[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section provides unaudited consolidated financial statements, including balance sheets, income, cash flows, and equity, with detailed notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Metric | December 1, 2018 (in thousands) | June 2, 2018 (in thousands) | | :--------------------------------- | :------------------------------ | :-------------------------- | | Cash and cash equivalents | $47,859 | $60,465 | | Investments - current | $5,300 | — | | Total current assets | $131,250 | $137,824 | | Total assets | $160,443 | $166,329 | | Total current liabilities | $26,650 | $29,946 | | Total liabilities | $27,852 | $31,148 | | Total stockholders' equity | $132,591 | $135,181 | [Unaudited Consolidated Statements of Comprehensive (Loss) Income](index=4&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) | Metric (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :-------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net sales | $41,314 | $39,082 | $85,471 | $76,077 | | Gross profit | $12,971 | $13,374 | $26,924 | $25,522 | | Operating (loss) income | $(454) | $772 | $400 | $787 | | Net (loss) income | $(304) | $1,668 | $127 | $1,556 | | Comprehensive (loss) income | $(1,345) | $1,946 | $(1,654) | $3,941 | | EPS Metric (per share) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :--------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income per Common share - Basic | $(0.02) | $0.13 | $0.01 | $0.12 | | Net (loss) income per Class B common share - Basic | $(0.02) | $0.12 | $0.01 | $0.11 | | Dividends per common share | $0.060 | $0.060 | $0.120 | $0.120 | | Dividends per Class B common share | $0.054 | $0.054 | $0.108 | $0.108 | [Unaudited Consolidated Statements of Cash Flows](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $881 | $194 | $(2,749) | $(2,263) | | Net cash (used in) provided by investing activities | $(4,120) | $(1,488) | $(7,492) | $1,770 | | Net cash used in financing activities | $(759) | $(763) | $(1,331) | $(1,521) | | Decrease in cash and cash equivalents | $(4,619) | $(1,976) | $(12,606) | $(874) | | Cash and cash equivalents at end of period | $47,859 | $54,453 | $47,859 | $54,453 | [Unaudited Consolidated Statement of Stockholders' Equity](index=6&type=section&id=Unaudited%20Consolidated%20Statement%20of%20Stockholders'%20Equity) | Stockholders' Equity (in thousands) | June 2, 2018 | December 1, 2018 | | :---------------------------------- | :----------- | :--------------- | | Balance | $135,181 | $132,591 | | Net income | — | $127 | | Foreign currency translation | — | $(1,781) | | Share-based compensation | — | $395 | | Common stock options exercised | — | $203 | | Dividends paid | — | $(1,534) | [Notes to Unaudited Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [1. Description of the Company](index=7&type=section&id=1.%20DESCRIPTION%20OF%20THE%20COMPANY) - **Richardson Electronics, Ltd.** is a global provider of engineered solutions, power grid and microwave tubes, power conversion and RF/microwave components, high value flat panel detector solutions, replacement parts, and customized display solutions[18](index=18&type=chunk) - The company serves diverse markets including alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor[18](index=18&type=chunk) - It operates through three reportable segments: **Power and Microwave Technologies Group (PMT)**, **Canvys** (customized display solutions), and **Healthcare** (replacement parts for diagnostic imaging equipment)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) [2. Basis of Presentation](index=7&type=section&id=2.%20BASIS%20OF%20PRESENTATION) - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions[23](index=23&type=chunk) - The second quarter of fiscal 2019 and fiscal 2018 both contained **13 weeks**[24](index=24&type=chunk) - The first six months of fiscal 2019 contained **26 weeks**, while fiscal 2018 contained **27 weeks**[24](index=24&type=chunk) [3. Critical Accounting Policies and Estimates](index=8&type=section&id=3.