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 27, 2023
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
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. ☒
Accelerated Filer
Smaller reporting company
☒
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 26, 2022 was approximately $310.2 million.
As of July 25, 2023, there were outstanding 12,184,674 shares of Common Stock, $0.05 par value and 2,051,488 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 10, 2023, 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 above mentioned Proxy Statement is not deemed
filed as part of this report.
Auditor Firm ID: 00243 Auditor Name: BDO USA, P.A. Auditor Location: Chicago, IL, USA
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page
Part I
4
Item 1.
Business ............................................................................................................................................
4
9
Item 1A. Risk Factors ......................................................................................................................................
Item 1B. Unresolved Staff Comments ............................................................................................................. 17
Properties .......................................................................................................................................... 18
Item 2.
Legal Proceedings ............................................................................................................................. 18
Item 3.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
19
Equity Securities ..........................................................................................................................
19
Reserved............................................................................................................................................ 20
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............ 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......................................................... 33
Item 8.
Financial Statements and Supplementary Data ................................................................................. 33
Item 9A. Controls and Procedures ................................................................................................................... 62
Item 9B. Other Information ............................................................................................................................. 65
Part III
66
Item 10. Directors, Executive Officers and Corporate Governance ................................................................ 66
Item 11. Executive Compensation .................................................................................................................. 66
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12.
Matters ..............................................................................................................................................
66
Item 13. Certain Relationships and Related Transactions, and Director Independence .................................. 67
67
Item 14.
Principal Accountant Fees and Services ...........................................................................................
Part IV
68
Item 15. Exhibits and Financial Statement Schedules ..................................................................................... 68
Form 10-K Summary ........................................................................................................................ 68
Item 16.
Exhibit Index ........................................................................................................................................................
69
Signatures ............................................................................................................................................................. 72
2
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.
3
ITEM 1. Business
General
PART I
Richardson Electronics, Ltd. (the "Company", "we", "our") 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. Nearly 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 2023 began on May 29, 2022 and ended on May 27, 2023, our fiscal year 2022 began on May
30, 2021 and ended on May 28, 2022 and our fiscal year 2021 began on May 31, 2020 and ended on May 29, 2021.
Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.
COVID-19 Update
While the immediate impacts of the COVID-19 pandemic have been assessed, the long-term effects of the
disruption, including supply chain disruption, and resulting impact on the global economy and capital markets remain
unpredictable, and depend on future developments, such as the possible resurgence of the virus, variant strains of the
virus, vaccine availability and effectiveness, and future government actions in response to the crisis. The residual
impact of the COVID-19 pandemic and its effects on supply chains and general economic conditions continues to
evolve. The COVID-19 pandemic and its residual negative impact on general economic conditions has had and
continues to have a negative effect on our business, results of operations, cash flows, gross margins as a percentage
of net sales (particularly within our Canvys segment). While the Company did not experience sales declines during
fiscal year 2023 as a direct result of the pandemic, the residual economic impact from the pandemic continued to
negatively impact our gross margins as a percentage of net sales in our Canvys segment.
It is likely that the pandemic will continue to affect our business for an indeterminable period of time due to
the impact on the global economy, including with respect to transportation networks and supply chains, the availability
of raw materials, production efforts and customer demand for our products. We have experienced and continue to
experience component delays which negatively impact our product development schedule.
Management continues to monitor the impact of global economic factors on its financial condition, liquidity,
operations, suppliers, industry and workforce. Our ability to predict and respond to future changes resulting from the
Covid pandemic is uncertain. Even after the Covid pandemic fully subsides, there may be continued long-term effects
on our business practices and customers in economies in which we operate that could severely disrupt our operations
and could have a material adverse effect on our business, results of operations, cash flows and financial condition. As
we cannot predict the duration, scope or severity of the Covid pandemic, the negative financial impact to our results
cannot be reasonably estimated and could be material.
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, 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.
4
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 2023,
fiscal 2022 and fiscal 2021 is set forth in Note 10, 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.
Business Segments
The Company began reporting the results for its new Green Energy Solutions ("GES") segment in the first
quarter of fiscal 2023 due to its focus on power applications that support the green energy market. The GES segment
has been carved out of our existing Power and Microwave Technologies (“PMT”) segment. Accordingly, the Company
is reporting its financial performance based on four operating and reportable segments for fiscal 2023. The results for
fiscal 2022 and fiscal 2021 presented herein were adjusted to reflect the presentation of the new GES segment
separately from the PMT segment.
The four operating and reportable segments for fiscal 2023, fiscal 2022 and fiscal 2021 are defined as follows:
Power and Microwave Technologies
Power and Microwave Technologies 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, 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
5
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, 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.
Green Energy Solutions
Green Energy Solutions combines our key technology partners and engineered solutions capabilities to
design and manufacture innovative products for the fast-growing energy storage market and power management
applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide
specialized technical expertise and engineered solutions using our core design 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. GES’s focus is on products for numerous green energy applications such as wind, solar,
hydrogen and Electric Vehicles, and other power management applications that support green solutions such as
synthetic diamond manufacturing.
Canvys
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.
6
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.
Distribution
our
products on
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
our websites, www.rell.com, www.rellhealthcare.com, www.canvys.com,
access
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 is not deemed to be
incorporated by reference in this report filed with the Securities and Exchange Commission.
International Sales
During fiscal 2023, we made approximately 58% of our sales outside the United States. We continue to
pursue new international sales to further expand our geographic reach.
Major Customers
Sales to one customer in our PMT segment totaling $31.2 million accounted for 12 percent of the Company’s
consolidated net sales in fiscal 2023. No one customer accounted for more than 10 percent of the Company’s
consolidated net sales for fiscal 2022 and fiscal 2021. See Note 10, 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.
7
Human Capital Resources
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 27, 2023, we employed 485 individuals, which included 451 full-time individuals and 34 part-
time individuals. Of these, 329 full-time and 15 part-time were in the United States and 122 full-time and 19 part-time
were located internationally. All of our employees are non-union.
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,
well being and retirement programs to meet the needs of our employees.
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 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 through 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.
8
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.
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.
9
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 during fiscal year 2023. 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 residual 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 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, which have 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 continuing residual 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
10
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.
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 Green Energy Solutions, 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.
11
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 canceled, 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. 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.
Our business and results of operations are subject to a broad range of uncertainties arising out of world and
domestic events.
Global and regional economic uncertainty continues to exist, including uncertainty relating to the Covid
pandemic and the Russian invasion of Ukraine. Our operations could be adversely affected by global or regional
economic conditions if markets decline in the future, whether related to the Covid pandemic, the Russian invasion of
Ukraine, higher inflation or interest rates, recession, natural disasters, impacts of and issues related to climate change,
business disruptions, our ability to adequately staff operations or otherwise. Any future economic declines may result
in decreased revenue, gross margins, earnings or growth rates or difficulty in managing inventory levels or collecting
customer receivables. We also have experienced, and expect to continue to experience, increased competitive pricing
pressure, raw material inflation and availability issues resulting in difficulties meeting customer demand. In addition,
customer difficulties in the future could result from economic declines, the Covid pandemic, the cyclical nature of
their respective businesses, such as in the oil and gas industry, or otherwise and, in turn, result in decreases in product
demand, increases in bad debt write-offs, decreases in timely collection of accounts receivable and adjustments to our
allowance for credit losses, resulting in material reductions to our revenues and net earnings.
12
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
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.
Financial Risks
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 is 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.
13
Our indebtedness and restrictive covenants under our credit facility could limit our operational and financial
flexibility.
We may incur indebtedness in the future under our credit facility with PNC Bank NA. Our ability to make
interest and scheduled principal payments on any such indebtedness and operate within restrictive covenants could be
adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our
credit ratings or our outlook. These changes could increase our cost of business, limiting our ability to pursue
acquisition opportunities, react to market conditions and meet operational and capital needs, thereby placing us at a
competitive disadvantage.
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 11, 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.
15
Ownership Risks
A single stockholder controls a majority of the Company's voting stock.
As of July 25, 2023, 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 62% 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.
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.
16
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 including certain of the
risk factors discussed in this report. 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), 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.
17
ITEM 2. Properties
The Company owns one facility and leases 25 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:
Leased/Owned
Owned
Leased
Corporate/Sales/Distribution/Manufacturing PMT/Canvys/Healthcare
Use
Segment
Location
LaFox, Illinois *
Woodland Hills,
California
Marlborough,
Massachusetts
Fort Mill, South
Carolina
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
Seoul, South Korea
Taipei, Taiwan
Bangkok, Thailand
Dubai, United Arab
Emirates
Hook, United Kingdom
Lincoln, United
Kingdom
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Sales
Sales/Distribution/Manufacturing
PMT
Canvys
Sales/Distribution/Testing/Repair
Healthcare
Sales/Distribution
Sales
Sales
Sales/Distribution
Sales
Sales
Sales
Sales/Distribution/Manufacturing
Sales
Sales
Sales
Sales
Sales
Sales
Sales/Distribution/Manufacturing
Sales/Distribution
Sales
Sales
Sales/Distribution
Sales/Testing
PMT
PMT
PMT
PMT
PMT
PMT
PMT
Canvys
PMT
PMT
PMT
PMT
PMT
PMT
PMT/Healthcare
PMT
PMT
PMT/Canvys
PMT
PMT
Sales/Distribution/Testing/Repair
Sales
PMT
PMT/Canvys
*
LaFox, Illinois is also the location of our corporate headquarters.
