UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 28, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to
Commission File Number: 0-12906
Delaware
(State or other jurisdiction of incorporation or organization)
36-2096643
(I.R.S. Employer Identification No.)
(Exact name of registrant as specified in its charter)
40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois 60147-0393
(Address of principal executive offices)
Registrant’s telephone number, including area code: (630) 208-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, $0.05 Par Value
Trading Symbol(s)
RELL
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large Accelerated Filer
Non-Accelerated Filer
Emerging growth company
☐
☐
☐
Accelerated Filer
Smaller reporting company
☒
☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of November 27, 2021 was approximately $122.2 million.
As of July 25, 2022, there were outstanding 11,697,419 shares of Common Stock, $0.05 par value and 2,053,263 shares of Class B Common Stock, $0.05 par value,
which are convertible into Common Stock of the registrant on a one-for-one basis.
Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held October 4, 2022, which will be filed pursuant to Regulation
14A, are incorporated by reference in Part III of this report. Except as specifically incorporated herein by reference, the abovementioned Proxy Statement is not deemed
filed as part of this report.
Auditor Firm ID: 00243 Auditor Name: BDO USA, LLP Auditor Location: Chicago, IL, USA
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16.
Business ...................................................................................................................................................................
Risk Factors .............................................................................................................................................................
Unresolved Staff Comments ....................................................................................................................................
Properties .................................................................................................................................................................
Legal Proceedings ....................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ................................................................................................................................................
Selected Financial Data ...........................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..................................
Quantitative and Qualitative Disclosures About Market Risk .................................................................................
Financial Statements and Supplementary Data ........................................................................................................
Controls and Procedures ..........................................................................................................................................
Other Information ....................................................................................................................................................
Directors, Executive Officers and Corporate Governance .......................................................................................
Executive Compensation .........................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................
Certain Relationships and Related Transactions, and Director Independence .........................................................
Principal Accountant Fees and Services ..................................................................................................................
Exhibits and Financial Statement Schedules ...........................................................................................................
Form 10-K Summary ...............................................................................................................................................
Exhibit Index ..................................................................................................................................................................................
Signatures .......................................................................................................................................................................................
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Forward Looking Statements
Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The terms “may”, “should”, “could”, “anticipate”, “believe”, “continues”, “estimate”, “expect”,
“intend”, “objective”, “plan”, “potential”, “project” and similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These
statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions
and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors
that could cause or contribute to such differences or that might otherwise impact the business include the risk factors set forth in
Item 1A of this Form 10-K. We undertake no obligation to update any such factor or to publicly announce the results of any revisions
to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.
In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them
any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that
we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent
that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
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ITEM 1. Business
General
PART I
Richardson Electronics, Ltd. is a leading global manufacturer of engineered solutions, power grid and microwave tubes, and
related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes, and service training
for diagnostic imaging equipment; and customized display solutions. More than 60% of our products are manufactured in LaFox,
Illinois, Marlborough, Massachusetts, or Donaueschingen, Germany, or by one of our manufacturing partners throughout the
world. All our partners manufacture to our strict specifications and per our supplier code of conduct. 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 fiscal year 2022 began on May 30, 2021 and ended on May 28, 2022, our fiscal year 2021 began on May 31, 2020 and
ended on May 29, 2021 and our fiscal year 2020 began on June 2, 2019 and ended on May 30, 2020. Unless otherwise noted, all
references to a particular year in this document shall mean our fiscal year.
COVID-19 Update
The impact of the COVID-19 pandemic and its effects continue to evolve. As such, the full magnitude that the pandemic, and
the steps taken to prevent, mitigate and/or respond to its spread, will have on the Company’s financial condition, liquidity and future
results of operations is uncertain. The extent of the impact of the COVID-19 pandemic depends on future developments that cannot be
accurately predicted at this time, such as the duration and spread of the pandemic, the extent, speed and effectiveness of continued
worldwide containment efforts, and other actions taken by governments, businesses and individuals in response to abatement and
resurgence of the disease. Our ability to meet customer demands for products may be impaired or, similarly, our customers may
experience adverse business consequences due to the continued impact of COVID-19 and its effects.
Reduced demand for products or impaired ability to meet customer demand (including disruptions at our transportation
service providers or vendors) could have a material adverse effect on our business, operations and financial performance. There were
sales declines during fiscal year 2021, the majority of which were related to the COVID-19 global pandemic. While the Company did
not experience sales declines during fiscal year 2022 as a result of the pandemic, the impacts from the pandemic negatively impacted
our gross margins as a percentage of net sales in our Canvys and Healthcare segments.
As a result of COVID-19 and its effects, we experienced some COVID-19 related component delays impacting new product
development schedules. The global markets have generally suffered, and are continuing to suffer, from material disruptions in the
supply chain.
Management continues to monitor the global situation on its financial condition, liquidity, operations, suppliers, industry and
workforce. Given the ever-evolving nature of the pandemic and the continued global responses to the ongoing impact of the pandemic
as well the cycle of recurrences and the after-effects, the Company is not presently able to fully estimate the effects of COVID-19 on
its results of operations, financial condition or liquidity going forward.
Company Response to CARES Act
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide certain
relief as a result of the COVID-19 outbreak. The CARES Act included provisions relating to refundable payroll tax credits, deferral of
employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, increased
limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified, improvement
property. As of May 28, 2022, the Company deferred $0.4 million of employer-side social security tax payments, which will be made
by December 31, 2022. The Company has estimated and recorded the overall effects of the CARES Act and does not anticipate a
material change.
Government Regulations
We are subject to a variety of federal, state, local and foreign laws and regulatory requirements relating to our operations.
These laws and regulations, which differ among jurisdictions, include, among others, those related to financial and other disclosures,
accounting standards, privacy and data protection, cybersecurity, intellectual property, corporate governance, tax, trade, antitrust,
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employment, import/export, anti-corruption, and environmental regulatory compliance. Expenditures relating to such regulations are
made in the ordinary course of our business and do not represent material expenditures and we further do not currently expect that
compliance with such laws will require us to make material additional expenditures, however, there is no assurance that existing or
future laws and regulations applicable to our operations, products, and services will not have a material adverse effect on our business.
Among others, we are subject to a variety of data protection laws that change frequently and have requirements that vary
from jurisdiction to jurisdiction. We are subject to significant compliance obligations under privacy laws such as the General Data
Protection Regulation in the European Union and an expanding list of comprehensive state privacy and/or cybersecurity laws in the
United States. Failure to comply with these laws and regulations subjects us to potential regulatory enforcement activity, fines, private
litigation including class actions, reputational impacts, and other costs. Our efforts to comply with privacy and data security laws and
regulations complicate our operations and add to our costs.
We are also subject to various domestic and international export, trade and anti-corruption laws, such as include the Arms
Export Control Act, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”), anti-
money laundering laws and regulations and the trade and trade sanctions laws and regulations administered by the Office of the United
States Trade Representative and the United States Department of the Treasury’s Office of Foreign Assets Control. Violations of these
laws and regulations may result in severe criminal or civil sanctions and penalties.
Our operations also are subject to numerous laws and regulations governing health and safety aspects of our operations, or
otherwise relating to environmental protection. Failure to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of remedial or corrective action requirements, and the imposition of injunctions
to prohibit certain activities or force future compliance.
For more information on risks related to the laws and regulations to which we are subject, see the relevant discussions
throughout "Item 1A, Risk Factors" of this Annual Report on Form 10-K.
Geography
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin
America. Selected financial data attributable to each segment and geographic region for fiscal 2022, fiscal 2021 and fiscal 2020 is
set forth in Note 9, Segment and Geographic Information, of the notes to our consolidated financial statements in Part II, Item 8 of
this Annual Report on Form 10-K.
We have three operating and reportable segments. Starting with our first quarter earnings release in October for fiscal 2023,
we will introduce our new Green Energy Solutions (“GES”) segment. This segment is carved out of our existing PMT segment as we
continue to focus on power management applications that support the green energy market globally. Accordingly, in the first quarter
of fiscal 2023, we will begin reporting on four segments.
The three operating and reportable segments for fiscal 2022, fiscal 2021 and fiscal 2020 are defined as follows:
Power and Microwave Technologies
Power and Microwave Technologies (“PMT”) combines our core engineered solutions capabilities, power grid and
microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner
and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core
engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems
integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our
existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative
energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses
on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high
energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers
technical services for both microwave and industrial equipment.
PMT represents leading manufacturers of electron tubes and RF, Microwave and power components used in semiconductor
manufacturing equipment, RF and wireless and industrial power applications. Among the suppliers PMT supports are Amperex, CDE,
CPI, Draloric, Eimac, General Electric, Hitachi, Jennings, L3, MACOM, National, NJRC, Ohmite, Qorvo, Thales, Toshiba and
Vishay.
PMT’s inventory levels reflect our commitment to maintain an inventory of a broad range of products for customers who are
buying products for replacement of components used in critical equipment and designing in new technologies. PMT also sells a
number of products representing trailing edge technology. While the market for these trailing edge technology products is declining,
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PMT is increasing its market share. PMT often buys products it knows it can sell ahead of any supplier price increases and extended
lead times. As manufacturers for these products exit the business, PMT has the option to purchase a substantial portion of their
remaining inventory.
PMT has distribution agreements with many of its suppliers; most of these agreements provide exclusive distribution rights
that often include global coverage. The agreements are typically long term, and usually contain provisions permitting termination by
either party if there are significant breaches that are not cured within a reasonable period. Although some of these agreements allow
PMT to return inventory periodically, others do not, in which case PMT may have obsolete inventory that they cannot return to the
supplier.
PMT’s suppliers provide warranty coverage for the products and allow return of defective products, including those returned
to PMT by its customers. For information regarding the warranty reserves, see Note 3, Significant Accounting Policies and
Disclosures, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
In addition to third party products, we sell proprietary products principally under certain trade names we own including
Amperex®, Cetron® and National®. Our proprietary products include thyratrons and rectifiers, power tubes, ignitrons, magnetrons,
phototubes, microwave generators, Ultracapacitor modules and liquid crystal display monitors. The materials used in the
manufacturing process consist of glass bulbs and tubing, nickel, stainless steel and other metals, plastic and metal bases, ceramics and
a wide variety of fabricated metal components. These materials are generally readily available, but some components may require long
lead times for production, and some materials are subject to shortages or price fluctuations based on supply and demand.
Canvys – Visual Technology Solutions
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical
original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to
match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens,
protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages
and certification services. We partner with both private label manufacturing companies and leading branded hardware vendors to offer
the highest quality display and touch solutions and customized computing platforms.
We have long-standing relationships with key component and finished goods manufacturers and several key ISO 9001 and
ISO 13485 certified Asian display manufacturers that manufacture products to our specifications. We believe supplier relationships,
combined with our engineering design and manufacturing capabilities and private label partnerships, allow us to maintain a well-
balanced and technologically advanced offering of customer specific display solutions.
Healthcare
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare
market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor
service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes;
CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector
upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging
service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we
believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.
Sales and Product Management
We have employees, as well as authorized representatives who are not our employees, selling our products primarily in
regions where we do not have a direct sales presence.
We offer various credit terms to qualifying customers as well as cash in advance and credit card terms. We establish credit
limits for each customer and routinely review delinquent and aging accounts.
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Distribution
We maintain over 100,000 part numbers in our product inventory database and we estimate that more than 90% of orders
received by 6:00 p.m. local time are shipped complete the same day for stock product. Customers can access our products on our web
sites, www.rell.com, www.rellhealthcare.com, www.canvys.com, www.rellpower.com, www.relltubes.com and www.rellaser.com,
through electronic data interchange, or by telephone. Customer orders are processed by our regional sales offices and supported
primarily by one of our distribution facilities in LaFox, Illinois; Fort Mill, South Carolina; Amsterdam, Netherlands; Marlborough,
Massachusetts; Donaueschingen, Germany; or Singapore, Singapore. We also have satellite warehouses in Sao Paulo, Brazil;
Shanghai, China; Bangkok, Thailand; and Hook, United Kingdom. Our data processing network provides on-line, real-time
interconnection of all sales offices and central distribution operations, 24 hours per day, seven days per week. Information on stock
availability, pricing in local currency, cross-reference information, customers and market analyses are obtainable throughout the entire
distribution network. The content of our websites are not deemed to be incorporated by reference in this report filed with the Securities
and Exchange Commission.
International Sales
During fiscal 2022, we made approximately 57% of our sales outside the United States. We continue to pursue new
international sales to further expand our geographic reach.
Major Customers
During fiscal 2022, fiscal 2021 and fiscal 2020, no one customer accounted for more than 10 percent of the Company’s
consolidated net sales. See Note 9, Segment and Geographic Information, of the notes to our consolidated financial statements in Part
II, Item 8 of this Annual Report on Form 10-K for further information.
Human Capital Management
Recruitment & Staffing
The future success of our Company depends on our ability to attract, hire, motivate, retain and further develop top talent,
including highly skilled technical, management and sales personnel. The skills, experience and industry knowledge of our employees
significantly benefit our operations and performance. Competition for such personnel is intense and the salary, benefits and other costs
to employ the right personnel may impact our results and performance.
As of May 28, 2022, we employed 447 individuals, which included 411 full-time individuals and 36 part-time individuals. Of
these, 287 full-time and 19 part-time were located in the United States and 124 full-time and 17 part-time were located internationally.
All of our employees are non-union and we consider our relationships with our employees to be good.
The Company offers employees a competitive compensation program, designed to recognize and reward both individual and
company performance, which includes a base pay, variable compensation programs, and health, wellbeing and retirement programs to
meet the needs of our employees. The health, safety and wellness of our employees is a priority. In light of COVID-19, many of our
employees work from home whenever possible and additional safety measures were implemented for employees continuing critical
on-site work.
Diversity, Equity, Inclusion & Belonging
We are an international company with offices and personnel located around the world. We understand, respect, and value the
similarities as well as the differences of our employees. Our human capital is a critical asset that enables us to serve and support our
global customer base. Our effectiveness in maximizing the talents of people of different backgrounds, experiences, and perspectives is
key to our continued global success. Fostering, cultivating, and preserving a culture of diversity, equity, inclusion, and belonging is a
key priority for the Company. We seek to embrace and encourage our employees’ differences in age, disability, ethnicity, family or
marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion,
sexual orientation, socio-economic status, veteran status, and other characteristics that make our employees unique.
Management has identified Diversity, Equity, Inclusion, and Belonging (“DEI&B”) as a priority for our Company.
Significant positive change requires careful planning, leadership, resources, and coordination. The Company established a DEI&B
committee to plan and implement changes to achieve our goal of being a more diverse and inclusive organization. The DEI&B
committee has been charged with making recommendations about how we, as a company, can promote and act upon the Company’s
initiatives in this area. The committee will identify priorities based on employee input and incorporate these into the Company’s
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strategic plans, work to establish accountability and methods of measuring our progress, and provide appropriate communications
about our plans and achievements to our stakeholders. To date, DEI&B initiatives have focused on the following:
Increased DEI&B awareness throughout the Company by education and involvement
• Expanded the Board of Directors to include a female director
•
• Added socially responsible funds to our 401K Plan
• Providing regular training, communication, activities, and surveys regarding DEI&B matters to our employees
Website Access to SEC Reports
We maintain an Internet website at www.rell.com. Our Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
and Exchange Act of 1934 are accessible through our website, free of charge, as soon as reasonably practicable after these reports are
filed electronically with the Securities and Exchange Commission. Interactive Data Files pursuant to Rule 405 of Regulation S-T, of
these filing dates, formatted in Extensible Business Reporting Language (“XBRL”) are accessible as well. To access these reports, go
to our website at www.rell.com. Information relating to our corporate governance, including our Code of Conduct (including any
related amendments or waivers) and information concerning our executive officers, directors and Board committees (including
committee charters) is also available on our website. The foregoing information regarding our website is provided for convenience and
the content of our website is not deemed to be incorporated by reference in this report filed with the Securities and Exchange
Commission. Additionally, the SEC maintains an internet site through which our reports, proxy and information statements and our
other SEC filings can be located; the address of that site is http://www.sec.gov.
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ITEM 1A. Risk Factors
Investors should carefully consider the following risk factors in addition to the other information included and incorporated
by reference in this Annual Report on Form 10-K that we believe are applicable to our businesses and the industries in which we
operate. While we believe we have identified the key risk factors affecting our businesses, there may be additional risks and
uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our results of
operations.
Business and Operational Risks
We may not achieve our plan for sales growth and margin targets.
We have established both margin and expense targets to grow our sales with new and existing customers. If we do not
achieve our growth objectives, the complexity of our global infrastructure makes it difficult to leverage our fixed cost structure to
align with the size of our operations. Factors that could have a significant effect on our ability to achieve these goals include the
following:
•
•
•
•
Failure to achieve our sales and margin growth objectives in our product lines and business units;
Failure to implement or properly execute our growth strategies, including failures to identify, consummate and
successfully integrate acquisitions and/or other opportunities to diversify, extend and expand our business;
Declining gross margin reflecting competitive pricing pressures or product mix; and
Limitations on our ability to leverage our support-function cost structure while maintaining an adequate structure to
achieve our growth objectives.
The impact of the COVID-19 pandemic and its effects negatively impacted our sales results in certain prior periods. The
situation continues to evolve and the effects of the pandemic could adversely affect the Company’s revenues, earnings, liquidity and
cash flows.
We have historically incurred significant charges for inventory obsolescence and may incur similar charges in the future.
We maintain significant inventories in an effort to ensure that customers have a reliable source of supply. Our products
generally support industrial machinery powered by tube technology. As technology evolves and companies replace this capital
equipment, the market for our products potentially declines. In addition, the market for many of our other products changes rapidly
resulting from the development of new technologies, evolving industry standards, frequent new product introductions by some of our
suppliers and changing end-user demand, which can contribute to the decline in value or obsolescence of our inventory. We do not
have many long-term supply contracts with our customers. If we fail to anticipate the changing needs of our customers or we do not
accurately forecast customer demand, our customers may not place orders with us, and we may accumulate significant inventories of
products that we may be unable to sell or return to our vendors. This may result in a decline in the value of our inventory.
We face competitive pressures that could have a material adverse effect on our business.
Our overall competitive position depends on a number of factors including price, engineering capability, vendor
representation, product diversity, lead times and the level of customer service. There are very few vacuum tube competitors in the
markets we serve. There are also a limited number of Chinese manufacturers whose ability to produce vacuum tubes has progressed
over the past several years. The most significant competitive risk comes from technical obsolescence. Canvys faces many competitors
in the markets we serve. Increased competition may result in price reductions, reduced margins or a loss of market share, any of which
could materially and adversely affect our business, operating results and financial condition. As we expand our business and pursue
our growth initiatives, we may encounter increased competition from current and/or new competitors. Our failure to maintain and
enhance our competitive position could have a material adverse effect on our business.
We are dependent on a limited number of vendors to supply us with essential products. Disruptions to the supply chain could
adversely impact our business.
The products we supply are currently produced by a relatively small number of manufacturers. One of our suppliers
represented 11% of our total cost of sales. Our success depends, in large part, on maintaining current vendor relationships and
developing new relationships. To the extent that our significant suppliers are unwilling or unable to continue to do business with us,
extend lead times, limit supplies due to capacity constraints or other factors, there could be a material adverse effect on our business.
Further, as a result of COVID-19 and its effects, we experienced some COVID-19 related component delays impacting new
product development schedules. The global markets have generally suffered, and are continuing to suffer, from material disruptions to
certain supply chains. Changes in our relationships with suppliers, shortages in availability of materials, production delays, regulatory
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restrictions, public health crises, or other supply chain disruptions, whether due to our suppliers or customers, could have a material
adverse effect on our operations and results. Increases in the costs of supplies could result in manufacturing interruptions, delays,
inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials,
component parts or finished goods increase and we are unable to pass on those increases to our customers. As various locations have
seen recovery from COVID-19, there have been increases in demand, which have, in turn, created significant disruption to the global
supply chain. These disruptions have been further exacerbated by other events and conditions, including the conflict between Russia
and Ukraine and collectively adversely affected our ability to receive goods on a timely basis and increased our material costs. Short-
term or sustained increases in market demand may exceed our suppliers’ production capacity or otherwise strain our supply chain. Our
failure, or our suppliers’ failure, to meet the demand for raw materials and components could adversely affect our business and results
of operations. Further disruptions to the supply chain because of the COVID-19 pandemic and its impact, or other world or domestic
events could materially adversely impact our operations and business. While we actively monitor and take steps to mitigate supply
chain risk, there can be no assurance that our mitigation plans will prevent disruptions that may arise from shortages of materials that
we use in the production of our products.
We rely heavily on information technology systems that, if not properly functioning, could materially adversely affect our business.
We rely on our information technology systems to process, analyze and manage data to facilitate the purchase, manufacture,
and distribution of our products, as well as to receive, process, bill and ship orders on a timely basis. A significant disruption or failure
in the design, operation, security or support of our information technology systems could significantly disrupt our business.
Our information technology systems may be subject to cyber attacks, security breaches, computer hacking, as well as other
damage, disruptions or shutdowns. Experienced computer programmers and hackers may be able to penetrate our security controls and
misappropriate or compromise sensitive personal, proprietary or confidential information, create system disruptions or cause
shutdowns. They also may be able to develop and deploy viruses, worms and other malicious software programs that attack our
systems or otherwise exploit any security vulnerabilities. Additionally, third parties may attempt to fraudulently induce employees or
customers into disclosing sensitive information such as usernames, passwords or other information in order to gain access to our
customers’ data or our data, including our intellectual property and other confidential business information, employee information or
our information technology systems. Our systems and the data stored on those systems may also be vulnerable to security incidents or
security attacks, acts of vandalism or theft, coordinated attacks by activist entities, misplaced or lost data, human errors or other
similar events that could negatively affect our systems and its data, as well as the data of our business partners. Further, third parties,
such as hosted solution providers, that provide services to us, could also be a source of security risk in the event of a failure of their
own security systems and infrastructure.
We have experienced cybersecurity incidents in the past, but none of these incidents, individually or in the aggregate, has had
a material adverse effect on our business, reputation, operations or products. The Company implemented various information
technology protections designed to detect and reduce cybersecurity incidents, although there can be no assurance that our protections
will be successful. The Company also regularly evaluates its protections against cybersecurity incidents, including in response to
specific threats and as part of the Company's information security program. There can be no assurance, however, that the Company
will be able to prevent or remediate all future cybersecurity incidents or that the cost associated with responding to any such incident
or impact of such incident will not be significant or material. Further, our remediation efforts may not be successful and could result in
interruptions, delays or cessation of service, and loss of existing or potential suppliers or customers. In addition, breaches of our
security measures and the unauthorized dissemination of sensitive personal, proprietary or confidential information about us, our
business partners or other third parties could expose us to significant potential liability and reputational harm. As threats related to
cyber attacks develop and grow, we may also find it necessary to make further investments to protect our data and infrastructure,
which may impact our profitability. As a global enterprise, we could also be negatively impacted by existing and proposed laws and
regulations, as well as government policies and practices related to cybersecurity, privacy, data localization and data protection.
Our products may be found to be defective or our services performed may result in equipment or product damage and, as a result,
warranty and/or product liability claims may be asserted against us.
We sell many of our components at prices that are significantly lower than the cost of the equipment or other goods in which
they are incorporated. Because a defect or failure in a product could give rise to failures in the equipment that incorporates them, we
may face claims for damages that are disproportionate to the revenues and profits we receive from the components involved in the
claims. While we typically have provisions in our agreements with our suppliers that hold the supplier accountable for defective
products, and we and our suppliers generally exclude consequential damages in our standard terms and conditions, our ability to avoid
such liabilities may be limited as a result of various factors, including the inability to exclude such damages due to the laws of some of
the countries where we do business. Our business could be adversely affected as a result of a significant quality or performance issues
in the components sold by us if we are required to pay for the damages. Although we have product liability insurance, such insurance
is limited in coverage and amount.
10
Substantial defaults by our customers on our accounts receivable or the loss of significant customers could have a significant
negative impact on our business.
We extend credit to our customers. The failure of a significant customer or a significant group of customers to timely pay all
amounts due could have a material adverse effect on our financial condition and results of operations. The extension of credit involves
considerable judgment and is based on management’s evaluation of factors that include such things as a customer’s financial
condition, payment history and the availability of collateral to secure customers’ receivables. The risks associated with extending
credit to our customers could be exacerbated by economic weakness and market disruption.
Failure to successfully implement our growth initiatives, or failure to realize the benefits expected from these initiatives if
implemented, may create ongoing operating losses or otherwise adversely affect our business, operating results and financial
condition.
Our growth strategy focuses on expanding our healthcare and our power conversion businesses. We may be unable to
implement our growth initiatives or strategic priorities or reach profitability in the near future or at all, due to many factors, including
factors outside of our control. We also cannot be certain that executing on our strategy will generate the benefits we expect. If we fail
to execute successfully on our strategic priorities, if we pursue strategic priorities that prove to be unsuccessful, or if our investments
in these growth initiatives do not yield anticipated returns for any reason, our business, financial position, results of operations and
cash flows may be materially and adversely affected.
We may not be successful in identifying, consummating and integrating future acquisitions, if any.
We may not be able to identify attractive acquisition candidates or complete the acquisition of identified candidates at
favorable prices and upon advantageous terms. Also, acquisitions are accompanied by risks, such as potential exposure to unknown
liabilities and the possible loss of key employees and customers of the acquired business. In addition, we may not obtain the expected
benefits or cost savings from acquisitions. Acquisitions are subject to risks associated with financing the acquisition, and integrating
the operations, personnel and systems of the acquired businesses. If any of these risks materialize, they may result in disruptions to our
business and the diversion of management time and attention, which could increase the costs of operating our existing or acquired
businesses or negate the expected benefits of the acquisitions.
