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 June 1, 2024
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
(Exact name of registrant as specified in its charter)
Delaware
36-2096643
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
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
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.05 Par Value
RELL
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
☐
Accelerated Filer
☒
Non-Accelerated Filer
☐
Smaller reporting company
☒
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. ☒
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 December 2, 2023 was approximately $160.5 million.
As of July 26, 2024, there were outstanding 12,327,733 shares of Common Stock, $0.05 par value and 2,049,238 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.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held October 8, 2024, 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.C. Auditor Location: Chicago, IL, USA
2
TABLE OF CONTENTS
Page
Part I
4
Item 1.
Business ............................................................................................................................................
4
Item 1A.
Risk Factors ......................................................................................................................................
9
Item 1B.
Unresolved Staff Comments .............................................................................................................
17
Item 1C.
Cybersecurity ....................................................................................................................................
18
Item 2.
Properties ..........................................................................................................................................
19
Item 3.
Legal Proceedings .............................................................................................................................
19
Item 4.
Mine Safety Disclosure .....................................................................................................................
19
Part II
20
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ..........................................................................................................................
20
Item 6.
Reserved............................................................................................................................................
21
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ............
22
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk ..........................................................
33
Item 8.
Financial Statements and Supplementary Data .................................................................................
33
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosures .........
59
Item 9A.
Controls and Procedures ...................................................................................................................
59
Item 9B.
Other Information .............................................................................................................................
62
Item 9C.
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections .............................................
62
Part III
63
Item 10.
Directors, Executive Officers and Corporate Governance ................................................................
63
Item 11.
Executive Compensation ..................................................................................................................
63
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters .........................................................................................................................................
63
Item 13.
Certain Relationships and Related Transactions, and Director Independence ..................................
64
Item 14.
Principal Accountant Fees and Services ...........................................................................................
64
Part IV
65
Item 15.
Exhibits and Financial Statement Schedules .....................................................................................
65
Item 16.
Form 10-K Summary ........................................................................................................................
65
Exhibit Index ........................................................................................................................................................
66
Signatures .............................................................................................................................................................
69
3
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.
4
PART I
ITEM 1. Business
General
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 55% of our products are manufactured at our facilities located in LaFox, Illinois,
Marlborough, Massachusetts and Donaueschingen, Germany, or by one of our manufacturing partners throughout the
world. 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 2024 began on May 28, 2023 and ended on June 1, 2024, our fiscal year 2023 began on May
29, 2022 and ended on May 27, 2023 and our fiscal year 2022 began on May 30, 2021 and ended on May 28, 2022.
Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.
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.
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 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.
5
Certain of the Company’s products are manufactured in China and are imported into the United States. Our
importation of products into the United States from China is subject to tariffs instituted and imposed from time to time
by The Office of the United States Trade Representative. Management works with suppliers and customers in an effort
to mitigate the impact of such tariffs on customer markets. Our sales and gross margins on certain products could be
negatively impacted if we are unable to successfully pass through the additional cost of applicable tariffs, or if higher
prices reduce demand for the Company's products.
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 2024,
fiscal 2023 and fiscal 2022 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 reports it financial performance on the operating and reportable segments defined as follows:
Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power
grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer,
manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical
expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis.
We provide solutions and add value through design-in support, systems integration, prototype design and
manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global
infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation,
broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses
on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and
induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation
oncology. PMT also offers its customers technical services for both microwave and industrial equipment.
PMT represents leading manufacturers of electron tubes and RF, Microwave and power components used in
semiconductor manufacturing equipment, RF and wireless and industrial power applications. Among the suppliers
PMT supports are Amperex, CDE, CPI, Draloric, Eimac, General Electric, Hitachi, Jennings, L3, MACOM, National,
NJRC, Ohmite, Qorvo, Thales, Toshiba and Vishay.
PMT’s inventory levels reflect our commitment to maintaining 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 the 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.
6
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 ("GES") 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.
We have long-standing relationships with key component and finished goods manufacturers and several key
ISO 9001 and ISO 13485 certified Asian display manufacturers that manufacture products to our specifications. We
believe supplier relationships, combined with our engineering design and manufacturing capabilities and private label
partnerships, allow us to maintain a well-balanced and technologically advanced offering of customer specific display
solutions.
Healthcare 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 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.
7
Distribution
We maintain over 100,000 part numbers in our product inventory database and we estimate that more than
90% of orders received by 6:00 p.m. local time are shipped complete the same day for in-stock product. Customers
can access our products on our websites, www.rell.com, www.rellhealthcare.com, www.canvys.com,
www.rellpower.com, www.relltubes.com and www.rellaser.com, through electronic data interchange, or by
telephone. Customer orders are processed by our regional sales offices and supported primarily by one of our
distribution facilities in LaFox, Illinois; Fort Mill, South Carolina; Amsterdam, Netherlands; Marlborough,
Massachusetts; Donaueschingen, Germany; or Singapore, Singapore. We also have satellite warehouses in Sao Paulo,
Brazil; Shanghai, China; Bangkok, Thailand; and Hook, United Kingdom. Our data processing network provides on-
line, real-time interconnection of all sales offices and central distribution operations, 24 hours per day, seven days per
week. Information on stock availability, pricing in local currency, cross-reference information, customers and market
analyses are obtainable throughout the entire distribution network. The content of our websites is not deemed to be
incorporated by reference in this report filed with the Securities and Exchange Commission.
International Sales
During fiscal 2024, we made approximately 60% of our sales outside the United States. We continue to
pursue new international sales to further expand our geographic reach.
Major Customers
No one customer accounted for more than 10 percent of the Company’s consolidated net sales for fiscal 2024.
Sales to one customer in our PMT segment totaled $31.2 million, which 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. 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.
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 June 1, 2024, we employed 442 individuals, 407 of whom were employed on a full-time basis and 35
of whom were employed on a part-time basis. Of these, 284 full-time and 15 part-time employees were located in the
United States and 123 full-time and 20 part-time employees were located internationally. All our employees are non-
union.
The Company offers employees a competitive compensation program, designed to recognize and reward
both individual and company performance through base pay, variable compensation programs, and health, well-being
and retirement programs to meet the needs of our employees.
8
Diversity, Equity, Inclusion & Belonging ("DEI&B")
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 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:
• The election of a female to serve on the Board of Directors
• Increasing DEI&B awareness on a Company-wide basis through education and involvement
• Inclusion of socially responsible funds in 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.
9
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 their 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.
10
We are dependent on a limited number of vendors to supply us with essential products.
The products we supply are currently produced by a relatively small number of manufacturers. During fiscal
2024 two of our suppliers each represented 11% of our total cost of sales. Our success depends, in large part, on
maintaining current vendor relationships and developing new relationships. To the extent that our significant suppliers
are unwilling or unable to continue to do business with us, extend lead times, limit supplies due to capacity constraints
or other factors, there could be a material adverse effect on our business.
Disruptions to our supply chain could adversely impact our business.
Material disruptions to our supply chains, including 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 the prices of purchased raw materials,
component parts or finished goods increase and we are unable to pass on those increases to our customers. Supply
chain disruptions may be exacerbated by other events and conditions, including the Russia-Ukraine and Israel-Hamas
wars, which could continue to adversely affect our ability to receive goods on a timely basis and increase 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 other
global 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 are subject to the threat of 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.
The Company maintains various information technology protections designed to detect and reduce the
likelihood of cybersecurity incidents, although there can be no assurance that our protections will be successful. The
Company also regularly evaluates its protections against cybersecurity incidents, including in response to specific
threats and as part of the Company's information security program. There can be no assurance, however, that the
Company will be able to prevent or remediate all future cybersecurity incidents or that the cost associated with
responding to any such incident or impact of such incident will not be significant or material. Further, our remediation
efforts may not be successful and could result in interruptions, delays or cessation of service, and loss of existing or
potential suppliers or customers. In addition, breaches of our security measures and the unauthorized dissemination
of sensitive personal, proprietary or confidential information about us, our business partners or other third parties
could expose us to significant potential liability and reputational harm. As threats related to cyber attacks develop and
11
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 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.
12
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
resulted in the past, and may result in the future, 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, 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.
Rising levels of inflation continue to impact the markets in which we operate. If the inflation rate continues
to increase, it can also push up the costs of labor and other expenses. If our revenues do not increase at the rate of
inflation, we may not be able 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.
Our operations could be adversely affected by uncertain conditions in global or regional economies, including
conflict (such as Russia-Ukraine and Israel-Hamas wars), 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 and may in the future result in the decline of conditions in markets in which we operate. 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 uncertainty or the
deterioration of conditions in markets in which we operate, 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.
13
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, 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,
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 Russia-Ukraine and Israel-Hamas wars), war, a major terrorist attack,
natural disasters, actual or threatened public health emergencies, 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.
Certain of our products are subject to tariffs.
Certain of the Company’s products are manufactured in China and are imported into the United States. Our
importation of products into the United States from China is subject to tariffs instituted and imposed from time to time
by The Office of the United States Trade Representative. Management works with suppliers and customers to mitigate
the impact of such tariffs on customer markets. Our sales and gross margins on certain products could be negatively
impacted if we are unable to successfully pass through the additional cost of applicable tariffs, or if higher prices
reduce demand for the Company's products.
14
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.
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 ourselves 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.
15
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.
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.
There were no changes or additional tariffs that affected our fiscal 2024 operations. In May 2024, the U.S.
government announced proposed tariff modifications for certain products from China. Proposed tariffs of 25%, 50%
and 100% on certain products from China are expected to become effective on August 1, 2024, January 1, 2025, and
January 1, 2026. These tariff modifications are not expected to materially impact our Company.
16
It is possible that further tariffs may be imposed on imports of our products, including by other countries, or
that our business will be impacted by changing trade relations among countries. This may cause us to raise prices or
make changes to our operations, any of which could adversely impact demand for our products, our costs, customers,
suppliers and/or the United States economy or certain sectors thereof and, thus, to adversely impact our businesses
and results of operations. Given the evolving nature of trade relations, the impact on our operations and results is
uncertain and could be significant. We can provide no assurance that any strategies we implement to mitigate the
impact of such tariffs or other trade actions will be successful. To the extent that our supply chain, costs, sales or
profitability are negatively affected by the tariffs or other trade actions, our business, financial condition and results
of operations may be materially adversely affected.
Ownership Risks
A single stockholder controls a majority of the Company's voting stock.
As of July 26, 2024, 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 61% 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.
17
If we are deemed to be an investment company, we will be required to meet burdensome compliance requirements
and restrictions on our activities.
We have had significant cash and investments. If we are deemed to be an “investment company” as defined
under the Investment Company Act of 1940 (the “Investment Company Act”), the nature of our investments may be
subject to various restrictions. We do not believe that our principal activities subject us to the Investment Company
Act. If we are deemed to be subject to the Investment Company Act, compliance with required additional regulatory
burdens would increase our operating expenses.
Evolving expectations around corporate responsibility practices, specifically related to environmental, social and
governance (“ESG”) matters, may expose us to reputational and other risks.