ITEM 3. Legal Proceedings
None.
18
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 2023.
Dividends
Our quarterly dividend was $0.06 per common share and $0.054 per Class B common share. Annual dividend
payments were approximately $3.3 million for fiscal 2023 and $3.2 million for fiscal 2022. 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, 2023, there
were approximately 419 stockholders of record for the common stock and approximately 13 stockholders of record
for the Class B common stock.
Effective June 26, 2023, the Company joined the 2023 Russell 3000® Index. Membership in the U.S. all-cap
Russell 3000® Index remains in place for one year and includes the Company in the large-cap Russell 1000® Index
and the small-cap Russell 2000® Index.
19
Performance Graph
The following graph compares the performance of our common stock for the periods indicated with the
performance of the NASDAQ Composite Index, NASDAQ Electronic Components Index and the Russell Microcap
Technology Index.
The NASDAQ Electronic Components Index will not be available for fiscal 2024 and accordingly is being
replaced by the Russell Microcap Technology Index. This year's performance graph includes both the NASDAQ
Electronic Components Index and the Russell Microcap Technology Index to facilitate the transition to the
replacement index. The Russell Microcap Technology Index is a published industry index comprised of over 150
companies. Next year's performance graph will exclude the NASDAQ Electronic Components Index.
The graph assumes $100 invested on the last day of our fiscal year 2018, in our common stock, the NASDAQ
Composite Index, NASDAQ Electronic Components Index and the Russell Microcap Technology Index. Total return
indices reflect reinvestment of dividends at the closing stock prices at the date of the dividend declaration.
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.
ITEM 6. Reserved
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 27, 2023, May 28, 2022 and May 29, 2021, as reflected in our Consolidated
Statements of Comprehensive Income.
Liquidity, Financial Position and Capital Resources - a discussion of our primary sources and uses
of cash for the fiscal years ended May 27, 2023, May 28, 2022 and May 29, 2021, 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.
Nearly 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.
The Company began reporting the results for its new Green Energy Solutions ("GES") segment in the first
quarter of fiscal 2023 due to its focus on power applications that support the green energy market. The GES segment
has been carved out of our existing Power and Microwave Technologies (“PMT”) segment. Accordingly, the Company
is reporting its financial performance based on four operating and reportable segments. The results for fiscal 2022 and
fiscal 2021 presented herein were adjusted to reflect the presentation of the new GES segment separately from the
PMT segment.
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The Company's four operating and reportable segments for fiscal 2023, fiscal 2022 and fiscal 2021 are
defined as follows:
Power and Microwave Technologies 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, 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.
Green Energy Solutions combines our key technology partners and engineered solutions capabilities to
design and manufacture innovative products for the fast-growing energy storage market and power management
applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide
specialized technical expertise and engineered solutions using our core design 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. GES’s focus is on products for numerous green energy applications such as wind, solar,
hydrogen and Electric Vehicles, and other power management applications that support green solutions such as
synthetic diamond manufacturing.
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.
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Results of Operations
Overview - Fiscal Year Ended May 27, 2023
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Fiscal 2023 and fiscal 2022 both contained 52 weeks.
Net sales during fiscal 2023 were $262.7 million, up 16.9%, compared to net sales of $224.6 million
during fiscal 2022.
Gross margin was 31.9% of net sales during fiscal 2023, compared to 31.9% of net sales during fiscal
2022.
Selling, general and administrative expenses were $58.7 million, or 22.4% of net sales, during fiscal
2023, compared to $55.7 million, or 24.8% of net sales, during fiscal 2022.
Operating income during fiscal 2023 was $25.0 million, compared to an operating income of $16.0
million during fiscal 2022.
Other income during fiscal 2023 was less than $0.1 million, compared to other expense of $0.2 million
during fiscal 2022.
Net income during fiscal 2023 was $22.3 million, compared to a net income of $17.9 million during
fiscal 2022.
Net Sales and Gross Profit Analysis
Net sales by segment and percent change for fiscal 2023, fiscal 2022 and fiscal 2021 were as follows (in
thousands):
Net Sales
PMT
GES
Canvys
Healthcare
Total
FY 2023
$
FY 2022
FY 2021
FY23 vs. FY22
% Change
FY22 vs. FY21
% Change
164,299 $
47,596
39,331
11,432
262,658 $
155,445 $
22,611
35,187
11,377
224,620 $
128,980
8,300
29,319
10,338
176,937
5.7 %
110.5 %
11.8 %
0.5 %
16.9 %
20.5 %
172.4 %
20.0 %
10.1 %
26.9 %
$
During fiscal 2023, consolidated net sales increased by 16.9% compared to fiscal 2022. Sales for PMT
increased by 5.7%, GES sales increased by 110.5%. Canvys sales increased by 11.8% and Healthcare sales increased
by 0.5%. The increase in PMT was mainly due to strong growth in the semi-wafer fabrication industry and the RF and
microwave products for various applications. The increase in GES was primarily due to growth in related product
sales to the wind turbine industry, as well as EV battery modules. The increase in Canvys was primarily due to strong
sales in the North American market. The increase in Healthcare was primarily due to an increase in equipment sales.
During fiscal 2022, consolidated net sales increased by 26.9% compared to fiscal 2021. Sales for PMT
increased by 20.5%, GES sales increased by 172.4%, 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)
technology partners in various applications including power management 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. The increase in GES was primarily due to components for
power management applications and niche products for wind turbines. 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.
23
Gross profit by segment and percent of segment net sales for fiscal 2023, fiscal 2022 and fiscal 2021 were as
follows (in thousands):
Gross Profit
PMT
GES
Canvys
Healthcare
Total
FY 2023
FY 2022
FY 2021
$ 54,089
13,719
12,375
3,506
$ 83,689
32.9 % $ 50,810
7,231
28.8 %
11,252
31.5 %
30.7 %
2,407
31.9 % $ 71,700
32.7 % $ 43,546
32.0 %
2,405
10,274
32.0 %
21.2 %
2,600
31.9 % $ 58,825
33.8 %
29.0 %
35.0 %
25.1 %
33.2 %
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 $83.7 million during fiscal 2023, compared to $71.7 million during fiscal 2022.
Consolidated gross margin as a percentage of net sales was 31.9 % for fiscal 2023, the same as the 31.9% during fiscal
2022, primarily due to favorable product mix for PMT, unfavorable product mix for GES, unfavorable product mix
for Canvys and improved manufacturing absorption and decreased component scrap for Healthcare. Gross margin
during fiscal 2023 included expense related to inventory provisions of $0.3 million for PMT, $0.1 million for Canvys
and $0.1 million for Healthcare.
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 unfavorable product mix for PMT, favorable product mix for GES, higher freight costs
and foreign exchange effects for Canvys and increased component scrap expenses for Healthcare. Gross margin during
fiscal 2022 included expense related to inventory provisions for PMT of $0.4 million and $0.1 million for Healthcare.
Power and Microwave Technologies
Net sales for PMT increased 5.7% to $164.3 million during fiscal 2023 from $155.4 million during fiscal
2022. The increase was mainly due to strong growth in the semi-wafer fabrication industry for the first nine months
and the RF and microwave products for various applications. Gross margin as a percentage of net sales increased to
32.9% during fiscal 2023 as compared to 32.7% during fiscal 2022, primarily due to product mix.
Net sales for PMT increased 20.5% to $155.4 million during fiscal 2022 from $129.0 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 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 32.7% during
fiscal 2022 as compared to 33.8% during fiscal 2021, primarily due to product mix.
Green Energy Solutions
Net sales for GES increased 110.5% to $47.6 million during fiscal 2023 from $22.6 million during fiscal
2022. The increase was mainly due to growth in related product sales to the wind turbine industry, as well as EV
battery modules. Gross margin as a percentage of net sales decreased to 28.8% during fiscal 2023 as compared to
32.0% during fiscal 2022, primarily due to product mix.
Net sales for GES increased 172.4% to $22.6 million during fiscal 2022 from $8.3 million during fiscal
2021. Sales increased primarily due to components for power management applications and niche products for wind
turbines. Gross margin as a percentage of net sales increased to 32.0% during fiscal 2022 as compared to 29.0% during
fiscal 2021, primarily due to product mix.
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Canvys
Net sales for Canvys increased 11.8% to $39.3 million during fiscal 2023, from $35.2 million during fiscal
2022. Sales increased primarily due to strong sales in the North American market. Gross margin as a percentage of
net sales decreased to 31.5% during fiscal 2023 as compared to 32.0% during fiscal 2022 mainly due to product mix.
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.
Healthcare
Net sales for Healthcare increased 0.5% to $11.4 million during fiscal 2023, essentially unchanged from
fiscal 2022. The slight increase in sales was primarily due to an increase in equipment sales, partially offset by
decreases in part sales and CT tube sales. Gross margin as a percentage of net sales increased to 30.7% during fiscal
2023, compared to 21.2% during fiscal 2022. The increase was primarily due to improved manufacturing absorption
and decreased component scrap expenses.