Economic weakness and uncertainty and other challenges could adversely affect our revenues and gross margins.
Our revenues and gross profit margins depend significantly on global economic conditions, the demand for our products and
services and the financial condition of our customers. Economic weakness and uncertainty have in the past, and may in the future,
result in decreased revenues and gross profit margins. Economic uncertainty also makes it more difficult for us to forecast overall
supply and demand with a great deal of confidence. Financial turmoil affecting the banking system and financial markets could result
in tighter credit markets and lower levels of liquidity in some financial markets. The effects of a tightened credit environment could
include the insolvency of key vendors or their inability to obtain credit to finance development and/or manufacture products resulting
in product delays as well as the inability of customers to obtain credit to finance operations and/or customer insolvencies. Spending
and the timing thereof by our customers may have a significant impact on our results and, where such spending is delayed or
cancelled, it could have a material negative impact on our operating results. Current global economic conditions remain uncertain and
challenging. Weakness in the markets in which we operate could negatively impact our revenue and operating expenses, and
consequently have a material adverse effect on our business, financial condition and results of operations. Our operating results
produced net income for fiscal 2022 and fiscal 2021, but operating results in prior years (including fiscal 2020 and fiscal 2019)
reflected a net loss. There can be no assurance that we will continue recovery in the near future; nor is there any assurance that
worldwide economic volatility will not continue or worsen.
Further, challenges in the supply chain and disruptions in our logistics capability could further negatively impact our gross
profit margins. See “We are dependent on a limited number of vendors to supply us with essential products. Further, disruptions to
the supply chain could adversely impact our business” and “Major disruptions to our logistics capability or to the operations of our
key vendors or customers could have a material adverse impact on our operations.”
Prolonged periods of inflation could increase costs, have an adverse effect on general economic conditions and impact consumer
spending, which could impact our profitability and have a material adverse effect on our business and results of operations.
Inflation has risen on a global basis and the United States has recently experienced historically high levels of inflation. If the
inflation rate continues to increase, it can also push up the costs of labor and other expenses. There is no assurance that our revenues
will increase at the same rate to maintain the same level of profitability. Inflation and government efforts to combat inflation, such as
raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and general
economic conditions. Such adverse conditions could negatively impact demand for our products, which could adversely affect our
profitability, results of operations and cash flow.
11
Our business and results of operations are subject to a broad range of uncertainties arising out of world and domestic events.
Our business and results of operations are subject to uncertainties arising from world and domestic events. These
uncertainties may include a global economic slowdown, pandemics and other public health issues (including the COVID-19
pandemic), natural disasters, changes in global, national, or regional economies, inflation, governmental policies, political unrest,
military action and armed conflicts (such as the 2022 Russian invasion of Ukraine), terrorist activities, political and social turmoil,
civil unrest and other crises.
Such conditions have impacted and may continue to impact customer demand as well as our suppliers’ ability to supply us
with necessary materials and, ultimately, may have an impact on our business, financial condition, results and stock price.
The ongoing impact of the COVID-19 outbreak and responses to the pandemic continue to evolve. The COVID-19 crisis has
caused disruptions in global economies, financial markets and rapid shifts in governmental and public health policies in the countries
where we operate, or our customers are located or the industries in which we and our customers compete. The COVID-19 crisis and
the actions taken by governments, businesses and individuals to curtail the spread, abatement and resurgence of the disease have
negatively impacted, and could continue to negatively impact our business, results of operations, cash flows and financial condition.
During fiscal 2021, the Company experienced decreases in demand for certain products as a result of the impact of COVID-19 on
certain customers and in certain regions. A significant reduced demand for products or impaired ability to meet customer demand
(including disruptions at our transportation service providers or vendors) as a result of resurgences of the COVID-19 pandemic and/or
in response to the pandemic’s continued effects or the reactions to the pandemic and its effects could cause a material adverse effect
on our business, operations and financial performance.
Various regions of the world continue to be affected by the COVID-19 pandemic and certain areas have undertaken renewed
disease control measures. The extent to which our business will continue to be impacted by the COVID-19 pandemic and its effects
will depend on future developments which are highly uncertain and cannot be predicted. These include but not limited to the
continued duration and spread of the pandemic, its severity, the effectiveness of actions to vaccinate populations, contain the virus or
treat its impact and how quickly and to what extent normal economic and operating conditions resume or are further disrupted. The
potential effects of COVID-19, the responses to the pandemic and the various recovery initiatives may also impact many of our risk
factors described herein; however, as this is an unprecedented and changing situation, the potential impacts to such risk factors remain
uncertain. We may continue to experience adverse impacts to our business and financial results due to any economic recession or
depression that has occurred, and due to any major public health crises that may occur in the future. This is a very dynamic situation,
and we cannot at this time reasonably estimate the scope of its impact on our employees, operations, suppliers or customers, or the full
extent to which COVID-19 or its impact and effects could continue to affect the global economy and our results.
Major disruptions to our logistics capability or to the operations of our key vendors or customers could have a material adverse
impact on our operations.
We operate our global logistics services through specialized and centralized distribution centers. We depend on third party
transportation service providers for the delivery of products to our customers. A major interruption or disruption in service at any of
our distribution centers, or a disruption at the operations of any of our significant vendors or customers, for any reason, including
reasons beyond our control (such as natural disasters, pandemics or other health crises (such as COVID-19), work stoppages, power
loss, cyber attacks, incidents of terrorism or other significant disruptions of services from our third party providers) could cause
cancellations or delays in a significant number of shipments to customers and, as a result, could have a severe impact on our business,
operations and financial performance. Further, challenges within global logistics networks, including shortages of shipping containers,
international port congestion, and trucking shortages and freight capacity constraints have resulted in delays in receiving key
manufacturing components and increased order backlogs and transportation costs. Such logistical disruption may cause us to incur
higher costs and may also result in longer lead times for our customers. Uncertainties related to the magnitude and duration of global
supply chain disruptions have adversely affected, and may continue to adversely affect, our business. If we are unable to recover a
substantial portion of the increase in material and transportation costs from our customers through price adjustments and/or
surcharges, our business or results of operations could be adversely affected. We may also experience an increase in order
cancellations if any such pricing actions are not accepted by our customers.
Risks Related to International Operations
A significant portion of our cash, cash equivalents and investments is held by our foreign subsidiaries and could affect future
liquidity needs.
As of May 28, 2022, $15.0 million, or approximately 42% of our cash and cash equivalents was held by our foreign
subsidiaries. While we intend to use some of the cash held outside the United States to fund our international operations and growth,
when we encounter a significant need for liquidity domestically or at a particular location that we cannot fulfill through other internal
or external sources, our liquidity requirements could necessitate transfers of existing cash balances between our subsidiaries or to the
United States. Some of these subsidiaries are located in jurisdictions that require foreign government approval before a cash
repatriation can occur.
12
International operations represent a significant percentage of our business and present a variety of risks that could impact our
results.
Because we source and sell our products worldwide, our business is subject to risks associated with doing business
internationally. These risks include the costs and difficulties of managing foreign entities, limitations on the repatriation and
investment of funds, cultural differences that affect customer preferences and business practices, unstable political or economic
conditions, geopolitical risks and demand or supply reactions from events that could include political crises and conflict (such as the
Russian invasion of Ukraine), war, a major terrorist attack, natural disasters, actual or threatened public health emergencies (such as
COVID-19, including virus variants and resurgences and responses to those developments such as continued or new government-
imposed lockdowns and travel restrictions), trade protection measures and import or export licensing requirements, monetary policy,
inflation, economic growth, recession, commodity prices, currency volatility, currency controls, and changes in tax laws.
We also face exposure to fluctuations in foreign currency exchange rates because we conduct business outside of the United
States. Price increases caused by currency exchange rate fluctuations may make our products less competitive or may have an adverse
effect on our margins. Our international revenues and expenses generally are derived from sales and operations in currencies other
than the U.S. dollar. Accordingly, when the U.S. dollar strengthens in relation to the base currencies of the countries in which we sell
our products, our U.S. dollar reported net revenue and income would decrease. We currently do not engage in any currency hedging
transactions. We cannot predict whether foreign currency exchange risks inherent in doing business in foreign countries will have a
material adverse effect on our operations and financial results in the future. Further, global economic conditions may cause volatility
and disruptions in the capital and credit markets. Negative or uncertain financial and macroeconomic conditions may have a
significant adverse impact on our sales, profitability and results of operations.
The withdrawal by the United Kingdom from the European Union could have a material adverse effect on our business, financial
position, liquidity and results of operations.
We conduct a significant portion of our business in the European Union (“EU”) and the withdrawal of the United Kingdom
(“U.K.”) from the EU (also referred to as “Brexit”) could have a material adverse effect on our business, financial position, liquidity
and results of operations. In connection with the U.K.’s exit from the EU, the U.K. and the EU struck a bilateral trade and cooperation
deal governing the future relationship between the U.K. and the EU, which took effect on May 1, 2021. However, there remains
uncertainties and risks to our business related to Brexit and the new relationship between the U.K. and EU, which will continue to
be developed and defined, as well as any resulting political and economic instability created by Brexit. The political and economic
impact of Brexit has caused and may continue to cause significant volatility in global markets as well as greater restrictions on imports
and exports between the U.K. and EU countries, a fluctuation in currency exchange rates and increased regulatory complexities. The
impact of the withdrawal of the U.K. may adversely affect business activity, political stability and economic conditions in the U.K.,
the EU and elsewhere. Such developments and their ultimate impact, or the perception that any of these developments are likely to
occur, could have a material adverse effect on economic growth or business activity in the U.K., the Eurozone or the EU, and could
result in the relocation of businesses, cause business interruptions, lead to economic recession or depression, inhibit the growth of
the European economy, cause greater volatility in the global currencies that we currently use to transact business and impact the
stability of the financial markets, availability of credit, political systems or financial institutions and the financial and monetary
system. Such developments could have a material adverse effect on our business, financial position, liquidity and results of operations.
Financial Risks
We may need to raise additional funds through debt or equity financings in the future to fund our domestic operations and our
broader corporate initiatives, which would dilute the ownership of our existing shareholders.
If the cash generated by our domestic operations is not sufficient to fund our domestic operations and our broader corporate
initiatives, such as stock repurchases, dividends, acquisitions and other strategic opportunities, we may need to raise additional funds
through public or private debt or equity financings, or we may need to obtain new credit facilities to the extent we are unable to, or
choose not to, repatriate our overseas cash. Such additional financing may not be available on terms favorable to us, or at all, and any
new equity financings or offerings would dilute our current stockholders’ ownership interests in us. Furthermore, lenders may not
agree to extend us new, additional or continuing credit. Economic uncertainty or adverse economic conditions resulting from the
impacts of and responses to pandemics and other public health issues (including the COVID-19 pandemic), natural disasters, changes
in global, national, or regional economies, inflation, governmental policies, political unrest, military action and armed conflicts (such
as the 2022 Russian invasion of Ukraine), terrorist activities, political and social turmoil, civil unrest and other crises could result in
significant or sustained disruption of global financial markets, thereby reducing our ability to access capital. In any such case, our
business, operating results or financial condition could be adversely impacted.
13
There is a possible risk of identifiable intangible asset impairment, which could reduce the value of our assets and reduce our net
income in the year in which the write-off occurs.
Our intangible assets could become impaired, which could reduce the value of our assets and reduce our net income in the
year in which the write-off occurs. We ascribe value to certain intangible assets which consist of customer lists and trade names
resulting from acquisitions. An impairment charge on intangible assets would be incurred in the event that the fair value of the
intangible assets are less than their current carrying values. We evaluate whether events have occurred that indicate all, or a portion,
of the carrying amount of intangible assets may no longer be recoverable. If this is the case, an impairment charge to earnings would
be necessary.
Legal and Regulatory Risks
We may be subject to intellectual property rights claims, which are costly to defend, could require payment of damages or licensing
fees, and/or could limit our ability to use certain technologies in the future.
Substantial litigation and threats of litigation regarding intellectual property rights exist in the display systems and electronics
industries. From time to time, third parties, including certain companies in the business of acquiring patents with the intention of
aggressively seeking licensing revenue from purported infringers, have asserted and may in the future assert patent and/or other
intellectual property rights to technologies that are important to our business. In any dispute involving products that we have sold, our
customers could also become the target of litigation. We are obligated in many instances to indemnify and defend our customers if the
products we sell are alleged to infringe any third party’s intellectual property rights. In some cases, depending on the nature of the
claim, we may be able to seek indemnification from our suppliers for our self and our customers against such claims, but there is no
assurance that we will be successful in obtaining such indemnification or that we are fully protected against such claims. Any
infringement claim brought against us, regardless of the duration, outcome or size of damage award, could result in substantial cost,
divert our management’s attention, be time consuming to defend, result in significant damage awards, cause product shipment delays,
or require us to enter into royalty or other licensing agreements. See Note 10, Risks and Uncertainties, of the notes to our consolidated
financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding specific legal matters
related to our patents.
Additionally, if an infringement claim is successful we may be required to pay damages or seek royalty or license
arrangements which may not be available on commercially reasonable terms. The payment of any such damages or royalties may
significantly increase our operating expenses and harm our operating results and financial condition. Also, royalty or license
arrangements may not be available at all. We may have to stop selling certain products or certain technologies, which could affect
our ability to compete effectively.
Potential lawsuits, with or without merit, may divert management’s attention, and we may incur significant expenses in our
defense. In addition, we may be required to pay damage awards or settlements, become subject to injunctions or other equitable
remedies, or determine to abandon certain lines of business, that may cause a material adverse effect on our results of operations,
financial position and cash flows.
We may incur substantial operational costs or be required to change our business practices to comply with data privacy and data
protection laws and regulations around the world.
We are subject to many privacy and data protection laws and regulations in various jurisdictions, which continue to evolve
rapidly. The EU’s General Data Protection Regulation (“GDPR”) includes operational requirements for companies that receive or
process personal data of residents of the European Union, including more robust documentation requirements for data protection
compliance programs. Specifically, the GDPR imposes numerous privacy-related requirements for companies operating in the EU,
including greater control for data subjects, increased data portability for EU consumers and data breach notification requirements.
Complying with the GDPR may cause us to incur substantial operational costs or require us to change our business practices
in ways that we cannot currently predict. Despite our efforts to bring our practices into compliance with the GDPR, we may not be
successful. Non-compliance could result in proceedings against us by governmental entities, customers, data subjects or others. Fines
of up to 20 million euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, may be
imposed for violations of certain of the GDPR’s requirements.
14
In addition, several other jurisdictions in the U.S. and around the world have enacted privacy laws or regulations similar to
GDPR. For instance, California enacted the California Consumer Privacy Act (“CCPA”), effective January 1, 2020 which gives
consumers many of the same rights as those available under GDPR. Several laws similar to the CCPA have been proposed in the
United States at both the federal and state level. The effects of, and costs incurred in connection with complying with, the GDPR, the
CCPA and other data privacy laws and regulations may be significant and may require us to modify our data processing practices and
policies and to incur substantial costs and expenses in an effort to comply. Any actual or perceived failures to comply with the GDPR,
the CCPA or other data privacy laws or regulations, or related contractual or other obligations, or any perceived privacy rights
violation, could lead to investigations, claims and proceedings by governmental entities and private parties, damages for contract
breach, and other significant costs, penalties and other liabilities, as well as harm to our reputation and market position.
Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt
practices, the violation of which could adversely affect our operations.
We are subject to applicable export control laws and regulations of the United States and other countries. United States laws
and regulations applicable to us include the Arms Export Control Act, the International Traffic in Arms Regulations (“ITAR”), the
Export Administration Regulations (“EAR”), anti-money laundering laws and regulations and the trade and trade sanctions laws and
regulations administered by the Office of the United States Trade Representative and the United States Department of the Treasury’s
Office of Foreign Assets Control. The import and export of our products are subject to international trade agreements, the
modification or repeal of which could impact our business. The U.S. government agencies responsible for administering EAR and
ITAR have significant discretion in the interpretation and enforcement of these regulations. Violations of these laws or regulations
could result in significant additional sanctions including fines, more onerous compliance requirements, more extensive debarments
from export privileges, loss of authorizations needed to conduct aspects of our international business and criminal penalties and may
harm our ability to enter contracts with customers who have contracts with the U.S. government. A violation of the laws or the
regulations enumerated above could materially adversely affect our business, reputation, financial condition and results of operations.
Ongoing changes to tariffs and trade relations may adversely affect our business.
Our international operations are subject to changing tariffs and developments in trade relations. The U.S. government has
made statements and taken certain actions that have led to, and may in the future lead to, further changes to U.S. and international
trade policies, including recently imposed tariffs affecting certain products exported by a number of U.S. trading partners, including
China. For example, during 2018, the U.S. and China each imposed new tariffs, and announced further proposed tariffs, on various
products imported from China and the U.S., respectively. Between July 2018 and September 2018, the Office of the United States
Trade Representative imposed tariffs of 10% and 25% on three product lists totaling approximately $250 billion in Chinese imports.
In May 2019, there was an announcement of the United States government’s imposition of a 25% tariff on a range of products
exported from China to the U.S. on or after May 10, 2019. These lists include some of our products.
Subsequently, in January 2020, the U.S. and China signed a “phase one” trade deal, accompanied by a U.S. decision to cancel
a plan to increase tariffs on an additional list of Chinese products and to reduce the tariffs imposed on May 13, 2019 from 15% to
7.5% effective February 14, 2020. Currently, the majority of tariff exclusions granted have expired and many of the additional tariffs
on Chinese origin goods remain, as do concerns over the stability of bilateral trade relations, particularly given the limited scope of the
phase one agreement.
It is possible that further tariffs may be imposed on imports of our products, including by other countries, or that our business
will be impacted by changing trade relations among countries. This may cause us to raise prices or make changes to our operations,
any of which could adversely impact demand for our products, our costs, customers, suppliers and/or the United States economy or
certain sectors thereof and, thus, to adversely impact our businesses and results of operations. Given the evolving nature of trade
relations, the impact on our operations and results is uncertain and could be significant. We can provide no assurance that any
strategies we implement to mitigate the impact of such tariffs or other trade actions will be successful. To the extent that our supply
chain, costs, sales or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition and
results of operations may be materially adversely affected.
Ownership Risks
A single stockholder has voting control over us.
As of July 25, 2022, Edward J. Richardson, our Chairman, Chief Executive Officer and President, beneficially owned
approximately 98% of the outstanding shares of our Class B common stock, representing approximately 63% of the voting power of
the outstanding common stock. This share ownership permits Mr. Richardson to exert control over the outcome of stockholder votes,
including votes concerning the election of directors, by-law amendments, possible mergers, corporate control contests and other
significant corporate transactions.
15
General Risk Factors
Failure to attract and retain key skilled personnel could hurt operations.
Our success depends to a large extent upon the continued services of key management personnel, particularly Mr.
Richardson. While we have employment contracts in place with several of our executive officers, we nevertheless cannot be assured
that we will retain our key employees and the loss of service of any of these officers or key management personnel could have a
material adverse effect on our business growth and operating results.
Our future success will require an ability to attract and retain qualified employees. Competition for such key personnel is
intense and we cannot be assured that we will be successful in attracting and retaining such personnel. We cannot make assurances
that key personnel will not depart in the future. Changes in the cost of providing employee benefits in order to attract and retain
personnel, including changes in health care costs, could lead to increased costs in any of our operations.
If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over
financial reporting, we may not be able to detect fraud or report our financial results accurately or timely.
An effective internal control environment is necessary for us to produce reliable financial reports and is an important part of
our effort to prevent financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our
internal controls over financial reporting. Based on these evaluations, we may conclude that enhancements, modifications or changes
to internal controls are necessary or desirable. While management evaluates the effectiveness of our internal controls on a regular
basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including
fraud, collusion, management override and failure in human judgment. In addition, control procedures are designed to reduce rather
than eliminate business risks.
If we fail to maintain an effective system of internal controls, or if management or our independent registered public
accounting firm discovers material weaknesses in our internal controls, we may be unable to produce reliable financial reports or
prevent fraud. In addition, we may be subject to sanctions or investigation by regulatory authorities, such as the Securities and
Exchange Commission or NASDAQ. Any such actions could result in an adverse reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements.
If we are deemed to be an investment company, we will be required to meet burdensome compliance requirements and restrictions
on our activities.
We have had significant cash and investments. If we are deemed to be an “investment company” as defined under the
Investment Company Act of 1940 (the “Investment Company Act”), the nature of our investments may be subject to various
restrictions. We do not believe that our principal activities subject us to the Investment Company Act. If we are deemed to be subject
to the Investment Company Act, compliance with required additional regulatory burdens would increase our operating expenses.
Evolving expectations around corporate responsibility practices, specifically related to environmental, social and governance
(“ESG”) matters, may expose us to reputational and other risks.
Investors, stockholders, customers, suppliers and other third parties are increasingly focusing on ESG and corporate social
responsibility endeavors and reporting. Certain institutional investors, investment funds, other influential investors, customers,
suppliers and other third parties are also increasingly focused on ESG practices. Companies that do not adapt to or comply with the
evolving investor or stakeholder expectations and standards, or which are perceived to have not responded appropriately, may suffer
from reputational damage and result in the business, financial condition and/or stock price of a company being materially and
adversely affected. Further, this increased focus on ESG issues may result in new regulations and/or third party requirements that
could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an
allegation or perception that the Company has not taken sufficient action in these areas could negatively harm our reputation.
Our stock price may be volatile.
Our stock price has fluctuated in the past and may experience declines in the future as a result of the volatile nature of the
stock market, developments in our business and/or factors outside of our control. Many factors may cause the market price for our
common stock to change, including: (i) our operating results as compared to investors’ expectations in any period, (ii) market
perceptions concerning our future earnings prospects, (iii) adverse changes in general market conditions or economic trends and (iv)
changes or events in our industry or the world, such as market reactions to public health issues (including the COVID-19 pandemic),
16
natural disasters, changes in global, national, or regional economies, inflation, governmental policies, political unrest, military action
and armed conflicts (such as the 2022 Russian invasion of Ukraine), terrorist activities, political and social turmoil, civil unrest and
other crises.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
The Company owns one facility and leases 26 facilities. We own our corporate facility and largest distribution center, which
is located on approximately 100 acres in LaFox, Illinois and consists of approximately 224,000 square feet of manufacturing,
warehouse and office space. We maintain geographically diverse facilities because we believe this provides value to our customers
and suppliers, and limits market risk and exchange rate exposure. We believe our properties are well maintained and adequate for our
present needs. The extent of utilization varies from property to property and from time to time during the year.
Our facility locations, their primary use and segments served are as follows:
Location
Woodland Hills, California
LaFox, Illinois *
Marlborough, Massachusetts
Fort Mill, South Carolina
Murray, Utah
Sao Paulo, Brazil
Beijing, China
Nanjing, China
Shanghai, China
Shenzhen, China
Brive, France
Paris, France
Donaueschingen, Germany
Puchheim, Germany
Mumbai, India
Florence, Italy
Milan, Italy
Tokyo, Japan
Mexico City, Mexico
Amsterdam, Netherlands
Singapore, Singapore
Gyeonggi-do, South Korea
Taipei, Taiwan
Bangkok, Thailand
Dubai, United Arab Emirates
Hook, United Kingdom
Lincoln, United Kingdom
Leased/Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Use
Sales
Corporate/Sales/Distribution/Manufacturing
Sales/Distribution/Manufacturing
Sales/Distribution/Testing/Repair
Sales/Testing/Repair
Sales/Distribution
Sales
Sales
Sales/Distribution
Sales
Manufacturing Support/Testing
Sales
Sales/Distribution/Manufacturing
Sales
Sales
Sales
Sales
Sales
Sales
Sales/Distribution/Manufacturing
Sales/Distribution
Sales
Sales
Sales/Distribution
Sales/Testing
Sales/Distribution/Testing/Repair
Sales
*
LaFox, Illinois is also the location of our corporate headquarters.
ITEM 3. Legal Proceedings
Segment
PMT
PMT/Canvys/Healthcare
Canvys
Healthcare
Healthcare
PMT
PMT
PMT
PMT
PMT
PMT
PMT
Canvys
PMT
PMT
PMT
PMT
PMT
PMT
PMT/Healthcare
PMT
PMT
PMT/Canvys
PMT
PMT
PMT
PMT/Canvys
On April 2, 2021, as part of a settlement where the Company did not admit liability, Richardson agreed to pay Varex Imaging
Corporation (“Varex”) $1.6 million to settle alleged counts of patent infringement and claims of trade secret misappropriation. This
settlement was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income
for the third quarter of fiscal 2021.
17
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
PART II
Unregistered Sales of Equity Securities
None.
Share Repurchases
There were no share repurchases in fiscal 2022.
Dividends
Our quarterly dividend was $0.06 per common share and $0.054 per Class B common share. Annual dividend payments were
approximately $3.2 million for fiscal 2022 and $3.1 million for fiscal 2021. All future payments of dividends are at the discretion of
the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions and such other factors
that the Board may deem relevant.
Common Stock Information
Our common stock is traded on the NASDAQ Global Select Market (“NASDAQ”) under the trading symbol (“RELL”).
There is no established public trading market for our Class B common stock. As of July 25, 2022, there were approximately 437
stockholders of record for the common stock and approximately 14 stockholders of record for the Class B common stock.
18
Performance Graph
The following graph compares the performance of our common stock for the periods indicated with the performance of the
NASDAQ Composite Index and NASDAQ Electronic Components Index. The graph assumes $100 invested on the last day of our
fiscal year 2017, in our common stock, the NASDAQ Composite Index and NASDAQ Electronic Components Index. Total return
indices reflect reinvestment of dividends at the closing stock prices at the date of the dividend declaration.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Richardson Electronics, Ltd., the NASDAQ Composite Index
and the NASDAQ Electronic Components Index
$300
$250
$200
$150
$100
$50
$0
5/27/17
6/2/18
6/1/19
5/30/20
5/29/21
5/28/22
Richardson Electronics, Ltd.