Investors, stockholders, customers, suppliers and other third parties are increasingly focusing on ESG and
corporate social responsibility endeavors and reporting. Certain institutional investors, investment funds, other
influential investors, customers, suppliers and other third parties are also increasingly focused on ESG practices.
Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or
which are perceived to have not responded appropriately, may suffer from reputational damage and result in the
business, financial condition and/or stock price of a company being materially and adversely affected. Further, this
increased focus on ESG issues may result in new regulations and/or third-party requirements that could adversely
impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an
allegation or perception that the Company has not taken sufficient action in these areas could negatively harm our
reputation.
Our stock price may be volatile.
Our stock price has fluctuated in the past and may experience declines in the future as a result of the volatile
nature of the stock market, developments in our business and/or factors outside of our control 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, natural disasters,
changes in global, national, or regional economies, inflation, governmental policies, political unrest, military action
and armed conflicts (such as the Russia-Ukraine and Israel-Hamas wars), terrorist activities, political and social
turmoil, civil unrest and other crises.
ITEM 1B. Unresolved Staff Comments
None.
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ITEM 1C. Cybersecurity
Risk Management and Strategy
We are focused on the growing threat of cybersecurity risks we face in today’s global business environment
and have identified cybersecurity as an important enterprise risk. Our cybersecurity risk management program is part
of our overall enterprise risk management program, and focuses on identifying, assessing, managing, and remediating
material risks from cybersecurity incidents. We rely on risk-based security controls, including access limitations and
contractual requirements on third-party service providers, as part of our overall approach of protecting the integrity,
availability and confidentiality of our important systems and information.
The Company follows the U.S. National Institute of Standards and Technology ("NIST") Cyber Security
Framework to structure protocols for identifying, assessing and managing cybersecurity risks. In accordance with
NIST guidance, we maintain documented information security policies and standards to protect operations, assets,
data and services and to defend against, respond to and recover from potential cyber attacks.
These policies and standards include both preventive measures and reactive processes. Preventive measures
include, but are not limited to, protective and detective cybersecurity systems, security monitoring, threat hunting and
mandatory, enterprise-wide employee training. Our reactive processes are captured primarily by a cyber incident
response plan (the "IRP"), which is comprised of an evolving set of procedures developed by cross-functional experts,
and external consultants, who draw upon technical proficiency and learnings from past experiences. All of these
procedures and practices are tailored to our technology environment and are refined iteratively. Further, we have an
information risk management program that includes a vendor risk assessment process, whereby we systematically
oversee and identify risks from cybersecurity threats related to its use of third-party service providers.
The IRP is executed by an Incident Response Team ("IRT"), led by our Information Systems Director. The
exact composition of the IRT varies depending on the severity and potential impact of an incident and will typically
include internal IT professionals and stakeholders across corporate and business functions. The team collaborates with
internal experts and may engage external resources to assess and contain a threat if deemed necessary. Such external
resources may potentially include forensic investigation and response firms, law firms, forensic accountants, and
consultants who are on retainer contracts for expedited availability.
While cybersecurity threats remain a risk to the Company’s business operations, our risk mitigation strategies
have been effective. Accordingly, no such threats have materially affected our business strategy, results of operations
or our financial condition. For more information regarding how cybersecurity threats could materially affect our
business strategy, results of operations or financial condition, see We rely heavily on information technology systems
that, if not properly functioning, could materially adversely affect our business in Item 1A, Risk Factors.
Governance
Our Board of Directors has overall responsibility for enterprise risk management and has delegated the
oversight of cybersecurity risks to the Audit Committee. The Company’s Chief Financial Officer ("CFO")
immediately updates the Audit Committee on any significant cybersecurity incidents and/or threat that may require
an 8-K filing. Furthermore, the CFO reports quarterly to the Audit Committee on any significant cybersecurity
incidents, threats, mitigation strategies and controls at each Audit Committee meeting. The Audit Committee then
updates the full board on significant matters raised and discussed during these sessions.
The Audit Committee delegates day-to-day management of cybersecurity risks to the Company’s senior
management, which includes our CFO, who reports directly to the Chief Executive Officer. Our CFO leads a team of
dedicated professionals who are responsible for a wide range of risk assessment and management and leads specialized
teams of internal and external experts focusing on distinct categories of threats.
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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:
Location
Leased/Owned
Use
Segment
LaFox, Illinois *
Owned
Corporate/Sales/Distribution/Manufacturing PMT/Canvys/Healthcare
Woodland Hills,
California
Leased
Sales
PMT
Marlborough,
Massachusetts
Leased
Sales/Distribution/Manufacturing
Canvys
Fort Mill, South
Carolina
Leased
Sales/Distribution/Testing/Repair
Healthcare
Sao Paulo, Brazil
Leased
Sales/Distribution
PMT
Beijing, China
Leased
Sales
PMT
Nanjing, China
Leased
Sales
PMT
Shanghai, China
Leased
Sales/Distribution
PMT
Shenzhen, China
Leased
Sales
PMT
Brive, France
Leased
Sales
PMT
Paris, France
Leased
Sales
PMT
Donaueschingen,
Germany
Leased
Sales/Distribution/Manufacturing
Canvys
Puchheim, Germany
Leased
Sales
PMT
Mumbai, India
Leased
Sales
PMT
Florence, Italy
Leased
Sales
PMT
Milan, Italy
Leased
Sales
PMT
Tokyo, Japan
Leased
Sales
PMT
Mexico City, Mexico
Leased
Sales
PMT
Amsterdam, Netherlands
Leased
Sales/Distribution/Manufacturing
PMT/Healthcare
Singapore, Singapore
Leased
Sales/Distribution
PMT
Seoul, South Korea
Leased
Sales
PMT
Taipei, Taiwan
Leased
Sales
PMT/Canvys
Bangkok, Thailand
Leased
Sales/Distribution
PMT
Dubai, United Arab
Emirates
Leased
Sales/Testing
PMT
Hook, United Kingdom
Leased
Sales/Distribution/Testing/Repair
PMT
Lincoln, United
Kingdom
Leased
Sales
PMT/Canvys
* LaFox, Illinois is also the location of our corporate headquarters.
ITEM 3. Legal Proceedings
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Unregistered Sales of Equity Securities
There were no sales of unregistered equity securities in fiscal 2024.
Share Repurchases
There were no share repurchases in fiscal 2024.
Dividends
Our quarterly dividend was $0.06 per common share and $0.054 per Class B common share during fiscal
2024. Annual dividend payments were approximately $3.4 million for fiscal 2024 and $3.3 million for fiscal 2023.
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 26, 2024, there
were approximately 406 stockholders of record for the common stock and approximately 13 stockholders of record
for the Class B common stock.
The Company joined the Russell 3000® Index in 2023. Membership in the U.S. all-cap Russell 3000® Index
includes the Company in the large-cap Russell 1000® Index and the small-cap Russell 2000® Index.
21
Performance Graph
As discussed in the Form 10-K for fiscal 2023, the NASDAQ Electronic Components Index is not available
for fiscal 2024 and has been replaced by the Russell Microcap Technology Index. The Russell Microcap Technology
Index is a published industry index comprised of over 150 companies.
The performance of our common stock is compared with the performance of the NASDAQ Composite Index
and the Russell Microcap Technology Index for the fiscal years 2020 to 2024. The following graph assumes $100
invested on the last day of our fiscal year 2019, in our common stock, the NASDAQ Composite 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.
COMPARI SON OF 5 YEAR CUMU LATIVE TOTAL RETURN * Among Richardson Electronics, Ltd., the NASDAQ Composite Index and the NA SDAQ Electronic Components Index $250 $200 $150 $100 $50 $0 5/30/15 5/28/16 5/27/17 6/2/18 6/1/19 5/30/20 Richardson Electronics, Ltd. NASDA Q Composite NASDAQ Electronic Components *$100 invested on 5/30/15 in stock or 5/31/15 in index, including reinvestment of dividends. Indexes calculated on month-end basis.
ITEM 6. Reserved
22
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 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 June 1, 2024, May 27, 2023 and May 28, 2022, 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 June 1, 2024, May 27, 2023 and May 28, 2022, and a discussion of changes
in our financial position.
Business Overview
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 55% of our products are manufactured at our facilities located in LaFox, Illinois,
Marlborough, Massachusetts and Donaueschingen, Germany, or by one of our manufacturing partners throughout the
world. 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 imported into the United States. The Office
of the United States Trade Representative ("USTR") instituted tariffs on the importation of a number of products into
the United States from China. These 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 subject to 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.
23
The Company reports its financial performance based on the operating and reportable segments defined as
follows:
Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power
grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer,
manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical
expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis.
We provide solutions and add value through design-in support, systems integration, prototype design and
manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global
infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, 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 ("GES") 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 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 operate within the following major geographic regions: North America, Asia/Pacific, Europe
and Latin America.
24
Results of Operations
Overview - Fiscal Year Ended June 1, 2024
• Fiscal 2024 contained 53 weeks and fiscal 2023 contained 52 weeks.
• Net sales during fiscal 2024 were $196.5 million, down 25.2%, compared to net sales of $262.7 million
during fiscal 2023.
• Gross margin was 30.5% of net sales during fiscal 2024, compared to 31.9% of net sales during fiscal
2023.
• Selling, general and administrative expenses were $59.5 million, or 30.3% of net sales, during fiscal 2024,
compared to $58.7 million, or 22.4% of net sales, during fiscal 2023.
• Operating income during fiscal 2024 was $0.3 million, compared to an operating income of $25.0 million
during fiscal 2023.
• Other expense during fiscal 2024 was $0.2 million, compared to other income of less than $0.1 million
during fiscal 2023.
• Net income during fiscal 2024 was $0.1 million, compared to a net income of $22.3 million during
fiscal 2023.
Net Sales and Gross Profit Analysis
Net sales by segment and percent change for fiscal 2024, fiscal 2023 and fiscal 2022 were as follows (in
thousands):
Net Sales
FY 2024
FY 2023
FY 2022
FY24 vs. FY23
% Change
FY23 vs. FY22
% Change
PMT
$
128,697 $
164,299 $
155,445
(21.7%)
5.7%
GES
23,233
47,596
22,611
(51.2%)
110.5%
Canvys
32,444
39,331
35,187
(17.5%)
11.8%
Healthcare
12,086
11,432
11,377
5.7%
0.5%
Total
$
196,460 $
262,658 $
224,620
(25.2%)
16.9%
During fiscal 2024, consolidated net sales decreased by 25.2% compared to fiscal 2023. Sales for PMT
decreased by 21.7%, GES sales decreased by 51.2%, Canvys sales decreased by 17.5% and Healthcare sales increased
by 5.7%. The decrease in PMT was mainly due to lower sales of semi-wafer fabrication products and RF and
microwave products. The decrease in GES was due to the project-based nature of the wind turbine business and lower
shipments to EV locomotive customers including a large shipment of battery modules made in fiscal 2023 that did not
recur in fiscal 2024. The decrease in Canvys was primarily due to lower sales in the North American market. The
increase in Healthcare was primarily due to higher part and CT tube sales.
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.