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 decreased to 21.2% during fiscal 2022, compared to 25.1%
during fiscal 2021. The decrease was primarily due to increased component scrap 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 2023, fiscal 2022 and fiscal 2021 were as follows
(in thousands):
Net Sales
North America
Asia/Pacific
Europe
Latin America
Other (1)
Total
FY 2022
FY 2021
FY23 vs. FY22
% Change
FY22 vs. FY21
% Change
FY 2023
$
112,214 $
59,557
62,017
28,924
(54 )
98,527 $
49,235
64,435
12,439
(16 )
$
262,658 $
224,620 $
73,625
40,839
52,549
9,651
273
176,937
13.9 %
21.0 %
(3.8 %)
132.5 %
(237.5 %)
16.9 %
33.8 %
20.6 %
22.6 %
28.9 %
(105.9 %)
26.9 %
Gross profit by geographic area and percent of geographic net sales for fiscal 2023, fiscal 2022 and fiscal
2021 were as follows (in thousands):
Gross Profit (Loss)
North America
Asia/Pacific
Europe
Latin America
Other (1)
Total
FY 2023
FY 2022
FY 2021
Amount
$ 43,580
18,775
18,760
7,735
(5,161 )
$ 83,689
% of Net
Sales
Amount
38.8 % $ 36,548
15,728
31.5 %
19,215
30.2 %
4,340
26.7 %
(4,131 )
31.9 % $ 71,700
% of Net
Sales
Amount
37.1 % $ 28,639
13,520
31.9 %
16,958
29.8 %
3,405
34.9 %
(3,697 )
31.9 % $ 58,825
% of Net
Sales
38.9 %
33.1 %
32.3 %
35.3 %
33.2 %
(1) Other primarily includes net sales not allocated to a specific geographical region, unabsorbed value-add costs
and other unallocated expenses.
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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”) increased during fiscal 2023 to $58.7 million from
$55.7 million during fiscal 2022. This increase in SG&A expense from fiscal 2022 was mainly due to higher employee
compensation and travel expenses, partially offset by lower legal fees and a lower bad debt expense. SG&A as a
percentage of sales decreased to 22.4% during fiscal 2023 as compared to 24.8% during fiscal 2022.
Selling, general and administrative expenses 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.
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 was less than $0.1 million during fiscal 2023, compared to an expense of $0.2 million during
fiscal 2022. Fiscal 2023 had $0.3 million of investment income compared to $0.1 million of investment income for
fiscal 2022. 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 2023 totaled $0.3 million, unchanged from fiscal 2022. We
currently do not utilize derivative instruments to manage our exposure to foreign currency.
Income Tax Provision
Our income tax provision (benefit) during fiscal 2023, fiscal 2022 and fiscal 2021 was $2.7 million, ($2.2
million) and $0.7 million, respectively. The effective income tax rates during fiscal 2023, fiscal 2022 and fiscal 2021
were 10.8%, (13.7%) and 28.3%, respectively. The difference between the effective income tax rates as compared to
the U.S. federal statutory rate of 21.0% during fiscal 2023, fiscal 2022 and fiscal 2021 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). In addition, the Company recognized both foreign tax
and research and development tax credits in fiscal 2023.
The Inflation Reduction Act (the "IRA"), signed into law by President Biden on August 16, 2022, has several
key corporate tax-related provisions, including a 15% creditable book minimum tax on adjusted financial statement
income (“AFSI”) of applicable corporations, clean energy tax incentives and 1% excise tax on certain corporate stock
buybacks. The Company did not rise to the level of AFSI to be subject to the 15% creditable book minimal tax. The
Company did not have a material impact from the IRA. The Creating Helpful Incentives to Produce Semiconductors
Act of 2022 (the "CHIPS Act") was signed into law by President Biden on August 9, 2022, which created a new 25%
investment tax credit for qualified property placed in service for semiconductor manufacturing. This production credit
was not applicable to the Company.
During the fourth quarter of fiscal 2023, the Company recorded research and development (“R&D”) tax
credits of $0.9 million. These credits represent the expected U.S. federal and state credits to be claimed for fiscal 2020
through fiscal 2023. The Company has not previously recorded any benefit from an R&D tax credit due to the fact
that the Company did not believe it was economically prudent to pursue these credits in prior years.
26
For taxable years beginning after December 31, 2021, taxpayers are required to capitalize certain R&D
expenses and amortize them over five or fifteen years under IRC Section 174. This provision increased our taxable
income for the year ended May 27, 2023, and resulted in additional cash tax payments for U.S. federal and state
income taxes. This provision also generated a deferred tax asset for the year ended May 27, 2023.
As of May 27, 2023 and May 28, 2022 we have utilized all net deferred tax assets related to federal net
operating loss (“NOL”) carryforwards. Net deferred tax assets related to domestic state NOL carryforwards at May
27, 2023 amounted to approximately $2.1 million, compared to $2.4 million at May 28, 2022. Net deferred tax assets
related to foreign NOL carryforwards was $0.2 million as of May 27, 2023 compared to $0.4 million as of May 28,
2022, with various or indefinite expiration dates. We released the valuation allowance and have utilized $1.8 million
of domestic net deferred tax asset related to foreign tax credit carryforwards as of May 27, 2023.
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 2023 and fiscal 2022.
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 27, 2023. 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 released the full valuation allowance on the U.S. federal and state deferred tax items. In addition, in the year ended
May 28, 2022, we partially released the valuation allowance on the state NOL deferred tax item, based on the amount
of the NOLs that management believed it is more likely than not to realize. As of May 27, 2023, we have released
$1.8 million of the valuation allowance on the deferred tax asset related to foreign tax credits based on positive
evidence that arose during the fourth quarter of fiscal 2023 related to the foreign tax credit limitation calculation.
As of May 27, 2023, a valuation allowance of $1.4 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 28, 2022 was $3.5 million. The remaining valuation allowance relates to state NOLs ($0.2 million) and
deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.3 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 $4.8 million, $1.5 million and $0.1
million, during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
In the normal course of business, we are subject to examination by taxing authorities throughout the world.
Generally, years prior to fiscal 2017 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 were under examination for fiscal 2015 through fiscal 2018 in
Germany. The audit was settled in the fourth quarter of fiscal 2022. In the second quarter of fiscal 2023, the Company
paid the audit assessment for the fiscal 2015 through fiscal 2018 years. The Company recorded a tax expense of less
than $0.1 million due to receiving the final assessment for the German audit. The $0.1 million of uncertain tax
positions recorded in prior quarters has been fully utilized as of May 27, 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 2021.
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The Company did not record any uncertain tax positions as of May 27, 2023 as compared to $0.1 million as
of May 28, 2022. The reserve for the German audits was reversed in fiscal 2023. We record penalties and interest
related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of
Comprehensive Income. 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 27, 2023 or May
28, 2022.
Liquidity, Financial Position and Capital Resources
Our operations and cash needs have been primarily financed through income from operations and cash on
hand.
Cash and cash equivalents were $25.0 million at May 27, 2023. Cash and cash equivalents by geographic
area at May 27, 2023 consisted of $8.1 million in North America, $8.6 million in Europe, $1.5 million in Latin America
and $6.8 million in Asia/Pacific. No funds were repatriated to the United States in fiscal 2023 from our foreign entities.
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 8, 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, 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.
Management continues to monitor the global situation on its financial condition, liquidity, operations,
suppliers, industry and workforce. Our ability to predict and respond to future changes resulting from the Covid
pandemic is uncertain. Even after the Covid pandemic fully subsides, there may be long-term effects on our business
practices and customers in economies in which we operate that could severely disrupt our operations and could have
a material adverse effect on our business, results of operations, cash flows and financial condition. As we cannot
predict the duration, scope or severity of the Covid pandemic, the negative financial impact to our results cannot be
reasonably estimated and could be material.
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.
On March 20, 2023, the Company established a senior, secured revolving credit facility agreement with a
three-year term in an aggregate principal amount not to exceed $30 million, including a Swingline Loan sub-facility
and a Letter of Credit sub-facility (collectively, the "Revolving Credit Facility") with PNC Bank. The Revolving
Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving
Credit Facility are expected to be used for working capital and general corporate purposes of the Company and its
subsidiaries. As of the date of this report, no amounts were outstanding under the Revolving Credit Facility.
28
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 utilized $8.2 million of cash during fiscal 2023. We had net income of $22.3 million
during fiscal 2023, which included non-cash stock-based compensation expense of $0.9 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 $3.7 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 $35.5 million during fiscal
2023, mainly due to an increase in inventories of $30.5 million, a decrease in accounts payable and accrued liabilities
of $4.4 million and an increase in prepaid expenses of $0.5 million. The majority of the inventory increase was to
support our Electron tube, PMG, Green Energy Solutions, LaFox manufacturing and Healthcare businesses. The
decrease in accounts payable and accrued liabilities was due to revenue recognition and timing.
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
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.
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 $2.2 million during fiscal 2023 was mainly attributed to $7.4 million in
capital expenditures with a $5.0 million offset for the maturities of a Certificate of Deposit (CD). Capital expenditures
were primarily related to our LaFox manufacturing business and facility renovation, IT systems and the Healthcare
business.
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.
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.
29
Cash Flows from Financing Activities
The cash flow from financing activities primarily consists of cash dividends paid.