NASDAQ Composite
NASDAQ Electronic Components
*$100 invested on 5/27/17 in stock or 5/31/17 in index, including reinvestment of dividends.
Indexes calculated on month-end basis.
COM PARI SON OF 5 YEAR CUMU LATIVE TOTAL RETURN * Amon g Richardson Electronics, Ltd., the NASDAQ Co mposite Index and the NA SDAQ Electronic Comp onents Index $250 $2 00 $15 0 $100 $50 $0 5/30 /15 5/28/16 5/27 /17 6 /2/18 6/1/19 5/3 0/20 Richardson E lectronics, Ltd. NASDA Q Compos ite NASDAQ Electronic Componen ts *$1 00 in vested on 5 /30/1 5 in stock or 5/31/15 in index, inclu ding reinves tment of dividends. Indexes calculated on mon th-end basis.
19
ITEM 6. Selected Financial Data
Five-Year Financial Review
This information should be read in conjunction with our consolidated financial statements, accompanying notes and
Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
Fiscal Year Ended (1)
(in thousands, except per share amounts)
May 30,
2020
May 29,
2021
June 1,
2019
June 2,
2018
May 28,
2022
Statements of Income (Loss)
Net sales
Continuing Operations
$ 224,620 $ 176,937 $ 155,898 $ 166,652 $ 163,212
Income (loss) from continuing operations before tax
Income tax (benefit) provision
$
15,759 $
(2,168 )
17,927
2,308 $
653
1,655
(1,214 ) $
624
(1,838 )
(6,311 ) $
1,017
(7,328 )
3,860
1,534
2,326
Income (loss) from continuing operations
Discontinued Operations
Income from discontinued operations
Net income (loss)
Per Share Data
Net income (loss) per Common share - Basic:
Income (loss) from continuing operations
Income from discontinued operations
Total net income (loss) per Common share - Basic
Net income (loss) per Class B common share - Basic:
Income (loss) from continuing operations
Income from discontinued operations
Total net income (loss) per Class B common
share - Basic
Net income (loss) per Common share - Diluted:
Income (loss) from continuing operations
Income from discontinued operations
Total net income (loss) per Common share - Diluted
Net income (loss) per Class B common share - Diluted:
Income (loss) from continuing operations
Income from discontinued operations
Total net income (loss) per Class B common
share - Diluted
Cash Dividend Data
Dividends per common share
Dividends per Class B common share (2)
Balance Sheet Data
Total assets
Stockholders’ equity
—
17,927 $
—
1,655 $
—
(1,838 ) $
—
(7,328 ) $
1,496
3,822
$
$
$
$
$
$
$
$
1.35 $
—
1.35 $
0.13 $
—
0.13 $
(0.14 ) $
—
(0.14 ) $
(0.57 ) $
—
(0.57 ) $
1.21 $
—
0.11 $
—
(0.13 ) $
—
(0.51 ) $
—
0.18
0.12
0.30
0.16
0.11
1.21 $
0.11 $
(0.13 ) $
(0.51 ) $
0.27
1.31 $
—
1.31 $
0.13 $
—
0.13 $
(0.14 ) $
—
(0.14 ) $
(0.57 ) $
—
(0.57 ) $
1.18 $
—
0.11 $
—
(0.13 ) $
—
(0.51 ) $
—
0.18
0.12
0.30
0.16
0.11
$
1.18 $
0.11 $
(0.13 ) $
(0.51 ) $
0.27
$
0.24 $
0.22
0.24 $
0.22
0.24 $
0.22
0.24 $
0.22
0.24
0.22
$ 179,819 $ 156,753 $ 150,720 $ 153,017 $ 166,329
135,181
118,660
121,560
123,757
135,847
(1) Our fiscal year ends on the Saturday nearest the end of May. Each of the fiscal years presented contain 52/53 weeks.
(2) The dividend per Class B common share is 90% of the dividend per Class A common share.
20
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and related notes.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist
the reader in better understanding our business, results of operations, financial condition, changes in financial condition, critical
accounting policies and estimates and significant developments. MD&A is provided as a supplement to, and should be read in
conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section
is organized as follows:
•
•
•
Business Overview
Results of Operations - an analysis and comparison of our consolidated results of operations for the fiscal years ended
May 28, 2022, May 29, 2021 and May 30, 2020, as reflected in our consolidated statements of comprehensive income
(loss).
Liquidity, Financial Position and Capital Resources - a discussion of our primary sources and uses of cash for the
fiscal years ended May 28, 2022, May 29, 2021 and May 30, 2020, and a discussion of changes in our financial
position.
Business Overview
Richardson Electronics, Ltd. is a leading global manufacturer of engineered solutions, power grid and microwave tubes, and
related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes, and service training
for diagnostic imaging equipment; and customized display solutions. More than 60% of our products are manufactured in LaFox,
Illinois, Marlborough, Massachusetts, or Donaueschingen, Germany, or by one of our manufacturing partners throughout the
world. All our partners manufacture to our strict specifications and per our supplier code of conduct. 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.
Some of the Company's products are manufactured in China and are imported into the United States. The Office of the
United States Trade Representative ("USTR") instituted additional 10% to 25% tariffs on the importation of a number of products into
the United States from China effective July 6, 2018, with additional products added August 23, 2018 and September 24, 2018. These
additional tariffs are a response to what the USTR considers to be certain unfair trade practices by China. A number of the Company's
products manufactured in China are now subject to these additional duties of 25% when imported into the United States.
Management continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our
customers’ markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the
higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.
We have three operating and reportable segments. Starting with our first quarter earnings release in October for fiscal 2023,
we will introduce our new Green Energy Solutions (“GES”) segment. This segment is carved out of our existing PMT segment as we
continue to focus on power management applications that support the green energy market globally. Accordingly, in the first quarter
of fiscal 2023, we will begin reporting on four segments.
The three operating and reportable segments for fiscal 2022, fiscal 2021 and fiscal 2020 are defined as follows:
Power and Microwave Technologies (“PMT”) combines our core engineered solutions capabilities, power grid and
microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner
and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core
engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems
integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our
existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative
energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses
on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high
energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers
technical services for both microwave and industrial equipment.
21
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical
original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to
match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens,
protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages
and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for
companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded
hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare
market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor
service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes;
CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector
upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging
service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we
believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.
We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin
America.
Results of Operations
Overview - Fiscal Year Ended May 28, 2022
•
•
•
•
•
•
•
Fiscal 2022 and fiscal 2021 both contained 52 weeks.
Net sales during fiscal 2022 were $224.6 million, up 26.9%, compared to net sales of $176.9 million during fiscal
2021.
Gross margin was 31.9% of net sales during fiscal 2022, compared to 33.2% of net sales during fiscal 2021.
Selling, general and administrative expenses were $55.7 million, or 24.8% of net sales, during fiscal 2022, compared to
$55.9 million, or 31.6% of net sales, during fiscal 2021.
Operating income during fiscal 2022 was $16.0 million, compared to an operating income of $2.9 million during fiscal
2021.
Other expense during fiscal 2022 was $0.2 million, compared to other expense of $0.6 million during fiscal 2021.
Net income during fiscal 2022 was $17.9 million, compared to a net income of $1.7 million during fiscal 2021.
Net Sales and Gross Profit Analysis
Net sales by segment and percent change for fiscal 2022, fiscal 2021 and fiscal 2020 were as follows (in thousands):
Net Sales
PMT
Canvys
Healthcare
Total
FY 2022 FY 2021 FY 2020
$ 178,056 $ 137,280 $ 118,480
28,926
8,492
$ 224,620 $ 176,937 $ 155,898
35,187
11,377
29,319
10,338
FY22 vs. FY21
% Change
FY21 vs. FY20
% Change
29.7 %
20.0 %
10.1 %
26.9 %
15.9 %
1.4 %
21.7 %
13.5 %
During fiscal 2022, consolidated net sales increased by 26.9% compared to fiscal 2021. Sales for PMT increased by 29.7%,
Canvys sales increased by 20.0% and Healthcare sales increased by 10.1%. The increase in PMT was mainly due to strong growth
from our Power and Microwave Group (PMG) new technology partners in various applications including power management, green
energy, and 5G infrastructure, and increased revenue from our Semiconductor Wafer Fabrication Equipment customers buying
engineered solutions. We also had growth in various Electron Device (EDG) product lines. The increase in Canvys was primarily due
to strong sales in the European and North American markets. The increase in Healthcare was primarily due to strong part sales and
increase in demand for the ALTA750TM tubes.
22
During fiscal 2021, consolidated net sales increased by 13.5% compared to fiscal 2020. Sales for PMT increased by 15.9%,
Canvys sales increased by 1.4% and Healthcare sales increased by 21.7%.
Gross profit by segment and percent of segment net sales for fiscal 2022, fiscal 2021 and fiscal 2020 were as follows (in
thousands):
Gross Profit
PMT
Canvys
Healthcare
Total
FY 2022
FY 2021
FY 2020
$ 58,041
11,252
2,407
$ 71,700
32.6 % $ 45,951
32.0 % 10,274
21.2 %
2,600
31.9 % $ 58,825
33.5 % $ 38,288
9,313
35.0 %
25.1 %
2,072
33.2 % $ 49,673
32.3 %
32.2 %
24.4 %
31.9 %
Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence
charges, customer returns, scrap and cycle count adjustments, engineering costs and other provisions.
Consolidated gross profit was $71.7 million during fiscal 2022, compared to $58.8 million during fiscal 2021. Consolidated
gross margin as a percentage of net sales decreased to 31.9% during fiscal 2022, from 33.2% during fiscal 2021, primarily due to
PMT’s product mix, higher freight costs and foreign exchange effects in Canvys and increased component scrap expenses in
Healthcare. Gross margin during fiscal 2022 included expense related to inventory provisions for PMT of $0.4 million and $0.1
million for Healthcare.
Consolidated gross profit was $58.8 million during fiscal 2021, compared to $49.7 million during fiscal 2020. Consolidated
gross margin as a percentage of net sales increased to 33.2% during fiscal 2021, from 31.9% during fiscal 2020, primarily due to
improved product mix in all business units. Gross margin during fiscal 2021 included expense related to inventory provisions for PMT
of $0.6 million, $0.1 million for Canvys and $0.4 million for Healthcare.
Power and Microwave Technologies
Net sales for PMT increased 29.7% to $178.1 million during fiscal 2022 from $137.3 million during fiscal 2021. The
increase was mainly due to strong growth from our Power and Microwave Group (PMG) technology partners in various applications
including power management, green energy, and 5G infrastructure, and increased revenue from our Semiconductor Wafer Fabrication
Equipment customers buying engineered solutions. We also had strong growth in various Electron Device (EDG) product lines. Gross
margin as a percentage of net sales decreased to 32.6% during fiscal 2022 as compared to 33.5% during fiscal 2021, primarily due to
product mix.
Net sales for PMT increased 15.9% to $137.3 million during fiscal 2021, from $118.5 million during fiscal 2020. This
increase was due to strong growth in 5G and power management applications in our Power and Microwave Group (PMG). In addition,
sales in the Semiconductor wafer fab market grew significantly due to strong demand along with year over year growth in our MRO
Electron Devices products. Gross margin as a percentage of net sales increased to 33.5% during fiscal 2021 as compared to 32.3%
during fiscal 2020, primarily due to improved product mix and manufacturing efficiencies.
Canvys – Visual Technology Solutions
Net sales for Canvys increased 20.0% to $35.2 million during fiscal 2022, from $29.3 million during fiscal 2021. Sales
increased primarily due to strong sales in the European and North American markets. Gross margin as a percentage of net sales
decreased to 32.0% during fiscal 2022 as compared to 35.0% during fiscal 2021 mainly due to increasing freight costs resulting from
the COVID-19 pandemic and foreign currency effects.
Net sales for Canvys increased 1.4% to $29.3 million during fiscal 2021, from $28.9 million during fiscal 2020. Sales
increased due to the addition of new customers and programs as well as increased customer demand in North America. The growth
in North America was partially offset by lower customer demand in Europe due to the impact from the COVID-19 pandemic. Gross
margin as a percentage of net sales increased to 35.0% during fiscal 2021 as compared to 32.2% during fiscal 2020, primarily due to
product mix and foreign currency effects.
Healthcare
Net sales for Healthcare increased 10.1% to $11.4 million during fiscal 2022, from $10.3 million during fiscal 2021. The
increase in sales was primarily due to strong parts sales and an increase in demand for the ALTA 750DTM tubes. Gross margin as a
percentage of net sales was 21.2% during fiscal 2022, compared to 25.1% during fiscal 2021. The decrease is primarily due to
increased component scrap expenses.
23
Net sales for Healthcare increased 21.7% to $10.3 million during fiscal 2021, from $8.5 million during fiscal 2020. The
increase in sales was primarily due to a significant increase in demand for the ALTA 750DTM tubes. Gross margin as a percentage of
net sales was 25.1% during fiscal 2021, compared to 24.4% during fiscal 2020. This increase was primarily due to improved
equipment margins as a result of installing ALTA 750DTM tubes in the equipment, offset by under absorbed manufacturing expenses.
Sales by Geographic Area
On a geographic basis, our sales are categorized by destination: North America; Asia/Pacific; Europe; Latin America; and
Other.
Net sales by geographic area and percent change for fiscal 2022, fiscal 2021 and fiscal 2020 were as follows (in thousands):
Net Sales
North America
Asia/Pacific
Europe
Latin America
Other (1)
Total
FY 2022 FY 2021 FY 2020
$ 98,527 $ 73,625 $ 65,259
32,979
49,394
8,308
(42 )
$ 224,620 $ 176,937 $ 155,898
49,235
64,435
12,439
(16 )
40,839
52,549
9,651
273
FY22 vs. FY21
% Change
FY21 vs. FY20
% Change
33.8 %
20.6 %
22.6 %
28.9 %
(105.9 %)
26.9 %
12.8 %
23.8 %
6.4 %
16.2 %
750.0 %
13.5 %
Gross profit by geographic area and percent of geographic net sales for fiscal 2022, fiscal 2021 and fiscal 2020 were as
follows (in thousands):
Gross Profit (Loss)
North America
Asia/Pacific
Europe
Latin America
Other (1)
Total
FY 2022
FY 2021
FY 2020
% of Net
Sales
% of Net
Sales
% of Net
Sales
Amount
$ 36,548
15,728
19,215
4,340
(4,131 )
$ 71,700
Amount
37.1 % $ 28,639
31.9 % 13,520
29.8 % 16,958
3,405
34.9 %
(3,697 )
31.9 % $ 58,825
Amount
38.9 % $ 24,494
33.1 % 10,629
32.3 % 15,483
2,804
35.3 %
(3,737 )
33.2 % $ 49,673
37.5 %
32.2 %
31.3 %
33.8 %
31.9 %
(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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) decreased during fiscal 2022 to $55.7 million from $55.9 million
during fiscal 2021. However, when considering the non-recurrence of the $1.6 million legal settlement in fiscal 2021, the SG&A
expense for fiscal 2022 was $1.4 million or 2.6% higher than fiscal 2021. This increase in SG&A expense from fiscal 2021 was
mainly due to higher employee compensation expenses including incentive expense, partially offset by lower legal fees. SG&A as a
percentage of sales decreased to 24.8% during fiscal 2022 as compared to 31.6% during fiscal 2021.
Selling, general and administrative expenses increased during fiscal 2021 to $55.9 million from $51.3 million during fiscal
2020. This increase included the $1.6 million legal settlement which is discussed in the following section. In addition to the $1.6
million legal settlement, SG&A expenses increased due to higher employee compensation expenses and higher legal fees, partially
offset by lower travel and consulting expenses. SG&A as a percentage of sales decreased to 31.6% during fiscal 2021 as compared
to 32.9% during fiscal 2020.
24
Legal Settlement – Fiscal 2021
On April 2, 2021, as part of a settlement where the Company did not admit liability, Richardson agreed to pay Varex Imaging
Corporation (“Varex”) $1.6 million to settle alleged counts of patent infringement and claims of trade secret misappropriation. This
settlement was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income
for the third quarter of fiscal 2021.
Other Income/Expense
Other income/expense was an expense of $0.2 million during fiscal 2022, compared to an expense of $0.6 million during
fiscal 2021. Fiscal 2022 had $0.1 million of investment income compared to $0.1 million of investment income for fiscal 2021. Our
foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. The foreign exchange
loss reported for fiscal 2022 totaled $0.3 million, compared to a $0.8 million loss for fiscal 2021. We currently do not utilize
derivative instruments to manage our exposure to foreign currency.
Income Tax Provision
Our income tax (benefit) provision during fiscal 2022, fiscal 2021 and fiscal 2020 was ($2.2 million), $0.7 million and
$0.6 million, respectively. The effective income tax rates during fiscal 2022, fiscal 2021 and fiscal 2020 were (13.7%), 28.3% and
(51.4%), respectively. The difference between the effective income tax rates as compared to the U.S. federal statutory rate of 21.0%
during fiscal 2022, fiscal 2021 and fiscal 2020 was primarily driven by the impact of valuation allowance changes related to the
realizability of our U.S. state and federal net deferred tax assets and changes in our geographical distribution of income (loss).
On December 22, 2017, the U.S. government enacted new tax legislation, Tax Cuts and Jobs Act (the “Act”). The Company
was subject to requirements of the Act beginning in fiscal 2019. Provisions include an income inclusion for global intangible low-
taxed income (“GILTI”), a tax determined by base erosion and anti-avoidance tax (“BEAT”) related to certain payments between a
U.S. corporation and foreign related entities, a limitation of certain executive compensation and a deduction for foreign derived
intangible income. The Company has determined its accounting policy to treat the taxes due on GILTI as a period cost. The Company
is not subject to the BEAT provision due to the revenue thresholds.
As of May 28, 2022, we have utilized all net deferred tax assets related to federal net operating loss (“NOL”) carryforwards,
compared to $3.0 million as of May 29, 2021. Net deferred tax assets related to domestic state NOL carryforwards at May 28, 2022
amounted to approximately $2.4 million, compared to $3.9 million at May 29, 2021. Net deferred tax assets related to foreign NOL
carryforwards as of May 28, 2022 totaled approximately $0.4 million with various or indefinite expiration dates. The amount of net
deferred tax assets related to foreign NOL carryforwards was $0.4 million as of May 29, 2021. We also had a domestic net deferred
tax asset of $1.8 million of foreign tax credit carryforwards as of both May 28, 2022 and May 29, 2021.
We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will
be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend
distributions. The deferred tax liability related to undistributed earnings of our foreign subsidiaries was less than $0.1 million in both
fiscal 2022 and fiscal 2021.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be
generated to support a more likely than not assertion that its deferred tax assets will be realized. A significant component of objective
evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 28, 2022.
We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the subpart F and
GILTI inclusions of our foreign earnings, the changes in our business performance in recent years, and the utilization of federal NOLs.
The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance
in the U.S. federal jurisdiction. As a result of the positive evidence outweighing the negative evidence for the year ended May 28,
2022, we have released the full valuation allowance on the U.S. federal and state deferred tax items. In addition, we partially released
the valuation allowance on the state NOL deferred tax item, based on the amount of the NOLs that management believes it is more
likely than not to realize. We have maintained a full valuation allowance against the foreign tax credit deferred tax asset based on
negative evidence relating to the Company’s ability to utilize the foreign tax credit carryforward in the future.
As of May 28, 2022, a valuation allowance of $3.5 million was recorded, representing the portion of the deferred tax asset
that management does not believe is more likely than not to be realized. The valuation allowance as of May 29, 2021 was $12.2
million. The remaining valuation allowance relates to foreign tax credits ($1.8 million), state NOLs ($0.2 million) and deferred tax
assets in foreign jurisdictions where historical taxable losses have been incurred ($1.5 million). 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.
25
Income taxes paid, including foreign estimated tax payments, were $1.5 million, $0.1 million and $1.0 million, during fiscal
2022, fiscal 2021 and fiscal 2020, respectively.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years
prior to fiscal 2016 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 currently under examination in Germany for fiscal 2015 through fiscal 2018. This audit is expected to be closed
in the first quarter of fiscal 2023. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in
Germany beginning in fiscal 2019 and the Netherlands beginning in fiscal 2018.
The uncertain tax positions as of both May 28, 2022 and May 29, 2021 were $0.1 million. We record penalties and interest
related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income
(Loss). Accrued interest and penalties were included within the related tax liability line in the Consolidated Balance Sheets. We have
not recorded a liability for interest and penalties as of May 28, 2022 or May 29, 2021.
Liquidity, Financial Position and Capital Resources
Our operations and cash needs have been primarily financed through income from operations and cash on hand.
Cash, cash equivalents and investments were $40.5 million at May 28, 2022. Cash, cash equivalents and investments by
geographic area at May 28, 2022 consisted of $25.7 million in North America, $6.0 million in Europe, $1.5 million in Latin America
and $7.3 million in Asia/Pacific. We repatriated a total of $1.5 million to the United States in fiscal 2022 from our foreign entities.
This amount includes $0.7 million in the first quarter from our entity in China, $0.3 million in the second quarter from our entity in
Taiwan and $0.5 million in the third quarter from our entity in Japan. Although the Tax Cuts and Jobs Act generally eliminated federal
income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or
similar taxes. See Note 7, Income Taxes, of the notes to our consolidated financial statements in Part II, Item 8 of this Annual Report
on Form 10-K for further information.
Cash and cash equivalents were $43.3 million at May 29, 2021. Cash and cash equivalents by geographic area at May 29,
2021 consisted of $26.1 million in North America, $8.8 million in Europe, $1.2 million in Latin America and $7.2 million in
Asia/Pacific. We repatriated a total of $0.9 million to the United States in fiscal 2021 from several of our foreign entities. This
amount includes $0.7 million from our entities in Italy and South Korea in the third quarter of fiscal 2021 and $0.2 million from our
entity in France in the fourth quarter of fiscal 2021.
The Company continues to monitor the impact of COVID-19, including the extent, duration and effectiveness of
containment actions taken, the speed and extent of vaccination programs, the impact of the pandemic on its supply chain,
manufacturing and distribution operations, customers and employees, as well as the U.S. economy in general. However, due to the
uncertain and constantly evolving impacts of the COVID-19 pandemic across the globe, the Company cannot currently predict the
long-term impact on its operations and financial results. The uncertainties associated with the COVID-19 pandemic and its effects
include potential adverse effects on the overall economy, the Company’s supply chain, transportation services, employees and
customers. The COVID-19 pandemic and its effects could adversely affect the Company’s revenues, earnings, liquidity and cash
flows and may require significant actions in response, including expense reductions. Conditions surrounding COVID-19 change
rapidly and additional impacts of which the Company is not currently aware may arise. Based on past performance and current
expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known
capital requirements and working capital needs through the next twelve months. Additionally, while our future capital requirements
will depend on many factors, including, but not limited to, the economy and the outlook for growth in our markets, we believe our
existing sources of liquidity as well as our ability to generate operating cash flows will satisfy our future obligations and cash
requirements.
Cash Flows from Operating Activities
Cash flow from operating activities primarily resulted from our net income adjusted for non-cash items and changes in our
operating assets and liabilities.
Operating activities provided $1.9 million of cash during fiscal 2022. We had net income of $17.9 million during fiscal 2022,
which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option awards and
restricted stock awards, $0.5 million of inventory provisions, and depreciation and amortization expense of $3.4 million associated
with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities
resulted in a use of cash of $16.5 million during fiscal 2022, primarily due to the increase in inventories of $20.6 million, an increase
in accounts receivable of $6.2 million and an increase in prepaid expenses of $0.2 million. These uses of cash were partially offset by
the increase in our accounts payable and accrued liabilities of $10.1 million. The majority of the inventory increase was to support our
26
manufacturing, Canvys and PMG businesses. The increase in accounts receivable was primarily due to the sales increase in fiscal
2022. The increase in our accounts payable was due to higher inventory levels to support sales growth, and the increase in accrued
liabilities was due to the higher employee compensation expenses and payroll taxes as well as increased deferred revenue.
Operating activities provided $0.8 million of cash during fiscal 2021. We had net income of $1.7 million during fiscal 2021,
which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option awards and
restricted stock awards, $1.0 million of inventory provisions and depreciation and amortization expense of $3.4 million associated
with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities
resulted in a use of cash of $6.0 million during fiscal 2021, primarily due to the increase in inventories of $4.9 million, an increase in
accounts receivable of $4.2 million and a decrease in accounts payable of $0.6 million. These uses of cash were partially offset by the
increase in our accrued liabilities of $3.6 million and the decrease in prepaid expenses and other assets of $0.1 million. The majority
of the inventory increase was to support our electron tube and PMG businesses. The increase in accounts receivable was primarily
due to the sales increase in fiscal 2021. The decrease in our accounts payable was due to timing of payments for some of our larger
vendors for both inventory and services and the increase in accrued liabilities was due to the timing of employee compensation and
payroll tax payments, as well as increased deferred revenue.
Cash Flows from Investing Activities
The cash flow from investing activities consisted primarily of purchases and maturities of investments and capital
expenditures.
Cash used by investing activities of $8.1 million during fiscal 2022 was mainly attributed to the $5.0 million purchase of a
Certificate of Deposit (CD) and $3.1 million in capital expenditures. Capital expenditures were primarily related to our manufacturing,
Healthcare business and IT systems.
Cash provided by investing activities of $13.4 million during fiscal 2021 included the proceeds from the maturities of
investments of $25.0 million, partially offset by purchases of investments of $9.0 million and $2.6 million in capital expenditures.