%20CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - Inventories are stated at the lower of cost and net realizable value, generally using a **weighted-average cost method**[27](index=27&type=chunk) | Inventory Reserves (in thousands) | December 1, 2018 | June 2, 2018 | | :-------------------------------- | :--------------- | :----------- | | Inventory reserves | $4,300 | $4,000 | - Revenue is recognized upon shipment, when title passes to the customer, when delivery has occurred or services have been rendered, and when collectability is reasonably assured[29](index=29&type=chunk) - The company adopted **ASU 2014-09 (Revenue from Contracts with Customers)** effective **June 3, 2018**, using the **modified retrospective method**, which did not materially impact the timing of revenue recognition or the consolidated financial statements, but added required disclosures[31](index=31&type=chunk) - **Goodwill** is tested for impairment annually and whenever events or circumstances indicate an impairment may have occurred[33](index=33&type=chunk) | Accrued Liabilities (in thousands) | December 1, 2018 | June 2, 2018 | | :--------------------------------- | :--------------- | :----------- | | Compensation and payroll taxes | $2,840 | $3,449 | | Accrued severance | $591 | $454 | | Professional fees | $628 | $527 | | Deferred revenue | $2,112 | $1,888 | | Other accrued expenses | $4,885 | $4,025 | | Total Accrued Liabilities | $11,056 | $10,343 | [4. Revenue Recognition](index=9&type=section&id=4.%20REVENUE%20RECOGNITION) - **Distribution** is the Company's largest revenue stream, with revenue recognized when control of promised goods transfers to customers, typically at the time of title transfer[38](index=38&type=chunk) - Services revenue (repair, installation, training) is recognized when performed and consistently accounts for **less than 5% of total revenues**[40](index=40&type=chunk) | Contract Liabilities (Deferred Revenue) (in thousands) | June 2, 2018 | Additions | Revenue Recognized | December 1, 2018 | | :--------------------------------------------------- | :----------- | :-------- | :----------------- | :--------------- | | Contract liabilities (deferred revenue) | $1,888 | $2,043 | $(1,819) | $2,112 | - The Company maintains a reserve for returns based on historical trends, which is considered immaterial at each balance sheet date[47](index=47&type=chunk)[48](index=48&type=chunk) - Richardson acts as the principal in customized product sales, bearing primary responsibility for fulfilling the contract, inventory risk, and credit risk[50](index=50&type=chunk) [5. Goodwill and Intangible Assets](index=11&type=section&id=5.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) - The carrying value of **goodwill was $6.3 million** as of **December 1, 2018**, and **June 2, 2018**, entirely related to the **IMES reporting unit** within the **Healthcare segment**[52](index=52&type=chunk) - **Goodwill** is tested for impairment annually and when events or circumstances indicate impairment, with **no impairment identified** during the first six months of fiscal 2019[53](index=53&type=chunk)[54](index=54&type=chunk) | Intangible Assets (in thousands) | December 1, 2018 | June 2, 2018 | | :------------------------------- | :--------------- | :----------- | | Total Gross Amounts | $4,462 | $4,474 | | Total Accumulated Amortization | $1,575 | $1,460 | | Net Intangibles | $2,887 | $3,014 | | Fiscal Year | Amortization Expense (in thousands) | | :---------- | :---------------------------------- | | Remaining 2019 | $123 | | 2020 | $257 | | 2021 | $245 | | 2022 | $252 | | 2023 | $245 | | Thereafter | $1,765 | | Total | $2,887 | - The weighted average number of years of amortization expense remaining for intangible assets is **15.1 years**[57](index=57&type=chunk) [6. Investments](index=12&type=section&id=6.%20INVESTMENTS) - As of **December 1, 2018**, the company had **$5.3 million** invested in **certificate of deposits (CDs)** maturing in less than twelve months, with fair value equal to face value[58](index=58&type=chunk) - As of **June 2, 2018**, the company had **no investments**[58](index=58&type=chunk) [7. Warranties](index=12&type=section&id=7.%20WARRANTIES) - All warranties are considered assurance warranties, typically **one to three years**, assuring goods work as intended[59](index=59&type=chunk) - Estimated warranty costs are recognized as cost of sales at the time of related product sale[60](index=60&type=chunk) | Warranty Reserves (in thousands) | December 1, 2018 | June 2, 2018 | | :------------------------------- | :--------------- | :----------- | | Warranty reserves | $200 | $100 | [8. Lease Obligations, Other Commitments and Contingencies](index=12&type=section&id=8.%20LEASE%20OBLIGATIONS,%20OTHER%20COMMITMENTS%20AND%20CONTINGENCIES) - Rent expense was **$0.9 million** for both the first six months of fiscal 2019 and fiscal 2018[62](index=62&type=chunk) | Fiscal Year | Future Lease Payments (in thousands) | | :---------- | :----------------------------------- | | Remaining 2019 | $850 | | 2020 | $1,263 | | 2021 | $869 | | 2022 | $172 | | 2023 | $34 | | Thereafter | $90 | | Total | $3,278 | - The company expects to adopt **ASU 2016-02 (Leases)** on **June 2, 2019**, which will have a **material effect** on financial statements by recognizing new ROU assets and lease liabilities for operating leases[64](index=64&type=chunk) [9. Income Taxes](index=13&type=section&id=9.