Cash provided by financing activities of $0.4 million during fiscal 2023 resulted primarily from the $3.8
million of proceeds from the issuance of common stock from stock option exercises and the $3.3 million used to pay
dividends to shareholders.
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.
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 27, 2023 (in thousands):
Lease obligations (1)
$ 1,147 $ 1,393 $ 35 $
— $
(118 ) $ 2,457
(1) Lease obligations are related to certain warehouse and office facilities under non-cancelable operating leases
Less
than
1 year
1 - 3
years
4 - 5
years
More than
5 years
Less Interest Total
as well as financing leases.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with United States Generally Accepted Accounting
Principles (“GAAP”) and pursuant to the rules and regulations of the SEC, we make assumptions, judgments and
estimates that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosures of
contingent assets and liabilities. Our assumptions, judgments and estimates are based on historical experience and
various other factors deemed relevant. Actual results could be materially different from those estimates under different
assumptions or conditions. We evaluate our assumptions, judgments and estimates on a regular basis. We also discuss
our critical policies and estimates with the Audit Committee of the Board of Directors.
We believe the assumptions, judgments and estimates involved for the following have the greatest potential
impact on our Consolidated Financial Statements:
•
•
•
•
•
•
Allowance for Doubtful Accounts
Revenue Recognition
Inventories, net
Intangible and Long-Lived Assets
Loss Contingences
Income Taxes
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.
30
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:
• Manufacturing/assembly
•
•
Distribution
Services revenue
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 cancellation, 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.
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.
Repair, installation or training activities generate services revenue. The services we provide are relatively
short in duration and are 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.
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 finished goods, raw materials and work-in-progress.
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.
31
Intangible and Long-Lived Assets
Our intangible assets represent the fair value for trade name, customer relationships, non-compete
agreements and technology acquired in connection with the acquisitions. Intangible assets are initially recorded at
their fair market values determined by quoted market prices in active markets, if available, or recognized valuation
models.
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. We conduct annual reviews for idle and underutilized equipment and review business plans
for possible impairment. 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.
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.
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 will adopt in the
first quarter of fiscal 2024 and the expected impact on the consolidated financial statements is not material.
32
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 2023, fiscal 2022 or fiscal 2021.
Had the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net
sales would have been lower by an estimated $12.2 million during fiscal 2023, an estimated $12.1 million during fiscal
2022 and an estimated $10.0 million during fiscal 2021. Total assets would have declined by an estimated $4.3 million
as of the fiscal year ended May 27, 2023 and an estimated $4.2 million as of the fiscal year ended May 28, 2022, while
the total liabilities would have decreased by an estimated $1.1 million as of the fiscal year ended May 27, 2023 and
an estimated $1.0 million as of the fiscal year ended May 28, 2022.
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 is 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
33
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 27, 2023 and May 28, 2022, the related consolidated statements of comprehensive income, stockholders’
equity, and cash flows for each of the three years in the period ended May 27, 2023, 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 27, 2023 and May 28, 2022, and the
results of its operations and its cash flows for each of the three years in the period ended May 27, 2023, 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 27, 2023, 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 July 31, 2023 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.
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.
34
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 27,
2023 was $110.4 million, net of $5.9 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 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 certain inventory items.
The Company's estimation of its’ 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:
•
•
•
Testing the design, implementation, and operating effectiveness of controls over the development of the
Company’s estimation of inventory reserve.
Assessing the reasonableness of management's estimate by (i) inquiring of operations personnel as to 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 stock rotation privileges.
Evaluating the reasonableness of management's estimates by performing a retrospective comparison of
prior period inventory on hand for certain products to current period sales, write-offs, and inventory
consumption.
/s/BDO USA, P.A.
We have served as the Company's auditor since 2015.
Chicago, Illinois
July 31, 2023
35
Richardson Electronics, Ltd.
Consolidated Balance Sheets
(in thousands, except per share amounts)
May 27, 2023 May 28, 2022
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance of $191 and $186, 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
Other non-current assets
Total non-current assets
Total assets
Liabilities and Stockholders’ Equity
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
$
$
24,981 $
30,067
110,402
2,633
—
168,083
20,823
1,892
2,457
4,526
267
29,965
198,048 $
23,535 $
12,026
1,028
36,589
98
1,429
612
2,139
38,728
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
Common stock, $0.05 par value; issued and outstanding 12,140 shares
at May 27, 2023 and 11,649 shares at May 28, 2022
Class B common stock, convertible, $0.05 par value; issued and
outstanding 2,052 shares at May 27, 2023 and 2,053 shares at
May 28, 2022
Preferred stock, $1.00 par value, no shares issued and outstanding
Additional paid-in-capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
607
582
103
—
70,951
87,044
615
159,320
198,048 $
103
—
66,331
68,031
800
135,847
179,819
36
Richardson Electronics, Ltd.
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
(Gain) loss on disposal of assets
Operating income
Other (income) expense:
Investment/interest income
Foreign exchange loss
Other, net
Total other (income) expense
Income before income taxes
Income tax provision (benefit)
Net income
Foreign currency translation (loss) gain, net of tax
Comprehensive income
Net income 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:
Dividends per common share
Dividends per Class B common share
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
176,937
$
118,112
58,825
55,925
13
2,887
224,620 $
152,920
71,700
55,723
20
15,957
262,658 $
178,969
83,689
58,713
(7 )
24,983
$
$
(295 )
278
(30 )
(47 )
25,030
2,697
22,333
(185 )
22,148 $
1.62 $
1.46
1.55
1.40
(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
11,943
2,052
12,542
2,052
11,395
2,080
11,825
2,080
11,105
2,097
11,164
2,097
$
0.24 $
0.22
0.24 $
0.22
0.24
0.22
37
Richardson Electronics, Ltd.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
$
22,333 $
17,927 $
1,655
Operating activities:
Net income
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Depreciation and amortization
Inventory provisions
(Gain) 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 (used in) provided by operating activities
Investing activities:
Capital expenditures
Proceeds from the sale of assets
Proceeds from maturity of investments
Purchases of investments
Net cash (used in) provided by investing activities
Financing activities:
Proceeds from issuance of common stock
Cash dividends paid on Common and Class B Common shares
Other
Net cash provided by (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:
3,671
466
(7 )
936
(138 )
(363 )
(30,452 )
(519 )
(439 )
(4,006 )
319
(8,199 )
(7,378 )
194
5,000
—
(2,184 )
3,778
(3,320 )
(69 )
389
(520 )
(10,514 )
35,495
24,981 $
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 )
2,992
(3,193 )
(151 )
(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
289
(3,122 )
(181 )
(3,014 )
1,595
12,781
30,535
43,316
Income taxes
$
4,807 $
1,484 $
106
38
Richardson Electronics, Ltd.
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
Class B
Common
Par
Value
Additional
Paid In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
2,097 $
657 $
61,749 $ 54,764 $
1,490 $ 118,660
Common
11,038
—
—
—
—
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
—
—
—
—
373
72
—
—
—
—
—
—
44
(44 )
—
—
—
—
18
4
—
—
—
11,649
—
—
2,053 $
—
—
685 $
—
—
—
—
441
49
1
—
—
—
—
—
—
(1 )
—
—
—
—
23
2
—
— 17,927
—
—
— 17,927
(4,093 )
(4,093 )
444
210
2,974
(4 )
—
—
—
—
—
—
—
—
(2,745 )
(448 )
66,331 $ 68,031 $
— 22,333
—
—
542
394
3,755
(71 )
—
—
—
—
—
—
—
—
(2,877 )
(443 )
70,951 $ 87,044 $
—
—
—
—
—
444
210
2,992
—
—
—
—
(2,745 )
(448 )
800 $ 135,847
— 22,333
(185 )
(185 )
—
—
—
—
—
542
394
3,778
(69 )
—
—
—
(2,877 )
(443 )
615 $ 159,320
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
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 27, 2023
—
—
12,140
—
—
2,052 $
—
—
710 $
39
Richardson Electronics, Ltd.
Notes to Consolidated Financial Statements
1.
DESCRIPTION OF THE COMPANY
Richardson Electronics, Ltd. (the "Company", "we", "our") 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. Nearly 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.
The Company began reporting the results for its new Green Energy Solutions ("GES") segment in the first
quarter of fiscal 2023 due to its focus on power applications that support the green energy market. The GES segment
has been carved out of our existing Power and Microwave Technologies (“PMT”) segment. Accordingly, the Company
is reporting its financial performance based on four operating and reportable segments. The results for fiscal 2022 and
fiscal 2021 presented herein were adjusted to reflect the presentation of the new GES segment separately from the
PMT segment.
The Company's four operating and reportable segments for fiscal 2023, fiscal 2022 and fiscal 2021 are
defined as follows:
Power and Microwave Technologies 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, 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.
Green Energy Solutions combines our key technology partners and engineered solutions capabilities to
design and manufacture innovative products for the fast-growing energy storage market and power management
applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide
specialized technical expertise and engineered solutions using our core design 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. GES’s focus is on products for numerous green energy applications such as wind, solar,
hydrogen and Electric Vehicles, and other power management applications that support green solutions such as
synthetic diamond manufacturing.