25
Gross profit by segment and percent of segment net sales for fiscal 2024, fiscal 2023 and fiscal 2022 were as
follows (in thousands):
Gross Profit
FY 2024
FY 2023
FY 2022
PMT
$
38,717
30.1% $
54,089
32.9% $
50,810
32.7%
GES
6,607
28.4%
13,719
28.8%
7,231
32.0%
Canvys
10,973
33.8%
12,375
31.5%
11,252
32.0%
Healthcare
3,669
30.4%
3,506
30.7%
2,407
21.2%
Total
$
59,966
30.5% $
83,689
31.9% $
71,700
31.9%
Gross profit reflects the distribution and manufacturing product margin less manufacturing variances,
inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs and other
provisions.
Consolidated gross profit was $60.0 million during fiscal 2024, compared to $83.7 million during fiscal 2023.
Consolidated gross margin as a percentage of net sales was 30.5% for fiscal 2024, compared to the 31.9% during fiscal
2023, primarily due to unfavorable product mix and manufacturing under absorption for PMT, unfavorable product
mix for GES, favorable product mix and lower freight costs for Canvys and increased manufacturing under absorption
for Healthcare. Gross margin during fiscal 2024 included expense related to inventory provisions of $0.4 million for
PMT, $0.1 million for Canvys and $0.1 million for Healthcare.
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.
Power and Microwave Technologies
Net sales for PMT decreased 21.7% to $128.7 million during fiscal 2024 from $164.3 million during fiscal
2023. The decrease was mainly due to lower sales of semi-wafer fabrication products reflecting the cyclical slowdown
in that market. RF and Wireless sales were also down due to a slowdown in the infrastructure business in Asia.
However, the health of the business continues to be strong as we gain market share with new products and customers.
Gross margin as a percentage of net sales decreased to 30.1% during fiscal 2024 as compared to 32.9% during fiscal
2023, primarily due to unfavorable product mix and manufacturing under absorption.
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.
Green Energy Solutions
Net sales for GES decreased 51.2% to $23.2 million during fiscal 2024 from $47.6 million during fiscal 2023.
The decrease reflected the project-based nature of the wind turbine business and was mainly due to lower shipments
to EV locomotive customers as they struggled with lead-times of other products to complete the locomotives and ship
to their end customers for Beta testing. Comparative sales were also impacted by a large shipment of battery modules
in fiscal 2023 that did not recur in fiscal 2024. Gross margin as a percentage of net sales decreased to 28.4% during
fiscal 2024 as compared to 28.8% during fiscal 2023, primarily due to product mix. However, like PMT we continue
to gain market share in this segment.
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.
26
Canvys
Net sales for Canvys decreased 17.5% to $32.4 million during fiscal 2024, from $39.3 million during fiscal
2023. Sales decreased primarily due to lower sales in the North American market resulting from high interest rates
negatively impacting our medical OEM customers. Gross margin as a percentage of net sales increased to 33.8%
during fiscal 2024 as compared to 31.5% during fiscal 2023 due to product mix and lower freight costs.
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.
Healthcare
Net sales for Healthcare increased 5.7% to $12.1 million during fiscal 2024, from $11.4 during fiscal 2023.
The increase in sales was primarily due to higher part and CT tube sales. Gross margin as a percentage of net sales
decreased slightly to 30.4% during fiscal 2024, compared to 30.7% during fiscal 2023. The decrease was primarily
due to increased manufacturing under absorption, offset by an improved product mix.
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.
Sales by Geographic Area
Our sales are aggregated by the following geographic regions: North America; Asia/Pacific; Europe; Latin
America; and Other.
Net sales by geographic area and percent change for fiscal 2024, fiscal 2023 and fiscal 2022 were as follows
(in thousands):
Net Sales
FY 2024
FY 2023
FY 2022
FY24 vs. FY23
% Change
FY23 vs. FY22
% Change
North America
$
77,269 $
112,214 $
98,527
(31.1%)
13.9%
Asia/Pacific
45,264
59,557
49,235
(24.0%)
21.0%
Europe
61,476
62,017
64,435
(0.9%)
(3.8%)
Latin America
10,908
28,924
12,439
(62.3%)
132.5%
Other (1)
1,543
(54 )
(16)
2,957.4%
(237.5%)
Total
$
196,460 $
262,658 $
224,620
(25.2%)
16.9%
(1) Primarily includes net sales not allocated to a specific geographical region, unabsorbed value-add costs and other
unallocated expenses.
27
Gross profit by geographic area and percent of geographic net sales for fiscal 2024, fiscal 2023 and fiscal
2022 were as follows (in thousands):
FY 2024
FY 2023
FY 2022
Gross Profit (Loss)
Amount
% of Net
Sales
Amount
% of Net
Sales
Amount
% of Net
Sales
North America
$
29,306
37.9% $
43,580
38.8% $
36,548
37.1%
Asia/Pacific
13,682
30.2%
18,775
31.5%
15,728
31.9%
Europe
18,516
30.1%
18,760
30.2%
19,215
29.8%
Latin America
3,983
36.5%
7,735
26.7%
4,340
34.9%
Other (1)
(5,521)
(5,161)
(4,131)
Total
$
59,966
30.5% $
83,689
31.9% $
71,700
31.9%
(1) Primarily includes net sales not allocated to a specific geographical region, unabsorbed value-add costs and other
unallocated expenses.
We sell our products to customers in diversified industries and perform periodic credit evaluations of our
customers’ financial condition. Terms are generally on open account, payable net 30 days in North America, and vary
throughout Asia/Pacific, Europe and Latin America. Estimates of credit losses are recorded in the financial statements
based on monthly reviews of outstanding accounts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A”) increased 1.4% during fiscal 2024 to $59.5 million
from $58.7 million during fiscal 2023. This increase in SG&A from fiscal 2023 was mainly due to higher R&D
expenses, partially offset by lower incentives due to financial performance. SG&A as a percentage of sales increased
to 30.3% during fiscal 2024 as compared to 22.4% during fiscal 2023.
Selling, general and administrative expenses 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.
Other Income/Expense
Other expense was $0.2 million during fiscal 2024, compared to other income of less than $0.1 million during
fiscal 2023. Fiscal 2024 had $0.3 million of investment income the same as fiscal 2023. 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 2024 totaled $0.4 million compared to $0.3 million for fiscal 2023. We currently do not utilize
derivative instruments to manage our exposure to foreign currency.
Income Tax Provision
Our income tax provision (benefit) during fiscal 2024, fiscal 2023 and fiscal 2022 was $0.1 million, $2.7
million and ($2.2 million), respectively. The effective income tax rates during fiscal 2024, fiscal 2023 and fiscal 2022
were 61.4%, 10.8% and (13.7%), respectively. The difference between the effective income tax rates as compared to
the U.S. federal statutory rate of 21.0% during fiscal 2024, fiscal 2023 and fiscal 2022 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 ("R&D") tax credits in fiscal 2024.
During the fourth quarter of fiscal 2024, the Company recorded R&D tax credits of $0.5 million. These
credits represent the expected U.S. federal credits to be claimed for fiscal 2024.
28
Net deferred tax assets related to domestic state NOL carryforwards at June 1, 2024 amounted to
approximately $1.8 million, compared to $2.1 million at May 27, 2023. Net deferred tax assets related to foreign NOL
carryforwards was $0.1 million as of June 1, 2024, and $0.2 million as of May 27, 2023 with various or indefinite
expiration dates. During the fourth quarter of fiscal 2024 we increased the valuation allowance on the state net
operating losses by $0.9 million resulting in a total valuation allowance against state net operating losses of $1.1
million.
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 2024 and fiscal 2023.
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 June 1, 2024. 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 of June 1, 2024, we recorded a $0.9 million valuation allowance on state NOLs as there was more
negative evidence which limited the Company’s ability to utilize the state NOLs, including the anticipated expiration
of some state NOLs prior to utilization and legislation restrictions for some states.
As of June 1, 2024, a valuation allowance of $2.1 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 27, 2023 was $1.4 million. The valuation allowance relates to state NOLs ($1.1 million) and deferred tax
assets in foreign jurisdictions where historical taxable losses have been incurred ($1.0 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, net of refunds, including foreign estimated tax payments, were less than $0.1 million,
$4.8 million and $1.5 million, during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
In the normal course of business, we are subject to examination by taxing authorities throughout the world.
Years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal and U.S. state. In
the Netherlands, years prior to fiscal 2019 are closed for examination. We are under examination in Germany for fiscal
years 2019 to 2022. We have no current open audits in the U.S.
The Company recorded a $0.1 million uncertain tax position as of June 1, 2024 as compared to not recording
an uncertain tax position as of May 27, 2023. We record interest related to uncertain tax positions in the income tax
expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest was included
within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $0.1
million for interest as of June 1, 2024.
29
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 $24.3 million at June 1, 2024. Cash and cash equivalents by geographic area
at June 1, 2024 consisted of $7.1 million in North America, $7.3 million in Europe, $1.1 million in Latin America and
$8.8 million in Asia/Pacific. We repatriated $0.3 million to the United States in the second quarter of fiscal 2024 from
our entity in Mexico. 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 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.
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 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. The
Company utilized $3.7 million of the credit line to address short-term cash requirements and repaid that $3.7 million
during the fiscal 2024. As of the end of fiscal 2024 and the date of this report, no amounts were outstanding under
the Revolving Credit Facility.
Cash Flows from Operating Activities
Cash flow from operating activities primarily resulted from our net income adjusted for non-cash items and
changes in our operating assets and liabilities.
Operating activities provided $6.5 million of cash during fiscal 2024. We had net income of $0.1 million
during fiscal 2024, which included non-cash stock-based compensation expense of $1.3 million associated with the
issuance of stock option awards and restricted stock awards, $0.6 million of inventory provisions and depreciation and
amortization expense of $4.3 million associated with our property and equipment as well as amortization of our
intangible assets, and a $1.0 million increase in deferred income taxes. Changes in our operating assets and liabilities
provided cash of $1.2 million during fiscal 2024, mainly due to a decrease in receivables of $5.3 million, a decrease
in accounts payable and accrued liabilities of $4.7 million and a decrease in prepaid expenses of $0.3 million. The
majority of the decrease in receivables reflected lower sales revenue compared to the prior year fourth quarter. The
decrease in accounts payable and accrued liabilities was due to lower year-end accruals and timing.
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.
30
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 during fiscal 2024 was due to the $4.0 million of capital expenditures. Those
capital expenditures were primarily related to our LaFox manufacturing business and facility renovation and IT
systems.
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.
Our purchases and proceeds from investments consist of time deposits and CDs. Purchasing of future
investments may vary from period to period due to interest and foreign currency exchange rates.
Cash Flows from Financing Activities
The cash flow from financing activities primarily consists of cash dividends paid.
Cash used in financing activities of $2.9 million during fiscal 2024 resulted primarily from the $3.4 million
used to pay dividends to shareholders with a $0.6 million offset for the proceeds from stock option exercises.
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.
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 June 1, 2024 (in thousands):
Less
than
1 year
1 - 3
years
4 - 5
years
More than
5 years Less Interest
Total
Lease obligations (1)
$ 1,294 $1,505 $ 142 $
— $
(181) $ 2,760
(1) Lease obligations are related to certain warehouse and office facilities under non-cancelable operating leases as
well as financing leases.