%20INCOME%20TAXES) | Income Tax Metric (in thousands) | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :------------------------------- | :--------------------------- | :--------------------------- | | Income tax provision | $400 | $600 | | Effective income tax rate | 77.9% | 90.9% | - The effective income tax rate differs from the federal statutory rate of **21%** due to geographical distribution of income (loss) and movement of the valuation allowance against U.S. state and federal net deferred tax assets[65](index=65&type=chunk) - The company has a deferred tax liability of **$0.3 million** as of **December 1, 2018**, on foreign earnings of **$26.2 million**[71](index=71&type=chunk) | Valuation Allowance (in thousands) | December 1, 2018 | June 2, 2018 | | :--------------------------------- | :--------------- | :----------- | | Valuation allowance against net deferred tax assets | $9,200 | $9,100 | [10. Calculation of Earnings Per Share](index=14&type=section&id=10.%20CALCULATION%20OF%20EARNINGS%20PER%20SHARE) - The company has **Common Stock** and **Class B Common Stock**, with Class B having **10 votes per share** and cash dividends limited to **90% of Common Stock dividends**[74](index=74&type=chunk) - Basic and diluted earnings per share are computed using the **two-class method** as prescribed in ASC 260[75](index=75&type=chunk) | EPS Numerator (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :--------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income from continuing operations | $(304) | $172 | $127 | $60 | | Income from discontinued operations | — | $1,496 | — | $1,496 | | Net (loss) income | $(304) | $1,668 | $127 | $1,556 | | EPS Denominator (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :----------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Common stock weighted average shares – Basic | 10,952 | 10,755 | 10,890 | 10,734 | | Class B common stock weighted average shares – Basic | 2,097 | 2,137 | 2,114 | 2,137 | | Denominator for diluted EPS adjusted for weighted average shares and assumed conversions | 13,049 | 12,926 | 13,167 | 12,901 | [11. Segment Reporting](index=17&type=section&id=11.%20SEGMENT%20REPORTING) - The company has three operating and reportable segments: **Power and Microwave Technologies Group (PMT)**, **Canvys**, and **Healthcare**[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - The CEO evaluates performance and allocates resources primarily based on the **gross profit** of each segment[81](index=81&type=chunk) | Segment Net Sales (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | PMT | $32,328 | $30,063 | $67,097 | $59,187 | | Canvys | $6,498 | $6,707 | $13,671 | $12,472 | | Healthcare | $2,488 | $2,312 | $4,703 | $4,418 | | Segment Gross Profit (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :---------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | PMT | $10,107 | $10,262 | $21,114 | $19,836 | | Canvys | $2,132 | $2,128 | $4,445 | $3,674 | | Healthcare | $732 | $984 | $1,365 | $2,012 | | Geographic Net Sales (in thousands) | Three Months Ended Dec 1, 2018 | Three Months Ended Dec 2, 2017 | Six Months Ended Dec 1, 2018 | Six Months Ended Dec 2, 2017 | | :---------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | North America | $16,825 | $15,846 | $33,848 | $30,909 | | Asia/Pacific | $8,520 | $7,457 | $18,062 | $14,467 | | Europe | $13,393 | $13,615 | $28,149 | $26,115 | | Latin America | $2,559 | $2,141 | $5,373 | $4,560 | | Other | $17 | $23 | $39 | $26 | | Total | $41,314 | $39,082 | $85,471 | $76,077 | [12. Litigation](index=18&type=section&id=12.%20LITIGATION) - A stockholder derivative complaint filed by Steven H. Busch was **dismissed with prejudice** on **November 14, 2018**, and the case is concluded[85](index=85&type=chunk) - **Varex Imaging Corporation** filed a patent infringement lawsuit on **October 15, 2018**, against Richardson's **ALTA750TM product**, which the company believes is **without merit**[86](index=86&type=chunk) [13. Fair Value Measurements](index=18&type=section&id=13.%20FAIR%20VALUE%20MEASUREMENTS) - The company's investments, consisting of **CDs**, are measured at fair value on a recurring basis, with fair value equal to face value as of **December 1, 2018**[89](index=89&type=chunk) - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[88](index=88&type=chunk) [14. Related Party Transaction](index=19&type=section&id=14.