40
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: One customer represented 20 percent of our total accounts receivable balance as
of May 27, 2023. No one customer represented more than 10 percent of our total accounts receivable balance as of
May 28, 2022. Sales to one customer in our PMT segment totaling $31.2 million accounted for 12 percent of the
Company’s consolidated net sales in fiscal 2023. No one customer represented more than 10 percent the consolidated
net sales in fiscal 2022 and fiscal 2021.
Supplier Concentration: One of our suppliers represented 11 percent of our total cost of sales in fiscal 2023,
11 percent in fiscal 2022 and 15 percent in fiscal 2021. The amount owed to this supplier was approximately $0.2
million as of May 27, 2023 and $1.4 million as of May 28, 2022.
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.
The Company began reporting the results for its new Green Energy Solutions ("GES") segment in the first
quarter of fiscal 2023 due to its focus on power applications that support the green energy market. The GES segment
has been carved out of our existing Power and Microwave Technologies (“PMT”) segment. Accordingly, the Company
is reporting its financial performance based on four operating and reportable segments. The results for fiscal 2022 and
fiscal 2021 presented herein were adjusted to reflect the presentation of the new GES segment separately from the
PMT segment.
Our fiscal year 2023 began on May 29, 2022 and ended on May 27, 2023, our fiscal year 2022 began on May
30, 2021 and ended on May 28, 2022 and our fiscal year 2021 began on May 31, 2020 and ended on May 29, 2021.
Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.
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.
41
Reclassifications: Certain prior period amounts have been reclassified to conform to the current period
reporting classifications. The reclassifications had no effect on previously reported net income or cash flows.
Fair Values of Financial Instruments: The fair values of financial instruments are determined based on
quoted market prices and market interest rates as of the end of the reporting period. Our financial instruments include
investments, accounts receivable, accounts payable and accrued liabilities. The fair values of these financial
instruments approximate carrying values at May 27, 2023 and May 28, 2022.
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
27, 2023 and $0.2 million as of May 28, 2022.
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:
• Manufacturing /assembly
• Distribution
• Services revenue
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 cancellation, 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.
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,
42
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.
Repair, installation or training activities generate services revenue. The services we provide are relatively
short in duration and are 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 include standard products
purchased from a supplier and stocked on our shelves, customized products purchased from a supplier, products that
are customized or have value added to them in house prior to shipping to the customer and manufactured products.
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):
Balance May 29, 2021
Additions
Revenue recognized
Balance May 28, 2022
Additions
Revenue recognized
Balance May 27, 2023
$
$
$
3,313
6,917
(5,264 )
4,966
4,293
(5,976 )
3,283
See Note 10, 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.
43
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 loss reflected in our Consolidated Statements of Comprehensive Income were
$0.3 million, $0.3 million and $0.8 million during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
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 $93.4 million of finished
goods, $11.8 million of raw materials and $5.2 million of work-in-progress as of May 27, 2023 as compared to
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. The inventory reserve as of May 27, 2023 was $5.9 million compared to $6.1 million as of May 28,
2022.
Provisions for obsolete or slow-moving inventories are recorded based upon regular analysis of stock rotation
privileges, obsolescence, the exiting of certain markets and assumptions about future demand and market conditions.
If future demand changes in the industry or market conditions differ from management’s estimates, additional
provisions may be necessary.
We recorded provisions to our inventory reserves of $0.5 million, $0.5 million and $1.0 million during fiscal
2023, fiscal 2022 and fiscal 2021, 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: We liquidated our investments during the third quarter and accordingly had no investments at
the end of fiscal 2023. As of May 28, 2022, we had $5.0 million invested in a Certificate of Deposit (level 1
classification), which matured in less than twelve months.
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 $3.4 million, $3.2 million and $3.2 million
during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
44
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
May 27, 2023 May 28, 2022
1,385
$
23,002
1,532 $
24,206
11,692
18,350
4,437
60,217 $
(39,394 )
20,823 $
11,186
16,215
1,991
53,779
(36,818 )
16,961
$
$
Construction in progress at May 27, 2023 includes $2.2 million for facilities, $1.6 million for manufacturing
facilities and $0.6 million for IT systems. All projects are expected to be completed before the end of fiscal 2024.
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.
45
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 27, 2023
$
May 28, 2022
4,422 $
486
661
3,283
3,174
12,026 $
5,519
678
470
4,966
4,477
16,110
$
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. 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.
Changes in the warranty reserve during fiscal 2023 and fiscal 2022 were as follows (in thousands):
Balance at May 29, 2021
Accruals for products sold
Utilization
Balance at May 28, 2022
Accruals for products sold
Utilization
Balance at May 27, 2023
Warranty
Reserve
$
$
$
548
160
(32 )
676
91
(42 )
725
Other Non-Current Liabilities: Other non-current liabilities of $0.6 million at May 27, 2023 and $0.8
million at May 28, 2022, primarily represent employee-benefits obligations in various non-U.S. locations.
46
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. We account for the forfeitures of stock-based compensation in the period in which they occur.
Compensation cost is recognized using a graded vesting schedule over the applicable vesting period. Share-based
compensation expense totaled approximately $0.9 million during fiscal 2023, $0.7 million during fiscal 2022 and $0.7
million during fiscal 2021.
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):
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value (1)
Number of
Options
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
Granted
Exercised
Forfeited
Cancelled
Options Outstanding at May 27, 2023
Options Vested at May 27, 2023
1,427 $
188
(49 )
(7 )
(104 )
1,455 $
185
(373 )
(35 )
(84 )
1,148 $
194
(441 )
(20 )
(25 )
856 $
387 $
8.83
4.26
5.93
5.96
12.53
8.08
7.66
8.01
6.51
11.65
7.82
15.58
8.58
8.15
11.67
9.07
8.24
6.4 $
4.6 $
7,122
3,537
(1) Includes only those options that were in-the-money as of May 27, 2023. 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.
There were 440,480 stock options exercised during fiscal 2023, with cash received of $3.8 million. The total
intrinsic value of options exercised was $4.7 million during fiscal 2023, $1.9 million for fiscal 2022 and $0.1 million
for fiscal 2021. The weighted average fair value of stock option grants was $5.44 during fiscal 2023, $1.50 during
fiscal 2022 and $0.49 during fiscal 2021. As of May 27, 2023, total unrecognized compensation costs related to
unvested stock options and restricted stock awards was approximately $1.8 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 2023 was $0.3 million.
47
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 27, 2023
39.12 %
3.09 %
5.47
0.24
$
$
29.00 %
0.97 %
6.50
0.24
$
27.72 %
0.45 %
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 and fiscal 2021 the simplified method was used as we believed that our historical stock option experience
did not provide a reasonable basis upon which to estimate expected term.
The following table summarizes information about stock options outstanding at May 27, 2023 (in thousands,
except option prices and years):
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Life
Vested
Aggregate
Intrinsic
Value
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Life
Aggregate
Intrinsic
Value
5.09
8.34
15.04
9.07
6.2 $
5.7
7.7
6.4 $
3,446
3,138
538
7,122
135 $
194
58
387 $
5.41
8.65
13.45
8.24
5.6 $
4.2
3.3
4.6 $
1,615
1,694
228
3,537
Exercise Price Range Shares
$4.26 to $6.47
$6.90 to $10.35
$11.14 to $16.71
Total
280 $
347
229
856 $
As of May 27, 2023, a summary of restricted stock award transactions was as follows (in thousands):
Unvested at May 29, 2021
Granted
Vested
Unvested at May 28, 2022
Granted
Vested
Unvested at May 27, 2023
Unvested
Restricted
Shares
144
72
(71 )
145
53
(73 )
125
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 2023, fiscal 2022 and
fiscal 2021.
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, 1,028,000 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.
48
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 are
based on the following (in thousands, except per share amounts):
May 27, 2023
Basic
For the Fiscal Year Ended
May 28, 2022
May 29, 2021
Diluted Basic
Diluted Basic
Diluted
Numerator for Basic and Diluted EPS:
Net income
Less dividends:
Common stock
Class B common stock
Undistributed earnings (loss)
Common stock undistributed earnings (loss)
Class B common stock undistributed earnings
(loss)
Total undistributed earnings (loss)
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 per share:
Common stock
Class B common stock
$ 22,333 $ 22,333 $ 17,927 $ 17,927 $ 1,655 $
1,655
2,877
443
2,877
443
2,745
448
2,745
448
2,669
453
$ 19,013 $ 19,013 $ 14,734 $ 14,734 $ (1,467 ) $
$ 16,467 $ 16,573 $ 12,655 $ 12,720 $ (1,254 ) $
2,546
2,440
2,079
2,014
(213 )
$ 19,013 $ 19,013 $ 14,734 $ 14,734 $ (1,467 ) $
2,669
453
(1,467 )
(1,255 )
(212 )
(1,467 )
11,943
11,943 11,395
11,395 11,105
11,105
599
430
59
12,542
11,825
11,164
2,052
2,052
2,080
2,080
2,097
2,097
$
$
1.62 $
1.46 $
1.55 $
1.40 $
1.35 $
1.21 $
1.31 $
1.18 $
0.13 $
0.11 $
0.13
0.11
Note: There were no common stock options that were anti-dilutive for fiscal 2023, fiscal 2022 and fiscal 2021.
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
49
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 will adopt in the
first quarter of fiscal 2024 and the expected impact on the consolidated financial statements is not material.
