| SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES | 3. SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES Use of Estimates: Fair Values of Financial Instruments: Cash and Cash Equivalents: Allowance for Doubtful Accounts: Loss Contingencies: Revenue Recognition: Foreign Currency Translation: Shipping and Handling Fees and Costs: Inventories: 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 managementÂ’s
estimates, additional provisions may be necessary. We recorded provisions to our inventory reserves
of $0.7 million, $0.2 million, and $0.8 million during fiscal 2016, 2015, and 2014, respectively, which were included in cost of
sales from continuing operations. The provisions were principally for obsolete and slow moving parts. The parts were written down
to estimated realizable value. Income Taxes: Investments: 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 28, 2016, and $0.6 million at May 30,
2015. Proceeds from the sale of securities were $0.3 million during fiscal 2016 and $0.2 million during fiscal years 2015 and 2014.
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 years 2016, 2015, and 2014. Net
unrealized holding losses during fiscal years 2016, 2015, and 2014, were less than $0.1 million and have been included in accumulated
comprehensive income (loss) during its respective fiscal year. Discontinued Operations: Presentation of Financial Statements - Discontinued Operations Goodwill and Other Intangible Assets: During the fourth quarter of each fiscal year, our goodwill
balances are reviewed for impairment using the third 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. Projected future operating
results and cash flows used for valuation purposes may reflect considerable improvements relative to historical periods with respect
to, among other things, revenue growth and operating margins. 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. In accordance with ASC 350 “ Intangibles
- Goodwill and Other For annual and interim goodwill impairment tests
performed for fiscal years beginning after December 15, 2011, Accounting Standards Update (ASU) 2011-08, Testing for Goodwill for
Impairment (“ASU 2011-08”) permits an entity to first assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not likely
that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. 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 when events or changes in circumstances
occur that indicate possible impairment. Property, Plant and Equipment: in
thousands
May 28, May 30,
Land and improvements $ 1,301 $ 1,594
Buildings and improvements 19,023 18,883
Computer and communications equipment 6,810 6,774
Construction in progress 2,721 1,218
Machinery and other equipment 8,080 6,562
$ 37,935 $ 35,031
Accumulated depreciation (24,949 ) (24,950 )
Property, plant, and equipment, net $ 12,986 $ 10,081 Construction in progress includes $1.6
million related to our Healthcare growth initiatives, $0.9 million for our new IT system, and $0.2 million of other projects.
All projects are expected to be completed before the end of fiscal 2017. 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 28, 2016, were not impaired. Accrued Liabilities: in thousands
May 28, 2016 May 30, 2015
Compensation and payroll taxes $ 4,054 $ 4,303
Income taxes 0 572
Professional fees 775 885
Deferred revenue 1,879 1,680
Other accrued expenses 2,427 2,704
Accrued Liabilities $ 9,135 $ 10,144 Warranties: 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 income (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
2016 and 2015 were as follows ( in thousands
Warranty Reserve
Balance at May 31, 2014 $ 175
Accruals for products sold 116
Utilization (103 )
Balance at May 30, 2015 $ 188
Accruals for products sold 108
Utilization (86 )
Balance at May 28, 2016 $ 210 Other Non-Current Liabilities: Share-Based Compensation: 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 Weighted Weighted Aggregate
Options Outstanding at June 1, 2013 944 $ 10.13
Granted 224 11.15
Exercised (32 ) 5.84
Forfeited (54 ) 11.73
Cancelled (17 ) 11.52
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 6.0 $ 4
Options Vested at May 28, 2016 602 $ 10.34 4.6 $ 4 There were 28,000 stock options exercised
during fiscal 2016, with cash received of $0.1 million. The total intrinsic value of options exercised totaled less than $0.1
million during fiscal 2016 and $0.2 million during fiscal 2015 and fiscal 2014. The weighted average fair value of stock
option grants was $1.21 during fiscal 2016, $3.71 during fiscal 2015, and $4.53 during fiscal 2014. As of May 28, 2016, total
unrecognized compensation costs related to unvested stock options was approximately $1.2 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 2016 was $0.6 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 28, May 30, May 31,
Expected volatility 32.21 % 46.12 % 49.31 %
Risk-free interest rate 1.78 % 2.12 % 2.03 %
Expected lives (years) 6.50 6.47 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 2016, 2015, and 2014, 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 28, 2016 ( in thousands, except option prices and years
Outstanding Vested
Exercise Price Range Shares Weighted Average Exercise Price Weighted Average Life Aggregate Intrinsic Shares Weighted Average Exercise Price Weighted Average Life Aggregate Intrinsic
$5.03 to $8.58 285 $ 6.01 5.4 $ 4 169 $ 6.10 2.6 $ 4
$9.48 to $11.14 382 $ 10.49 7.6 $ — 133 $ 10.65 6.9 $ —
$11.50 to $13.76 352 $ 12.51 4.9 $ — 300 $ 12.59 4.6 $ —
Total 1,019 $ 9.93 6.0 $ 4 602 $ 10.34 4.6 $ 4 As of May 28, 2016, 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 stockholderÂ’s
equity during fiscal 2016, 2015, and 2014. The EmployeesÂ’ 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, 950,000 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: In accordance with ASC 260-10, Earnings Per