%20RELATED%20PARTY%20TRANSACTION) - The company has a lease agreement for the IMES facility with **LDL, LLC**, a related party in which the Executive Vice President of IMES has an ownership interest[91](index=91&type=chunk) - The lease agreement provides for monthly payments over **five years**, with total future minimum lease payments of **$0.2 million**[91](index=91&type=chunk) - Rental expense related to this lease amounted to **$0.1 million** for the six months ended December 1, 2018, and December 2, 2017[91](index=91&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses business, financial condition, operating results, segment performance, liquidity, and capital resources [Business Overview](index=20&type=section&id=Business%20Overview) - **Richardson Electronics, Ltd.** is a global provider of engineered solutions, power grid and microwave tubes, power conversion and RF/microwave components, flat panel detector solutions, and customized display solutions[96](index=96&type=chunk) - The company serves diverse markets including alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor[96](index=96&type=chunk) - It operates through three reportable segments: **Power and Microwave Technologies Group (PMT)**, **Canvys** (customized display solutions), and **Healthcare** (replacement parts for diagnostic imaging equipment)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) [Financial Summary – Three Months Ended December 1, 2018](index=21&type=section&id=Financial%20Summary%20%E2%80%93%20Three%20Months%20Ended%20December%201,%202018) - Net sales for **Q2 FY2019 increased 5.7% to $41.3 million** compared to Q2 FY2018[103](index=103&type=chunk) - Gross margin **decreased to 31.4% in Q2 FY2019 from 34.2%** in Q2 FY2018[103](index=103&type=chunk) - Operating loss was **$0.5 million in Q2 FY2019**, a shift from operating income of **$0.8 million in Q2 FY2018**[103](index=103&type=chunk) - Net loss was **$0.3 million in Q2 FY2019**, compared to net income of **$1.7 million in Q2 FY2018** (which included **$1.5 million from discontinued operations**)[103](index=103&type=chunk) [Financial Summary – Six Months Ended December 1, 2018](index=21&type=section&id=Financial%20Summary%20%E2%80%93%20Six%20Months%20Ended%20December%201,%202018) - Net sales for **H1 FY2019 increased 12.3% to $85.5 million** compared to H1 FY2018[103](index=103&type=chunk) - Gross margin **decreased to 31.5% in H1 FY2019 from 33.5%** in H1 FY2018[103](index=103&type=chunk) - Operating income was **$0.4 million in H1 FY2019**, down from **$0.8 million in H1 FY2018**[103](index=103&type=chunk) - Net income was **$0.1 million in H1 FY2019**, compared to net income of **$1.6 million in H1 FY2018** (which included **$1.5 million from discontinued operations**)[103](index=103&type=chunk) [Net Sales and Gross Profit Analysis](index=22&type=section&id=Net%20Sales%20and%20Gross%20Profit%20Analysis) | Segment | Q2 FY19 Net Sales (in thousands) | Q2 FY18 Net Sales (in thousands) | Q2 % Change | H1 FY19 Net Sales (in thousands) | H1 FY18 Net Sales (in thousands) | H1 % Change | | :-------- | :------------------------------- | :------------------------------- | :---------- | :------------------------------- | :------------------------------- | :---------- | | PMT | $32,328 | $30,063 | 7.5% | $67,097 | $59,187 | 13.4% | | Canvys | $6,498 | $6,707 | -3.1% | $13,671 | $12,472 | 9.6% | | Healthcare| $2,488 | $2,312 | 7.6% | $4,703 | $4,418 | 6.5% | | Total | $41,314 | $39,082 | 5.7% | $85,471 | $76,077 | 12.3% | | Segment | Q2 FY19 Gross Profit (in thousands) | Q2 FY19 % of Net Sales | Q2 FY18 Gross Profit (in thousands) | Q2 FY18 % of Net Sales | H1 FY19 Gross Profit (in thousands) | H1 FY19 % of Net Sales | H1 FY18 Gross Profit (in thousands) | H1 FY18 % of Net Sales | | :-------- | :---------------------------------- | :--------------------- | :---------------------------------- | :--------------------- | :---------------------------------- | :--------------------- | :---------------------------------- | :--------------------- | | PMT | $10,107 | 31.3% | $10,262 | 34.1% | $21,114 | 31.5% | $19,836 | 33.5% | | Canvys | $2,132 | 32.8% | $2,128 | 31.7% | $4,445 | 32.5% | $3,674 | 29.5% | | Healthcare| $732 | 29.4% | $984 | 42.6% | $1,365 | 29.0% | $2,012 | 45.5% | | Total | $12,971 | 31.4% | $13,374 | 34.2% | $26,924 | 31.5% | $25,522 | 33.5% | - Consolidated gross margin **decreased** primarily due to unfavorable product mix and manufacturing variances for **PMT** and **Healthcare**, partially offset by favorable product mix and lower costs for **Canvys**[107](index=107&type=chunk)[108](index=108&type=chunk) [Power and Microwave Technologies Group](index=23&type=section&id=Power%20and%20Microwave%20Technologies%20Group) - **PMT