31
Critical Accounting 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 accounting 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 Credit Losses
• Revenue Recognition
• Inventories, net
• Intangible and Long-Lived Assets
• Income Taxes
Allowance for Credit Losses
Our allowance for credit losses 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.
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.
32
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.
Intangible and Long-Lived Assets
Our intangible assets reflect their fair value. 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.
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
A summary of the New Accounting Pronouncements is provided in Note 3, Significant Accounting Policies
and Disclosures.
33
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. We have not used any derivative instruments nor entered into any
forward contracts in fiscal 2024, fiscal 2023 or fiscal 2022.
Had the U.S. dollar changed unfavorably 10% against various foreign currencies, foreign denominated net
sales would have been lower by an estimated $10.8 million during fiscal 2024, an estimated $12.2 million during fiscal
2023 and an estimated $12.1 million during fiscal 2022. Total assets would have declined by an estimated $4.6 million
as of the fiscal year ended June 1, 2024 and an estimated $4.3 million as of the fiscal year ended May 27, 2023, while
the total liabilities would have decreased by an estimated $1.2 million as of the fiscal year ended June 1, 2024 and an
estimated $1.1 million as of the fiscal year ended May 27, 2023.
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
34
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
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 June 1, 2024 and May 27, 2023, the related consolidated statements of comprehensive income, stockholders’ equity,
and cash flows for each of the three years in the period ended June 1, 2024, 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 June 1 2024 and May 27, 2023, and the results of its
operations and its cash flows for each of the three years in the period ended June 1, 2024, 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 June 1, 2024, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) and our report dated August 5, 2024 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.
35
Estimation of Inventory Reserve - Power and Microwave Technologies ("PMT") Reportable Segment
As described in Note 3 to the consolidated financial statements, the consolidated inventory balance as of June 1, 2024
was $110.1 million, net of $6.0 million in reserves. 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 management's estimate of future demands.
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 the inventory reserve.
• Assessing the reasonableness of management's estimate of future demand by selecting a sample and (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) when applicable, 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.C.
We have served as the Company's auditor since 2015.
Chicago, Illinois
August 5, 2024
36
Richardson Electronics, Ltd.
Consolidated Balance Sheets
(in thousands, except per share amounts)
June 1, 2024 May 27, 2023
Assets
Current assets:
Cash and cash equivalents
$
24,263
$
24,981
Accounts receivable, less allowance of $323 and $191, respectively
24,845
30,067
Inventories, net
110,149
110,402
Prepaid expenses and other assets
2,397
2,633
Total current assets
161,654
168,083
Non-current assets:
Property, plant and equipment, net
20,681
20,823
Intangible assets, net
1,641
1,892
Right of use lease assets
2,760
2,457
Deferred income taxes
5,500
4,526
Other non-current assets
209
267
Total non-current assets
30,791
29,965
Total assets
$
192,445
$
198,048
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
15,458
$
23,535
Accrued liabilities
15,404
12,026
Lease liability current
1,169
1,028
Total current liabilities
32,031
36,589
Non-current liabilities:
Deferred income tax liabilities
90
98
Lease liability non-current
1,591
1,429
Other non-current liabilities
781
612
Total non-current liabilities
2,462
2,139
Total liabilities
34,493
38,728
Stockholders’ Equity
Common stock, $0.05 par value; 12,254 shares issued and outstanding
on June 1, 2024 and 12,140 shares issues and outstanding on May 27,
2023
613
607
Class B common stock, convertible, $0.05 par value; 2,049 shares issued
and outstanding on June 1, 2024 and 2,052 shares issued and outstanding
on May 27, 2023
102
103
Preferred stock, $1.00 par value, no shares issued and outstanding
—
—
Additional paid-in-capital
72,744
70,951
Retained earnings
83,729
87,044
Accumulated other comprehensive income
764
615
Total stockholders’ equity
157,952
159,320
Total liabilities and stockholders’ equity
$
192,445
$
198,048
37
Richardson Electronics, Ltd.
Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
Fiscal Year Ended
June 1, 2024 May 27, 2023 May 28, 2022
Net sales
$
196,460 $
262,658
$
224,620
Cost of sales, exclusive of depreciation and amortization
136,494
178,969
152,920
Gross profit
59,966
83,689
71,700
Selling, general and administrative expenses, inclusive of
depreciation and amortization
59,548
58,713
55,723
Loss (gain) on disposal of assets
70
(7)
20
Operating income
348
24,983
15,957
Other expense (income):
Investment/interest income
(284 )
(295)
(80)
Foreign exchange loss
436
278
273
Other, net
39
(30)
5
Total other expense (income)
191
(47)
198
Income before income taxes
157
25,030
15,759
Income tax provision (benefit)
96
2,697
(2,168)
Net income
61
22,333
17,927
Foreign currency translation gain (loss), net of tax
149
(185)
(4,093)
Comprehensive income
$
210 $
22,148
$
13,834
Net income per share:
Common shares - Basic
$
0.00 $
1.62
$
1.35
Class B common shares - Basic
0.00
1.46
1.21
Common shares - Diluted
0.00
1.55
1.31
Class B common shares - Diluted
0.00
1.40
1.18
Weighted average number of shares:
Common shares - Basic
12,214
11,943
11,395
Class B common shares - Basic
2,051
2,052
2,080
Common shares - Diluted
12,464
12,542
11,825
Class B common shares - Diluted
2,051
2,052
2,080
38
Richardson Electronics, Ltd.
Consolidated Statements of Cash Flows
(in thousands)
Fiscal Year Ended
June 1, 2024 May 27, 2023 May 28, 2022
Operating activities:
Net income
$
61 $
22,333
$
17,927
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization
4,307
3,671
3,423
Inventory provisions
606
466
462
Loss (gain) on disposal of assets
70
(7)
20
Share-based compensation expense
1,326
936
654
Deferred income taxes
(1,004 )
(138)
(4,042)
Change in assets and liabilities:
Accounts receivable
5,297
(363)
(6,183)
Inventories
66
(30,452)
(20,571)
Prepaid expenses and other assets
250
(519)
(228)
Accounts payable
(8,124 )
(439)
7,671
Accrued liabilities
3,396
(4,006)
2,420
Other
273
319
358
Net cash provided by (used in) operating activities
6,524
(8,199)
1,911
Investing activities:
Capital expenditures
(4,041 )
(7,378)
(3,120)
Proceeds from the sale of property, plant & equipment
—
194
—
Proceeds from maturity of investments
—
5,000
—
Purchases of investments
—
—
(5,000)
Net cash used in investing activities
(4,041 )
(2,184)
(8,120)
Financing activities:
Proceeds from issuance of common stock
591
3,778
2,992
Cash dividends paid on Common and Class B Common shares
(3,376 )
(3,320)
(3,193)
Proceeds from revolving credit facility
3,744
—
—
Repayment of revolving credit facility
(3,744 )
—
—
Other
(120 )
(69)
(151)
Net cash (used in) provided by financing activities
(2,905 )
389
(352)
Effect of exchange rate changes on cash and cash equivalents
(296 )
(520)
(1,260)
Decrease in cash and cash equivalents
(718 )
(10,514)
(7,821)
Cash and cash equivalents at beginning of period
24,981
35,495
43,316
Cash and cash equivalents at end of period
$
24,263 $
24,981
$
35,495
Supplemental Disclosure of Cash Flow Information:
Cash paid during the fiscal year:
Income taxes, net of refunds
$
— $
4,807
$
1,484
Non-cash activities:
Non-cash accruals for construction in progress
$
267 $
—
$
—
Right of use assets obtained in exchange for lease liabilities
1,518
695
2,306
39
Richardson Electronics, Ltd.
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
Common
Class B
Common
Par
Value
Additional
Paid In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Balance May 29, 2021
11,160
2,097 $
663 $
62,707 $ 53,297 $
4,893 $121,560
Comprehensive income
Net income
—
—
—
—
17,927
—
17,927
Foreign currency translation,
net of tax
—
—
—
—
—
(4,093)
(4,093)
Share-based compensation:
Restricted stock
—
—
—
444
—
—
444
Stock options
—
—
—
210
—
—
210
Common stock:
Options exercised
373
—
18
2,974
—
—
2,992
Restricted stock issuance
72
—
4
(4)
—
—
—
Class B converted to common
44
(44 )
—
—
—
—
—
Dividends paid to:
Common ($0.24 per share)
—
—
—
—
(2,745)
—
(2,745)
Class B ($0.22 per share)
—
—
—
—
(448)
—
(448)
Balance May 28, 2022
11,649
2,053 $
685 $
66,331 $ 68,031 $
800 $135,847
Comprehensive income
Net income
—
—
—
—
22,333
—
22,333
Foreign currency translation,
net of tax
—
—
—
—
—
(185)
(185)
Share-based compensation:
Restricted stock
—
—
—
542
—
—
542
Stock options
—
—
—
394
—
—
394
Common stock:
Options exercised
441
—
23
3,755
—
—
3,778
Restricted stock issuance
49
—
2
(71)
—
—
(69)
Class B converted to Common
1
(1 )
—
—
—
—
—
Dividends paid to:
Common ($0.24 per share)
—
—
—
—
(2,877)
—
(2,877)
Class B ($0.22 per share)
—
—
—
—
(443)
—
(443)
Balance May 27, 2023
12,140
2,052 $
710 $
70,951 $ 87,044 $
615 $159,320
Comprehensive income
Net income
—
—
—
—
61
—
61
Foreign currency translation,
net of tax
—
—
—
—
—
149
149
Share-based compensation:
Restricted stock
—
—
—
685
—
—
685
Stock options
—
—
—
641
—
—
641
Common stock:
Options exercised
74
—
3
588
—
—
591
Restricted stock issuance
37
—
2
(121)
—
—
(119)
Class B converted to Common
3
(3 )
—
—
—
—
—
Dividends paid to:
Common ($0.24 per share)
—
—
—
—
(2,933)
—
(2,933)
Class B ($0.22 per share)
—
—
—
—
(443)
—
(443)
Balance June 1, 2024
12,254
2,049 $
715 $
72,744 $ 83,729 $
764 $157,952
40
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 55% of our products are manufactured at our facilities located in LaFox, Illinois,
Marlborough, Massachusetts and Donaueschingen, Germany, or by one of our manufacturing partners throughout the
world. 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 reports its financial performance for the following business segments: Power and Microwave
Technologies ("PMT"), Green Energy Solutions ("GES"), Canvys and Healthcare. A description of the Company's
business segments is provided in Note 10, Segment and Geographic Information.
We currently operate within the following major geographic regions: North America, Asia/Pacific, Europe
and Latin America.
Customer Concentration: No one customer represented more than 10 percent of our total accounts
receivable balance as of June 1, 2024. 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 the consolidated net sales in fiscal 2024.
Sales to one customer in our PMT segment totaled $31.2 million, which accounted for 12 percent of the Company’s
consolidated net sales in fiscal 2023. No one customer represented more than 10 percent of the consolidated net sales
in fiscal 2022.