Share The per share amounts presented in the consolidated
statements of comprehensive income (loss) are based on the following ( amounts in thousands, except per share amounts
For the Fiscal Year Ended
May 28, 2016 May 30, 2015 May 31, 2014
Basic Diluted Basic Diluted Basic Diluted
Numerator for Basic and Diluted EPS:
Loss from continuing operations $ (6,766 ) $ (6,766 ) $ (5,528 ) $ (5,528 ) $ (345 ) $ (345 )
Less dividends:
Common stock 2,615 2,615 2,794 2,794 2,853 2,853
Class B common stock 464 464 466 466 488 488
Undistributed losses $ (9,845 ) $ (9,845 ) $ (8,788 ) $ (8,788 ) $ (3,686 ) $ (3,686 )
Common stock undistributed losses $ (8,367 ) $ (8,367 ) $ (7,539 ) $ (7,539 ) $ (3,151 ) $ (3,151 )
Class B common stock undistributed losses (1,478 ) (1,478 ) (1,249 ) (1,249 ) (535 ) (535 )
Total undistributed losses $ (9,845 ) $ (9,845 ) $ (8,788 ) $ (8,788 ) $ (3,686 ) $ (3,686 )
Loss from discontinued operations $ — $ — $ (31 ) $ (31 ) $ (170 ) $ (170 )
Less dividends:
Common stock 2,615 2,615 2,794 2,794 2,853 2,853
Class B common stock 464 464 466 466 488 488
Undistributed losses $ (3,079 ) $ (3,079 ) $ (3,291 ) $ (3,291 ) $ (3,511 ) $ (3,511 )
Common stock undistributed losses $ (2,615 ) $ (2,615 ) $ (2,823 ) $ (2,823 ) $ (3,001 ) $ (3,001 )
Class B common stock undistributed losses (464 ) (464 ) (468 ) (468 ) (510 ) (510 )
Total undistributed losses $ (3,079 ) $ (3,079 ) $ (3,291 ) $ (3,291 ) $ (3,511 ) $ (3,511 )
Net loss $ (6,766 ) $ (6,766 ) $ (5,559 ) $ (5,559 ) $ (515 ) $ (515 )
Less dividends:
Common stock 2,615 2,615 2,794 2,794 2,853 2,853
Class B common stock 464 464 466 466 488 488
Undistributed losses $ (9,845 ) $ (9,845 ) $ (8,819 ) $ (8,819 ) $ (3,856 ) $ (3,856 )
Common stock undistributed losses $ (8,367 ) $ (8,367 ) $ (7,565 ) $ (7,565 ) $ (3,296 ) $ (3,296 )
Class B common stock undistributed losses (1,478 ) (1,478 ) (1,254 ) (1,254 ) (560 ) (560 )
Total undistributed losses $ (9,845 ) $ (9,845 ) $ (8,819 ) $ (8,819 ) $ (3,856 ) $ (3,856 )
Denominator for Basic and Diluted EPS:
Common stock weighted average shares 10,908 10,908 11,682 11,682 11,915 11,915
Class B common stock weighted average shares, and shares under if-converted method for diluted EPS 2,141 2,141 2,151 2,151 2,250 2,250
Effect of dilutive stock options — — —
Denominator for diluted EPS adjusted for weighted average shares and assumed conversions 13,049 13,833 14,165
Loss from continuing operations per share:
Common stock $ (0.53 ) $ (0.53 ) $ (0.41 ) $ (0.41 ) $ (0.03 ) $ (0.03 )
Class B common stock $ (0.47 ) $ (0.47 ) $ (0.36 ) $ (0.36 ) $ (0.02 ) $ (0.02 )
Income from discontinued operations per share:
Common stock $ — $ — $ — $ — $ (0.01 ) $ (0.01 )
Class B common stock $ — $ — $ — $ — $ (0.01 ) $ (0.01 )
Net loss per share:
Common stock $ (0.53 ) $ (0.53 ) $ (0.41 ) $ (0.41 ) $ (0.04 ) $ (0.04 )
Class B common stock $ (0.47 ) $ (0.47 ) $ (0.36 ) $ (0.36 ) $ (0.03 ) $ (0.03 ) Note: Common stock options that were anti-dilutive and not included
in diluted earnings per common share for fiscal 2016, fiscal 2015, and fiscal 2014 were 890; 881; and 489 respectively. New Accounting Pronouncements: In May 2014,
the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). 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. 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 not permitted. We are currently evaluating the impact that the adoption of ASU
2014-09 will have on our financial condition, results of operations and disclosures. In February
2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 establishes a right-of-use (“ROU”) model
that requires a lessee to record a 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 CompanyÂ’s consolidated financial statements. In July 2015,
the FASB issued 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 adoption of this standard is not expected to
have a significant impact on the CompanyÂ’s consolidated financial statements. In November 2015,
the FASB issued ASU No. 2015-17 , Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes In March 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. Specifically, the ASU requires all excess tax benefits and tax deficiencies
(including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the income
statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they
occur. An entity also should recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether
the benefit reduces taxes payable in the current period. That is, off balance sheet accounting for net operating losses stemming
from excess tax benefits would no longer be required and instead such net operating losses would be recognized when they arise.
Existing net operating losses that are currently tracked off balance sheet would be recognized, net of a valuation allowance if
required, through an adjustment to opening retained earnings in the period of adoption. Entities will no longer need to maintain
and track an “APIC pool.” The ASU also requires excess tax benefits to be classified along with other income tax cash
flows as an operating activity in the statement of cash flows. In addition,
ASU 2016-09 elevates the statutory tax withholding threshold to qualify for equity classification up to the maximum statutory tax
rates in the applicable jurisdiction(s). The ASU also clarifies that cash paid by an employer when directly withholding shares
for tax withholding purposes should be classified as a financing activity. ASU 2016-09
provides an optional accounting policy election (with limited exceptions), to be applied on an entity-wide basis, to either estimate
the number of awards that are expected to vest (consistent with existing U.S. GAAP) or account for forfeitures when they occur.
ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
The Company is currently evaluating the potential impact of the adoption of this standard on the CompanyÂ’s consolidated
financial statements. |