net sales increased 7.5% in Q2 FY19 and 13.4% in H1 FY19**, driven by growth in new technology partners (RF and microwave components, power conversion) and market share gains in the RF and microwave tube business[109](index=109&type=chunk)[110](index=110&type=chunk) - **PMT gross margin decreased** due to unfavorable product mix and manufacturing variances[109](index=109&type=chunk)[110](index=110&type=chunk) [Canvys](index=23&type=section&id=Canvys) - **Canvys net sales decreased 3.1% in Q2 FY19** due to several large non-recurring orders in Q2 FY18[111](index=111&type=chunk) - **Canvys net sales increased 9.6% in H1 FY19** due to increased customer demand in North American and European markets[112](index=112&type=chunk) - **Canvys gross margin increased** for both periods due to favorable product mix and lower costs on selected products[111](index=111&type=chunk)[112](index=112&type=chunk) [Healthcare](index=23&type=section&id=Healthcare) - **Healthcare net sales increased 7.6% in Q2 FY19 and 6.5% in H1 FY19**, driven by higher CT tube sales and increasing equipment sales, partially offset by lower parts sales[113](index=113&type=chunk)[114](index=114&type=chunk) - **Healthcare gross margin significantly decreased** for both periods due to an unfavorable product mix and manufacturing variances[113](index=113&type=chunk)[114](index=114&type=chunk) [Selling, General and Administrative Expenses](index=23&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) | SG&A Expenses (in thousands) | Q2 FY19 | Q2 FY18 | H1 FY19 | H1 FY18 | | :--------------------------- | :------ | :------ | :------ | :------ | | SG&A expenses | $13,425 | $12,602 | $26,524 | $24,926 | | SG&A as % of net sales | 32.5% | 32.2% | 31.0% | 32.8% | - The increase in SG&A was due to **$0.3 million of higher legal costs**, **$0.2 million severance expense**, and a **$0.2 million recovery of a bad debt** recorded in the prior year's second quarter[115](index=115&type=chunk) [Other Income/Expense](index=24&type=section&id=Other%20Income/Expense) - Other income/expense was income of **$0.3 million in Q2 FY19** (including **$0.2 million foreign exchange gains** and **$0.1 million investment/interest income**), compared to an expense of **$0.1 million in Q2 FY18** (including **$0.1 million foreign exchange losses**)[118](index=118&type=chunk) - Other income/expense was income of **$0.2 million in H1 FY19** (including **$0.3 million investment/interest income** offset by **$0.1 million foreign exchange losses**), compared to an expense of **$0.1 million in H1 FY18** (including **$0.3 million foreign exchange losses** partially offset by **$0.2 million investment/interest income**)[119](index=119&type=chunk) [Income Tax Provision](index=24&type=section&id=Income%20Tax%20Provision) | Income Tax Metric (in thousands) | H1 FY19 | H1 FY18 | | :------------------------------- | :------ | :------ | | Income tax provision | $449 | $596 | | Effective income tax rate | 77.9% | 90.9% | - The difference in the effective tax rate is due to changes in geographical distribution of income (loss), provision to return true-ups of foreign jurisdictions, and movements of the valuation allowance against U.S. state and federal net deferred tax assets[120](index=120&type=chunk) [Net (Loss)Income and Per Share Data](index=24&type=section&id=Net%20(Loss)Income%20and%20Per%20Share%20Data) | Metric | Q2 FY19 | Q2 FY18 | H1 FY19 | H1 FY18 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Net (loss) income (in thousands) | $(304) | $1,668 | $127 | $1,556 | | Diluted Common Share EPS | $(0.02) | $0.13 | $0.01 | $0.12 | | Diluted Class B Common Share EPS | $(0.02) | $0.12 | $0.01 | $0.11 | - Net income in **Q2 FY18** and **H1 FY18 included $1.5 million from discontinued operations**, which was not present in FY19[122](index=122&type=chunk)[123](index=123&type=chunk) [Liquidity, Financial Position and Capital Resources](index=24&type=section&id=Liquidity,%20Financial%20Position%20and%20Capital%20Resources) - Cash and cash equivalents were **$47.9 million** at **December 1, 2018**, with an additional **$5.3 million** in current investments (**CDs**)[125](index=125&type=chunk) - The company believes existing liquidity sources will provide sufficient resources for known capital requirements and working capital needs for the next twelve months[127](index=127&type=chunk) [Cash Flows from Operating Activities](index=24&type=section&id=Cash%20Flows%20from%20Operating%20Activities) - Operating activities **used $2.7 million of cash during H1 FY19**, compared to **$2.3 million used in H1 FY18**[129](index=129&type=chunk)[130](index=130&type=chunk) - The