partly offset by $1.3 million of workforce-reduction severance and increased Healthcare R&D costs.
- Operating cash flow improved from a $13.6 million use to $1.8 million provided, helped by collections and inventory reductions. The company spent $5.2 million on capital expenditures and reported a $0.2 million gain on disposal of a business.
Outlook, commentary, risks, and unusual items
- Management gave no quantified revenue or earnings guidance. It said existing liquidity was expected to meet known capital and working-capital needs for the fiscal year ending June 2, 2018, and support growth plans.
- Management’s growth strategy centers on Healthcare and power conversion. The company reported $6.3 million of goodwill tied to IMES; its annual impairment test found no impairment, but projections depend on new products, geographic expansion, and operating improvements.
- Liquidity is concentrated overseas: approximately 76% of cash and investments were held by foreign subsidiaries, and $48.6 million of cash and cash equivalents was held abroad. Repatriation may be restricted or trigger U.S. tax consequences.
- Other principal risks include ongoing losses, inventory obsolescence, supplier concentration (one supplier represented 14% of cost of sales), foreign-exchange exposure without derivative hedging, economic and Brexit-related uncertainty, competitive and technology change, and execution risk in growth initiatives. A 10% unfavorable currency move was estimated to reduce FY2017 foreign-denominated sales by $9.1 million.
- The company recorded an $8.5 million valuation allowance against deferred tax assets and reported a tax provision despite a pretax loss. It also identified open tax examinations in Illinois, Germany, and Thailand. Ordinary-course litigation was not considered reasonably likely to result in a material loss.
- The CEO/Chairman held approximately 66% of voting power through Class B shares. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether sales and profitability recover, especially in Canvys and Healthcare, and whether PMT’s modest decline persists.
- Progress and returns on Healthcare investments, including IMES growth assumptions supporting the $6.3 million goodwill balance.
- How much foreign cash and investment liquidity is practically available domestically, including potential tax costs of repatriation.
- Whether operating cash generation can sustain capital spending and dividends while the company remains loss-making.
- Potential impact of deferred-tax valuation allowances, inventory reserves, supplier concentration, and currency movements.
- Terms and effects of the PACS display disposal and the company’s continuing capital allocation and dividend decisions.