4.
REVOLVING CREDIT FACILITY
The Company entered into a Revolving Credit Facility with PNC Bank N.A. on March 20, 2023. Borrowings
under the Company’s Revolving Credit Facility, including the Swingline Loan and Letter of Credit sub-facility
extended to the Company thereunder, are secured by (i) a continuing first priority lien on and security interest in and
to substantially all of the assets of the Company and its domestic subsidiaries and (ii) a continuing first priority pledge
of the Pledged Collateral of the Company and the Guarantors identified in the Security Agreement and the Pledge
Agreement executed in connection with the Credit Agreement. The combined maximum borrowings under the
Revolving Credit Facility are $30,000,000. Proceeds of borrowings will be used for working capital and general
corporate purposes.
The Credit Agreement provides that the Company must maintain compliance with a maximum consolidated
leverage ratio covenant and a minimum consolidated fixed charge coverage ratio, each as determined in accordance
with the Credit Agreement. The Credit Agreement also contains affirmative, negative and financial covenants
customary for financings of this type, including, among other things, limitations on certain other indebtedness, loans
and investments, liens, mergers, asset sales, and transactions with affiliates, as well as customary events of default for
financings of this type. The Company was in full compliance with all covenants as May 27, 2023.
Borrowings under the Revolving Credit Facility will bear interest at a rate per annum selected by the
Company from the following options: (a) Term SOFR Rate (for the applicable Interest Period) plus the SOFR
Adjustment (for the applicable Interest Period) plus 1.25%; (b) Base Rate plus 0.25% or (c) Daily Simple RFR (for
Euros) plus the RFR Adjustment plus 1.25%. Letters of Credit issued under the Letter of Credit sub-facility will have
a letter of credit fee equal to 1.25% per annum. The fee for the unused portion of the credit line is 0.10%.
There was no amount outstanding under the Revolving Credit Facility as of May 27, 2023.
5. 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 departed 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 $0.3 million. Rental expense related to this lease amounted to $0.2 million for the
fiscal year ended May 27, 2023, $0.2 million for fiscal year ended May 28, 2022 and $0.1 million for fiscal year ended
May 29, 2021.
6. 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 2023, fiscal 2022 or fiscal 2021.
50
Our intangible assets represent the fair value for customer relationships and technology acquired in
connection with our acquisitions. Intangible assets subject to amortization were as follows (in thousands):
Gross Amounts:
Customer Relationships (1)
Technology
Total Gross Amounts
Accumulated Amortization:
Customer Relationships
Technology
Total Accumulated Amortization
Net Intangible Assets
May 27, 2023 May 28, 2022
$
$
$
$
$
3,388 $
380
3,768 $
1,671 $
205
1,876 $
3,393
230
3,623
1,453
160
1,613
1,892 $
2,010
(1) Change from prior periods reflect impact of foreign currency translation.
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 27, 2023 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
2024
2025
2026
2027
2028
Thereafter
Total amortization expense
Amortization
Expense
$
$
252
239
206
194
183
818
1,892
The amortization expense associated with the intangible assets totaled approximately $0.3 million during
fiscal 2023 and $0.2 million during fiscal 2022 and fiscal 2021. The weighted average number of years of amortization
expense remaining is 10.6 years.
7.
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 were
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.
51
The gross amounts of assets and liabilities related to both operating and financing leases at May 27, 2023
and May 28, 2022 were as follows (in thousands):
Lease Type
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
May 27, 2023 May 28, 2022
3,024
$
215
3,239
2,457 $
—
2,457 $
$
$
$
$
$
1,028 $
—
1,028 $
1,429 $
—
1,429 $
1,109
—
1,109
1,915
—
1,915
The components of lease costs for fiscal 2023 and fiscal 2022 were as follows (in thousands):
Lease Type
Classification
Fiscal Year
Ended
May 27, 2023
Consolidated operating lease expense
Operating expenses
$
1,721 $
Fiscal Year
Ended
May 28, 2022
1,781
Consolidated financing lease amortization
Consolidated financing lease interest
Consolidated financing lease expense
Operating expenses
Interest expense
—
—
—
92
3
95
Net lease cost
$
1,721 $
1,876
Rent expense for fiscal 2023, fiscal 2022 and fiscal 2021 was $1.5 million, $1.6 million, and $1.7 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
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Lease inputted interest
Operating Leases
$
1,147
827
453
113
23
12
2,575
118
2,457
Net minimum lease payments
$
The weighted average remaining lease terms and interest rates of leases held by the Company as of May 27,
2023 were as follows:
Lease Type
Operating leases
Weighted Average Remaining
Lease Term in Years
2.6
Weighted Average
Interest Rate
4.0%
52
The cash outflows of the leasing activity of the Company as lessee for fiscal 2023 and fiscal 2022 were as
follows (in thousands):
Fiscal Year Ended
Cash Flow Source
Operating cash flows from operating leases
Operating cash flows from financing leases
Finance cash flows from financing leases
Classification
Operating activities
Operating activities
Financing activities
May 27, 2023
$
May 28, 2022
566 $
—
—
747
148
151
8.
INCOME TAXES
Income before income taxes included the following components (in thousands):
United States
Foreign
Income before income taxes
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
1,077
$
1,231
2,308
12,299 $
3,460
15,759 $
22,258 $
2,772
25,030 $
$
The provision (benefit) for income taxes for fiscal 2023, fiscal 2022 and fiscal 2021 consisted of the
following (in thousands):
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
$
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
Foreign
Total deferred
Income tax provision (benefit)
$
954 $
1,212
547
2,713
—
(16 )
(16 )
2,697 $
(4,213 ) $
950
1,038
(2,225 )
—
57
57
(2,168 ) $
108
—
665
773
—
(120 )
(120 )
653
53
The differences between income taxes at the U.S. federal statutory income tax rate of 21.0% for fiscal 2023,
fiscal 2022 and fiscal 2021 and the reported income tax provision for fiscal 2023, fiscal 2022 and fiscal 2021, are
summarized as follows:
Federal statutory rate
Effect of:
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
R&D credit
Other
Effective tax rate
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
21.0 %
21.0 %
21.0 %
3.6
0.9
0.1
(7.0 )
(0.7 )
(3.7 )
(3.4 )
10.8 %
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 %
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 27, 2023 and May 28, 2022. Significant components were as follows
(in thousands):
Fiscal Year Ended
May 27, 2023 May 28, 2022
$
$
$
$
2,324 $
1,506
1,056
26
131
944
1,215
381
1,067
8,650
(1,375 )
7,275
(2,441 )
(24 )
(381 )
(1 )
(2,847 )
4,428 $
4,517 $
1,285
5,802 $
2,796
1,571
1,182
1,782
183
1,224
—
520
1,480
10,738
(3,474 )
7,264
(2,406 )
(24 )
(520 )
(1 )
(2,951 )
4,313
6,017
1,770
7,787
Deferred tax assets:
NOL carryforwards - foreign and domestic
Inventory valuations
Goodwill
Foreign tax credits
Severance reserve
Foreign capital loss
Section 174 capitalization
Lease liability
Other
Subtotal
Valuation allowance - foreign and domestic
Net deferred tax assets after valuation allowance
Deferred tax liabilities:
Accelerated depreciation
Tax on undistributed earnings
ROU assets
Other
Subtotal
Net deferred tax assets
Supplemental disclosure of net deferred tax assets,
excluding valuation allowance:
Domestic
Foreign
Total
54
The Inflation Reduction Act (the "IRA"), signed into law by President Biden on August 16, 2022, has several
key corporate tax-related provisions, including a 15% creditable book minimum tax on adjusted financial statement
income (“AFSI”) of applicable corporations, clean energy tax incentives and 1% excise tax on certain corporate stock
buybacks. The Company did not rise to the level of AFSI to be subject to the 15% creditable book minimal tax. The
Company did not have a material impact from the IRA. The Creating Helpful Incentives to Produce Semiconductors
Act of 2022 (the "CHIPS Act") was signed into law by President Biden on August 9, 2022, which created a new 25%
investment tax credit for qualified property placed in service for semiconductor manufacturing. This production credit
was not applicable to the Company.
During the fourth quarter of fiscal 2023, the Company recorded research and development (“R&D”) tax
credits of $0.9 million. These credits represent the expected U.S. federal and state credits to be claimed for fiscal 2020
through fiscal 2023. The Company has not previously recorded any benefit from an R&D tax credit due to the fact
that the Company did not believe it was economically prudent to pursue these credits in prior years.
For taxable years beginning after December 31, 2021, taxpayers are required to capitalize certain R&D
expenses and amortize them over five or fifteen years under IRC Section 174. This provision increased our taxable
income for the year ended May 27, 2023, and resulted in additional cash tax payments for U.S. federal and state
income taxes. This provision also generated a deferred tax asset for the year ended May 27, 2023.
As of May 27, 2023 and May 28, 2022 we have utilized all net deferred tax assets related to federal net
operating loss (“NOL”) carryforwards. Net deferred tax assets related to domestic state NOL carryforwards at May
27, 2023 amounted to approximately $2.1 million, compared to $2.4 million at May 28, 2022. Net deferred tax assets
related to foreign NOL carryforwards was $0.2 million as of May 27, 2023 compared to $0.4 million as of May 28,
2022, with various or indefinite expiration dates. We released the valuation allowance and have utilized $1.8 million
of domestic net deferred tax asset related to foreign tax credit carryforwards as of May 27, 2023.