cash use in **H1 FY19** was primarily due to a **$3.9 million decrease in accounts payable** and a **$1.8 million increase in inventory**[129](index=129&type=chunk) - Inventory increase was driven by growth in supplying replacement systems and parts to the Healthcare market and components for ALTA 750TM CT Tube production[129](index=129&type=chunk) [Cash Flows from Investing Activities](index=25&type=section&id=Cash%20Flows%20from%20Investing%20Activities) - Cash used in investing activities was **$7.5 million during H1 FY19**, a significant change from **$1.8 million provided in H1 FY18**[132](index=132&type=chunk)[133](index=133&type=chunk) - **H1 FY19** investing cash use included **$5.3 million for purchases of investments** and **$2.2 million in capital expenditures**[132](index=132&type=chunk) - Capital expenditures primarily related to Healthcare growth initiatives, building improvements, and IT system investments[132](index=132&type=chunk) [Cash Flows from Financing Activities](index=25&type=section&id=Cash%20Flows%20from%20Financing%20Activities) - Cash used in financing activities was **$1.3 million during H1 FY19**, primarily from **$1.5 million in cash dividends paid**, partially offset by **$0.2 million from common stock issuance**[135](index=135&type=chunk) - Cash used in financing activities was **$1.5 million during H1 FY18**, solely from cash dividends paid[135](index=135&type=chunk) - Future dividend payments are at the discretion of the Board of Directors[136](index=136&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary financial market risk is foreign currency exchange, managed through normal operations without derivatives - The primary financial risk the company is exposed to is **foreign currency exchange**, due to operations, assets, and liabilities denominated in foreign currencies[137](index=137&type=chunk) - The company manages these risks through normal operating and financing activities and does not currently utilize derivative instruments for foreign currency exposure[118](index=118&type=chunk)[137](index=137&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes in internal control over financial reporting - Management concluded that the company's **disclosure controls and procedures were effective** as of **December 1, 2018**[140](index=140&type=chunk) - **No material changes in internal control over financial reporting** occurred during the second quarter of fiscal 2019[141](index=141&type=chunk) [Part II. Other Information](index=27&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) A stockholder derivative lawsuit was dismissed; a patent infringement lawsuit against ALTA750TM is ongoing - A stockholder derivative complaint filed by Steven H. Busch was **dismissed with prejudice** on **November 14, 2018**, and the case is concluded[143](index=143&type=chunk) - **Varex Imaging Corporation** filed a patent infringement lawsuit on **October 15, 2018**, against Richardson's **ALTA750TM product**[144](index=144&type=chunk) - Richardson believes the Varex lawsuit is **without merit** and a loss is not probable or estimable[144](index=144&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Annual Report on Form 10-K - **No material changes to the risk factors** previously disclosed in the Annual Report on Form 10-K for the year ended June 2, 2018[145](index=145&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section is a placeholder with no specific information on unregistered equity sales or use of proceeds [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) A press release was issued on January 9, 2019, announcing Q2 FY19 results and a cash dividend declaration - A press release was issued on **January 9, 2019**, reporting **Q2 FY19 results** and the **declaration of a cash dividend**[146](index=146&type=chunk) - The press release is furnished as **Exhibit 99.1** to this Form 10-Q[146](index=146&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including corporate documents, agreements, certifications, and data - Exhibits include corporate documents (**Amended and Restated Certificate of Incorporation**, **By-Laws**), an employment agreement amendment, **Sarbanes-Oxley Act certifications**, a press release, and **XBRL financial information**[149](index=149&type=chunk)[150](index=150&type=chunk) [Signatures](index=29&type=section&id=Signatures) The report was signed by Robert J. Ben, CFO and CAO, for Richardson Electronics, Ltd. on January 10, 2019 - The report was signed by **Robert J. Ben, Chief Financial Officer and Chief Accounting Officer**[153](index=153&type=chunk) - The signing date was **January 10, 2019**[153](index=153&type=chunk)