Supplier Concentration: Two of our suppliers each represented 11 percent of our total cost of sales in fiscal
2024. One supplier represented 11 percent in fiscal 2023 and in fiscal 2022. The amount owed to both suppliers for
fiscal 2024 totaled $3.8 million as of June 1, 2024. The amount owed for fiscal 2023 totaled $0.2 million as of May
27, 2023.
2.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP for
all fiscal years presented. The consolidated financial statements include our wholly owned subsidiaries. All
intercompany transactions and account balances have been eliminated in consolidation.
Our fiscal year 2024 began on May 28, 2023 and ended on June 1, 2024, our fiscal year 2023 began on May
29, 2022 and ended on May 27, 2023 and our fiscal year 2022 began on May 30, 2021 and ended on May 28, 2022.
Unless otherwise noted, all references to a particular year in this document shall mean the fiscal year for such period.
41
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 credit losses, 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.
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.
Accounts Receivable and Allowance for Credit Losses: Trade accounts receivable represent amounts
billed to customers and not yet collected. Trade accounts receivable is recorded at the invoiced amount, which
approximates net recoverable value, and generally do not bear interest. The Company's accounts receivable, net
balance was $24.8 million and $30.1 million as of June 1, 2024 and May 27, 2023, respectively. Our allowance for
credit losses 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 credit losses was
approximately $0.3 million as of June 1, 2024, and $0.2 million as of May 27, 2023.
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
42
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.
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 cover 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 28, 2022
$
4,966
Additions
4,293
Revenue recognized
(5,976)
Balance May 27, 2023
$
3,283
Additions
4,629
Revenue recognized
(3,392)
Balance June 1, 2024
$
4,520
43
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.
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
$0.4 million, $0.3 million and $0.3 million during fiscal 2024, fiscal 2023 and fiscal 2022, 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 $93.9 million of finished
goods, $12.2 million of raw materials and $4.0 million of work-in-progress as of June 1, 2024 as compared to
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.
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. The inventory reserve as of June 1, 2024 was $6.0 million compared to $5.9 million as
of May 27, 2023.
We recorded provisions to our inventory reserves of $0.6 million, $0.5 million and $0.5 million during fiscal
2024, fiscal 2023 and fiscal 2022, 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.
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.
Amortization is classified as a selling, general and administrative expense ("SG&A") on the income statement. 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 is classified as a selling, general and administrative expense ("SG&A")
on the income statement. The depreciation expense was approximately $4.0 million, $3.4 million and $3.2 million
during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
44
Property, plant and equipment consist of the following (in thousands):
June 1, 2024 May 27, 2023
Land and improvements
$
1,532
$
1,532
Buildings and improvements
27,885
24,206
Computer, communications equipment and
software
11,900
11,692
Machinery and other equipment
19,253
18,350
Construction in progress
2,216
4,437
$
62,786
$
60,217
Accumulated depreciation
(42,105)
(39,394)
Property, plant, and equipment, net
$
20,681
$
20,823
Construction in progress at June 1, 2024, included $0.6 million for facilities, $0.6 million for manufacturing
facilities and $1.0 million for IT systems. All projects are expected to be completed before the end of fiscal 2025.
Supplemental disclosure information of the estimated useful life of the assets:
Land improvements
10 years
Buildings and improvements
10 - 30 years
Computer, communications equipment and software
3 - 10 years
Machinery and other equipment
3 - 20 years
We review property and equipment, definite-lived intangible assets and other long-lived assets for
impairment whenever adverse events or changes in circumstances indicate that the carrying amounts of such assets
may not be recoverable.
If adverse events do occur, our impairment review is based on an undiscounted cash flow analysis at the
lowest level at which cash flows of the long-lived assets are largely independent of other groups of our assets and
liabilities. This analysis requires management judgment with respect to changes in technology, the continued success
of product lines and future volume, revenue and expense growth rates. We conduct annual reviews for idle and
underutilized equipment and review business plans for possible impairment. Impairment occurs when the carrying
value of the assets exceeds the future undiscounted cash flows expected to be earned by the use of the asset or asset
group. When impairment is indicated, the estimated future cash flows are then discounted to determine the estimated
fair value of the asset or asset group and an impairment charge is recorded when the carrying value exceeds 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):
June 1, 2024
May 27, 2023
Compensation and payroll taxes
$
3,495 $
4,422
Accrued severance
506
486
Professional fees
487
661
Deferred revenue
4,520
3,283
Other accrued expenses
6,396
3,174
Accrued Liabilities
$
15,404 $
12,026
45
Warranties: We offer assurance-type 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 2024 and fiscal 2023 were as follows (in thousands):
Warranty
Reserve
Balance at May 28, 2022
$
676
Accruals for products sold
91
Utilization
(42)
Balance at May 27, 2023
$
725
Accruals for products sold
2
Utilization
(42)
Balance at June 1, 2024
$
685
Other Non-Current Liabilities: Other non-current liabilities of $0.8 million at June 1, 2024 and $0.6 million
at May 27, 2023, primarily represent employee-benefits obligations in various non-U.S. locations.
Share-Based Compensation: We measure and recognize share-based compensation cost at fair value for all
share-based payments, including stock options and restricted stock awards. We estimate fair value using the Black-
Scholes option-pricing model, which requires assumptions such as expected volatility, risk-free interest rate, expected
life and dividends. 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 $1.3 million during fiscal 2024, $0.9 million during fiscal 2023 and $0.7
million during fiscal 2022.
46
Stock options granted generally vest over a period of five years and have contractual terms to exercise of 10
years. A summary of stock option activity is as follows (in thousands, except option prices and years):
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value (1)
Options Outstanding at May 29, 2021
1,455 $
8.08
Granted
185
7.66
Exercised
(373 )
8.01
Forfeited
(35 )
6.51
Cancelled
(84 )
11.65
Options Outstanding at May 28, 2022
1,148 $
7.82
Granted
194
15.58
Exercised
(441 )
8.58
Forfeited
(20 )
8.15
Cancelled
(25 )
11.67
Options Outstanding at May 27, 2023
856 $
9.07
Granted
205
15.51
Exercised
(75 )
7.91
Forfeited
(18 )
9.32
Cancelled
(10 )
11.70
Options Outstanding at June 1, 2024
958 $
10.51
6.4
$
2,388
Options Vested at June 1, 2024
481 $
8.74
4.9
$
1,560
(1) Includes only those options that were in-the-money as of June 1, 2024. 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 74,822 stock options exercised during fiscal 2024, with cash received of $0.6 million. The total
intrinsic value of options exercised was $0.3 million during fiscal 2024, $4.7 million during fiscal 2023 and $1.9
million for fiscal 2022. The weighted average fair value of stock option grants was $6.33 during fiscal 2024, $5.44
during fiscal 2023 and $1.50 during fiscal 2022. As of June 1, 2024, total unrecognized compensation costs related to
unvested stock options and restricted stock awards was approximately $2.5 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 2024 was $0.5 million.
The fair value of stock options is estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Fiscal Year Ended
June 1, 2024 May 27, 2023 May 28, 2022
Expected volatility
44.80 %
39.12%
29.00%
Risk-free interest rate
4.02 %
3.09%
0.97%
Expected lives (years)
5.61
5.47
6.50
Annual cash dividend
$
0.24
$
0.24
$
0.24
The expected volatility assumptions are based on historical experience commensurate with the expected term.
The risk-free interest rate is based on the yield of a treasury note with a remaining term equal to the expected life of
the stock option. The expected term of stock options is estimated from the vesting period of the award and represents
the weighted average period that our stock options are expected to be outstanding. For stock options granted during
fiscal 2022 the simplified method was used as we believed that our historical stock option experience did not provide
a reasonable basis upon which to estimate the expected term.
47
The following table summarizes information about stock options outstanding at June 1, 2024 (in thousands,
except option prices and years):
Outstanding
Vested
Exercise Price Range Shares
Weighted
Average
Exercise
Price
Weighted
Average
Life
Aggregate
Intrinsic
Value
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Life
Aggregate
Intrinsic
Value
$4.26 to $6.47
252 $
5.12
5.1 $
1,530
171 $
5.31
4.8 $
1,004
$6.90 to $10.35
294
8.27
5.0
858
209
8.53
4.1
556
$12.95 to $19.425
412
15.40
8.2
—
101
14.96
6.5
—
Total
958 $
10.51
6.4 $
2,388
481 $
8.74
4.9 $
1,560
As of June 1, 2024, a summary of restricted stock award transactions was as follows (in thousands):
Unvested
Restricted
Shares
Unvested at May 28, 2022
145
Granted
53
Vested
(73)
Unvested at May 27, 2023
125
Granted
45
Vested
(66)
Unvested at June 1, 2024
104
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 2024, fiscal 2023 and
fiscal 2022.
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, 756,000 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.
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 allocation of undistributed (loss) earnings between common stock and Class B common stock is based
on the relationship of the weighted shares outstanding for the respective stock class (common or Class B) to the total
48
of the weighted shares outstanding for common stock and 90% of the weighted shares outstanding for Class B common
stock. The adjustment to the number of outstanding Class B common stock shares reflects the limitation of Class B
common stock dividends to 90% of common stock 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):
For the Fiscal Year Ended
June 1, 2024
May 27, 2023
May 28, 2022
Basic Diluted
Basic Diluted
Basic Diluted
Numerator for Basic and Diluted EPS:
Net income
$
61
$
61
$ 22,333
$ 22,333
$ 17,927
$ 17,927
Less dividends:
Common stock
2,933
2,933
2,877
2,877
2,745
2,745
Class B common stock
443
443
443
443
448
448
Undistributed (loss) earnings
$ (3,315) $ (3,315 ) $ 19,013
$ 19,013
$ 14,734
$ 14,734
Common stock undistributed (loss) earnings
$ (2,880) $ (2,887 ) $ 16,467
$ 16,573
$ 12,655
$ 12,720
Class B common stock undistributed (loss)
earnings
(435)
(428 )
2,546
2,440
2,079
2,014
Total undistributed (loss) earnings
$ (3,315) $ (3,315 ) $ 19,013
$ 19,013
$ 14,734
$ 14,734
Denominator for Basic and Diluted EPS:
Common stock weighted average shares
12,214
12,214
11,943
11,943
11,395
11,395
Effect of dilutive securities
Dilutive stock options
250
599
430
Denominator for diluted EPS adjusted for
weighted average shares and assumed
conversions
12,464
12,542
11,825
Class B common stock weighted average shares,
and shares under if-converted method for
diluted EPS
2,051
2,051
2,052
2,052
2,080
2,080
Net income per share:
Common stock
$
0.00
$
0.00
$
1.62
$
1.55
$
1.35
$
1.31
Class B common stock
$
0.00
$
0.00
$
1.46
$
1.40
$
1.21
$
1.18
Note: There were no common stock options that were anti-dilutive for fiscal 2024, fiscal 2023 and fiscal 2022.
New Accounting Pronouncements - Adopted
ASU 2016-13 (as amended by ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11
and 2020-02) introduced 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 requires
entities to incorporate considerations of historical information, current information and reasonable and supportable
forecasts. This ASU also expanded the disclosure requirements to enable users of financial statements to understand
the entity’s assumptions, models and methods for estimating expected credit losses. The Company adopted the new
standard on May 28, 2023 and the adoption had no impact on the Company's financial condition, results of operations
or cash flows.