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 2023 and fiscal 2022.
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 27, 2023. 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 released the full valuation allowance on the U.S. federal and state deferred tax items. In addition, in the year ended
May 28, 2022, we partially released the valuation allowance on the state NOL deferred tax item, based on the amount
of the NOLs that management believed it is more likely than not to realize. As of May 27, 2023, we have released
$1.8 million of the valuation allowance on the deferred tax asset related to foreign tax credits based on positive
evidence that arose during the fourth quarter of fiscal 2023 related to the foreign tax credit limitation calculation.
As of May 27, 2023, a valuation allowance of $1.4 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 28, 2022 was $3.5 million. The remaining valuation allowance relates to state NOLs ($0.2 million) and
deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.3 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 $4.8 million, $1.5 million and $0.1
million, during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.
55
In the normal course of business, we are subject to examination by taxing authorities throughout the world.
Generally, years prior to fiscal 2017 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 were under examination for fiscal 2015 through fiscal 2018 in
Germany. The audit was settled in the fourth quarter of fiscal 2022. In the second quarter of fiscal 2023, the Company
paid the audit assessment for the fiscal 2015 through fiscal 2018 years. The Company recorded a tax expense of less
than $0.1 million due to receiving the final assessment for the German audit. The $0.1 million of uncertain tax
positions recorded in prior quarters has been fully utilized as of May 27, 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 2021.
The Company did not record any uncertain tax positions as of May 27, 2023, as compared to $0.1 million as
of May 28, 2022. The reserve for the German audits was reversed in fiscal 2023. We record penalties and interest
related to uncertain tax positions in the income tax expense line item within the Consolidated Statements of
Comprehensive Income. 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 27, 2023 or May
28, 2022.
The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
Fiscal Year Ended
Unrecognized tax benefits, beginning of period
Currency translation adjustment
Release German reserve
Unrecognized tax benefits, end of period
9.
EMPLOYEE BENEFIT PLANS
May 27, 2023
$
May 28, 2022
125 $
(4 )
(121 )
$
— $
142
(17 )
—
125
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 for fiscal 2023 and fiscal 2022.
The Company matched contributions up to 4.0% of pay for fiscal 2021. Charges to expense for matching contributions
to this plan were $1.0 million, $0.8 million and $0.6 million, during fiscal 2023, fiscal 2022 and fiscal 2021,
respectively.
10.
SEGMENT AND GEOGRAPHIC INFORMATION
As described in Note 1, Description of the Company and Note 2, Basis of Presentation, the Company began
reporting the results for its new Green Energy Solutions ("GES") segment in the first quarter of fiscal 2023 due to its
focus on power applications that support the green energy market. The GES segment has been carved out of our
existing Power and Microwave Technologies (“PMT”) segment. Accordingly, the Company is reporting its financial
performance based on four operating and reportable segments. The results for fiscal 2022 and fiscal 2021 presented
herein were adjusted to reflect the presentation of the new GES segment separately from the PMT segment.
The Company's four operating and reportable segments for fiscal 2023, fiscal 2022 and fiscal 2021 were
defined as follows:
56
Power and Microwave Technologies 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, 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.
Green Energy Solutions combines our key technology partners and engineered solutions capabilities to
design and manufacture innovative products for the fast-growing energy storage market and power management
applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide
specialized technical expertise and engineered solutions using our core design 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. GES’s focus is on products for numerous green energy applications such as wind, solar,
hydrogen and Electric Vehicles, and other power management applications that support green solutions such as
synthetic diamond manufacturing.
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.
57
Operating results by segment are summarized in the following table (in thousands):
PMT
Net Sales
Gross Profit
GES
Net Sales
Gross Profit
Canvys
Net Sales
Gross Profit
Healthcare
Net Sales
Gross Profit
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
$
$
$
$
164,299 $
54,089
155,445 $
50,810
128,980
43,546
47,596 $
13,719
22,611 $
7,231
8,300
2,405
39,331 $
12,375
35,187 $
11,252
29,319
10,274
11,432 $
3,506
11,377 $
2,407
10,338
2,600
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 non-current assets
Other assets - non-current deferred income taxes
Total assets
May 27, 2023 May 28, 2022
120,696
$
35,495
5,000
2,686
9,435
1,894
215
—
4,398
179,819
149,976 $
24,981
—
2,771
14,124
1,403
—
267
4,526
198,048 $
$
(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 2023 and fiscal 2022 were approximately $0.6
million and $1.0 million, respectively. In addition, we also had capital expenditures during fiscal 2023 and fiscal 2022
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.
58
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
Fiscal Year Ended
May 27, 2023 May 28, 2022 May 29, 2021
$
$
$
$
112,214 $
59,557
62,017
28,924
(54 )
262,658 $
98,527 $
49,235
64,435
12,439
(16 )
224,620 $
73,625
40,839
52,549
9,651
273
176,937
43,580 $
18,775
18,760
7,735
(5,161 )
83,689 $
36,548 $
15,728
19,215
4,340
(4,131 )
71,700 $
28,639
13,520
16,958
3,405
(3,697 )
58,825
(1) Other includes primarily net sales not allocated to a specific geographical region, unabsorbed
value-add cost and other unallocated expenses.
We sell our products to customers in diversified industries and perform periodic credit evaluations of our
customers’ financial condition. Terms are generally on open account, payable net 30 days in North America, and vary
throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements
based on monthly reviews of outstanding accounts.
Net assets by geographic region are summarized in the following table (in thousands):
Net Assets
North America
Asia/Pacific
Europe
Latin America
Total
Fiscal Year Ended
May 27, 2023 May 28, 2022
$
$
106,528 $
12,347
37,843
2,602
159,320 $
90,979
11,514
30,873
2,481
135,847
The Company had long-lived assets of $22.7 million as of May 27, 2023 and $19.0 million as of May 28,
2022. The long-lived assets, which include our fixed assets and intangibles, were primarily in the U.S. There were
approximately $0.3 million of long-lived assets that belong to our foreign affiliates as of May 27, 2023 and $0.4
million as of May 28, 2022.
The Company had depreciation and amortization expense of $3.7 million, $3.4 million and $3.4 million for
fiscal 2023, fiscal 2022 and fiscal 2021, respectively. The depreciation and amortization, which includes our fixed
assets and intangibles, were primarily in the U.S. Depreciation and amortization expense that belongs to our foreign
affiliates was approximately $0.1 million for fiscal 2023, $0.1 million for fiscal 2022 and $0.3 million for fiscal 2021,
respectively.
59
11.
RISKS AND UNCERTAINTIES
While the immediate impacts of the COVID-19 pandemic have been assessed, the long-term effects of the
disruption, including supply chain disruption, and resulting impact on the global economy and capital markets remain
unpredictable, and depend on future developments, such as the possible resurgence of the virus, variant strains of the
virus, vaccine availability and effectiveness, and future government actions in response to the crisis. The residual
impact of the COVID-19 pandemic and its effects on supply chains and general economic conditions continues to
evolve. The COVID-19 pandemic and its residual negative impact on general economic conditions has had and
continues to have a negative effect on our business, results of operations, cash flows, gross margins as a percentage
of net sales (particularly within our Canvys segment). While the Company did not experience sales declines during
fiscal year 2023 as a direct result of the pandemic, the residual economic impact from the pandemic continued to
negatively impacted our gross margins as a percentage of net sales in our Canvys segment.
It is likely that the pandemic will continue to affect our business for an indeterminable period of time due to
the impact on the global economy, including with respect to transportation networks and supply chains, the availability
of raw materials, production efforts and customer demand for our products. We have experienced and continue to
experience component delays which negatively impact our product development schedule.
Management continues to monitor the impact of global economic factors on its financial condition, liquidity,
operations, suppliers, industry and workforce. Our ability to predict and respond to future changes resulting from the
Covid pandemic is uncertain. Even after the Covid pandemic fully subsides, there may be continued long-term effects
on our business practices and customers in economies in which we operate that could severely disrupt our operations
and could have a material adverse effect on our business, results of operations, cash flows and financial condition. As
we cannot predict the duration, scope or severity of the Covid pandemic, the negative financial impact to our results
cannot be reasonably estimated and could be material.
12.
VALUATION AND QUALIFYING ACCOUNTS
The following table presents the valuation and qualifying account activity for fiscal years ended May 27,
2023, May 28, 2022 and May 29, 2021, (in thousands):
Description
Year ended May 27, 2023
Balance at
beginning
of period
Charged to
expense
Balance at
end
of period
Deductions
Allowance for doubtful accounts
Inventory provisions
$
186 $
6,060
50 (1) $
466 (3)
(45 ) (2) $
(658 ) (4)
Year ended May 28, 2022
Allowance for doubtful accounts
Inventory provisions
$
202 $
5,866
103 (1) $
462 (3)
(119 ) (2) $
(268 ) (4)
Year ended May 29, 2021
Allowance for doubtful accounts
Inventory provisions
$
334 $
5,393
149 (1) $
1,041 (3)
(281 ) (2) $
(568 ) (4)
191
5,868
186
6,060
202
5,866
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 2023 were inventory write-downs of $0.3 million for PMT, $0.1
million for Canvys and $0.1 million for Healthcare.