Capital expenditures were primarily related to our Healthcare business and IT systems.
Our purchases and proceeds from investments consist of time deposits and CDs. Purchasing of future investments may vary
from period to period due to interest and foreign currency exchange rates.
Cash Flows from Financing Activities
The cash flow from financing activities primarily consists of cash dividends paid.
Cash used in financing activities of $0.4 million during fiscal 2022 resulted primarily from the $3.2 million used to pay
dividends to shareholders, partially offset by proceeds from the issuance of common stock from stock option exercises.
Cash used in financing activities of $3.0 million during fiscal 2021 resulted primarily from cash used to pay dividends,
partially offset by proceeds from the issuance of common stock from stock option exercises.
All future payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings,
capital requirements, operating conditions and such other factors that the Board may deem relevant.
Contractual Obligations
Contractual obligations are presented in the table below as of May 28, 2022 (in thousands):
Lease obligations (1)
$
Less than
1 year
1,244
1 - 3
years
4 - 5
years
More than
5 years Less Interest Total
1,870
75
17
(182 ) $
3,024
(1) Lease obligations are related to certain warehouse and office facilities under non-cancelable operating leases as well as
financing leases.
27
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles
(“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, 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.
The policies discussed below are considered by management to be critical to understanding our financial position and the
results of operations. Their application involves significant judgments and estimates in preparation of our consolidated financial
statements. For all of these policies, management cautions that future events rarely develop exactly as forecasted, and the best
estimates routinely require adjustment.
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; and collectability and delinquency
history by geographic area. 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 $0.2 million as of May 28,
2022 and $0.2 million as of May 29, 2021.
Revenue Recognition
Our customers are generally not resellers, but rather businesses that incorporate our products into their processes from which
they generate an economic benefit. The goods are also distinct in that each item sold to the customer is clearly identified on both the
purchase order and resulting invoice. Each product we sell benefits the customer independently of the other products. Each item on
each purchase order from the customer can be used by the customer unrelated to any other products we provide to the customer.
The Company’s revenue includes the following streams:
• Distribution
• Manufacturing/assembly
• Services revenue
Distribution typically includes products purchased from our suppliers, stocked in our warehouses and then sold to our
customers. The distribution business does not include a separate service bundled with the product sold or sold on top of the product.
Revenue is recognized when control of the promised goods is transferred to our customers, which is simultaneous with the title
transferring to the customer, in an amount that reflects the transaction price consideration that we expect to receive in exchange for
those goods. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits
from the goods. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. Generally,
our contracts require our customers to pay for goods after we deliver products to them. Terms are generally on open account, payable
net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America subject to customary credit checks.
Manufacturing/assembly typically includes the products that are manufactured or assembled in our manufacturing facility.
These products can either be built to the customer’s prints/designs or are products that we stock in our warehouse to sell to any
customer that places an order. The manufacturing business does not include a separate service bundled with the product sold or sold
in addition to the product. Our contracts for customized products generally include termination provisions if a customer cancels its
order. However, we recognize revenue at a point in time because the termination provisions normally do not require, upon cancelation,
the customer to pay fees that are commensurate with the work performed. Each purchase order explicitly states the goods or service
that we promise to transfer to the customer. The promises to the customer are limited only to those goods or service. The performance
obligation is our promise to deliver both goods that were produced by the Company and resale of goods that we purchase from our
suppliers. Our shipping and handling activities for destination shipments are performed prior to the customer obtaining control. As
such, they are not a separate promised service. The Company elects to account for shipping and handling as activities to fulfill the
promise to transfer the goods. The goods we provide to our customers are distinct in that our customers benefit from the goods we sell
them through use in their own processes.
Repair, installation or training activities generate services revenue. The services we provide are relatively short in duration
and typically completed in one or two weeks. Therefore, at each reporting date, the amount of unbilled work is insignificant. The
services revenue has consistently accounted for less than 5% of the Company’s total revenues and is expected to continue at that level.
28
We record discounts taken based on historical experience. The policy varies by business unit. The Company allows returns
with prior written authorization.
Inventories, net
Our consolidated inventories are stated at the lower of cost and net realizable value, generally using a weighted-average cost
method. Our net inventories include approximately $66.6 million of finished goods, $8.0 million of raw materials and $5.8 million of
work-in-progress as of May 28, 2022 as compared to approximately $57.0 million of finished goods, $3.9 million of raw materials and
$2.6 million of work-in-progress as of May 29, 2021. The inventory reserve as of May 28, 2022 was $6.1 million compared to $5.9
million as of May 29, 2021.
At this time, we do not anticipate any material risks or uncertainties related to possible future inventory write-downs.
Provisions for obsolete or slow-moving inventories are recorded based upon regular analysis of stock rotation privileges,
obsolescence, the exiting of certain markets and assumptions about future demand and market conditions. If future demand changes in
an 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, $1.0 million and $1.0 million during fiscal 2022, fiscal
2021 and fiscal 2020, respectively, which were included in cost of sales. The provisions were primarily for obsolete and slow-moving
parts. The parts were written down to estimated realizable value.
Intangible and Long-Lived Assets
Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if
available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives either on
a straight-line basis or over their projected future cash flows and are tested for impairment when events or changes in circumstances
occur that indicate possible impairment. Our intangible assets represent the fair value for trade name, customer relationships, non-
compete agreements and technology acquired in connection with the acquisitions.
We review property and equipment, definite-lived intangible assets and other long-lived assets for impairment whenever
adverse events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.
If adverse events do occur, our impairment review is based on an undiscounted cash flow analysis at the lowest level at which
cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities. This analysis requires
management judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and
expense growth rates. We conduct annual reviews for idle and underutilized equipment and review business plans for possible
impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be
earned by the use of the asset or asset group. When impairment is indicated, the estimated future cash flows are then discounted to
determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the
carrying value and the estimated fair value.
Additionally, we also evaluate the remaining useful life each reporting period to determine whether events and circumstances
warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long-lived asset’s remaining useful life
is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining useful life.
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.
29
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.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. ASU 2016-13 (as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU
2019-11 and 2020-02) introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types
of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate
considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the
disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for
estimating expected credit losses. The new standard is effective for smaller reporting companies for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company is currently in the process of
evaluating the impact of adoption on its consolidated financial statements.
30
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Risk Management and Market Sensitive Financial Instruments
We are exposed to many different market risks with the various industries we serve. The primary financial risk we are
exposed to is foreign currency exchange, as certain operations, assets and liabilities of ours are denominated in foreign currencies. We
manage these risks through normal operating and financing activities.
Foreign Currency Exposure
Even though we take into account current foreign currency exchange rates at the time an order is taken, our financial
statements, denominated in a non-U.S. functional currency, are subject to foreign exchange rate fluctuations.
Our foreign denominated assets and liabilities are cash and cash equivalents, accounts receivable, inventory, accounts
payable and intercompany receivables and payables, as we conduct business in countries of the European Union, Asia/Pacific and,
to a lesser extent, Canada and Latin America. We do manage foreign exchange exposures by using currency clauses in certain sales
contracts and we also have local debt to offset asset exposures. We have not used any derivative instruments nor entered into any
forward contracts in fiscal 2022, fiscal 2021 or fiscal 2020.
Had the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net sales would
have been lower by an estimated $12.1 million during fiscal 2022, an estimated $10.0 million during fiscal 2021 and an estimated
$9.3 million during fiscal 2020. Total assets would have declined by an estimated $4.2 million as of the fiscal year ended May 28,
2022 and an estimated $4.2 million as of the fiscal year ended May 29, 2021, while the total liabilities would have decreased by an
estimated $1.0 million as of the fiscal year ended May 28, 2022 and an estimated $1.1 million as of the fiscal year ended May 29,
2021.
The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange
rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our
operations. Additional disclosure regarding various market risks are set forth in Part I, Item 1A, Risk Factors, of our Annual Report on
this Form 10-K.
ITEM 8. Financial Statements and Supplementary Data
31
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Richardson Electronics, Ltd.
LaFox, Illinois
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Richardson Electronics, Ltd. (the “Company”) as of May 28, 2022
and May 29, 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each
of the three years in the period ended May 28, 2022, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at May 28, 2022 and May 29, 2021, and the results of its operations and its cash flows for each of the three years in the period
ended May 28, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the Company's internal control over financial reporting as of May 28, 2022, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated
August 1, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
32
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Estimation of Inventory Reserve - Power and Microwave Technologies ("PMT") Group
As described in Note 3 to the consolidated financial statements, the consolidated inventory balance as of May 28, 2022 was $80.4
million, net of $6.1 million in reserves. Inventories are stated at the lower of cost and net realizable value. Provisions for obsolete or
slow-moving inventories are based upon regular analysis of stock rotation privileges, obsolescence, the exiting of certain markets and
assumptions about future demand and market conditions. A number of products in the PMT segment represent trailing edge
technology. PMT often buys products ahead of supplier price increases and extended lead times which can create higher levels of
inventory. As technologies evolve and customers replace their capital equipment, the market for and resulting net realizable value of
PMT's products may decline.
We have identified the Company's estimation of inventory reserve for the PMT segment as a critical audit matter due to the significant
judgments required by management in estimating net realizable value for each individual inventory item. The Company's estimation of
inventory reserve, performed on an item-by-item basis, requires inputs from operations personnel and an assessment of current market
conditions and future industry trends, which can be difficult to predict given evolving technologies and the declining market for some
products. Auditing this matter involved especially challenging auditor judgment due to the nature and extent of audit effort needed to
evaluate the reasonableness of the assumptions and judgments made by management.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Assessing the design and implementation of controls over the development of the Company’s estimation of inventory
reserve.
Assessing the reasonableness of management's estimate by (i) discussing with operations personnel, including product
and sales managers, their assessment as to viability of aged and slow-moving inventory, (ii) evaluating historical
customer ordering trends and current uses, and (iii) for certain products, evaluating future product designs and stock
rotation privileges.
Evaluating the reasonableness of management's estimate by performing a retrospective comparison of prior estimates to
current period sales, write-offs, and inventory consumptions.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2015.
Chicago, Illinois
August 1, 2022
33
Richardson Electronics, Ltd.
Consolidated Balance Sheets
(in thousands, except per share amounts)
May 28, 2022
May 29, 2021
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance of $186 and $202, respectively
Inventories, net
Prepaid expenses and other assets
Investments - current
Total current assets
Non-current assets:
Property, plant and equipment, net
Intangible assets, net
Lease ROU asset
Non-current deferred income taxes
Total non-current assets
Total assets
Liabilities
Current liabilities:
Accounts payable
Accrued liabilities
Lease liability current
Total current liabilities
Non-current liabilities:
Non-current deferred income tax liabilities
Lease liability non-current
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders’ Equity
Common stock, $0.05 par value; issued and outstanding 11,649 shares
at May 28, 2022 and 11,160 shares at May 29, 2021
Class B common stock, convertible, $0.05 par value; issued and
outstanding 2,053 shares at May 28, 2022 and 2,097 shares at May 29, 2021
Preferred stock, $1.00 par value, no shares issued
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive income
Total stockholders' equity
Total liabilities and stockholders’ equity
$
$
$
$
35,495 $
29,878
80,390
2,448
5,000
153,211
16,961
2,010
3,239
4,398
26,608
179,819 $
23,987 $
16,110
1,109
41,206
85
1,915
766
2,766
43,972
43,316
25,096
63,508
2,385
—
134,305
17,067
2,270
2,570
541
22,448
156,753
16,979
14,182
1,066
32,227
242
1,358
1,366
2,966
35,193
582
558
103
—
66,331
68,031
800
135,847
179,819 $
105
—
62,707
53,297
4,893
121,560
156,753
34
Richardson Electronics, Ltd.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Loss on disposal of assets
Operating income (loss)
Other expense (income):
Investment/interest income
Foreign exchange loss (gain)
Other, net
Total other expense (income)
Income (loss) before income taxes
Income tax (benefit) provision
Net income (loss)
Foreign currency translation (loss) gain, net of tax
Comprehensive income (loss)
Net income (loss) per share:
Common shares - Basic
Class B common shares - Basic
Common shares - Diluted
Class B common shares - Diluted
Weighted average number of shares:
Common shares - Basic
Class B common shares - Basic
Common shares - Diluted
Class B common shares - Diluted
Dividends per share:
Common share
Class B common share
Fiscal Year Ended
May 28, 2022 May 29, 2021 May 30, 2020
155,898
$
106,225
49,673
51,327
3
(1,657 )
176,937 $
118,112
58,825
55,925
13
2,887
224,620 $
152,920
71,700
55,723
20
15,957
$
$
(80 )
273
5
198
15,759
(2,168 )
17,927
(4,093 )
13,834 $
1.35 $
1.21
1.31
1.18
(76 )
759
(104 )
579
2,308
653
1,655
3,403
5,058 $
0.13 $
0.11
0.13
0.11
11,395
2,080
11,825
2,080
11,105
2,097
11,164
2,097
(377 )
(15 )
(51 )
(443 )
(1,214 )
624
(1,838 )
(900 )
(2,738 )
(0.14 )
(0.13 )
(0.14 )
(0.13 )
11,026
2,097
11,026
2,097
$
0.24 $
0.22
0.24 $
0.22
0.24
0.22
35
Richardson Electronics, Ltd.
Consolidated Statements of Cash Flows
(in thousands)
Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization
Inventory provisions
Loss on disposal of assets
Share-based compensation expense
Deferred income taxes
Change in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
Other
Net cash provided by operating activities
Investing activities:
Capital expenditures
Proceeds from maturity of investments
Purchases of investments
Net cash (used in) provided by investing activities
Financing activities:
Payment of financing lease principal
Proceeds from issuance of common stock
Cash dividends paid on Common and Class B Common shares
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental Disclosure of Cash Flow Information:
Cash paid during the fiscal year for:
Income taxes
Fiscal Year Ended
May 28, 2022 May 29, 2021 May 30, 2020
$
17,927 $
1,655 $
(1,838 )
3,423
462
20
654
(4,042 )
(6,183 )
(20,571 )
(228 )
7,671
2,420
358
1,911
(3,120 )
—
(5,000 )
(8,120 )
(151 )
2,992
(3,193 )
(352 )
(1,260 )
(7,821 )
43,316
35,495 $
3,424
1,041
13
675
(1 )
(4,198 )
(4,861 )
103
(565 )
3,572
(26 )
832
(2,632 )
25,000
(9,000 )
13,368
(181 )
289
(3,122 )
(3,014 )
1,595
12,781
30,535
43,316 $
3,386
1,013
3
683
(7 )
3,895
(5,452 )
620
631
(889 )
(122 )
1,923
(1,776 )
21,000
(29,000 )
(9,776 )
(166 )
59
(3,101 )
(3,208 )
(423 )
(11,484 )
42,019
30,535
$
$
1,484 $
106 $
1,018
36
Balance June 1, 2019:
Comprehensive income
Net loss
Foreign currency translation
Share-based compensation:
Restricted stock
Stock options
Common stock:
Options exercised
Restricted stock issuance
Dividends paid to:
Common ($0.24 per share)
Class B ($0.22 per share)
Balance May 30, 2020:
Comprehensive income
Net income
Foreign currency translation
Share-based compensation:
Restricted stock
Stock options
Common stock:
Options exercised
Restricted stock issuance
Dividends paid to:
Common ($0.24 per share)
Class B ($0.22 per share)
Balance May 29, 2021:
Comprehensive income
Net income
Foreign currency translation
Share-based compensation:
Restricted stock
Stock options
Common stock:
Options exercised
Restricted stock issuance
Class B converted to common
Dividends paid to:
Common ($0.24 per share)
Class B ($0.22 per share)
Balance May 28, 2022
Richardson Electronics, Ltd.
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
Common
10,957
Class B
Common
2,097 $
Par
Value
652 $
Additional
Paid In
Capital
Retained
Earnings
61,012 $ 59,703 $
Accumulated
Other
Comprehensive
Income
Total
2,390 $ 123,757
—
—
—
—
10
71
—
—
—
—
—
—
—
—
—
—
1
4
—
—
(1,838 )
—
—
(900 )
(1,838 )
(900 )
455
228
58
(4 )
—
—
—
—
—
—
—
—
455
228
59
—
—
—
11,038
—
—
2,097 $
—
—
657 $
—
—
(2,648 )
(453 )
61,749 $ 54,764 $
—
—
(2,648 )
(453 )
1,490 $ 118,660
—
—
—
—
49
73
—
—
—
—
—
—
—
—
—
—
2
4
—
—
1,655
—
—
3,403
1,655
3,403
483
192
287
(4 )
—
—
—
—
—
—
—
—
483
192
289
—
—
—
11,160
—
—
2,097 $
—
—
663 $
—
—
(2,669 )
(453 )
62,707 $ 53,297 $
—
—
(2,669 )
(453 )
4,893 $ 121,560
— 17,927
—
—
— 17,927
(4,093 )
(4,093 )
—
—
—
—
373
72
44
—
—
—
—
—
—
(44 )
—
—
—
—
18
4
—
444
210
2,974
(4 )
—
—
—
—
—
—
—
—
11,649
—
—
2,053 $
—
—
685 $
—
—
(2,745 )
(448 )
66,331 $ 68,031 $
37
—
—
—
—
—
444
210
2,992
—
—
—
—
(2,745 )
(448 )
800 $ 135,847
Richardson Electronics, Ltd.
Notes to Consolidated Financial Statements
1.
DESCRIPTION OF THE COMPANY
Richardson Electronics, Ltd. is a leading global manufacturer of engineered solutions, power grid and microwave tubes, and
related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes, and service training
for diagnostic imaging equipment; and customized display solutions. More than 60% of our products are manufactured in LaFox,
Illinois, Marlborough, Massachusetts, or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world.
All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative
energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets.
The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and
manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype
design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.
Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor
manufacturing and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are
used as display devices in a variety of industrial, commercial, medical and communication applications.
We have three operating and reportable segments. Starting with our first quarter earnings release in October for fiscal 2023,
we will introduce our new Green Energy Solutions (“GES”) segment. This segment is carved out of our existing PMT segment as we
continue to focus on power management applications that support the green energy market globally. Accordingly, in the first quarter
of fiscal 2023, we will begin reporting on four segments.
The three operating and reportable segments for fiscal 2022, fiscal 2021 and fiscal 2020 are defined as follows:
Power and Microwave Technologies (“PMT”) combines our core engineered solutions capabilities, power grid and
microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner
and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core
engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems
integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our
existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative
energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses
on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high
energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers
technical services for both microwave and industrial equipment.
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical
original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to
match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens,
protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages
and certification services. We partner with both private label manufacturing companies and leading branded hardware vendors to offer
the highest quality display and touch solutions and customized computing platforms.
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare
market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor
service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes;
CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector
upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging
service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we
believe we can help our customers improve efficiency 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 percent of our total accounts receivable balance as of
May 28, 2022 or May 29, 2021. No one customer accounted for more than 10 percent of the Company’s consolidated net sales in
fiscal 2022, fiscal 2021 or fiscal 2020.
38
Supplier Concentration: One of our suppliers represented 11 percent of our total cost of sales in fiscal 2022, 15 percent in
fiscal 2021 and 16 percent in fiscal 2020. The amount owed to this supplier was approximately $1.4 million as of May 28, 2022 and
$2.1 million as of May 29, 2021.
2.
BASIS OF PRESENTATION
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 2022 began on May 30, 2021 and ended on May 28, 2022, our fiscal year 2021 began on May 31, 2020 and
ended on May 29, 2021 and our fiscal year 2020 began on June 2, 2019 and ended on May 30, 2020. 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, 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 28, 2022 and May 29, 2021.
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; and collectability and delinquency history by geographic area. 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 $0.2 million as of May 28, 2022 and $0.2 million as of May 29, 2021.
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 customers are generally not resellers, but rather businesses that incorporate our products into
their processes from which they generate an economic benefit. The goods are also distinct in that each item sold to the customer is
clearly identified on both the purchase order and resulting invoice. Each product we sell benefits the customer independently of the
other products. Each item on each purchase order from the customer can be used by the customer unrelated to any other products we
provide to the customer.
The Company’s revenue includes the following streams:
• Distribution
• Manufacturing/assembly
• Services revenue
Distribution typically includes products purchased from our suppliers, stocked in our warehouses and then sold to our
customers. The distribution business does not include a separate service bundled with the product sold or sold on top of the product.
Revenue is recognized when control of the promised goods is transferred to our customers, which is simultaneous with the title
transferring to the customer, in an amount that reflects the transaction price consideration that we expect to receive in exchange for
those goods. Control refers to the ability of the customer to direct the use of, and obtain substantially all of, the remaining benefits
39
from the goods. Our transaction price consideration is fixed, unless otherwise disclosed below as variable consideration. Generally,
our contracts require our customers to pay for goods after we deliver products to them. Terms are generally on open account, payable
net 30 days in North America, and vary throughout Asia/Pacific, Europe and Latin America subject to customary credit checks.
Manufacturing/assembly typically includes the products that are manufactured or assembled in our manufacturing facility.
These products can either be built to the customer’s prints/designs or are products that we stock in our warehouse to sell to any
customer that places an order. The manufacturing business does not include a separate service bundled with the product sold or sold
in addition to the product. Our contracts for customized products generally include termination provisions if a customer cancels its
order. However, we recognize revenue at a point in time because the termination provisions normally do not require, upon cancelation,
the customer to pay fees that are commensurate with the work performed. Each purchase order explicitly states the goods or service
that we promise to transfer to the customer. The promises to the customer are limited only to those goods or service. The performance
obligation is our promise to deliver both goods that were produced by the Company and resale of goods that we purchase from our
suppliers. Our shipping and handling activities for destination shipments are performed prior to the customer obtaining control. As
such, they are not a separate promised service. The Company elects to account for shipping and handling as activities to fulfill the
promise to transfer the goods. The goods we provide to our customers are distinct in that our customers benefit from the goods we sell
them through use in their own processes.
Repair, installation or training activities generate services revenue. The services we provide are relatively short in duration
and typically completed in one or two weeks. Therefore, at each reporting date, the amount of unbilled work is insignificant. The
services revenue has consistently accounted for less than 5% of the Company’s total revenues and is expected to continue at that level.
We record discounts taken based on historical experience. The policy varies by business unit. The Company allows returns
with prior written authorization. We estimate returns based on historical experience. The Company maintains a reserve for returns
based on historical trends that covers all contracts and revenue streams using the expected value method because we have a large
number of contracts with similar characteristics, which is considered variable consideration. The reserve for returns creates a refund
liability on our balance sheet as a contra Trade Accounts Receivable as well as an asset in inventory. We value the inventory at cost
due to there being minimal or no costs to the Company as we generally require the customer to pay freight and we typically do not
have costs associated with activities such as relabeling or repackaging. The reserve is considered immaterial at each balance sheet
date. Returns for defective product are typically covered by our suppliers’ warranty, thus, returns for defective product are not factored
into our reserve.
Principal versus agent guidance was considered for customized products that are provided by our suppliers versus
manufactured by the Company. The Company acts as the principal as we are responsible for satisfying the performance obligation.
We have primary responsibility for fulfilling the contract, we have inventory risk prior to delivery to our customer, we establish
prices, our consideration is not in the form of a commission and we bear the credit risk. The Company recognizes revenue in the gross
amount of consideration.
Contracts with customers
A revenue contract exists once a customer purchase order is received, reviewed and accepted. Each accepted purchase order
identifies a distinct good or service as the performance obligation. The goods are generally standard products we purchased from a
supplier and stocked on our shelves. They can also be customized products purchased from a supplier or products that are customized
or have value added to them in house prior to shipping to the customer. Prior to accepting a customer purchase order, we review the
credit worthiness of the customer. Purchase orders are deemed to meet the collectability criterion once the customer’s credit is
approved. The Company receives advance payments or deposits from our customers before revenue is recognized resulting in contract
liabilities. Contract liabilities are included in accrued liabilities in the consolidated balance sheets.
Contract Liabilities: Contract liabilities and revenue recognized were as follows (in thousands):
Contract liabilities (deferred revenue)
May 29,
2021
Additions
Revenue
Recognized
May 28,
2022
$
3,313 $
6,917 $
(5,264 ) $
4,966
See Note 9, Segment and Geographic Information, for a disaggregation of revenue by reportable segment and geographic
region, which represents how our chief operating decision maker reviews information internally to evaluate our financial performance
and to make resource allocation and other decisions for the Company.
40
Foreign Currency Translation: The functional currency is the local currency at all foreign locations, with the exception of
Hong Kong, where the functional currency is the U.S. dollar. Balance sheet items for our foreign entities, included in our consolidated
balance sheets, 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, 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 exchange (gain) loss reflected in our consolidated statements of
comprehensive income (loss) were $0.3 million loss during fiscal 2022, a $0.8 million loss during fiscal 2021 and a small gain
during fiscal 2020.
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 consolidated inventories are stated at the lower of cost and net realizable value, generally using a
weighted-average cost method. Our net inventories include approximately $66.6 million of finished goods, $8.0 million of raw
materials and $5.8 million of work-in-progress as of May 28, 2022 as compared to approximately $57.0 million of finished goods,
$3.9 million of raw materials and $2.6 million of work-in-progress as of May 29, 2021. The inventory reserve as of May 28, 2022
was $6.1 million compared to $5.9 million as of May 29, 2021.
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, $1.0 million and $1.0 million during fiscal 2022, fiscal
2021 and fiscal 2020, respectively, which were included in cost of sales. The provisions were primarily 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 28, 2022, we had $5.0 million invested in a Certificate of Deposit (CD), which will mature in less
than twelve months. As of May 29, 2021, we had no investments, as we liquidated our investments in the fourth quarter of fiscal 2021.