New Accounting Pronouncements - Not Yet Adopted
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") No. 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands
the disclosures required in an entity's income tax rate reconciliation table and requires disclosure of income taxes paid
in both U.S. and foreign jurisdictions. The amendments are effective for fiscal years beginning after December 15,
2024, with early adoption permitted, to be applied on a prospective basis, with retrospective application permitted.
The Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
49
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to
Reportable Segment Disclosures. The amendment requires disclosures of significant segment expenses that are
regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of
segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures
of a reportable segment's profit or loss and assets. The new guidance also requires that a public entity that has a single
reportable segment provide all the disclosures required by the amendments in this update and all existing segment
disclosures. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods
within fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, this guidance
should be applied retrospectively to all prior periods presented. The Company is currently evaluating this ASU to
determine its impact on the Company's disclosures.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in
Response to the Securities and Exchange Commission's ("SEC") Disclosure Update and Simplification Initiative. The
amendments in this update require modification of certain disclosure and presentation requirements for a variety of
ASU topics in response to the SEC's Release No. 33-10532. The effective date for each amended topic in the ASC is
the date on which the SEC's removal of the related disclosure requirement from Regulation S-X or Regulation S-K
becomes effective. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations,
the amendment will be removed from the Codification and not become effective. Early adoption is permitted. The
Company is currently evaluating this ASU to determine its impact on the Company's disclosures.
4.
REVOLVING CREDIT FACILITY
The Company entered into a Credit Agreement (the "Credit Agreement") for a three-year Revolving Credit
Facility with PNC Bank N.A. on March 20, 2023 (the "Revolving Credit Facility"). The Revolving Credit Facility
will mature on March 20, 2026. Borrowings under the 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 Revolving Credit Facility. The combined
maximum borrowings under the Revolving Credit Facility are $30 million. Proceeds of borrowings may be used for
working capital and general corporate purposes. There was no amount outstanding under the Revolving Credit Facility
as of June 1, 2024.
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 compliance with financial covenants under the Credit Agreement as of
June 1, 2024.
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%.
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 is entitled to extend the term of the lease
for an additional five-year renewal term 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),
had 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 $0.2 million. Rental expense related to this lease amounted to $0.2 million for the fiscal year ended
50
June 1, 2024, $0.2 million for the fiscal year ended May 27, 2023 and $0.2 million for the fiscal year ended May 28,
2022.
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 2024, fiscal 2023 or fiscal 2022.
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):
June 1, 2024 May 27, 2023
Gross Amounts:
Customer Relationships
$
3,396 $
3,388
Technology
380
380
Total Gross Amounts
$
3,776 $
3,768
Accumulated Amortization:
Customer Relationships
$
1,886 $
1,671
Technology
249
205
Total Accumulated Amortization
$
2,135 $
1,876
Net Intangible Assets
$
1,641 $
1,892
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
Amortization
Expense
2025
$
239
2026
207
2027
194
2028
185
2029
174
Thereafter
642
Total amortization expense
$
1,641
The amortization expense associated with the intangible assets, which is classified as a selling, general and
administrative expense ("SG&A") on the income statement, totaled approximately $0.3 million during fiscal 2024,
$0.3 million during fiscal 2023 and $0.2 million during fiscal 2022.
7.
LEASES
The Company leases real and personal property in the normal course of business under various operating
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.
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 upon a
remeasurement event.
51
The gross amounts of assets and liabilities related to operating leases at June 1, 2024 and May 27, 2023 were
as follows (in thousands):
Lease Type
June 1, 2024 May 27, 2023
Right of use lease assets
$
2,760
$
2,457
Lease liability current
$
1,169
$
1,028
Lease liability non-current
$
1,591
$
1,429
The components of lease costs for fiscal 2024 and fiscal 2023 were as follows (in thousands):
Lease Type
Classification
Fiscal Year
Ended
June 1, 2024
Fiscal Year
Ended
May 27, 2023
Consolidated operating lease expense
Operating expenses
$
1,745
$
1,721
Rent expense for fiscal 2024, fiscal 2023 and fiscal 2022 was $1.5 million, $1.5 million, and $1.6 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
Operating Leases
2025
$
1,294
2026
890
2027
405
2028
210
2029
142
Thereafter
—
Total lease payments
2,941
Lease inputted interest
181
Net minimum lease payments
$
2,760
The weighted average remaining lease terms and interest rates of leases held by the Company as of June 1,
2024 and May 27, 2023 were as follows:
Operating Leases as of:
Weighted Average Remaining
Lease Term in Years
Weighted Average
Interest Rate
June 1, 2024
2.9
4.5%
May 27, 2023
2.6
4.0%
The cash activities associated with our leases for fiscal 2024 and fiscal 2023 were as follows (in thousands):
Fiscal Year Ended
Cash Flow Source
Classification
June 1, 2024
May 27, 2023
Operating cash flows from operating leases
Operating activities
$
1,329
$
566
52
8.
INCOME TAXES
Income before income taxes included the following components (in thousands):
Fiscal Year Ended
June 1, 2024 May 27, 2023 May 28, 2022
United States
$
(3,274 ) $
22,258 $
12,299
Foreign
3,431
2,772
3,460
Income before income taxes
$
157 $
25,030 $
15,759
The provision (benefit) for income taxes for fiscal 2024, fiscal 2023 and fiscal 2022 consisted of the following
(in thousands):
Fiscal Year Ended
June 1, 2024
May 27, 2023
May 28, 2022
Current:
Federal
$
(2,020) $
954
$
(4,213)
State
(141)
1,212
950
Foreign
1,235
547
1,038
Total current
(926)
2,713
(2,225)
Deferred:
Federal
(26)
—
—
State
1,007
—
—
Foreign
41
(16)
57
Total deferred
1,022
(16)
57
Income tax provision (benefit)
$
96
$
2,697
$
(2,168)
The differences between income taxes at the U.S. federal statutory income tax rate of 21.0% for fiscal 2024,
fiscal 2023 and fiscal 2022 and the reported income tax provision for fiscal 2024, fiscal 2023 and fiscal 2022, are
summarized as follows:
Fiscal Year Ended
June 1, 2024 May 27, 2023 May 28, 2022
Federal statutory rate
21.0 %
21.0%
21.0%
Effect of:
State income taxes, net of federal tax benefit
(90.1 )
3.6
5.5
Foreign income inclusion
149.0
0.5
—
Foreign taxes at other rates
189.0
0.4
4.5
Permanent tax differences
(93.0 )
0.1
(2.0)
Tax reserves
63.7
0.1
—
Change in valuation allowance for deferred tax
assets
548.6
(7.0)
(43.1)
Foreign return to provision adjustments
179.9
(0.7)
0.2
Restricted stock
(33.6 )
(3.1)
—
R&D credit
(302.1 )
(3.7)
—
U.S. return to provision adjustments
(648.6 )
—
—
Other
77.6
(0.4)
0.2
Effective tax rate
61.4 %
10.8%
(13.7)%
53
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 June 1, 2024 and May 27, 2023. Significant components were as follows
(in thousands):
Fiscal Year Ended
June 1, 2024
May 27, 2023
Deferred tax assets:
NOL carryforwards - foreign and domestic
$
1,940
$
2,324
Inventory valuations
1,475
1,506
Goodwill
895
1,056
Foreign tax credits
—
26
Severance reserve
131
131
Foreign capital loss
949
944
Section 174 capitalization
2,305
1,215
Other
1,926
1,067
Subtotal
9,621
8,269
Valuation allowance - foreign and domestic
(2,116)
(1,375)
Net deferred tax assets after valuation allowance
7,505
6,894
Deferred tax liabilities:
Accelerated depreciation
(2,071)
(2,441)
Tax on undistributed earnings
(24)
(24)
Other
—
(1)
Subtotal
(2,095)
(2,466)
Net deferred tax assets
$
5,410
$
4,428
Supplemental disclosure of net deferred tax assets,
excluding valuation allowance:
Domestic
$
6,405
$
4,517
Foreign
1,121
1,285
Total
$
7,526
$
5,802
During the fourth quarter of fiscal 2024, the Company recorded R&D tax credits of $0.5 million. These
credits represent the expected U.S. federal credits to be claimed for fiscal 2024.
Net deferred tax assets related to domestic state NOL carryforwards at June 1, 2024 amounted to
approximately $1.8 million, compared to $2.1 million at May 27, 2023. Net deferred tax assets related to foreign NOL
carryforwards was $0.1 million as of June 1, 2024, and $0.2 million as of May 27, 2023 with various or indefinite
expiration dates. During the fourth quarter of fiscal 2024 we increased the valuation allowance on the state net
operating losses by $0.9 million resulting in a total valuation allowance against state net operating losses of $1.1
million.
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 2024 and fiscal 2023.
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 June 1, 2024. 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 of June 1, 2024, we recorded a $0.9 million valuation allowance on state NOLs as there was more
54
negative evidence which limited the Company’s ability to utilize the state NOLs, including the anticipated expiration
of some state NOLs prior to utilization and legislation restrictions for some states.
As of June 1, 2024, a valuation allowance of $2.1 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 27, 2023, was $1.4 million. The valuation allowance relates to state NOLs ($1.1 million) and deferred tax
assets in foreign jurisdictions where historical taxable losses have been incurred ($1.0 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, net of refunds, including foreign estimated tax payments, were less than $0.1 million,
$4.8 million and $1.5 million, during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
In the normal course of business, we are subject to examination by taxing authorities throughout the world.
Years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal and U.S. state. In
the Netherlands, years prior to fiscal 2019 are closed for examination. We are under examination in Germany for fiscal
years 2019 to 2022. We have no current open audits in the U.S.
The Company recorded a $0.1 million uncertain tax position as of June 1, 2024 as compared to not recording
an uncertain tax position as of May 27, 2023. We record interest related to uncertain tax positions in the income tax
expense line item within the Consolidated Statements of Comprehensive Income. Accrued interest was included
within the related tax liability line in the Consolidated Balance Sheets. We have recorded a liability of less than $0.1
million for interest as of June 1, 2024.
The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
Fiscal Year Ended
June 1, 2024
May 27, 2023
Unrecognized tax benefits, beginning of period
$
—
$
125
Currency translation adjustment
—
(4)
Release German reserve
—
(121)
Reserve on R&D credits
93
—
Unrecognized tax benefits, end of period
$
93
$
—
9.
EMPLOYEE BENFITS
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 2024, fiscal 2023
and fiscal 2022. Charges to expense for matching contributions to this plan were $0.9 million, $1.0 million and
$0.8 million, during fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
10.
SEGMENT AND GEOGRAPHIC INFORMATION
As described in Note 1, Description of the Company, the Company reports its financial performance based
on the operating and reportable segments which are defined as follows:
Power and Microwave Technologies ("PMT") combines our core engineered solutions capabilities, power
grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer,
manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical
expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis.
We provide solutions and add value through design-in support, systems integration, prototype design and
manufacturing, testing, logistics and aftermarket technical service and repair - all through our existing global
infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, 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
55
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 ("GES") 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 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 Company
resources primarily based on the gross profit of each segment.