(4) Inventory disposed or sold, net of foreign currency translation.
60
13.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share
amounts):
Description
Fiscal 2023
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 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
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
67,557 $
23,027
6,324
65,905 $
21,851
5,549
70,364 $ 58,832
16,406
22,405
4,120
6,340
0.47 $
0.42
0.45
0.40
0.40 $
0.36
0.39
0.35
0.46 $
0.41
0.44
0.40
0.29
0.27
0.27
0.25
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
61
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 27, 2023.
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 27, 2023 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 27, 2023 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 27, 2023.
Management’s assessment of the effectiveness of our internal control over financial reporting as of May 27,
2023 has been audited by BDO USA, P.A., 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.
62
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
27, 2023, 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 27, 2023, 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 27, 2023 and May 28, 2022, the related
consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in
the period ended May 27, 2023, and the related notes and our report dated July 31, 2023 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.
63
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, P.A.
Chicago, Illinois
July 31, 2023
64
ITEM 9B. Other Information
None
65
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 10,
2023 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 10, 2023 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 10, 2023 and is incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth information as of May 27, 2023, 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)
832,536
$
8.96
1,027,864
23,564 (1)
856,100
$
12.95 (1)
9.07
—
1,027,864
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.
66
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 10,
2023 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 10, 2023 and is incorporated
herein by reference.
67
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:
Report of BDO USA, P.A., Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of May 27, 2023 and May 28, 2022.
Consolidated Statements of Comprehensive Income for each of the three years ended May 27, 2023,
May 28, 2022 and May 29, 2021.
Consolidated Statements of Cash Flows for each of the three years ended May 27, 2023, May 28, 2022
and May 29, 2021.
Consolidated Statements of Stockholders’ Equity for each of the three years ended May 27, 2023, May
28, 2022 and May 29, 2021.
Notes to Consolidated Financial Statements.
(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
68
Exhibit
Number
EXHIBIT INDEX
Description
2(a)
2(b)
2(c)
3(a)
3(b)
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).
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Annex
III of the Proxy Statement filed August 22, 2014).
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).
10(f)
Credit Agreement among the Company, the Guarantors party thereto, the Lenders party thereto and PNC
Bank NA, as Administrative Agent, Swingline Lender and Issuing Lender thereunder (incorporated by
reference to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange
Commission on March 23, 2023).
69
10(g)
10(h)
Security Agreement among the Company, the Guarantors party thereto, and PNC Bank N.A., as
Administrative Agent (incorporated by reference to the Company’s Current Report on Form 8-K, filed
with the Securities and Exchange Commission on March 23, 2023).
Pledge Agreement among the Company, the Guarantors party thereto, and PNC Bank N.A, as
administrative Agent (incorporated by reference to the Company’s Current Report on Form 8-K, filed
with the Securities and Exchange Commission on March 23, 2023).
10(i) †
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(i)(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(i)(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(j) †
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(k) † 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(l) †
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(m) † 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(n) † 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 †
10.2 †
10.3 †
10.4 †
10.5 †
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).
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 29, 2021).
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).
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 29, 2021).
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 29, 2021).
14*
Richardson Electronics, LTD. Code of Conduct.
70
21*
Subsidiaries of the Company.
23.1*
Consent of Independent Registered Public Accounting Firm - BDO USA, P.A.
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 27, 2023, filed with the SEC on July 31, 2023, formatted in Inline Extensible
Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Income and Comprehensive Income, (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
71
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
July 31, 2023
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
Date
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board, Chief Executive Officer
July 31, 2023
(Principal Executive Officer), President and Director
/s/ Robert J. Ben
Robert J. Ben
/s/ Jacques Belin
Jacques Belin
Chief Financial Officer and Chief Accounting Officer
July 31, 2023
(Principal Financial and Accounting Officer)
Director
July 31, 2023
/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
July 31, 2023
July 31, 2023
July 31, 2023
July 31, 2023
July 31, 2023
72
Exhibit 4
DESCRIPTION OF THE COMPANY’S SECURITIES
Description of Capital Stock
As of July 25, 2023, 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, 2023, there were outstanding 12,184,674 shares of Common Stock and 2,051,488
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)
(vi)
(vii)
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;
the executor or administrator of the estate of that stockholder; and
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)
(iii)
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;
any transaction that results in the issuance or transfer by the corporation of any stock
of the corporation to the interested stockholder;
(iv)
(v)
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
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
April 2022
1
TABLE OF CONTENTS
1. ETHICAL COMMITMENT 5
1.1. Honest and Integrity 6
1.2. Responsibilities as Leaders 7
1.3. A Simple Test for Ethical Decision Making
7
1.4. Purpose of the Code of Conduct
7
1.5. Applicability of the Code of Conduct
8
2. RESPONSIBILITY TO PROTECT
2.1.
Tangible Corporate Assets
8
8
2.2.
Intangible Corporate Assets 8
2.2.1. Richardson Electronics, Ltd. Confidential / Proprietary
Information and Intellectual Property 8
2.2.2. Confidential/Proprietary Information of Others 9
2.2.3. Protecting Competitive Information
9
2.2.4. Personal Use of Material Non-Public Information
10
2.2.5. Protecting Employee Information (Employee Privacy) 10
2.3. Document Ownership and Retention
11
2.4. Avoiding Misrepresentation
11
3. CONFLICTS OF INTEREST
11
3.1.
Family and Friends 12
3.2. Gifts and Entertainment 13
3.2.1. Gifts and Entertainment to/from Government Officials 14
3.3. Purchasing Decisions and Supplier Relations 14
3.4. Employment Outside the Company 15
3.5. Ownership in Other Businesses
15
2
April 2022
3.6. Misappropriation of Business Opportunities 16
3.7. Political Activity and Contributions 16
3.8. Conflict Disclosure Requirements 16
4. ACCURATE REPORTING AND RECORDS MANAGEMENT 17
4.1. Corporate Disclosure Requirements
17
4.2. Proper Accounting and Recordkeeping 17
5. RESPECT AND COMPLIANCE WITH APPLICABLE LAWS AND
REGULATIONS 18
5.1.
Labor and Employment 18
5.2.
Fair Competition and Antitrust 18
5.2.1.
Dealing with Customers 19
5.2.2.
Dealing with Competitors 20
5.2.3.
Participating in Industry Associations
21
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 21
5.3.1.
Foreign Government Officials Defined 22
5.3.2.
Bribes and Kickbacks
23
5.3.3.
Commissioned Agents, Sales Representative and
Consultants
23
5.3.4.
Recordkeeping
24
5.3.5.
Facilitation Payments
24
5.4. Environmental, Health and Safety 24
5.5.
Import and Export Laws 25
April 2022
3
6. REPORTING PROCEDURES 25
6.1. Obligation to Report 25
6.2. Retaliation Prohibited
25
6.3. Confidential Reporting 26
6.4. Whistleblower Protection Rights
28
7. IMPLEMENTATION OF THE CODE 28
7.1. Administration 28
7.2. Acknowledgment
28
7.3. Disciplinary Actions 29
7.4. Waivers of the Code 29
April 2022
4
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.
April 2022
5
1.1. Honesty and Integrity
There are two dimensions to honesty: honesty in communications and honesty in
conduct.
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.
April 2022
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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.
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.
April 2022
7
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.
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.
April 2022
8
“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.
“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.
April 2022
9
▪ 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.
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.
April 2022
10
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.
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.
April 2022
11
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:
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.
April 2022
12
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.
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.
April 2022
13
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 officials. 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
Act 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.
April 2022
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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.
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.
April 2022
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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.
April 2022
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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.
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
April 2022
17
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.
April 2022
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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.
April 2022
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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
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
April 2022
20
policies; bids; discounts; promotions; profits; costs; terms or conditions of
sale; royalties; warranties; choice of customers; territorial markets; production
capacities or plans; and inventories.
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.
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.
April 2022
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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.
April 2022
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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
April 2022
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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.
April 2022
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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.
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.
April 2022
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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
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
Audit Committee Chairman – Paul Plante 813-390-3500
630-208-2273
April 2022
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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.
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.
April 2022
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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.
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.
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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.
April 2022
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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 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 Powerlink MEA
Richardson International, Inc.
Australia
Brazil
Canada
China
France
Germany
Hong Kong
India
Israel
Italy
Japan
Korea
Mexico
Netherlands
Netherlands
Netherlands
Singapore
Spain
Sweden
Thailand
United Kingdom
United Kingdom
United States
Richardson Electronics 10-K
Consent of Independent Registered Public Accounting Firm
Richardson Electronics, Ltd.
LaFox, Illinois
Exhibit 23.1
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 July 31, 2023, relating to the
consolidated financial statements, and the effectiveness of Richardson Electronics Ltd.’s internal control over financial reporting, which
appear in this Annual Report on Form 10-K.
/s/BDO USA, P.A.
Chicago, Illinois
July 31, 2023
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 27, 2023;
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: July 31, 2023
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 27, 2023;
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: July 31, 2023
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
27, 2023, 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
July 31, 2023
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
27, 2023, 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
July 31, 2023