Intangible Assets: Intangible assets are initially recorded at their fair market values determined by quoted market prices in
active markets, if available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their
useful lives either on a straight-line basis or over their projected future cash flows and are tested for impairment when events or
changes in circumstances occur that indicate possible impairment. Our intangible assets represent the fair value for trade name,
customer relationships, non-compete agreements and technology acquired in connection with 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 $3.2 million, $3.2 million and $3.1 million during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
Property, plant and equipment consist of the following (in thousands):
Land and improvements
Buildings and improvements
Computer, communications equipment and software
Machinery and other equipment
Construction in progress
Accumulated depreciation
Property, plant, and equipment, net
$
41
May 28, 2022
$
May 29, 2021
1,385 $
23,002
11,186
16,215
1,991
53,779
(36,818 )
16,961 $
1,385
22,837
11,029
14,930
1,429
51,610
(34,543 )
17,067
Construction in progress at May 28, 2022 includes $1.0 million for manufacturing facilities, $0.5 million for Healthcare
initiatives and $0.3 million for IT systems. All projects are expected to be completed before the end of fiscal 2023.
Supplemental disclosure information of the estimated useful life of the assets:
Land improvements
Buildings and improvements
Computer, communications equipment and software
Machinery and other equipment
10 years
10 - 30 years
3 - 10 years
3 - 20 years
We review property and equipment, definite-lived intangible assets and other long-lived assets for impairment whenever
adverse events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.
If adverse events do occur, our impairment review is based on an undiscounted cash flow analysis at the lowest level at
which cash flows of the long-lived assets are largely independent of other groups of our assets and liabilities. This analysis requires
management judgment with respect to changes in technology, the continued success of product lines and future volume, revenue and
expense growth rates. We conduct annual reviews for idle and underutilized equipment and review business plans for possible
impairment. Impairment occurs when the carrying value of the assets exceeds the future undiscounted cash flows expected to be
earned by the use of the asset or asset group. When impairment is indicated, the estimated future cash flows are then discounted to
determine the estimated fair value of the asset or asset group and an impairment charge is recorded for the difference between the
carrying value and the estimated fair value.
Additionally, we also evaluate the remaining useful life of each reporting period to determine whether events and
circumstances warrant a revision to the remaining period of depreciation or amortization. If the estimate of a long-lived asset’s
remaining useful life is changed, the remaining carrying amount of the asset is amortized prospectively over that revised remaining
useful life.
Accrued Liabilities: Accrued liabilities consist of the following (in thousands):
Compensation and payroll taxes
Accrued severance
Professional fees
Deferred revenue
Other accrued expenses
Accrued Liabilities
May 28, 2022
$
May 29, 2021
5,519 $
678
470
4,966
4,477
16,110 $
4,945
685
533
3,313
4,706
14,182
$
Warranties: We offer warranties for the limited number of specific products we manufacture.
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 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.
42
Changes in the warranty reserve during fiscal 2022 and fiscal 2021 were as follows (in thousands):
Balance at May 30, 2020
Accruals for products sold
Utilization
Balance at May 29, 2021
Accruals for products sold
Utilization
Balance at May 28, 2022
Warranty
Reserve
$
$
$
466
121
(39 )
548
160
(32 )
676
Other Non-Current Liabilities: Other non-current liabilities of $0.8 million at May 28, 2022 and $1.4 million at May 29,
2021, primarily represent employee-benefits obligations in various non-US locations.
Share-Based Compensation: We measure and recognize share-based compensation cost at fair value for all share-based
payments, including stock options and restricted stock awards. 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 $0.7 million during fiscal 2022, $0.7 million during fiscal 2021 and $0.7 million during fiscal 2020.
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):
Options Outstanding at June 1, 2019
Granted
Exercised
Cancelled
Options Outstanding at May 30, 2020
Granted
Exercised
Forfeited
Cancelled
Options Outstanding at May 29, 2021
Granted
Exercised
Forfeited
Cancelled
Options Outstanding at May 28, 2022
Options Vested at May 28, 2022
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value (1)
Number of
Options
1,364 $
187
(10 )
(114 )
1,427 $
188
(49 )
(7 )
(104 )
1,455 $
185
(373 )
(35 )
(84 )
1,148 $
676 $
9.08
5.61
5.67
6.87
8.83
4.26
5.93
5.96
12.53
8.08
7.66
8.01
6.51
11.65
7.82
8.73
5.7 $
4.1 $
7,082
3,551
(1) Includes only those options that were in-the-money as of May 28, 2022. Stock options for which the exercise price
exceeded the market price have been omitted. Fluctuations in the intrinsic value of both outstanding and exercisable
options may result from changes in underlying stock price and timing and volume of option grants, exercises and
forfeitures.
43
There were 373,489 stock options exercised during fiscal 2022, with cash received of $3.0 million. The total intrinsic value
of options exercised was $1.9 million during fiscal 2022, $0.1 million for fiscal 2021 and less than $0.1 million for fiscal 2020. The
weighted average fair value of stock option grants was $1.50 during fiscal 2022, $0.49 during fiscal 2021 and $0.81 during fiscal
2020. As of May 28, 2022, total unrecognized compensation costs related to unvested stock options and restricted stock awards was
approximately $0.9 million, which is expected to be recognized over the remaining weighted average period of approximately two to
four years. The total grant date fair value of stock options vested during fiscal 2022 was $0.2 million.
The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following weighted
average assumptions:
Expected volatility
Risk-free interest rate
Expected lives (years)
Annual cash dividend
Fiscal Year Ended
May 28, 2022 May 29, 2021
May 30, 2020
29.00 %
0.97 %
6.50
0.24 $
27.72 %
0.45 %
6.50
0.24 $
24.48 %
1.91 %
6.50
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”). For stock options granted during fiscal 2022, fiscal 2021 and fiscal 2020, we believe that our
historical stock option experience does not provide a reasonable basis upon which to estimate expected term.
The following table summarizes information about stock options outstanding at May 28, 2022 (in thousands, except option
prices and years):
Outstanding
Vested
Exercise Price Range
$4.26 to $6.47
$6.90 to $10.01
$11.14 to $13.76
Total
Weighted
Average
Exercise
Price
Weighted
Average
Life
Aggregate
Intrinsic
Value
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Life
Aggregate
Intrinsic
Value
5.11
8.44
11.57
7.82
7.2 $
6.2
0.9
5.7 $
3,455 152 $
3,178 338
449 186
7,082 676 $
5.38
8.68
11.57
8.73
6.6 $
4.8
0.9
4.1 $
1,310
1,792
449
3,551
Shares
389 $
573
186
1,148 $
As of May 28, 2022 a summary of restricted stock award transactions was as follows (in thousands):
Unvested at May 30, 2020
Granted
Vested
Unvested at May 29, 2021
Granted
Vested
Unvested at May 28, 2022
Unvested
Restricted
Shares
142
73
(71 )
144
72
(71 )
145
Compensation effects arising from issuing stock awards have been charged against income and recorded as additional paid-
in-capital in the consolidated statements of stockholders’ equity during fiscal 2022, fiscal 2021 and fiscal 2020.
The Employees’ Amended and Restated 2011 Long-Term Incentive Compensation Plan (the “Plan”) authorizes the issuance
of up to 3,500,000 shares as incentive stock options, non-qualified stock options or stock awards. Under this plan, 1,302,000 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. Restricted stock awards
vest on the anniversary of the grant date in three equal installments.
44
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.
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. 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 earnings per share (“EPS”) presented in our consolidated statements of comprehensive income (loss) are based on the
following (in thousands, except per share amounts):
Numerator for Basic and Diluted EPS:
Net income (loss)
Less dividends:
Common stock
Class B common stock
Undistributed earnings (loss)
May 28, 2022
For the Fiscal Year Ended
May 29, 2021
May 30, 2020
Basic
Diluted Basic
Diluted Basic
Diluted
$ 17,927 $ 17,927 $
1,655 $
1,655 $
(1,838 ) $
(1,838 )
2,745
448
2,745
448
$ 14,734 $ 14,734 $
2,669
453
(1,467 ) $
2,669
453
(1,467 ) $
2,648
453
(4,939 ) $
2,648
453
(4,939 )
Common stock undistributed earnings (loss)
Class B common stock undistributed earnings (loss)
Total undistributed earnings (loss)
$ 12,655 $ 12,720 $
2,014
$ 14,734 $ 14,734 $
2,079
(1,254 ) $
(213 )
(1,467 ) $
(1,255 ) $
(212 )
(1,467 ) $
(4,217 ) $
(722 )
(4,939 ) $
(4,217 )
(722 )
(4,939 )
Denominator for Basic and Diluted EPS:
Common stock weighted average shares
Effect of dilutive securities
Dilutive stock options
Denominator for diluted EPS adjusted for
weighted average shares and assumed
conversions
Class B common stock weighted average shares,
and shares under if-converted method for
diluted EPS
Net income (loss) per share:
Common stock
Class B common stock
11,395
11,395
11,105
11,105
11,026
11,026
430
59
—
11,825
11,164
11,026
2,080
2,080
2,097
2,097
2,097
2,097
$
$
1.35 $
1.21 $
1.31 $
1.18 $
0.13 $
0.11 $
0.13 $
0.11 $
(0.14 ) $
(0.13 ) $
(0.14 )
(0.13 )
Note: There were no common stock options that were anti-dilutive for fiscal 2022. For fiscal 2021 and fiscal 2020, the common stock
options that were anti-dilutive and not included in diluted earnings per common share were 0 and 1,120, respectively.
45
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. ASU 2016-13 (as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU
2019-11 and 2020-02) introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types
of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate
considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the
disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for
estimating expected credit losses. The new standard is effective for smaller reporting companies for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company is currently in the process of
evaluating the impact of adoption on its consolidated financial statements.
4.
RELATED PARTY TRANSACTION
On June 15, 2015, the Company entered into a lease agreement for the IMES facility with LDL, LLC. That lease agreement
was extended for five years in fiscal 2021. The Company shall be entitled to extend the term of the lease for a period of an additional
five years by notifying the landlord in writing of its intention to do so within six months of the expiration of the term. The Executive
Vice President of IMES, Lee A. McIntyre III (former owner of IMES), has an ownership interest in LDL, LLC. Mr. McIntyre will be
departing from the Company in fiscal year 2023, effective as of September 24, 2022. The lease agreement provides for monthly
payments over five years with total future minimum lease payments of $0.5 million. Rental expense related to this lease amounted to
$0.2 million for the fiscal year ended May 28, 2022 and $0.1 million for fiscal years ended May 29, 2021 and May 30, 2020.
5.
INTANGIBLE ASSETS
Intangible assets are initially recorded at their fair market values determined by quoted market prices in active markets, if
available, or recognized valuation models. Intangible assets that have finite useful lives are amortized over their useful lives and are
tested for impairment when events or changes in circumstances occur that indicate possible impairment. No impairment was
recognized in fiscal 2022, fiscal 2021 or fiscal 2020.
Our intangible assets represent the fair value for trade name, customer relationships, non-compete agreements and technology
acquired in connection with our acquisitions. Intangible assets subject to amortization were as follows (in thousands):
Gross Amounts:
Trade Name
Customer Relationships (1)
Non-compete Agreements
Technology
Total Gross Amounts
Accumulated Amortization:
Trade Name
Customer Relationships
Non-compete Agreements
Technology
Total Accumulated Amortization
Net Intangible Assets
May 28,
2022
May 29,
2021
$
$
$
$
$
659 $
3,393
177
230
4,459 $
659 $
1,453
177
160
2,449 $
659
3,426
177
230
4,492
659
1,249
177
137
2,222
2,010 $
2,270
(1) Change from prior periods reflect impact of foreign currency translation.
46
Companies must perform the annual test for impairment for indefinite life intangible assets, for which the Company has none,
as well as test definite life assets for impairment in the event of a “trigger event” such as adverse changes in the business climate or
market which might negatively impact the value of a reporting unit. We determined that the intangible assets were not impaired as of
May 28, 2022 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):
Fiscal Year
2023
2024
2025
2026
2027
Thereafter
Total amortization expense
Amortization
Expense
$
$
245
232
219
185
173
956
2,010
The amortization expense associated with the intangible assets totaled approximately $0.2 million during fiscal 2022, fiscal
2021 and fiscal 2020. The weighted average number of years of amortization expense remaining is 11.6 years.
6.
LEASE OBLIGATIONS AND OTHER COMMITMENTS
The Company leases real and personal property in the normal course of business under various operating and financing
leases. The Company uses operating leases for facility space and automobiles. Most of the leased facility space is for sales and general
office use. Automobile leases are used throughout the Company. Financing leases are used for computer servers.
Several leases include renewal clauses which vary in length and may not include specific rent renewal amounts. The
Company will revise the value of the right of use assets and associated lease liabilities when the Company determines it is reasonably
certain of renewal.
The gross amounts of assets and liabilities related to both operating and financing leases at May 28, 2022 and May 29, 2021
were as follows (in thousands):
Operating lease ROU asset
Financing lease ROU asset
Total Lease ROU asset
Operating lease liability current
Financing lease liability current
Total lease liability current
Operating lease liability non-current
Financing lease liability non-current
Total lease liability non-current
Lease Type
May 28, 2022
May 29, 2021
$
$
$
$
$
$
3,024 $
215
3,239 $
1,109 $
—
1,109 $
1,915 $
—
1,915 $
2,262
308
2,570
918
148
1,066
1,358
—
1,358
47
The components of lease costs for fiscal 2022 and fiscal 2021 were as follows (in thousands):
Lease Type
Classification
Fiscal Year Ended
May 28, 2022
Fiscal Year Ended
May 29, 2021
Consolidated operating lease expense
Operating expenses
$
1,781 $
Consolidated financing lease
amortization
Consolidated financing lease interest
Consolidated financing lease expense
Operating expenses
Interest expense
92
3
95
Net lease cost
$
1,876 $
1,939
92
11
103
2,042
Rent expense for fiscal 2022, fiscal 2021 and fiscal 2020 was $1.6 million, $1.7 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
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less imputed interest
Net minimum lease payments
Operating Leases
1,244
872
610
388
75
17
3,206
182
3,024
$
$
The weighted average remaining lease terms and interest rates of leases held by the Company as of May 28, 2022 were as
follows:
Operating leases
Lease Type
Weighted Average Remaining
Lease Term in Years
3.2
Weighted Average
Interest Rate
4.4%
The cash outflows of the leasing activity of the Company as lessee for fiscal 2022 and fiscal 2021 were as follows (in
thousands):
Fiscal Year Ended
May 28, 2022
$
May 29, 2021
747 $
148
151
831
170
181
Cash Flow Source
Classification
Operating cash flows from operating leases
Operating cash flows from financing leases
Finance cash flows from financing leases
Operating activities
Operating activities
Financing activities
48
7.
INCOME TAXES
Income (loss) before income taxes included the following components (in thousands):
United States
Foreign
Income (loss) before income taxes
May 28,
2022
Fiscal Year Ended
May 29,
2021
May 30,
2020
$
$
12,299 $
3,460
15,759 $
1,077 $
1,231
2,308 $
(3,716 )
2,502
(1,214 )
The provision for income taxes for fiscal 2022, fiscal 2021 and fiscal 2020 consisted of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
Foreign
Total deferred
Income tax (benefit) provision
May 28,
2022
Fiscal Year Ended
May 29,
2021
May 30,
2020
$
$
(4,213 ) $
950
1,038
(2,225 )
—
57
57
(2,168 ) $
108 $
—
665
773
—
(120 )
(120 )
653 $
—
—
616
616
(88 )
96
8
624
49
The differences between income taxes at the U.S. federal statutory income tax rate of 21.0% for fiscal 2022, fiscal 2021 and
fiscal 2020 and the reported income tax provision for fiscal 2022, fiscal 2021 and fiscal 2020, are summarized as follows:
Federal statutory rate
Effect of:
May 28,
2022
Fiscal Year Ended
May 29,
2021
May 30,
2020
21.0 %
21.0 %
21.0 %
State income taxes, net of federal tax benefit
Foreign taxes at other rates
Permanent tax differences
Change in valuation allowance for deferred tax assets
Return to provision adjustments
Other
Effective tax rate
5.5
4.5
(2.0 )
(43.1 )
0.2
0.2
(13.7 )%
21.6
10.5
18.3
(49.7 )
2.2
4.4
28.3 %
6.6
(15.3 )
(41.1 )
(29.8 )
1.4
5.8
(51.4 )%
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
operations as of May 28, 2022 and May 29, 2021. Significant components were as follows (in thousands):
Deferred tax assets:
NOL carryforwards - foreign and domestic
Inventory valuations
Goodwill
Foreign tax credits
Severance reserve
Foreign capital loss
Other
Subtotal
Valuation allowance - foreign and domestic
Net deferred tax assets after valuation allowance
Deferred tax liabilities:
Accelerated depreciation
Tax on undistributed earnings
Other
Subtotal
Net deferred tax assets
Supplemental disclosure of net deferred tax assets,
excluding valuation allowance:
Domestic
Foreign
Total
Fiscal Year Ended
May 28,
2022
May 29,
2021
$
$
$
$
2,796 $
1,571
1,182
1,782
183
1,224
1,480
10,218
(3,474 )
6,744
(2,406 )
(24 )
(1 )
(2,431 )
4,313 $
7,362
1,501
1,286
1,782
185
1,261
1,469
14,846
(12,225 )
2,621
(2,279 )
(24 )
18
(2,285 )
336
6,017 $
1,770
7,787 $
10,653
1,913
12,566
On December 22, 2017, the U.S. government enacted new tax legislation, Tax Cuts and Jobs Act (the “Act”). The Company
was subject to requirements of the Act beginning in fiscal 2019. Provisions include an income inclusion for global intangible low-
taxed income (“GILTI”), a tax determined by base erosion and anti-avoidance tax (“BEAT”) related to certain payments between a
U.S. corporation and foreign related entities, a limitation of certain executive compensation and a deduction for foreign derived
intangible income. The Company has determined its accounting policy to treat the taxes due on GILTI as a period cost. The Company
is not subject to the BEAT provision due to the revenue thresholds.
50
As of May 28, 2022, we have utilized all net deferred tax assets related to federal net operating loss (“NOL”) carryforwards,
compared to $3.0 million as of May 29, 2021. Net deferred tax assets related to domestic state NOL carryforwards at May 28, 2022
amounted to approximately $2.4 million, compared to $3.9 million at May 29, 2021. Net deferred tax assets related to foreign NOL
carryforwards as of May 28, 2022 totaled approximately $0.4 million with various or indefinite expiration dates. The amount of net
deferred tax assets related to foreign NOL carryforwards was $0.4 million as of May 29, 2021. We also had a domestic net deferred
tax asset of $1.8 million of foreign tax credit carryforwards as of both May 28, 2022 and May 29, 2021.
We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will
be repatriated to the U.S. The deferred tax liability on the outside basis difference is now primarily withholding tax on future dividend
distributions. The deferred tax liability related to undistributed earnings of our foreign subsidiaries was less than $0.1 million in both
fiscal 2022 and fiscal 2021.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be
generated to support a more likely than not assertion that its deferred tax assets will be realized. A significant component of objective
evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 28, 2022.
We considered other positive evidence in determining the need for a valuation allowance in the U.S. including the subpart F and
GILTI inclusions of our foreign earnings, the changes in our business performance in recent years, and the utilization of federal NOLs.
The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance
in the U.S. federal jurisdiction. As a result of the positive evidence outweighing the negative evidence for the year ended May 28,
2022, we have released the full valuation allowance on the U.S. federal and state deferred tax items. In addition, we partially released
the valuation allowance on the state NOL deferred tax item, based on the amount of the NOLs that management believes it is more
likely than not to realize. We have maintained a full valuation allowance against the foreign tax credit deferred tax asset based on
negative evidence relating to the Company’s ability to utilize the foreign tax credit carryforward in the future.
As of May 28, 2022, a valuation allowance of $3.5 million was recorded, representing the portion of the deferred tax asset
that management does not believe is more likely than not to be realized. The valuation allowance as of May 29, 2021 was $12.2
million. The remaining valuation allowance relates to foreign tax credits ($1.8 million), state NOLs ($0.2 million) and deferred tax
assets in foreign jurisdictions where historical taxable losses have been incurred ($1.5 million). 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 $1.5 million, $0.1 million and $1.0 million, during fiscal
2022, fiscal 2021 and fiscal 2020, respectively.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years
prior to fiscal 2016 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 currently under examination in Germany for fiscal 2015 through fiscal 2018. This audit is expected to be closed
in the first quarter of fiscal 2023. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in
Germany beginning in fiscal 2019 and the Netherlands beginning in fiscal 2018.
The uncertain tax positions as of both May 28, 2022 and May 29, 2021 were $0.1 million. We record penalties and interest
related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of Comprehensive Income
(Loss). Accrued interest and penalties were included within the related tax liability line in the Consolidated Balance Sheets. We have
not recorded a liability for interest and penalties as of May 28, 2022 or May 29, 2021.
The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
Unrecognized tax benefits, beginning of period
Currency translation adjustment
Unrecognized tax benefits, end of period
8.
EMPLOYEE BENEFIT PLANS
Fiscal Year Ended
May 28,
2022
May 29,
2021
$
$
142 $
(17 )
125 $
129
13
142
The employee profit sharing plan is a defined contribution profit sharing plan. The profit sharing plan has a 401(k) provision
whereby we match 50% of employee contributions up to 6.0% of pay. Previously, the Company matched contributions up to 4.0% of
51
pay for fiscal 2021 and fiscal 2020. Charges to expense for matching contributions to this plan were $0.8 million, $0.6 million and
$0.5 million, during fiscal 2022, fiscal 2021 and fiscal 2020, respectively.
9.
SEGMENT AND GEOGRAPHIC INFORMATION
We have three operating and reportable segments. Starting with our first quarter earnings release in October for fiscal 2023,
we will introduce our new Green Energy Solutions (“GES”) segment. This segment is carved out of our existing PMT segment as we
continue to focus on power management applications that support the green energy market globally. Accordingly, in the first quarter
of fiscal 2023, we will begin reporting on four segments.
The reportable segments for fiscal 2022, fiscal 2021 and fiscal 2020 were: PMT, Canvys and Healthcare.
52
Power and Microwave Technologies (“PMT”) combines our core engineered solutions capabilities, power grid and
microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner
and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core
engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems
integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our
existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative
energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses
on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high
energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers
technical services for both microwave and industrial equipment
Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical
original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to
match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens,
protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages
and certification services. We partner with both private label manufacturing companies and leading branded hardware vendors to offer
the highest quality display and touch solutions and customized computing platforms.
Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare
market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor
service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes;
CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector
upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging
service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we
believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.
The CEO, who is the chief operating decision maker, 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):
PMT
Net Sales
Gross Profit
Canvys
Net Sales
Gross Profit
Healthcare
Net Sales
Gross Profit
May 28,
2022
Fiscal Year Ended
May 29,
2021
May 30,
2020
$
$
$
178,056 $
58,041
137,280 $
45,951
118,480
38,288
35,187 $
11,252
29,319 $
10,274
28,926
9,313
11,377 $
2,407
10,338 $
2,600
8,492
2,072
53
A reconciliation of assets to the relevant consolidated amount is as follows (in thousands):
Segment assets
Cash and cash equivalents
Investments - current
Other current assets (1)
Net property, plant and equipment
Operating lease ROU asset
Financing lease ROU asset
Other assets - non-current deferred income taxes
Total assets
May 28,
2022
120,696 $
35,495
5,000
2,686
9,435
1,894
215
4,398
179,819 $
May 29,
2021
100,638
43,316
—
1,918
9,300
732
308
541
156,753
$
$
(1) Other current assets include miscellaneous receivables and prepaid expenses.
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 2022 and fiscal 2021 were approximately $1.0 million and $1.7
million, respectively. In addition, we also had capital expenditures during fiscal 2022 and fiscal 2021 related to the Company’s ERP
system as well as facilities that were 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):
Net Sales
North America
Asia/Pacific
Europe
Latin America
Other (1)
Total
Gross Profit
North America
Asia/Pacific
Europe
Latin America
Other (1)
Total
May 28,
2022
Fiscal Year Ended
May 29,
2021
May 30,
2020
$
$
$
$
98,527 $
49,235
64,435
12,439
(16 )
224,620 $
73,625 $ 65,259
32,979
40,839
49,394
52,549
8,308
9,651
(42 )
273
176,937 $ 155,898
36,548 $
15,728
19,215
4,340
(4,131 )
71,700 $
28,639 $ 24,494
10,629
13,520
15,483
16,958
2,804
3,405
(3,697 )
(3,737 )
58,825 $ 49,673
(1) Other includes primarily net sales not allocated to a specific geographical region, unabsorbed value-add cost and
other unallocated expenses.
During fiscal 2022, fiscal 2021 and fiscal 2020, no one customer accounted for more than 10 percent of the Company’s
consolidated net sales. 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.
54
Net assets by geographic region are summarized in the following table (in thousands):
Net Assets
North America
Asia/Pacific
Europe
Latin America
Total
Fiscal Year Ended
May 28, 2022 May 29, 2021
$
$
90,979 $
11,514
30,873
2,481
135,847 $
77,698
10,547
31,289
2,026
121,560
The Company had long-lived assets of $19.0 million as of May 28, 2022 and $19.3 million as of May 29, 2021. The long-
lived assets, which include our fixed assets and intangibles, were primarily in the US. There were approximately $0.4 million of long-
lived assets that belong to our foreign affiliates as of May 28, 2022 and $0.4 million as of May 29, 2021.