Operating results by segment are summarized in the following table (in thousands):
Fiscal Year Ended
June 1, 2024
May 27, 2023
May 28, 2022
PMT
Net Sales
$
128,697
$
164,299
$
155,445
Gross Profit
38,717
54,089
50,810
GES
Net Sales
$
23,233
$
47,596
$
22,611
Gross Profit
6,607
13,719
7,231
Canvys
Net Sales
$
32,444
$
39,331
$
35,187
Gross Profit
10,973
12,375
11,252
Healthcare
Net Sales
$
12,086
$
11,432
$
11,377
Gross Profit
3,669
3,506
2,407
56
A reconciliation of assets to the relevant consolidated amount is as follows (in thousands):
June 1, 2024
May 27, 2023
Segment assets
$
144,027
$
149,976
Cash and cash equivalents
24,263
24,981
Other current assets (1)
2,447
2,771
Net property, plant and equipment
15,079
14,124
Right of use lease assets
920
1,403
Other non-current assets
209
267
Other assets - non-current deferred income taxes
5,500
4,526
Total assets
$
192,445
$
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.
PMT capital expenditures totaled $0.1 million for fiscal 2024 and fiscal 2023. Canvys capital expenditures
totaled less than $0.1 million for fiscal 2023. Healthcare capital expenditures totaled $0.2 million for fiscal 2024 and
$0.6 million for fiscal 2023. We also had capital expenditures of $3.7 million during fiscal 2024 and $6.6 million
during fiscal 2023 related to the Company’s ERP system and facilities that were not specific to any particular
reportable segment.
Geographic net sales information is primarily grouped by customer destination into five areas: North
America; Asia/Pacific; Europe; Latin America; and Other.
Net sales and gross profit by geographic region are summarized in the following table (in thousands):
Fiscal Year Ended
June 1, 2024
May 27, 2023
May 28, 2022
Net Sales
North America
$
77,269
$
112,214
$
98,527
Asia/Pacific
45,264
59,557
49,235
Europe
61,476
62,017
64,435
Latin America
10,908
28,924
12,439
Other (1)
1,543
(54)
(16)
Total
$
196,460
$
262,658
$
224,620
Gross Profit
North America
$
29,306
$
43,580
$
36,548
Asia/Pacific
13,682
18,775
15,728
Europe
18,516
18,760
19,215
Latin America
3,983
7,735
4,340
Other (1)
(5,521)
(5,161)
(4,131)
Total
$
59,966
$
83,689
$
71,700
(1) 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.
57
Net assets by geographic region are summarized in the following table (in thousands):
Fiscal Year Ended
June 1, 2024
May 27, 2023
Net Assets
North America
$
100,550
$
106,528
Asia/Pacific
10,895
12,347
Europe
44,521
37,843
Latin America
1,986
2,602
Total
$
157,952
$
159,320
The Company had long-lived assets of $22.3 million as of June 1, 2024, and $22.7 million as of May 27,
2023. 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 June 1, 2024 and $0.3 million
as of May 27, 2023.
The Company had depreciation and amortization expense of $4.3 million, $3.7 million and $3.4 million for
fiscal 2024, fiscal 2023 and fiscal 2022, 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 2024, $0.1 million for fiscal 2023 and $0.1 million for fiscal 2022,
respectively.
11.
RISKS AND UNCERTAINTIES
Our business and the companies with which we do business are subject to risks and uncertainties caused by
factors beyond our control. Such factors include economic pressures related to inflation, rising interest rates, economic
weakness or recession, as well as geopolitical and public health, tightening labor markets, and pandemics. These and
other similar conditions and events have in the past and could in the future disrupt our operations and could have a
material adverse effect on our business, results of operations, cash flows and financial condition.
12.
VALUATION AND QUALIFYING ACCOUNTS
The following table presents the valuation and qualifying account activity for fiscal years ended June 1, 2024,
May 27, 2023 and May 28, 2022 (in thousands):
Description
Balance at
beginning
of period
Charged to
expense
Deductions
Balance at
end
of period
Year ended June 1, 2024
Allowance for credit losses
$
191
$
144 (1) $
(12) (2) $
323
Inventory provisions
5,868
606 (3)
(499) (4)
5,975
Year ended May 27, 2023
Allowance for credit losses
$
186
$
50 (1) $
(45) (2) $
191
Inventory provisions
6,060
466 (3)
(658) (4)
5,868
Year ended May 28, 2022
Allowance for credit losses
$
202
$
103 (1) $
(119) (2) $
186
Inventory provisions
5,866
462 (3)
(268) (4)
6,060
Notes:
(1) Provision for credit losses
(2) Uncollectible amounts written off, net of recoveries and foreign currency translation.
(3) Charges to cost of sales. Included in fiscal 2024 were inventory write-downs of $0.4 million for PMT, $0.1
million for Canvys and $0.1 million for Healthcare.
(4) Inventory disposed or sold, net of foreign currency translation.
58
13.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (in thousands, except per share
amounts):
Description
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal 2024
Net sales
$
52,581
$
44,130
$
52,375 $ 47,374
Gross profit
17,264
12,542
15,436
14,724
Net income (loss)
1,227
(1,797)
750
(119)
Net income per share:
Common stock - basic
$
0.09
$
(0.13) $
0.05 $
(0.01)
Class B common stock - basic
0.08
(0.12)
0.05
(0.01)
Common stock - diluted
0.09
(0.13)
0.05
(0.01)
Class B common stock - diluted
0.08
(0.12)
0.05
(0.01)
Fiscal 2023
Net sales
$
67,557
$
65,905
$
70,364 $ 58,832
Gross profit
23,027
21,851
22,405
16,406
Net income
6,324
5,549
6,340
4,120
Net income per share:
Common stock - basic
$
0.47
$
0.40
$
0.46 $
0.29
Class B common stock - basic
0.42
0.36
0.41
0.27
Common stock - diluted
0.45
0.39
0.44
0.27
Class B common stock - diluted
0.40
0.35
0.40
0.25
59
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.
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 June 1, 2024.
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 June 1, 2024, 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 June 1, 2024, 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 June 1, 2024.
Management’s assessment of the effectiveness of our internal control over financial reporting as of June 1,
2024, has been audited by BDO USA, P.C., 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.
60
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
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 June
1, 2024, 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 June 1, 2024, 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 June 1, 2024 and May 27, 2023, the related
consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in
the period ended June 1, 2024, and the related notes and our report dated August 5, 2024 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.
61
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.C.
Chicago, Illinois
August 5, 2024
62
ITEM 9B. Other Information
10b5-1 Trading Arrangement
During the most recently completed fiscal quarter, no director or officer of the Company adopted, modified
or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" (in each case, as
defined in Item 408 of Regulation S-K).
Insider Trading Policies
The Company has adopted insider trading policies and procedures governing the purchase, sale and other
disposition of its securities by directors, officers and employees that management believes are reasonably designed
to promote compliance with insider trading laws, rules, and regulations, and any listing standards applicable to the
company. A copy of the Company’s insider trading policy is attached as Exhibit 19.1 hereto.
ITEM 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
None.
63
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
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 8,
2024 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 8, 2024 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 8, 2024 and is incorporated herein by reference.
Equity Compensation Plan Information
The following table sets forth information as of June 1, 2024, with respect to compensation plans under which
equity securities were authorized for issuance:
Plan Category
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)
Equity Compensation Plans Approved by
Security Holders
934,464
$
10.44
756,114
Equity Compensation Plans Not Approved
by Security Holders
23,564 (1)
12.95 (1)
—
Total
958,028
$
10.51
756,114
(1) Options issued in 1987 pursuant to an employment contract with a former officer and director of Richardson
Electronics, Ltd.
64
Delinquent Section 16 Reports
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and 10 percent
shareholders to file reports of initial ownership and reports of changes in ownership in RELL common stock. To the
best of our knowledge, RELL's directors, executive officers and 10 percent shareholders complied with the
requirements of Section 16(a) in a timely manner during fiscal 2024 except for the following late Form 4 fillings: (i)
a Form 4 filed on behalf of Wendy S. Diddell on August 7, 2023, and (ii) a Form 4 filed on behalf of Robert J. Ben
on August 7, 2023. These late filings were related to shares surrendered in connection with a long-term incentive
compensation award.
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 8,
2024 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 8, 2024 and is incorporated
herein by reference.
65
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.C., Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 1, 2024 and May 27, 2023.
Consolidated Statements of Comprehensive Income for each of the three years ended June 1, 2024,
May 27, 2023 and May 28, 2022.
Consolidated Statements of Cash Flows for each of the three years ended June 1, 2024, May 27, 2023
and May 28, 2022.
Consolidated Statements of Stockholders’ Equity for each of the three years ended June 1, 2024, May
27, 2023 and May 28, 2022.
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.
(c) Financial Statements required by S-X (17 CFR 210).
None.
ITEM 16. Form 10-K Summary
None
66
EXHIBIT INDEX
Exhibit
Number
Description
2(a)
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).
2(b)
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).
2(c)
Amendment No. 1 to Acquisition Agreement, dated February 28, 2011, between Richardson Electronics,
Ltd., and Arrow Electronics, Inc. (incorporated by reference to Exhibit 10(q)(i) to the Company’s Annual
Report on Form 10-K for the fiscal year ended May 28, 2011).
3(a)
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Annex
III of the Proxy Statement filed August 22, 2014).
3(b)
Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on June 12, 2017).
4*
Description of the Company’s Securities.
10(a) † Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan (incorporated by reference to Annex A to
the Company’s Proxy Statement on Schedule 14A, filed with the Securities and Exchange Commission
on August 23, 2011).
10(a)(i) † Amendment to the Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan (incorporated by
reference to Annex II to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on August 22, 2014).
10(a)(ii)† Amendment Two to the Richardson Electronics, Ltd. 2011 Long-Term Incentive Plan (incorporated by
reference to Annex I to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on August 24, 2018).
10(b) † Amended and Restated Edward J. Richardson Incentive Plan (incorporated by reference to Appendix A to
the Company’s Proxy Statement on Schedule 14A, filed with the SEC on August 30, 2012).
10(c) † Richardson Electronics, Ltd. 2006 Stock Option Plan for Non-Employee Directors (incorporated by
reference to Exhibit A to the Company’s Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on September 12, 2005).
10(d) † Employment, Nondisclosure and Non-Compete Agreement, dated June 1, 2004, by and between the
Company and Wendy Diddell (incorporated by reference to Exhibit 10.47 to the Company’s Amendment
No. 4 to the Registration Statement on Form S-1, Registration No. 333-113568, filed June 14, 2004).
10(d)(i) † First Amendment to Employment, Nondisclosure and Non-Compete Agreement, dated May 31, 2007, by
and between the Company and Wendy Diddell (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 6,
2007).
10(e) † Employment, Nondisclosure and Non-Compete Agreement dated June 26, 2014, by and between the
Company and Gregory J. Peloquin (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-
K filed with the SEC on June 27, 2014).
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).
67
10(g)
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).
10(h)
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).
10.1 †
Employment, Nondisclosure and Non-Compete Agreement between the Company and Jens Ruppert dated
June 25, 2015 (incorporated by reference to the Company’s Current Report on Form 10-Q, filed with the
Securities and Exchange Commission on October 10, 2019).