The Company had depreciation and amortization expense of $3.4 million, $3.4 million and $3.4 million for fiscal 2022, fiscal
2021 and fiscal 2020, respectively. The depreciation and amortization, which includes our fixed assets and intangibles, were primarily
in the US. Depreciation and amortization expense that belongs to our foreign affiliates was approximately $0.1 million for fiscal 2022,
$0.3 million for fiscal 2021 and $0.3 million for fiscal 2020, respectively.
10.
RISKS AND UNCERTAINTIES
Legal Settlement – Fiscal 2021
On April 2, 2021, as part of a settlement where the Company did not admit liability, Richardson agreed to pay Varex Imaging
Corporation (“Varex”) $1.6 million to settle alleged counts of patent infringement and claims of trade secret misappropriation. This
settlement was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income
for the third quarter of fiscal 2021.
COVID-19 Update
The impact of the COVID-19 pandemic and its effects continue to evolve. As such, the full magnitude that the pandemic, and
the steps taken to prevent, mitigate and/or respond to its spread, will have on the Company’s financial condition, liquidity and future
results of operations is uncertain. The extent of the impact of the COVID-19 pandemic depends on future developments that cannot be
accurately predicted at this time, such as the duration and spread of the pandemic, the extent, speed and effectiveness of continued
worldwide containment efforts, and other actions taken by governments, businesses and individuals in response to abatement and
resurgence of the disease. Our ability to meet customer demands for products may be impaired or, similarly, our customers may
experience adverse business consequences due to the continued impact of COVID-19 and its effects.
Reduced demand for products or impaired ability to meet customer demand (including disruptions at our transportation
service providers or vendors) could have a material adverse effect on our business, operations and financial performance. There were
sales declines during fiscal year 2021, the majority of which were related to the COVID-19 global pandemic. While the Company did
not experience sales declines during fiscal year 2022 as a result of the pandemic, the impacts from the pandemic negatively impacted
our gross margins as a percentage of net sales in our Canvys and Healthcare segments.
As a result of COVID-19 and its effects, we experienced some COVID-19 related component delays impacting new product
development schedules. The global markets have generally suffered, and are continuing to suffer, from material disruptions in the
supply chain.
Management continues to monitor the global situation on its financial condition, liquidity, operations, suppliers, industry and
workforce. Given the ever-evolving nature of the pandemic and the continued global responses to the ongoing impact of the pandemic
as well the cycle of recurrences and the after-effects, the Company is not presently able to fully estimate the effects of COVID-19 on
its results of operations, financial condition or liquidity going forward.
55
Company Response to CARES Act
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide certain
relief as a result of the COVID-19 outbreak. The CARES Act included provisions relating to refundable payroll tax credits, deferral of
employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, increased
limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified, improvement
property. As of May 28, 2022, the Company deferred $0.4 million of employer-side social security tax payments, which will be made
by December 31, 2022. The Company has estimated and recorded the overall effects of the CARES Act and does not anticipate a
material change.
11.
FAIR VALUE MEASUREMENTS
Investments measured at fair value as of May 28, 2022 and May 29, 2021 were as follows (in thousands):
May 28, 2022
CDs
Total
May 29, 2021
CDs
Total
Level 1
Level 2
Level 3
$
$
$
$
5,000 $
5,000 $
— $
— $
— $
— $
— $
— $
—
—
—
—
12.
VALUATION AND QUALIFYING ACCOUNTS
The following table presents the valuation and qualifying account activity for fiscal years ended May 28, 2022, May 29, 2021
and May 30, 2020, (in thousands):
Description
Year ended May 28, 2022
Allowance for doubtful accounts
Inventory provisions
Year ended May 29, 2021
Allowance for doubtful accounts
Inventory provisions
Year ended May 30, 2020
Allowance for doubtful accounts
Inventory provisions
Balance at
beginning
of period
Charged to
expense
Balance at
end
of period
Deductions
$
$
$
202 $
5,866
103 (1) $
462 (3)
(119 ) (2) $
(268 ) (4)
186
6,060
334 $
5,393
149 (1) $
1,041 (3)
(281 ) (2) $
(568 ) (4)
202
5,866
339 $
4,568
349 (1) $
1,013 (3)
(354 ) (2) $
(188 ) (4)
334
5,393
Notes:
(1) Charges to bad debt expense.
(2) Uncollectible amounts written off, net of recoveries and foreign currency translation.
(3) Charges to cost of sales. Included in fiscal 2022 were inventory write-downs of $0.4 million for PMT and $0.1 million for
Healthcare.
(4) Inventory disposed or sold, net of foreign currency translation.
56
13.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share amounts):
Description
Fiscal 2022
Net sales
Gross profit
Net income
Net income per share:
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
Fiscal 2021
Net sales
Gross profit
Net (loss) income
Net (loss) income per share:
Common stock - basic
Class B common stock - basic
Common stock - diluted
Class B common stock - diluted
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
53,704 $
16,297
2,635
53,979 $
17,657
4,122
55,308 $ 61,629
20,177
17,569
8,283
2,887
0.20 $
0.18
0.20
0.18
0.31 $
0.28
0.30
0.27
0.22 $
0.19
0.21
0.19
0.62
0.55
0.59
0.54
38,812 $
12,359
(1,147 )
42,418 $
14,343
689
45,235 $ 50,472
16,357
15,766
1,885
228
(0.09 ) $
(0.08 )
(0.09 )
(0.08 )
0.05 $
0.05
0.05
0.05
0.02 $
0.02
0.02
0.02
0.14
0.13
0.14
0.13
57
ITEM 9A. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of May 28, 2022.
Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed
in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management,
including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded
that the Company’s disclosure controls and procedures were effective as of May 28, 2022 at a reasonable assurance level.
(b)
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Under the supervision of the Chief Executive Officer and Chief Financial Officer, management conducted an assessment of
the effectiveness of our internal control over financial reporting as of May 28, 2022 based on the framework in the Internal Control-
Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on that assessment, management has concluded that the Company’s internal control over financial reporting was effective as of
May 28, 2022.
Management’s assessment of the effectiveness of our internal control over financial reporting as of May 28, 2022 has been
audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report, which is included herein.
(c)
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
58
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Richardson Electronics, Ltd.
LaFox, Illinois
Opinion on Internal Control over Financial Reporting
We have audited Richardson Electronics Ltd.’s (the “Company’s”) internal control over financial reporting as of May 28, 2022, based
on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of May 28, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”),
the consolidated balance sheets of the Company as of May 28, 2022 and May 29, 2021, the related consolidated statements of
comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended May 28, 2022, and
the related notes and our report dated August 1, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Chicago, Illinois
August 1, 2022
59
ITEM 9B. Other Information
None
60
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
Information concerning directors and executive officers of the registrant will be contained in our Proxy Statement to be
issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 4, 2022 and is incorporated herein by
reference.
ITEM 11. Executive Compensation
Information concerning executive compensation will be contained in our Proxy Statement to be issued in connection with our
Annual Meeting of Stockholders scheduled to be held on October 4, 2022 and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning security ownership of certain beneficial owners and management will be contained in our Proxy
Statement to be issued in connection with our Annual Meeting of Stockholders scheduled to be held on October 4, 2022 and is
incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth information as of May 28, 2022, with respect to compensation plans under which equity
securities were authorized for issuance:
Number of
Securities to
be Issued
Upon Exercise
of Outstanding
Options,
Warrants and
Rights
Weighted
Average Per
Share
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
Number of
Securities
Remaining
Available
for Future
Issuance
Under Equity
Compensation
Plans (Excluding
Securities
Reflected in
the First
Column)
1,124,291
$
7.71
1,301,589
23,564 (1)
$
1,147,855
12.95 (1)
7.82
—
1,301,589
Plan Category
Equity Compensation Plans Approved by
Security Holders
Equity Compensation Plans Not Approved
by Security Holders
Total
(1) Options issued in 1987 pursuant to an employment contract with a former officer and director of Richardson Electronics,
Ltd.
ITEM 13. Certain Relationships and Related Transactions and Director Independence
Information concerning certain relationships and related transactions will be contained in our Proxy Statement to be issued
in connection with our Annual Meeting of Stockholders scheduled to be held on October 4, 2022 and is incorporated herein by
reference.
ITEM 14. Principal Accountant Fees and Services
Information concerning accountant fees and services will be contained in our Proxy Statement to be issued in connection with
our Annual Meeting of Stockholders scheduled to be held on October 4, 2022 and is incorporated herein by reference.
61
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a)
List of Documents Filed as a Part of This Report:
(1)
Index to Consolidated Financial Statements:
Consolidated Balance Sheets as of May 28, 2022 and May 29, 2021.
Consolidated Statements of Comprehensive Income (Loss) for each of the three years ended May 28, 2022, May 29,
2021 and May 30, 2020.
Consolidated Statements of Cash Flows for each of the three years ended May 28, 2022, May 29, 2021 and May 30,
2020.
Consolidated Statements of Stockholders’ Equity for each of the three years ended May 28, 2022, May 29, 2021 and
May 30, 2020.
Notes to Consolidated Financial Statements.
Report of BDO USA, LLP, Independent Registered Public Accounting Firm.
(2)
Index to Financial Statement Schedules:
All schedules have been omitted because the required information is included in the consolidated financial statements or the
notes thereto, or is not applicable or required See Exhibit Index.
(b)
Financial Statements and Financial Statement Schedules.
Our consolidated financial statements being filed as part of this Form 10-K are filed on Item 8 of this Form 10-K. All other
schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have been omitted.
ITEM 16. Form 10-K Summary
None
62
Exhibit
Number
EXHIBIT INDEX
Description
2(a)
2(b)
2(c)
Purchase Agreement between the Company and International Medical Equipment & Services, Inc. dated June 15, 2015
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 17,
2015).
Acquisition Agreement, dated October 1, 2010, among Richardson Electronics, Ltd., certain subsidiaries of Richardson
Electronics, Ltd. and Arrow Electronics, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report
on Form 8-K, filed with the Securities and Exchange Commission on October 1, 2010).
Amendment No. 1 to Acquisition Agreement, dated February 28, 2011, between Richardson Electronics, Ltd., and Arrow
Electronics, Inc. (incorporated by reference to Exhibit 10(q)(i) to the Company’s Annual Report on Form 10-K for the
fiscal year ended May 28, 2011).
3(a)
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Annex III of the Proxy
Statement filed August 22, 2014).
3(b)
Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed with the SEC on June 12, 2017).
4*
Description of the Company’s Securities.
10(a) † Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan (incorporated by reference to Annex A to the Company’s
Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on August 23, 2011).
10(a)(i) † Amendment to the Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan (incorporated by reference to Annex II to
the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on August 22,
2014).
10(a)(ii)†
Amendment Two to the Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan (incorporated by reference to Annex
I to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on August 24,
2018).
10(b) † Amended and Restated Edward J. Richardson Incentive Plan (incorporated by reference to Appendix A to the Company’s
Proxy Statement on Schedule 14A, filed with the SEC on August 30, 2012).
10(c) † Richardson Electronics, Ltd. 2006 Stock Option Plan for Non-Employee Directors (incorporated by reference to Exhibit A
to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission on
September 12, 2005).
10(d) † Employment, Nondisclosure and Non-Compete Agreement, dated June 1, 2004, by and between the Company and Wendy
Diddell (incorporated by reference to Exhibit 10.47 to the Company’s Amendment No. 4 to the Registration Statement on
Form S-1, Registration No. 333-113568, filed June 14, 2004).
10(d)(i) † First Amendment to Employment, Nondisclosure and Non-Compete Agreement, dated May 31, 2007, by and between the
Company and Wendy Diddell (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed with the Securities and Exchange Commission on June 6, 2007).
10(e) † Employment, Nondisclosure and Non-Compete Agreement dated June 26, 2014, by and between the Company and
Gregory J. Peloquin (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on June 27,
2014).
63
10(f) † Employment, Nondisclosure and Non-Compete Agreement between the Company and Lee A. McIntyre III dated June 15,
2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June
17, 2015).
10(f)(i) †
Amendment to the Employment, Nondisclosure and Non-Compete Agreement between the Company and Lee A.
McIntyre III dated June 15, 2015 (incorporated by reference to Exhibit 10(u) to the Company’s Annual Report on Form
10-K for the fiscal year ended June 2, 2018).
10(f)(ii) †
Amendment, dated December 14, 2018, to the Employment, Nondisclosure and Non-Compete Agreement between the
Company and Lee A. McIntyre III dated June 15, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the second quarter of fiscal year ended June 1, 2019).
10(g) † Employment, Nondisclosure and Non-Compete Agreement between the Company and Robert J. Ben dated as of August 4,
2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K with the SEC on August 7,
2015).
10(h) † Form of Restricted Stock Award Agreement Pursuant to the Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10(r) to the Company’s Annual Report on Form 10-K for the fiscal year ended
June 2, 2018).
10(i) †
Form of Nonqualified Stock Option Award for Employees Pursuant to the Richardson Electronics, Ltd. 2011 Long-Term
Incentive Plan (incorporated by reference to Exhibit 10(s) to the Company’s Annual Report on Form 10-K for the fiscal
year ended June 2, 2018).
10(j) †
Form of Nonqualified Stock Option Award for Consultants Pursuant to the Richardson Electronics, Ltd. 2011 Long-Term
Incentive Plan (incorporated by reference to Exhibit 10(t) to the Company’s Annual Report on Form 10-K for the fiscal
year ended June 2, 2018).
10(k) †
Disclosure of departure of Patrick Fitzgerald and change of responsibility of Wendy Diddell dated March 13, 2019
(incorporated by reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 14, 2019).
10.1 †
Employment, Nondisclosure and Non-Compete Agreement between the Company and Jens Ruppert dated June 25, 2015
(incorporated by reference to the Company’s Current Report on Form 10-Q, filed with the Securities and Exchange
Commission on October 10, 2019).
10.2 †
Amendment, dated May 11, 2021, to the Employment, Nondisclosure and Non-Compete Agreement between the
Company and Lee A. McIntyre III dated June 15, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s
Annual Report on Form 10-K for the fiscal year ended May 28, 2022).
10.3 †
Richardson Electronics, Ltd. Amended and Restated 2011 Long-Term Incentive Plan (incorporated by reference to Annex
A of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on August 24, 2020).
10.4 †
Form of Restrictive Stock Award Agreement Pursuant to the Richardson Electronics, Ltd. Amended and Restated 2011
Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for
the fiscal year ended May 28, 2022).
10.5 †
Form of Nonqualified Stock Option Award for Employees Pursuant to the Richardson Electronics, Ltd. Amended and
Restated 2011 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on
Form 10-K for the fiscal year ended May 28, 2022).
14* Richardson Electronics, LTD. Code of Conduct.
21* Subsidiaries of the Company.
64
23.1* Consent of Independent Registered Public Accounting Firm - BDO USA, LLP.
31.1* Certification of Edward J. Richardson pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed pursuant to
Part I).
31.2* Certification of Robert J. Ben pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (filed pursuant to Part I).
32*
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed pursuant to Part I).
101*
The following financial information from our Annual Report on Form 10-K for the fourth quarter and fiscal year ended
May 28, 2022, filed with the SEC on August 1, 2022, formatted in Inline Extensible Business Reporting Language
(XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss) and Comprehensive
Income (Loss), (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statement of Stockholder’s Equity
and (v) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
†
*
Executive Compensation Plan or Agreement
Filed herewith
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signature
Title
By:
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board, Chief Executive Officer
(Principal Executive Officer), President and Director
Date
August 1, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board, Chief Executive Officer
(Principal Executive Officer), President and Director
Date
August 1, 2022
Chief Financial Officer and Chief Accounting Officer
August 1, 2022
(Principal Financial and Accounting Officer)
Director
August 1, 2022
August 1, 2022
August 1, 2022
August 1, 2022
August 1, 2022
August 1, 2022
/s/ Robert J. Ben
Robert J. Ben
/s/ Jacques Belin
Jacques Belin
/s/ James Benham
James Benham
Director
/s/ Wendy S. Diddell
Wendy S. Diddell
Director
/s/ Kenneth Halverson
Kenneth Halverson
Director
/s/ Robert Kluge
Robert Kluge
/s/ Paul J. Plante
Paul J. Plante
Director
Director
66
Exhibit 4
DESCRIPTION OF THE COMPANY’S SECURITIES
Description of Capital Stock
As of June 1, 2022, Richardson Electronics, Ltd. (the “Company,” “we,” “us,” and “our”) has one
class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended:
our common stock (the “Common Stock”).
The following description of our capital stock is a summary of the material terms and provisions
that apply to our capital stock. The summary does not purport to be complete. The summary is
subject to and qualified in its entirety by reference to our Amended and Restated Certificate of
Incorporation (“Certificate of Incorporation”) and our Amended and Restated By-Laws (“By-
Laws”), which are filed as exhibits to our Annual Report on Form 10-K and are incorporated by
reference herein. We encourage you to carefully review our Certificate of Incorporation and our
Bylaws for additional information.
As of July 25, 2022, there were outstanding 11,697,419 shares of Common Stock and 2,053,263
shares of Class B common stock (the “Class B Stock”).
Authorized Capital Stock
Our Certificate of Incorporation authorizes the issuance of up to 20,000,000 shares, comprised of
17,000,000 shares of Common Stock, par value $.05 per share and 3,000,000 shares of Class B
Stock, par value $.05 per share.
Common Stock
Voting Rights
The holders of our Common Stock are entitled to one vote for each share they own and vote
together with holders of Class B Stock and any preferred stock on all matters voted on by our
stockholders (except to the extent required by law or provided by the Certificate of Incorporation).
The Common Stock does not have cumulative voting rights.
Dividends
The holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such
dividends as may be declared from time to time by the Board of Directors, provided, however,
that: (a) no cash dividend shall be declared or paid on the Common Stock unless a cash dividend
equal to 90% of the cash dividend on the Common Stock is simultaneously declared and paid on
the Class B Stock; (b) other than cash dividends under (a) above, no other distribution of assets,
property, rights to subscribe or evidence of indebtedness shall be declared or paid on the Common
Stock unless a distribution in like kind and equal per share amount is simultaneously declared and
paid on the Class B Stock; and (c) stock dividends declared on the Common Stock shall be payable
solely in shares of Common Stock. No stock dividend shall be declared or paid on the Common
Stock unless a stock dividend payable in shares of Class B Stock, proportionately on a per share
basis, is simultaneously declared and paid on the Class B Stock.
Other Provisions
All of the outstanding shares of Common Stock are fully paid and non-assessable. Holders of
Common Stock have no preemptive rights to purchase or subscribe for any stock or other securities
and there are no conversion rights or redemption or sinking fund provisions with respect to our
Common Stock.
Class B Stock
Voting Rights
The holders of our Class B Stock are entitled to ten votes for each share they own and vote together
with holders of Common Stock and preferred stock on all matters voted on by our stockholders
(except to the extent required by law or provided by the Certificate of Incorporation).
The Class B Stock does not have cumulative voting rights.
Dividends
The holders of the Class B Stock shall be entitled to receive, to the extent permitted by law, such
dividends as may be declared from time to time by the Board, provided, however, that: (a) no cash
dividend shall be declared or paid on the Class B Stock unless a cash dividend is simultaneously
declared and paid on the Common Stock in an amount so that the cash dividend on the Class B
Stock is 90% of the cash dividend on the Common Stock; (b) other than cash dividends under (a)
above, no other distribution of assets, property, rights to subscribe or evidence of indebtedness
shall be declared or paid on the Class B Stock unless a cash dividend or such other distribution in
like kind and equal per share amount is simultaneously declared and paid on the Common Stock;
and (c) stock dividends declared on the Class B Stock shall be payable solely in shares of Class B
Stock. No stock dividend shall be declared or paid on the Class B Stock unless a stock dividend
payable in shares of Common Stock, proportionately on a per share basis, is simultaneously
declared and paid on the Common Stock.
Restrictions on Transfer
Shares of Class B Stock are not freely transferable. A holder of shares of Class B Stock may
transfer those shares (whether by sale, assignment, gift, bequest, appointment or otherwise) only
to a “Permitted Transferee” (as defined below). A transfer of Class B Stock to any person or entity
other than a “Permitted Transferee” will result in the automatic conversion of those shares of Class
B Stock into shares of Common Stock on a share-for-share basis.
The “Permitted Transferees” of an individual holder of shares of Class B Stock generally include
record holders of shares as described below:
(i)
(ii)
(iii)
(iv)
(v)
that stockholder's spouse;
any lineal descendant of a grandparent of that stockholder and any spouse of that lineal
descendant (we refer to these descendants and their spouses, together with the
stockholders in question and their spouses, as the “Class B stockholder's family
members”);
a trustee of a trust for the sole benefit of that stockholder, that Class B stockholder's
family members and certain charitable organizations;
certain charitable organizations established by that stockholder or that Class B
stockholder's family members or the Company;
a partnership or corporation all of the beneficial ownership of which is owned (and
continues to be owned) by that stockholder and/or certain other Permitted Transferees;
(vi)
the executor or administrator of the estate of that stockholder; and
(vii)
an employee stock ownership plan of ours.
Shares of Class B Stock may only be registered in the name of the beneficial owner thereof and
not in a “street” or “nominee” name. The “beneficial owner” of shares of Class B Stock is defined
as the person or persons who, or the entity or entities which, possess the power to direct the voting
or the disposition of such shares.
Conversion
Shares of Class B Stock are convertible into Common Stock on a share-for-share basis at all times
at the option of the holder without charge for any stamp or similar tax in respect of such issuance.
In general, the conversion will be effective as of the date the Class B Stock is surrendered to us for
conversion.
Any transfer, pledge or other disposition of shares of Class B Stock other than to a Permitted
Transferee will result in an automatic conversion to Common Stock, on a share-for-share basis,
unless such pledge is pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be transferred to or registered
in the name of the pledgee and shall remain subject to the restrictions of transfer described above.
If at any time the number of issued and outstanding shares of Class B Stock falls below 10% of
the aggregate number of issued and outstanding shares of Common Stock, Class B Stock and
preferred stock, all the outstanding shares of Class B Stock immediately and automatically will be
converted into shares of Common Stock. In the event of such a conversion, certificates formerly
representing outstanding shares of Class B Stock will thereafter be deemed to represent a like
number of shares of Common Stock.
All shares of Class B Stock received by the Company upon conversion thereof into Common Stock
will be returned to the status of authorized but unissued shares of Class B Stock.
Other Provisions
All of the outstanding shares of Class B Stock are fully paid and non-assessable. Holders of Class
B Stock have no preemptive rights to purchase or subscribe for any stock or other securities and
there are no redemption or sinking fund provisions with respect to our Class B Stock. The Class B
Stock is subject to transfer and conversion restrictions described above.
Certain Provisions of Delaware Law, Our Certificate of Incorporation and By-Laws
Class B Stock
The holders of our Class B Stock are entitled to 10 votes for each share they own. As a result, the
holders of Class B Stock have the ability to elect our board of directors. So long as the holders of
Class B Stock constitute more than 50% of our voting power, they have the ability to control any
possible merger, consolidation or sale of assets involving us.
Delaware Anti-Takeover Law
We are subject to Section 203 (“Section 203”) of the Delaware General Corporation Law. Under
this provision, we may not engage in any “business combination” with any interested stockholder
for a period of three years following the date the stockholder became an interested stockholder,
unless:
(i)
(ii)
(iii)
prior to that date our Board of Directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the voting
stock outstanding at the time the transaction began; or
on or following that date, the business combination is approved by our Board of
Directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines “business combination” to include, subject to limited exceptions:
(i)
(ii)
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder;
(iii)
any transaction that results in the issuance or transfer by the corporation of any stock
of the corporation to the interested stockholder;
(iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation beneficially
owned by the interested stockholder; or
(v)
the receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an “interested stockholder” as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by the entity or person.
The restrictions of Section 203 of the Delaware General Corporation Law do not apply to
corporations that have elected, in the manner provided therein, not to be subject to Section 203 of
the Delaware General Corporation Law. The Company has not made such an election.
Accordingly, the Company would be subject to Section 203 in the event of a business combination.
Transfer Agent
EQ Shareholder Services is the Transfer Agent and Registrar for our capital stock.
Exhibit 14
RICHARDSON ELECTRONICS, LTD.
CODE OF CONDUCT
Effective April 2022
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TABLE OF CONTENTS
1. ETHICAL COMMITMENT
1.1. Honest and Integrity
1.2. Responsibilities as Leaders
1.3. A Simple Test for Ethical Decision Making
1.4. Purpose of the Code of Conduct
1.5. Applicability of the Code of Conduct
2. RESPONSIBILITY TO PROTECT
2.1. Tangible Corporate Assets
2.2. Intangible Corporate Assets
2.2.1. Richardson Electronics, Ltd. Confidential / Proprietary Information and
Intellectual Property
2.2.2. Confidential/Proprietary Information of Others
2.2.3. Protecting Competitive Information
2.2.4. Personal Use of Material Non-Public Information
2.2.5. Protecting Employee Information (Employee Privacy)
2.3. Document Ownership and Retention
2.4. Avoiding Misrepresentation
3. CONFLICTS OF INTEREST
3.1. Family and Friends
3.2. Gifts and Entertainment
3.2.1. Gifts and Entertainment to/from Government Officials
3.3. Purchasing Decisions and Supplier Relations
3.4. Employment Outside the Company
3.5. Ownership in Other Businesses
3.6. Misappropriation of Business Opportunities
3.7. Political Activity and Contributions
3.8. Conflict Disclosure Requirements
4. ACCURATE REPORTING AND RECORDS MANAGEMENT
4.1. Corporate Disclosure Requirements
4.2. Proper Accounting and Recordkeeping
5. RESPECT AND COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS
5.1. Labor and Employment
5.2. Fair Competition and Antitrust
5.2.1. Dealing with Customers
5.2.2. Dealing with Competitors
5.2.3. Participating in Industry Associations
5.3. The Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and The
Organization for Economic Co-Operation and Development (OECD) Anti-
Bribery Convention
5.3.1. Foreign Government Officials Defined
5.3.2. Bribes and Kickbacks
5.3.3. Commissioned Agents, Sales Representative and Consultants
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5.3.4. Recordkeeping
5.3.5. Facilitation Payments
5.4.
5.5.
Environmental, Health and Safety
Import and Export Laws
6. Import and Export Laws
6.1. Obligation to Report
6.2. Retaliation Prohibited
6.3. Confidential Reporting
6.4. Whistleblower Protection Rights
7. IMPLEMENTATION OF THE CODE
7.1. Administration
7.2. Acknowledgment
7.3. Disciplinary Actions
7.4. Waivers of the Code
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1.
ETHICAL COMMITMENT
As a Richardson Electronics, Ltd. employee or Director, you are expected to act in the best
interests of the Company and in a manner that is consistent with the highest legal, moral, and
ethical business standards. This high standard is crucial to upholding the integrity of our
corporation.
As employees and Directors, we are accountable to behave honestly and with integrity in all of
our business practices, including when we deal with customers, suppliers, other third parties
and with one another. By doing so we help to shape Richardson Electronics, Ltd.’s reputation –
an intangible asset that, when positive, is so important to have, so easy to lose and so difficult to
recapture. We will walk away from business we cannot achieve ethically and legally.
The following commitments establish the basis for the Company’s Code of Conduct:
• To our employees: We are committed to providing all employees the opportunity to work
in an environment free of harassment and unsafe conditions.
• To our suppliers: We are committed to being a good customer, encouraging and
practicing fair competition, maintaining a sense of responsibility, and building
professional and ethical relationships.
• To our customers: We are committed to providing value through high- quality service
and products.
• To our communities: We are committed to responsible actions within our greater
community.
This Code of Conduct will provide a framework and a set of guidelines for compliance with the
ethical standards which guide our daily business activities. In conducting our business we
support Richardson Electronics, Ltd.’s interests by understanding and practicing the spirit of the
guidelines set forth in this Code of Conduct. Observing this Code is of utmost importance to
Richardson Electronics, Ltd. The character of Richardson Electronics, Ltd. is reflected by the
daily actions of its employees.
This Code of Conduct cannot and is not intended to cover every applicable law or provide
answers to all questions that might arise; for that we must ultimately rely on each person’s
sense of what is right, including a sense of when it is proper to seek guidance from others on
the appropriate course of conduct.
Whether you are new to Richardson Electronics, Ltd. or have been contributing to our success
for many years, please take the time to review these guidelines carefully.
1.1. Honesty and Integrity
There are two dimensions to honesty: honesty in communications and honesty in
conduct.
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Honesty in communications requires a good-faith intent to be truthful, accurate,
straightforward and fair in all communications so that persons are not misled or
deceived. Honesty in communications requires:
• Truthfulness: The ethical principle of truthfulness requires the good- faith
intent to tell the truth. Truthfulness precludes intentional misrepresentations
of fact, intent or opinion.
• Sincerity: Sincerity means that we will not create belief or impressions that
are untrue, misleading or deceptive, including deliberate omissions, half-
truths and out-of-context statements.
• Candor: In relationships involving legitimate expectations of trust, honesty
may also require candor, the obligation to volunteer information that the other
person needs or wants to know.
Honesty in conduct precludes stealing, cheating, fraud, deception and other forms of
dishonesty to acquire anything of value (including money, jobs, competitive
information or the approval of others).
Integrity embraces but means more than honesty. Integrity refers to the ethical
principle of consistency between principle and practice. Integrity requires us to treat
our beliefs about right and wrong as the ground rules for our daily behavior and
decision-making. It requires us to walk our talk and to make decisions consistent
with our values, especially our ethical values.
There are two aspects to integrity: being principled and having moral courage.
• Being principled involves the elevation of principle over expediency or self-
interest and requires a consistency between words and actions. You don’t
just say what you believe about ethics, you show it.
• Moral Courage requires us to do what is right even when it is likely to cost us
more than we want to pay and more than we think is fair. It occasionally
requires us to stand up and be counted, to fight for our beliefs, to
demonstrate the courage of our convictions in spite of social, economic or
political pressures.
1.2. Responsibilities as Leaders
Each of Richardson Electronics, Ltd.’s leaders has a unique responsibility to
encourage discussion of the ethical and legal implications of business decisions.
This responsibility includes creating and sustaining a work environment in which
employees, business partners, suppliers and contract workers and consultants know
that ethical and legal behavior is expected of them. Such an environment requires
open and honest two-way communications and being alert to indications that
unethical or illegal conduct has occurred. At all times leaders are to advance,
ethically and legally, the interests of Richardson Electronics, Ltd. This includes
notifying appropriate executive management and taking appropriate action when it is
determined that violations may have occurred.
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1.3. A Simple Test for Ethical Decision Making
If you are not certain that your actions are proper, a simple check is to ask yourself
the following questions:
• How would I feel if my family or friends knew of my actions?
• Would I behave differently if I knew my actions would be reported on the
evening news?
• Does this meet “the treat others as you would like them to treat you” test?
If the threat of public scrutiny makes you squirm, then your conscience is
saying something important. Pay attention. You're playing with something
that could tarnish a reputation, yours and Richardson Electronics, Ltd.'s. If in
doubt, ask. Talk it out with your supervisor.
1.4.
Purpose of the Code of Conduct
The purpose of the Company’s Code of Conduct is to provide guidelines for
conducting Company business in a legally and ethically appropriate manner. Each
Director and employee is responsible for ensuring that his or her own conduct
complies with this Code. Any person who violates the Code of Conduct will be held
accountable for his or her action(s). Disciplinary action for violations of the Code
may range up to and include immediate termination.
All statements contained in this Code are intended to reflect general policies,
principles, and procedures, do not represent contractual commitments on the part of
the Company, and may be changed at any time without notice.
Without limiting the generality of the foregoing, nothing in this Code should be
construed to grant to any employee any right to benefits under any employee benefit
plan, program or arrangement.
Any time that you have questions about the Code of Conduct, or the application of
these principles, contact your supervisor, your Human Resources Representative or,
if necessary, the Chief Executive Officer of the Company.
1.5. Applicability of the Code of Conduct
These guidelines apply equally to Directors, Company officers, employees and
individuals who are engaged to assist or render services on behalf of Richardson
Electronics, Ltd. This includes attorneys, business consultants, advisors, agents,
contractors and other representatives in providing such services. It is contrary to our
code of conduct to engage another individual to do something on our behalf that
would be in violation of our code and that we are prohibited from doing ourselves.
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2.
RESPONSIBILITY TO PROTECT
A Company’s assets, both tangible and intangible, are intended to advance the interests of the
Company and represent a source of current and future value for the Company. Company
assets include tangible items such as facilities, equipment, inventory, funds, business records,
computer systems and equipment. The intangible assets of the Company include things such
as company time, intellectual property (e.g. patents and trademarks), competitive information
and other proprietary or sensitive information. Each of us has a responsibility to protect
Company assets from theft, loss, damage, and waste so as to avoid a negative impact on the
Company’s profitability, value and prospects.
2.1.
Tangible Corporate Assets
Any use of Company property, facilities, or employee services must comply with the
appropriate Company policies. These policies include, but are not limited to, the
policies described in the Employee Handbook. Company personnel have
accountability for the acquisition, use or misuse, and disposition of Company
property. Employees may not take or divert Company property, equipment, or
employee services for personal use.
Proper use and safeguarding of Richardson Electronics, Ltd.’s information systems
assets is governed by the Policy on the Use of Company Property and
Communications Systems.
2.2.
Intangible Corporate Assets
2.2.1. Richardson Electronics, Ltd. Confidential/Proprietary Information and
Intellectual Property
Each Richardson Electronics, Ltd. employee is responsible for safeguarding
and appropriately using the Company’s intangible assets, such as
confidential/proprietary information, intellectual property and innovative ideas.
Richardson Electronics, Ltd. employees shall not, at any time during or
subsequent to employment, disclose any confidential/proprietary information
or intellectual property to any person or entity that is not an employee of
Richardson Electronics, Ltd. This responsibility to protect confidential
information is subject to Whistleblower Protection Rights.
“Confidential/proprietary information” means any information not generally
known or previously published to the public by Richardson Electronics, Ltd.
which concerns any of Richardson Electronics, Ltd.’s business or prospective
future business. This includes, for example, non-public financial, business
and operating information, budgets, sales or earnings forecasts, business
and strategic plans, pricing information and contract terms, information about
customer, supplier or prospects, marketing plans, new product or service
information, and other proprietary business information and methods.
Intellectual property assets are not limited to those in written form, but also
include information in electronic form as well as information that may be held
in the minds and memories of Richardson Electronics, Ltd. employees.
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“Intellectual property” includes information pertaining to patents, trademarks,
copyrights and trade secrets. Such information/property should not be
disclosed to third parties without the express consent of the Chief Executive
Officer or a Senior Vice President of the Company. Access to sensitive
Company information should be limited to those who legitimately need it to do
work for Richardson Electronics, Ltd. It should be used for Company
business purposes only, and not for personal benefit or the benefit of others.
2.2.2.
Confidential/Proprietary Information of Others
Confidential/proprietary information belonging to other companies must be
given protection against unauthorized disclosure and use consistent with the
specific obligations Richardson Electronics, Ltd. agreed to when it accepted
such information. In the absence of such specific obligations, third-party
confidential and proprietary information is to be given the same level of
protection against unauthorized disclosure and use that we give our own
information.
2.2.3.
Protecting Competitive Information
To compete and succeed in the global marketplace, every Richardson
Electronics, Ltd. employee has a responsibility to protect the company’s
competitive information. To that end, employees should:
• Avoid taking sensitive documents from Company premises. If you
must, keep valuable papers with you at all times. Documents left
unattended are subject to compromise or theft.
• Mark confidential documents when sending electronically or otherwise
to customers, suppliers, Richardson Electronics, Ltd. employees and
other authorized recipients.
• Be guarded in what you say on the telephone in public settings and on
mobile phones.
• Guard your laptop computer. Stealing laptops is a common way of
acquiring business secrets.
• Be careful what you say in casual conversation with "friendly"
strangers. Pay attention to those around you who might overhear a
business conversation.
• Remember that trashed papers, disks, audio tapes and other items
can be treasures for unauthorized people who are interested in
knowing more about Richardson Electronics, Ltd.'s business. Use
appropriate practices (shredding, secure containers, etc.) when
disposing of sensitive materials.
• Theft of briefcases is common; take care not to leave your brief case
unattended. Avoid leaving computers, briefcases or other sensitive
materials in unattended vehicles.
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2.2.4. Personal Use of Material Non-Public Information
Directors, officers and Richardson Electronics, Ltd. employees may have
access to material information about Richardson Electronics, Ltd. or other
companies that is not publicly available. Federal and state securities laws
prohibit “insider trading” on such information. Penalties for insider trading are
serious and can include criminal prosecution. Employees are also restricted
by the Company’s Insider Trading Policy.
Additional information about insider trading can be found in Richardson
Electronics, Ltd.’s Insider Trading Policy. Questions about insider trading
should be directed to the Chief Financial Officer.
2.2.5. Protecting Employee Information (Employee Privacy)
Richardson Electronics, Ltd. requires access to personal employee
information in order to administer programs such as payroll and benefits.
Information such as personal phone number(s), address, Social Security
Number, family information, benefits selections, medical conditions, salary
and performance ratings is considered confidential. This data as well as
employee personnel files can be accessed only by authorized employees for
business purposes or other purposes permitted by law. Additionally, this
information will be shared outside of the Company only as required by law, to
administer benefits or other programs, to make decisions about the
applicability of certain laws, or as necessary for other business reasons.
If, as an employee, you have access to personal information about any of our
employees as part of your job, you must use it solely for business purposes
or as permitted/required by law.
2.3. Document Ownership and Retention
Procedures have been established to assure that records are maintained for required
periods and that records no longer needed are destroyed on a timely basis. Record
retention schedules should be reviewed regularly and followed consistently.
All documents created by any of the Richardson Electronics, Ltd.’s employees in the
performance of their job duties are the property of the Richardson Electronics, Ltd. If
you have any doubt about the propriety or legality of disposing of a document, it is
imperative that you consult with your Supervisor, your Human Resources
Representative or, if necessary, the Chief Executive Officer of the Company.
Directors and Company Officers should consult with the Chief Executive Officer or, if
necessary, the Chairman of the Audit Committee. Destruction of records to avoid
disclosure in a legal proceeding may constitute a criminal offense.
If you have reason to believe that other individuals have withheld, unlawfully
disposed of, falsified, or are considering destroying or falsifying potentially relevant
documents, you must report your suspicions immediately to your Supervisor, your
Human Resources Representative or, if necessary, the Chief Executive Officer of the
Company.
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2.4. Avoiding Misrepresentation
It is important that you not present a false or misleading impression of the authority
you have to act on the Company’s behalf. With regard to requests for proprietary
information or opinions about our business, it is inappropriate for you to speak on the
Company’s behalf, unless specifically authorized.
3.
CONFLICTS OF INTEREST
Each employee, Director and Company Officer will act with honesty and integrity, including the
ethical handling of actual or apparent conflicts of interest among personal and professional
relationships. All Company Directors and employees are expected to make business decisions
based on the best interests of Richardson Electronics, Ltd. as a whole and not based on
personal interests, relationships or benefits. We are accountable to perform our job
responsibilities in an ethical manner to avoid inappropriate conflicts of interest or the
appearance of such conflicts.
A conflict of interest generally arises when an individual’s personal or private interest in a
situation or transaction influences or appears to influence the individual’s ability to act in the
best interests of the Company as a whole or otherwise impairs that individual’s objective
judgment as to what is best for the Company.
Actual or potential conflict of interest situations may arise directly or indirectly, through the
involvement of a family member or close personal friend. Such situations include, but are not
limited to, making purchasing decisions based on self-interest rather than the Company’s
interest, taking on outside work that makes it difficult to objectively or effectively carry out our
responsibilities to the Company, engaging in personal relationships that might impair our
independence or judgment, or accepting unearned personal benefits as a result of our position
at Richardson Electronics, Ltd.
Employees are obligated to review their personal and employment situations and discuss, with
the Chief Executive Officer, any possible conflicts of interest or appearances of conflicts of
interest that may arise from their own relationships, transactions or activities, or from the
relationships, transactions or activities of their immediate family members.
Although it is impossible to identify every situation in which such conflicts could occur, sections
3.1 through 3.7 of this Code provide guidance regarding some common conflicts of interest:
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3.1.
Family and Friends
While conflict of interest guidelines are not intended to unduly interfere with
employees' families or personal lives, there are situations in which the actions of
family members and close personal friends may present a conflict of interest for the
employee. A conflict of interest could arise if you, your spouse, a relative, a former
or current co-worker, or a close personal friend, have a personal stake in a company
that supplies or seeks to supply goods or services to Richardson Electronics, Ltd., is
a Richardson Electronics, Ltd. customer or potential customer, or competes with
Richardson Electronics, Ltd. If such situations exist, you should follow the standards
listed below:
•
If you, your spouse, a relative, a former or current co-worker or a close
personal friend is an employee of, or has a financial interest in a business that
provides or is seeking to provide goods or services to Richardson Electronics,
Ltd., you must not attempt to use your position with Richardson Electronics,
Ltd. to influence the bidding process or negotiation in any way. If you are
directly involved in supplier selection or purchasing functions, you must
declare this conflict of interest to your Supervisor immediately and be
removed from the decision-making process. Similarly, you must not use
personal relationships to improperly influence dealings with a customer or
potential customer.
•
If you have a relative or friend who works for a competitor, you should
discuss with the Chief Executive Officer. Potential problems can then be
discussed.
3.2. Gifts and Entertainment
The purpose of business gifts and entertainment in a commercial setting should be to
promote business relationships and goodwill, and not to create an unfair advantage
or improper influence. It is recognized that under certain circumstances and in some
cultures, gifts and entertainment play an important role in business relationships.
The problem arises when they begin to compromise, or even appear to compromise,
our ability to make objective and fair business decisions. For this reason,
Richardson Electronics, Ltd. requires moderation and discretion in the provision and
acceptance of gifts, entertainment and other business courtesies. All employees
must avoid any situation that could conflict, or appear to conflict, with the best
interests of the Company, or prejudice the way the Company does business.
While Richardson Electronics, Ltd. understands the value of proper business
courtesies, no gift or entertainment should be offered, given, provided or accepted by
any Director or employee or our agents if it may reasonably affect the recipient’s
ability or willingness to act in the best interests of the Company. Additionally, no gift
or entertainment should be offered, given, provided or accepted if it is accompanied
by an express or implied understanding that the recipient is obligated, or may appear
obligated, to provide preferential treatment to the provider in exchange for the gift.
Gifts are defined as anything given as a result of a business relationship for which
the recipient does not pay fair market value, including intangible goods and services
such as travel, lodging and entertainment.
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Gifts of nominal value, or normal business sales promotion items, may be offered or
accepted if they are customary in the trade and would not cause, or appear to cause,
the donor to be embarrassed or the recipient to be embarrassed or obligated. For
purposes of these guidelines, gifts valued at or perceived to have a retail value
greater than $100 are considered to be outside of the definition of nominal.
Business entertainment (including meals, golfing, lodging, and transportation) should
be reasonable and appropriate for the occasion. Good judgment must be exercised,
and entertainment must not appear unusual, lavish or extravagant as viewed by an
objective third party. A legitimate business purpose for all entertainment must exist
and, if an employee expense report is to be filed, appropriate documentation
supporting the expenses must be provided in accordance with corporate policy. To
avoid the appearance of an obligation or of improper influence, both the business
associate and the employee must be present.
When local customs or other circumstances make it very difficult or embarrassing for
an employee not to accept a gift with a value in excess of $100, the employee must
report the acceptance or the offering of the gift to the Chief Financial Officer.
Depending on the value of the accepted gift and specific circumstances, the gift may
become Company property. If required by local customs or other circumstances,
gifts given in excess of $100 must be approved in advance, accurately and
completely accounted for and reported on company books and records.
The following are also subject to the aforementioned guidelines:
• Gifts received, or won, while an employee is participating in an event as a
representative of Richardson Electronics, Ltd.
• Gifts to an employee’s spouse, partner or other family member.
• Gifts exchanged during traditional gift-giving or holiday seasons.
• Gifts exchanged as part of a company event.
Under no circumstances are employees to solicit personal gifts, cash, cash
equivalents, loans, travel or personal discounts from Company business contacts.
3.2.1 Gifts and Entertainment to/from Government Officials
Outside the United States
In some countries, certain businesses are owned in whole or in part by the
government. Depending on the country, the managers and/or the employees
of these businesses might be considered government officials1. Under such
circumstances, ordinary and reasonable business entertainment or gifts as
defined above, which are customary and legal in the local environment, are
generally permissible. Additionally, reasonable and bona fide expenditures,
such as travel and lodging expenses directly related to the promotion or
demonstration of the Company’s products or services, may be acceptable.
However, consideration of the requirements of the Foreign Corrupt Practices
1 Refer to the Section 5/3/1 of this code for a definition of “government officials”.
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Act2 should be carefully considered whenever gifts and entertainment are
provided to foreign government officials. As Richardson Electronics, Ltd.
wishes to avoid even the appearance of impropriety, additional guidance
should be sought from the Chief Financial Officer prior to any such
transactions.
Inside the United States
Richardson Electronics, Ltd. does not permit the giving of any gifts, even
those of nominal value, to any U.S. government official or employee.
Expenses for moderate food and beverage, but no entertainment, may be
incurred when it is clear that the meal with the public official is being used for
proper business purposes.
3.3.
Purchasing Decisions and Supplier Relations
Personal conflicts of interest must be avoided when making purchasing decisions of
any kind.
When dealing with, influencing or making decisions affecting suppliers, employees
must be careful not to inadvertently obligate either themselves or the Company to a
supplier. When conducting business with suppliers, employees are expected to act
fairly, objectively and in the Company's best interest at all times. Purchasing
decisions must be based on need, price, quality, service and supply capabilities. In
practice, this means no employee will accept or solicit any benefit from a supplier or
potential supplier that might compromise, or even appear to compromise, his or her
objective assessment of the supplier's product. Such benefits include personal gifts,
cash, cash equivalents, loans, travel, personal discounts, employment offers for
family or friends, or anything else of other than nominal value.
All invoices submitted by a supplier or vendor must be in writing with sufficient and
accurate descriptions of all services rendered and applicable charges. No employee
will require suppliers to give up trade with our competitors or require suppliers to buy
our products to retain their supply agreements with us. No employee will pressure
another employee to make a purchasing decision motivated by that employee's
personal self-interest. To avoid even the appearance of putting pressure on
suppliers, no Company employee will solicit or accept gifts of merchandise or
services from suppliers for Company events or charitable activities.
2 Refer to Section 5.3 for additional information related to the Foreign Corrupt Practices Act.
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3.4.
Employment Outside the Company
While Richardson Electronics, Ltd. has no desire to interfere with the personal lives
of its employees, certain employment situations outside Richardson Electronics, Ltd.
raise potential conflict of interest situations. In some cases, Richardson Electronics,
Ltd. employees may be involved in outside businesses that are not Richardson
Electronics, Ltd. competitors or suppliers or may hold political office or serve on civic
boards. These situations do not necessarily constitute conflicts of interest, but it is
the employee's responsibility to ensure that this activity does not conflict with
Richardson Electronics, Ltd.'s interests. This requires keeping the two activities
strictly separate by:
• not doing work related to the other organization on Richardson Electronics,
Ltd. time;
• not using Richardson Electronics, Ltd. equipment and supplies, or the time of
any Richardson Electronics, Ltd. employee, for your outside work;
• not promoting products or services from an outside business to other
Richardson Electronics, Ltd. employees during working hours;
• not attempting to sell products or services from an outside business to
Richardson Electronics, Ltd.; and
• not using your Richardson Electronics, Ltd. employment or your position in
the company to promote an outside business.
Other employment situations clearly give rise to a conflict of interest and should be
avoided. These situations include requests to serve as directors or officers of, or
consultants or employees for any organization that supplies goods or services to
Richardson Electronics, Ltd., buys goods or services from Richardson Electronics,
Ltd. or competes with Richardson Electronics, Ltd. Individuals should not accept
such work without prior approval from the Chief Executive Officer. Additionally,
employees may not act as consultants or testify as an expert witness at the request
of third parties without prior approval from the Chief Executive Officer.
3.5. Ownership in Other Businesses
Richardson Electronics, Ltd. Directors and employees should not own, directly or
indirectly, a financial interest in any business entity that does or seeks to do business
with or is in competition with Richardson Electronics, Ltd. unless specific written
approval has been granted in advance by the Chief Executive Officer. As a guide,
financial interest is defined as ownership by an employee and/or family member(s) of
more than 1% of the outstanding securities/capital value of the business entity.
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3.6. Misappropriation of Business Opportunities
In some cases, Richardson Electronics, Ltd. may be interested in business or
investment opportunities identified by an employee or made known to an employee
as a result of one's contact with customers or suppliers. In such cases, an employee
is expected to advise Chief Executive Officer of such opportunities or investments
before acting on them either on behalf of the company or privately.
3.7.
Political Activity and Contributions
Richardson Electronics, Ltd. encourages its Directors and employees to become
involved in civic activities and affairs, including charitable or educational activities.
Such activities must be carried out on the employees' own time and at their own
expense.
3.8. Conflict Disclosure Requirements
The Chief Executive Officer and Chief Financial Officer of publicly traded companies
are required to personally certify to the accuracy of the Company’s financial
disclosures and adequacy of internal controls on a quarterly basis and Richardson
Electronics, Ltd. is required to disclose information about certain transactions
involving the Company and its directors, executive officers and other enumerated
parties in certain of its public filings. Accordingly, it is important for employees and
Directors to inform the Company of all related-party transactions. As a company, we
must ensure that all transactions are at “arms length” such that all potential parties to
a transaction have an equal opportunity to conduct business with Richardson
Electronics, Ltd.
For the avoidance of doubt, employees and Directors should inform the Company of
any goods or services purchase, or any other transaction with an outside party who
is related to either the purchasing decision maker or a member of Richardson
Electronics, Ltd.’s management team. A related party is defined as an individual (or
a business entity which that individual owns or is employed by) who is: (1) a current
or former employee of the company or Richardson Electronics, Ltd.; (2) related by
blood, marriage or cohabitation to a current or former employee of the company or
Richardson Electronics, Ltd.; or (3) serves or has served as a Director of the
company or Richardson Electronics, Ltd. All transactions that meet these criteria
must be disclosed to the Company regardless of materiality. Such disclosure does
not necessarily represent an inappropriate business relationship or transaction. If
the disclosure to the Company regarding such transaction is found to be conflicting,
appropriate action will be taken to ensure proper compliance.
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4.
ACCURATE REPORTING AND RECORDS MANAGEMENT
It is Richardson Electronics, Ltd.’s policy that information be recorded with honesty and integrity
such that the Company’s books and records accurately reflect all corporate transactions.
4.1. Corporate Disclosure Requirements
As a public company, Richardson Electronics, Ltd. is required to comply with
Securities and Exchange Commission (SEC) guidelines which require the filing of
various periodic and other reports with the SEC and for public disclosure. It is
Company policy to make appropriately full, fair, accurate, timely and understandable
disclosure in reports and documents the Company files or submits to the SEC and in
other public communications made by the Company. Both federal law and our
policies require the disclosure of accurate and appropriately complete information
regarding the Company’s business, financial condition and results of operations.
Each employee must ensure that all reasonable and necessary steps, within his or
her areas of responsibility, are taken to provide appropriately full, fair, accurate,
timely and understandable disclosure in reports and documents that the Company
files with or submits to the SEC or state regulators, and in all other regulatory filings.
The Directors and officers of Richardson Electronics, Ltd. are expected to promote
compliance with this policy any uphold an environment whereby all employees at all
times feel free to fully disclose the information required to ensure appropriately
complete, fair, accurate timely and understandable reporting. If any Director or
employee of Richardson Electronics, Ltd. has any concerns regarding Richardson
Electronics, Ltd.’s accounting or auditing practices, they are encouraged to report
those concerns immediately to the Chief Financial Officer or to the Chairperson of
the Audit Committee of the Board of Directors. An anonymous communication
channel has also been established as described in section 6.3 of this code.
In addition, each employee who participates in public and stockholder
communications must provide fair, accurate, understandable and appropriately
complete information whenever communicating with the Company’s stockholders or
the general public. As described in the Corporate Communications Policy, no
employee shall communicate, on behalf of the Company, with the Company’s
stockholders or the general public unless expressly authorized by the Company to
make these communications.
4.2.
Proper Accounting and Recordkeeping
It is the Company’s policy that all accounting and recordkeeping be an accurate and
true record of the Company’s financial transactions, accounts and business
operations. All transactions must be recorded in a timely and accurate fashion to
reflect the economics of the Company’s dealings. This includes accurate recording
of time worked, business expenses incurred, research, engineering and other test
results, production data, environmental reporting and all other business-related
activities.
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The making of false or fictitious entries in the Company’s books is prohibited. No
entry may be made on the company's books and records that intentionally hides or
disguises the true nature of any transaction. If an unintentional error is discovered it
must be corrected openly and promptly. Reports or records should not be used to
mislead those who receive them or to conceal anything that is improper or known to
be in error.
The Company’s Officers and other employees working in the accounting department
have a special responsibility to ensure that all of the Company’s financial disclosures
are full, fair, accurate, timely and understandable. These employees must
understand and strictly comply with generally accepted accounting principles and all
standards, laws and regulations for accounting and financial reporting of
transactions, estimates and forecasts.
In addition, accurate and reliable internal records and reports are critical to the
corporate decision-making process which relies on the data provided to management
and the Board of Directors. Accurate internal records are also necessary to ensure
that the Company conforms to all financial and legal reporting obligations.
5. RESPECT AND COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS
The Company’s activities and the individual actions of its Directors, Officers and employees
must be in compliance with all applicable federal, state, foreign and local laws and regulations.
When there is a question regarding the laws and regulations surrounding an activity, you should
consult with your Supervisor, your Human Resources Representative or, if necessary, the Chief
Executive Officer of the Company. Directors and Officers should consult with outside legal
counsel representing the Company, the Chief Executive Officer of the Company or, if
necessary, the Chairperson of the Audit Committee.
If you are ever asked to deviate from legal or regulatory requirements, you have an obligation to
inform your Supervisor, Human Resources, or the Chief Executive Officer. If you observe or are
informed of deviations from legal or regulatory requirements you also have a responsibility to
report them to your Supervisor, Human Resources, or the Chief Executive Officer.
5.1.
Labor and Employment
Richardson Electronics, Ltd. adheres to all federal, state, and local laws regarding
labor and employment. Laws include but are not limited to those covering equal
employment opportunity, harassment and discrimination, and safety and health.
5.2.
Fair Competition and Antitrust
The Company’s efforts in the marketplace must be conducted in a fair and equitable
manner and in strict accordance with the letter and spirit of applicable antitrust and
trade practice laws and regulations. Under no circumstances shall any Company
personnel or individuals otherwise associated with the Company be a party to any
collusion or concerted effort of any type, involving any competitor, customer, or any
other party, which is in restraint of trade or in violation of any applicable antitrust law
or regulation.
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Antitrust laws are complex and cover a broad range of conduct. The main purpose
of antitrust laws is to preserve competition by prohibiting agreements or action that
could unreasonably restrain the functioning of a free and competitive marketplace.
In short, any agreement or action that could limit competition may be a violation of
these laws. Even verbal exchanges can, at times, be viewed as an “agreement” so
employees in contact with customers, suppliers and competitors must exercise
caution in their contact. While certain discussions may be permissible, others may
be illegal, and no such discussions or collaboration should take place without the
prior approval of the Chief Executive Officer.
Although it is impossible to identify every situation where competition may be
hindered, or perceived to be hindered, the sections 5.2.1 and 5.2.2 of this Code
cover some of the more common business activities prohibited by antitrust laws.
Directors and employees are required to promptly report to the Chief Executive
Officer any instance in which a third party has raised any of the topics covered in
sections 5.2.1 and 5.2.2 or otherwise suggested collaboration, or any other violations
of antitrust laws.
5.2.1. Dealing with Customers
Certain activities with respect to customers, such as pricing below cost, price
discrimination, exclusive dealing, requiring tie-in sales or disparaging a
competitor's products or services can raise serious antitrust issues. This
section describes these practices generally and identifies those situations
where it is important to consult with the Chief Executive Officer before taking
action.
Predatory Pricing/Pricing Below Cost: Predatory pricing arises where
below-cost pricing is intended to drive out smaller rivals and allow the one
company to control market pricing of its products. Antitrust rules in this area
are very complex and you are encouraged to contact the Chief Financial
Officer when pricing below cost questions arise.
Price Discrimination: Another pricing practice that may raise antitrust or
regulatory concerns is discriminating in price, promotional allowances or
services between different purchasers of the same or similar goods or
offerings. In some circumstances, a court may look to the "net" price of a
product sold to different purchasers after deducting the value of incentives,
allowances and other services. On the other hand, the law provides
defenses for discriminatory prices that are necessary to compete. Also, there
are many situations when a different price to another customer(s) is legally
justified, as where the sales volume is substantially different or the product or
customer (s) is participating in a different business or economic market. Here
again, discriminatory pricing law is very complex and you should contact the
Chief Financial Officer whenever any of our prices could be regarded, or
perceived, as discriminatory.
Disparagement of Others/Describing Our Own Products: Although we
can compare our products and services to those of our competitors, we must
be careful in our day-to-day marketing contacts with our customers not to
make untrue comments or comparisons about our rivals' products or
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services. It is legally permissible to explain to customers the negative
aspects of a competitor's products and services as long as the description is
not misleading and is relevant to the particular sales situation. Also, our own
products must be accurately represented to our customers.
Tying: Tying arrangements occur when a seller requires a buyer who
desires one product (or service)-called the tying product-to purchase a
second product (or service) that the buyer may not desire-called the tied
product-as a condition of purchasing the first product. If the seller has a very
strong market position in the tying (or desired) product and could cause an
adverse competitive impact on the market for the tied product, the seller risks
a charge that the arrangement constitutes an illegal tying arrangement. On
the other hand, it is generally acceptable to offer a combination of products
and services in a single sales offering in order to establish added value for
the customer and to make the offering as a whole more attractive. It is
strongly suggested that the Chief Financial Officer be consulted in advance of
such offerings to discuss any potential arrangements that might be
considered illegal.
Reciprocity: Reciprocity means agreeing to buy the products or services of
a supplier on the condition that the supplier also agrees to buy products and
services from us. A company with great buying power in a particular market
should be particularly careful to avoid using that buying power to coerce its
suppliers to buy its products and services. However, in many cases
reciprocal arrangements may be legally acceptable because they are
beneficial to and desired by both parties. The Chief Financial Officer should
be consulted prior to entering into reciprocal arrangements.
5.2.2. Dealing with Competitors
United States antitrust laws, the European Union Competition Law and the
laws of many other countries are designed to preserve a competitive
economy and to promote fair and vigorous competition. A person or
company purchasing goods in the marketplace should be able to select from
a variety of products at competitive prices that are unrestricted by artificial
restraints such as price fixing, illegal monopolies and cartels, boycotts and
tie-ins. Richardson Electronics, Ltd. believes in open and fair competition
and is committed to conducting its business in compliance with these laws.
It is Company policy for Richardson Electronics, Ltd. to make its own
independent decisions concerning what products and services to offer, where
and how to offer and produce them, how much to charge for them and to do
so without any consultation or notice to any competitor. As such, discussion
of any of the following subjects with competitors (either directly or through an
intended intermediary), whether relating to Richardson Electronics, Ltd.'s or
the competitor's products, is prohibited without the express approval in
advance by the Chief Executive Officer: past, present or future prices; pricing
policies; bids; discounts; promotions; profits; costs; terms or conditions of
sale; royalties; warranties; choice of customers; territorial markets; production
capacities or plans; and inventories.
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The above does not apply to discussions with a competitor that are for the
sole purpose of co-producer sales or purchases. In such discussions,
however, care must be taken to avoid any discussions concerning the
division of selling or producing territories.
Additionally, it is never appropriate to discuss the pricing to one customer
with a competitor of that customer or be influenced by one customer as to our
offering price to another.
An antitrust violation, even in connection with a minor transaction, can have
severe consequences for individuals, including imprisonment, and can result
in major financial penalties and loss of reputation for the Company. As
antitrust and competition laws are very technical and vary from country to
country, questions about these laws should be directed to the Chief Executive
Officer or Chief Financial Officer.
5.2.3. Participating in Industry Associations
Richardson Electronics, Ltd. belongs to relevant industry and trade
associations. Because such associations may bring competitors together to
discuss issues of concern to our industry, contact with competitors at such
meetings is often unavoidable. Although these contacts are constructive in
many ways, they are not immune from antitrust laws.
If at any trade association meeting you become aware of any formal or
informal discussion regarding prices, discounts, exclusion of members, terms
and conditions of sale, refusal to admit members or to deal with a customer,
or standardization among members of terms, warranties, or product
specification, you should abruptly leave the meeting and immediately bring
the matter to the attention of the Chief Executive Officer so that Richardson
Electronics, Ltd.'s proper behavior can be documented. Employees who
serve as committee members or who participate in industry associations
should know enough about the subject of antitrust to be able to avoid actions
or discussions that might raise questions.
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5.3.
The Foreign Corrupt Practices Act (FCPA), the U.K. Bribery Act and The
Organization for Economic Co-Operation and Development (OECD) Anti-
Bribery Convention
In many parts of the world companies and governments alike have recognized that
corruption raises the costs and risks of doing business. Corruption deters
investment, stifles economic growth and sustainable development, distorts prices,
and undermines legal and judicial systems.
The Company’s policy for international business is to respond in a legal and ethical
manner wherever we have business transactions. With respect to operations outside
the United States, all employees must comply with the Foreign Corrupt Practices Act
(FCPA) and the U.K. Bribery Act, in addition to other laws applicable to the
Company’s international business.
In 1977, the FCPA was enacted. The FCPA generally prohibits any employee from
paying or promising to pay or give anything of value to any foreign government
official, agency, political party, party official or political candidate, to influence any act
or decision of such person or a foreign government.
In 1999, the OECD's Anti-Bribery Convention was signed by 34 countries, marking a
dramatic change in the fight against corruption. The convention obligates the signing
parties to criminalize the bribery of foreign government officials in the conduct of
international business.
On July 1, 2011, the U.K. Bribery Act went into effect. The U.K. Bribery act applies
to bribery of any person (not limited to government officials) in any improper action
by creating three offenses: (1) active offense of bribing another, (2) passive offense
of being bribed and (3) for failure of a commercial organization to prevent bribery.
We will always respect and apply any and all applicable laws against bribery in all
business transactions around the globe.
5.3.1. Foreign Government Officials Defined
For purposes of this code of conduct, a foreign government official includes:
• Officials, employees and agents of national, regional or local
governments;
• Military personnel;
• Members of the executive, legislative and judicial branches of
national, regional or local government;
• Candidates for political office, political parties and officials of political
parties; and
• Employees, commercial businesses or other enterprises owned or
controlled by national, regional or local governments.
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5.3.2. Bribes and Kickbacks
Richardson Electronics, Ltd. pledges honesty, integrity and ethical behavior in
all dealings with customers, subcontractors, suppliers and competitors.
Therefore, it is not acceptable to offer, give, solicit or receive any form of
bribe or kickback. That principle applies to all transactions worldwide without
exception.
What is the difference between a bribe and a kickback?
• A bribe is any money or favor used unethically or illegally (such as
under the FCPA, the U.K. Bribery Act or OECD Anti-Bribery
Convention) to influence the judgment or conduct of a public official or
any other person, or to ensure a desired outcome or action.
• A kickback is a particular kind of bribe. It is the unethical or illegal
return of a part of a sum already paid or due to be paid as part of a
legal contract. The kickback is a reward for making or fostering
business arrangements that favor the party paying the kickback.
The Company's prohibition against bribes and kickbacks applies equally to
employees and to commissioned agents, sales representatives and
consultants acting on the company's behalf. Richardson Electronics, Ltd., its
employees and its agents also are prohibited from doing indirectly what the
FCPA, the U.K. Bribery Act and OECD Anti-Bribery Convention prohibit us
from doing directly; we cannot make any payment to a third party if all or any
part of the payment will be given to a prohibited person. We could be held
liable for such payments even if we do not know, but should have known, that
the payment is going to a prohibited person.
You do not actually have to make a bribe to be in violation; merely offering,
promising or authorizing it is sufficient. An illegal bribe is anything of value,
not just money. Lavish entertainment and paying inflated prices to purchase a
foreign official's property or services are just two examples of illegal bribes
under the law.
5.3.3. Commissioned Agents, Sales Representative and Consultants
To ensure that commissioned agents, sales representatives and consultants
neither offer nor receive bribes or kickbacks, all arrangements with them must
be covered by written contracts and documented in accordance with ethical
business practices and standard legal and accounting requirements. Any
Richardson Electronics, Ltd. facility or subsidiary considering the engagement
or a revision of an engagement of such individuals must contact Corporate
Human Resources to assist in the engagement process. Any compensation
specified in a Richardson Electronics, Ltd. contract with a commissioned
agent, sales representative or consultant must be clearly commensurate with
the activities performed on behalf of the corporation. All agreements with
such persons require approval by the Chief Executive Officer and are
contingent on the representative's meeting established criteria. In its most
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basic form this approval is a check designed to ensure that representatives
engaged to conduct business on behalf of the Company will do so in a
manner consistent with the Company’s operational and ethical standards.
5.3.4. Recordkeeping
The FCPA and this code of conduct also require Richardson Electronics, Ltd.
to keep accurate financial books and records. All financial entries must
reflect the true nature, amount and purpose of money spent. This means that
no employee of Richardson Electronics, Ltd. or anyone acting on behalf of
Richardson Electronics, Ltd. may establish slush funds or any other pool of
money that does not appear on the company's books and records.
5.3.5. Facilitation Payments
Despite its strong prohibitions, the FCPA recognizes certain limited
exceptions. In some instances, small facilitation payments, or tips, are
permissible if they are intended to secure a routine business service and are
made to clerical-level foreign officials to perform or expedite routine
government action. Examples of such routine actions are processing visas
and work orders, obtaining mail and telephone service or for expediting a
shipment through customs. Any such payment must be clearly and
accurately reported as a business expense in company records.
However, you should be aware that in some countries, all such payments are
illegal and therefore must never be paid. Before you make or even agree to
make such a payment, consult with the Chief Executive Officer.
5.4.
Environmental, Health and Safety
Employees of Richardson Electronics, Ltd. must exercise good judgment and meet
the Company’s responsibilities with regard to the environmental aspects of our use of
facilities, our processes and our product design.
There are international, federal, state and local laws that guide our efforts regarding
the production of products and disposal of materials. Employees are expected to act
in accordance with these laws.
5.5.
Import and Export Laws
Customs import and export laws and regulations apply to intracompany as well as
third party transactions. These laws require the Company to determine the correct
classification, value and country of origin for its imports and exports. As an importer,
the Company must be able to demonstrate by a documented, auditable trail, that the
Company exercised reasonable care in ensuring that its imports comply with all
applicable laws. As an exporter, the Company must be able to demonstrate that it
classified its products correctly for export, and that it obtained export licenses when
necessary, did not deal with denied parties or countries subject to economic
sanctions, and that it otherwise complied with U.S. export controls.
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If you have any questions regarding the nature of a sale, contact the Chief Financial
Officer for assistance.
6. REPORTING PROCEDURES
6.1. Obligation to Report
If you know of a violation or a possible violation of this Code or the Company’s
policies and procedures, you must report that information immediately to your
Supervisor, your Human Resources Representative or, if necessary, the Chief
Executive Officer of the Company; provided, however, that the Officers and Directors
must report any violations or possible violations to the Chief Executive Officer or, if
necessary, the Chairman of the Audit Committee.
All reported violations of the Code or of the Company’s policies and procedures will
be treated confidentially to the extent that doing so is reasonable under the
circumstances, given the need to investigate.
6.2. Retaliation Prohibited
You should never hesitate to ask a question or report a concern. If you become
aware of a situation in which you believe Richardson Electronics, Ltd.’s Code of
Conduct or other policies have been violated, or if you feel you are being pressured
or being asked to compromise our Company values or violate this Code or another
Company policy, it is your responsibility to communicate this concern. It is important
for you to know that you will not be disciplined, lose your job or be retaliated against
in any way for asking questions or voicing concerns about our ethical or legal
obligations, as long as you are acting in good faith. Good faith does not mean that
you have to be right, but it does mean that you believe you are providing truthful
information.
6.3. Confidential Reporting
Richardson's company policies and practices contain ethical and legal standards
which must be followed by employees in conducting Richardson's business.
Compliance with laws and regulations is specifically required. The Company
welcomes questions regarding these requirements. Also, every employee has the
right and duty to report to the Company, to the extent not contrary to local law, any
conduct which does not conform to these ethical and legal standards. The
Richardson Hot Line is established to receive reports of possible wrongdoing and to
answer questions about business conduct. Employees may report alleged violations
anonymously by calling Paul Plante, Chairman of the Richardson Electronics Audit
Committee at 813-390-3500.
You do not have to give your name. If you call, Mr. Plante will document the
situation with you in detail. The information gathered is then relayed to an
appropriate party for investigation and action. (In general, issues may be raised to
unimplicated senior management; financial issues will be raised to the Internal Audit
representative and the Chairman of the Audit Committee of the Board of Directors;
personnel-related issues will be raised to the Chief Financial Officer, the Chief
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Executive Officer, or the Chairman of the Compensation and Corporate Governance
Committee of the Board of Directors. All hotline activity is reported periodically to the
Chairman of the Audit Committee.)
Employees at any level can call Paul Plante directly when they have a business
conduct issue, without fear of reprisal, as follows:
Hot Line: To report job-related violations of ethical standards, or laws or regulations,
including, without limitation, matters involving accounting, internal controls
or auditing. Hot Line reports may be made anonymously.
1.
PHONE NUMBERS.
Any employee in the United States or Canada who wants to make a Hot
Line call is urged to call:
Internal Audit Representative 630-208-2273
Audit Committee Chairman – Paul Plante
813-390-3500
2.
HOT LINE PROCEDURE
a. Hot Line
All Hot Line calls are received for evaluation and coordination of
review.
b. Report Confidentiality
Hot Line reports are confidential. The names of reporting persons are
not released without the Audit Committee’s written permission, except
to designees of the above representatives as necessary for such
designee to assist with the investigation. Reports may be made
anonymously, if requested by the reporting person.
c.
Investigation
Internal Audit reviews the report and assigns responsibility for further
action to the appropriate department(s). Normally, Internal Audit
coordinates the review. However, Legal Counsel may assume
coordination and direction of the review in cases where legal issues
are raised or legal advice is required. Each department or function
assigned action items as part of the review process promptly and
confidentially investigates and sends a completed "Hot Line
investigation" report to Internal Audit or Legal Counsel. Internal Audit
and Legal Counsel will report on all reports of violations they receive
or investigate to the Audit Committee.
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d. Confidentiality of Investigation
Neither the review nor any results or related information are disclosed
or discussed with anyone except as provided in this procedure without
the written permission of either Internal Audit or the Audit Committee.
(Written permission of Legal Counsel is mandatory in matters
reviewed under its direction.) After the review is completed, all files
are sent to Internal Audit or Legal Counsel, as applicable. No material
or copies are kept by anyone without Legal Counsel’s written
permission. Internal Audit and Legal Counsel will report on all reports
of violations they receive or investigate to the Audit Committee.
e. Corrective Action
Internal Audit or Paul Plante will inform the appropriate department(s)
of the review results and the need for any corrective action. Internal
Audit also reports the matter and any corrective action, including
government reporting requirements, to the Audit Committee of the
Board of Directors of Richardson.
f. Report of Results
If requested, the person making the report is advised of the
completion and results of the review, if appropriate.
6.4. Whistleblower Protection Rights
The Sarbanes-Oxley Act of 2002 (SOX Act) encourages the disclosure of corporate
fraud by providing protection to employees of publicly traded companies who engage
in whistleblowing activities. An employee engages in a protected whistleblowing
activity by providing information that he reasonably believes constitutes a violation of
federal mail, wire, bank or securities fraud; federal law relating to fraud against
shareholders; or any rule or regulation of the SEC.
To ensure Sarbanes-Oxley whistleblowers are afforded adequate protection against
reprisal, the SOX Act contains both a civil and criminal whistleblower provision.
Under Section 806 of the SOX Act, employees who believe that they were subjected
to retaliation because of their whistleblowing activities can file a civil complaint with
the Secretary of Labor within 90 days of the retaliatory action. Section 1107 of the
SOX Act, the criminal provision, makes it a crime for a person to knowingly retaliate
against a whistleblower for disclosing truthful information to a law enforcement officer
regarding an alleged federal offense. This criminal provision of the SOX Act is
enforced by the U.S. Department of Justice.
The Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC
rules also provide retaliation protections for whistleblowers.
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7.
IMPLEMENTATION OF THE CODE
7.1. Administration
The Board has charged the Chief Executive Officer with the overall responsibility for
ensuring that the Code of Conduct and the Company’s policies and procedures
govern the business activities of all Company personnel. The Board of Directors of
the Company shall be responsible for the administration of this Code as it relates to
Directors, Officers and any other financial managers in the role of or performing
functions similar to financial controllers on behalf of the Company (the “Financial
Officers”).
7.2. Acknowledgment
The Company requires that all of its Directors, Executive Officers, Financial Officers
and other personnel sign an acknowledgment confirming that they have received and
have read, understand, and subscribe to the standards and procedures contained in
this Code. To continue to be employed by the Company, employees must abide by
the standards and procedures outlined in the Code and by the Company’s policies
and procedures. All employees therefore will be asked to complete an annual
acknowledgment of this Code of Conduct.
7.3. Disciplinary Actions
All Company personnel are responsible for adhering to the law, to this Code, and to
the Company’s policies and procedures. Disciplinary action may range up to and
including immediate termination of employment for violation of the law, of this Code,
or of the Company’s policies and procedures.
7.4. Waivers of the Code
Waivers of this Code will be granted only in extraordinary circumstances. Waivers of
this Code for Company Officers and Directors must be made by the Board of
Directors of the Company. Any change to, or waiver of, this Code for Directors or
Officers must be disclosed in accordance with applicable legal requirements. Any
waivers of this Code for any employees of the Company other than Company
Officers must be made by the Chief Executive Officer of the Company.
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SUBSIDIARIES OF THE COMPANY
Exhibit 21
Richardson Electronics Pty Limited
Richardson Electronics do Brasil Ltda.
Richardson Electronics Canada, Ltd.
Richardson Electronics Trading (China) Co., Ltd.
Richardson Powerlink MEA
Richardson Electronique SAS
Richardson Electronics GmbH
Richardson Electronics Hong Kong Limited
Richardson Electronics India Private Limited
Aviv-Richardson Ltd.
Richardson Electronics S.r.l.
Richardson Electronics Japan K.K.
Richardson Electronics Korea Limited
Richardson Electronics S.A. de C.V.
Richardson Electronics Benelux B.V.
Richardson Electronics Netherlands, B.V.
Richardson Electronics Global Holdings BV
Richardson Electronics Pte. Ltd.
Richardson Electronics Iberica S.A.
Richardson Electronics Nordic AB
Richardson Electronics (Thailand) Limited
Richardson Electronics Limited
Richardson International, Inc.
Australia
Brazil
Canada
China
United Kingdom
France
Germany
Hong Kong
India
Israel
Italy
Japan
Korea
Mexico
Netherlands
Netherlands
Netherlands
Singapore
Spain
Sweden
Thailand
United Kingdom
United States
Richardson Electronics 10-K
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Richardson Electronics, Ltd.
LaFox, Illinois
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-04767, 333-129828, 333-
182907, 333-206044, 333-227876 and 333-249383) of Richardson Electronics, Ltd. of our reports dated August 1, 2022, relating to the
consolidated financial statements, and the effectiveness of Richardson Electronics Ltd.’s internal control over financial reporting, which
appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K.
/s/ BDO USA, LLP
Chicago, Illinois
August 1, 2022
Richardson Electronics 10-K
I, Edward J. Richardson, certify that:
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Richardson Electronics, Ltd. for the fiscal year ended May 28, 2022;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: August 1, 2022
Signature:
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board and Chief Executive Officer
Richardson Electronics 10-K
I, Robert J. Ben, certify that:
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Richardson Electronics, Ltd. for the fiscal year ended May 28, 2022;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: August 1, 2022
Signature:
/s/ Robert J. Ben
Robert J. Ben
Chief Financial Officer and Chief Accounting Officer
Richardson Electronics 10-K
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-K for the fiscal year ended
May 28, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Richardson,
Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board and Chief Executive Officer
August 1, 2022
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Richardson Electronics, Ltd. (the “Company”) on Form 10-K for the fiscal year ended
May 28, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Ben, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company
/s/ Robert J. Ben
Robert J. Ben
Chief Financial Officer and Chief Accounting Officer
August 1, 2022