10.2 †
Amendment, dated May 11, 2021, to the Employment, Nondisclosure and Non-Compete Agreement
between the Company and Lee A. McIntyre III dated June 15, 2015 (incorporated by reference to Exhibit
10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended May 29, 2021).
10.3 †
Richardson Electronics, Ltd. Amended and Restated 2011 Long-Term Incentive Plan (incorporated by
reference to Annex A of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC
on August 24, 2020).
10.4 †
Form of Restrictive Stock Award Agreement Pursuant to the Richardson Electronics, Ltd. Amended and
Restated 2011 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s
Annual Report on Form 10-K for the fiscal year ended May 29, 2021).
10.5 †
Form of Nonqualified Stock Option Award for Employees Pursuant to the Richardson Electronics, Ltd.
Amended and Restated 2011 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the
Company’s Annual Report on Form 10-K for the fiscal year ended May 29, 2021).
10.6*
Non-Employee Director Equity Compensation Program and Stock Ownership Guidelines
14*
Richardson Electronics, LTD. Code of Conduct.
19.1*
Insiders' Trading Policies and Guidelines
68
21*
Subsidiaries of the Company.
23.1* Consent of Independent Registered Public Accounting Firm - BDO USA, P.C.
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).
97.1*
Policy for the Recovery of Erroneously Awarded Compensation
101*
The following financial information from our Annual Report on Form 10-K for the fourth quarter and
fiscal year ended June 1, 2024, filed with the SEC on August 5, 2024, 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.
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File
because XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBR Taxonomy Extension Schema With Embedded Linkbase Documents
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
† Executive Compensation Plan or Agreement
* Filed herewith
69
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
Date
By
/s/ Edward J. Richardson
Chairman of the Board, Chief Executive Officer
August 5, 2024
Edward J. Richardson
(Principal Executive Officer), President and Director
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
Chairman of the Board, Chief Executive Officer
August 5, 2024
Edward J. Richardson
(Principal Executive Officer), President and Director
/s/ Robert J. Ben
Chief Financial Officer and Chief Accounting Officer
August 5, 2024
Robert J. Ben
(Principal Financial and Accounting Officer)
/s/ Jacques Belin
Director
August 5, 2024
Jacques Belin
/s/ James Benham
Director
August 5, 2024
James Benham
/s/ Wendy S. Diddell
Director
August 5, 2024
Wendy S. Diddell
/s/ Kenneth Halverson
Director
August 5, 2024
Kenneth Halverson
/s/ Robert Kluge
Director
August 5, 2024
Robert Kluge
/s/ Paul J. Plante
Director
August 5, 2024
Paul J. Plante
Exhibit 4
DESCRIPTION OF THE COMPANY’S SECURITIES
Description of Capital Stock
As of July 26, 2024, 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 26, 2024, there were outstanding 12,327,733 shares of Common Stock and 2,049,238
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)
that stockholder's spouse;
(ii)
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”);
(iii)
a trustee of a trust for the sole benefit of that stockholder, that Class B stockholder's
family members and certain charitable organizations;
(iv)
certain charitable organizations established by that stockholder or that Class B
stockholder's family members or the Company;
(v)
a partnership or corporation all of the beneficial ownership of which is owned (and
continues to be owned) by that stockholder and/or certain other Permitted Transferees;
(vi)
the executor or administrator of the estate of that stockholder; and
(vii)
an employee stock ownership plan of ours.
Shares of Class B Stock may only be registered in the name of the beneficial owner thereof and
not in a “street” or “nominee” name. The “beneficial owner” of shares of Class B Stock is defined
as the person or persons who, or the entity or entities which, possess the power to direct the voting
or the disposition of such shares.
Conversion
Shares of Class B Stock are convertible into Common Stock on a share-for-share basis at all times
at the option of the holder without charge for any stamp or similar tax in respect of such issuance.
In general, the conversion will be effective as of the date the Class B Stock is surrendered to us for
conversion.
Any transfer, pledge or other disposition of shares of Class B Stock other than to a Permitted
Transferee will result in an automatic conversion to Common Stock, on a share-for-share basis,
unless such pledge is pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be transferred to or registered
in the name of the pledgee and shall remain subject to the restrictions of transfer described above.
If at any time the number of issued and outstanding shares of Class B Stock falls below 10% of
the aggregate number of issued and outstanding shares of Common Stock, Class B Stock and
preferred stock, all the outstanding shares of Class B Stock immediately and automatically will be
converted into shares of Common Stock. In the event of such a conversion, certificates formerly
representing outstanding shares of Class B Stock will thereafter be deemed to represent a like
number of shares of Common Stock.
All shares of Class B Stock received by the Company upon conversion thereof into Common Stock
will be returned to the status of authorized but unissued shares of Class B Stock.
Other Provisions
All of the outstanding shares of Class B Stock are fully paid and non-assessable. Holders of Class
B Stock have no preemptive rights to purchase or subscribe for any stock or other securities and
there are no redemption or sinking fund provisions with respect to our Class B Stock. The Class B
Stock is subject to transfer and conversion restrictions described above.
Certain Provisions of Delaware Law, Our Certificate of Incorporation and By-Laws
Class B Stock
The holders of our Class B Stock are entitled to 10 votes for each share they own. As a result, the
holders of Class B Stock have the ability to elect our board of directors. So long as the holders of
Class B Stock constitute more than 50% of our voting power, they have the ability to control any
possible merger, consolidation or sale of assets involving us.
Delaware Anti-Takeover Law
We are subject to Section 203 (“Section 203”) of the Delaware General Corporation Law. Under
this provision, we may not engage in any “business combination” with any interested stockholder
for a period of three years following the date the stockholder became an interested stockholder,
unless:
(i)
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;
(ii)
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
(iii)
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)
any merger or consolidation involving the corporation and the interested stockholder;
(ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder;
(iii)
any transaction that results in the issuance or transfer by the corporation of any stock
of the corporation to the interested stockholder;
(iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation beneficially
owned by the interested stockholder; or
(v)
the receipt by the interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an “interested stockholder” as any entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by the entity or person.
The restrictions of Section 203 of the Delaware General Corporation Law do not apply to
corporations that have elected, in the manner provided therein, not to be subject to Section 203 of
the Delaware General Corporation Law. The Company has not made such an election.
Accordingly, the Company would be subject to Section 203 in the event of a business combination.
Transfer Agent
EQ Shareholder Services is the Transfer Agent and Registrar for our capital stock.
Exhibit 10.6
RICHARDSON ELECTRONICS, LTD.
NON-EMPLOYEE DIRECTOR EQUITY COMPENSATION PROGRAM
AND STOCK OWNERSHIP GUIDELINES
The Board of Directors (the “Board”) of Richardson Electronics, Ltd. (the “Company”) believes that it is generally desirable
for non-employee directors (“Non-Employee Directors”) to own shares of stock of the Company. The Board believes that
by becoming equity owners, Non-Employee Directors assume a personal stake in the success or failure of the Company and
align their financial interests with those of other shareholders of the Company. Accordingly, the Board has adopted this
Non-Employee Director Equity Compensation Program and Stock Ownership Guidelines (this “Program”). This Program
supersedes all prior plans, policies and documents with respect to the subjects covered herein, including the Company’s
2006 Stock Option Plan for Non-Employee Directors. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in the Richardson Electronics, Ltd. Amended and Restated 2011 Long-Term Incentive Plan
(the “Plan”).
1.
Non-Employee Director Compensation Program:
a)
Initial Share Award: Subject to the approval of this Program by the Board, on or before August 1, 2024, the
Company shall award shares of common stock of the Company having a value of $50,000 (which value shall be
measured as of the close of trading on the date of such award (the “Initial Grant Date”)) to each Non-Employee
Director who is a duly-elected member of the Board of Directors of the Company as of the Initial Grant Date, in
each case pursuant to the terms and subject to the conditions of the form of Restricted Stock Award incorporated
by reference into the Plan. The shares of stock awarded pursuant to this Section 1(a) will be fully vested on and
as of the Initial Grant Date and shall be subject to the other restrictions and terms and conditions set forth in the
Restricted Stock Award.
b)
Annual Retainer Share Award: In addition to other cash compensation payable to the members of the Board
determined from time to time by the Company and the Compensation Committee of the Board of Directors,
including pursuant to any other Director Compensation Plan adopted from time to time:
(i)
Reasonably promptly following the last day of each fiscal year during which such Non-Employee Director is a
member of the Board of Directors, but in any event on or before August 1, the Company shall automatically
award shares of common stock of the Company having a value of $50,000 (which value shall be measured as of
the close of trading on the date of such award (the “Grant Date”)) to each Non-Employee Director who has been
elected or reelected as a member of the Board of Directors at the annual meeting for such fiscal year, in each
case pursuant to the terms and subject to the conditions of the form of Restricted Stock Award incorporated by
reference into the Plan (such shares of Stock, the “Restricted Stock”).
(ii)
The Restricted Stock awarded under paragraph (i) will be fully vested on and as of the Grant Date and shall be
subject to the other restrictions and terms and conditions set forth in the Restricted Stock Award.
Requisite Approvals; Insider Trading Policy. Notwithstanding anything to the contrary contained herein, the stock awards
contemplated herein shall be subject in all respects to the approval requirements set forth in the Company’s Bylaws,
Certificate of Incorporation, and the applicable requirement set forth in the policies and procedures of the Company and the
Board of Directors (and committees thereof). Nothing in this Program shall be construed to amend, waive or otherwise
modify the terms and conditions of any of the aforementioned governing documents or policies and procedures, and stock
awards issued hereunder shall be in compliance in all respects with the terms and conditions of the Insider Trading Policy
of the Company in effect from time to time.
Stock Ownership Guidelines:
a)
Guideline Ownership Level: Each Non-Employee Director is required to hold a minimum investment in shares
of the Company’s common stock equal to $150,000 (hereinafter referred to as the “Guideline Ownership Level”).
All Non-Employee Directors shall own a number of shares sufficient to satisfy the Guideline Ownership Level
under this Plan as long as they remain a member of the Company's Board of Directors, subject to the compliance
period identified below. The Company will calculate compliance with the Guideline Ownership Level on August
1 of each year.
b)
Shares Included: For purposes of determining compliance with the Guideline Ownership Level, shares owned
by a Non-Employee Director shall include, as of the applicable measurement date: (i) up to $100,000 of shares
of the Company’s common stock purchased directly by such director or beneficially owned by such director
(including without limitation (A) shares of the Company’s common stock purchased by or in the director’s
individual retirement account (IRA) or other tax qualified retirement plan, (B) shares of the Company’s common
stock purchased by a director’s spouse living in the same household, and (C) shares of the Company’s common
stock owned by a trust funded by the director for the benefit of the director or his or her legal spouse or domestic
partner, children or grandchildren); and (ii) up to $50,000 of shares of Restricted Stock awarded to such director
pursuant to this Program.
c)
Compliance Period: Non-Employee Directors duly elected or appointed to the Board of Directors as of the date
on which this Program is adopted by the Board (the “Adoption Date”) must attain the required Guideline
Ownership Level within three (3) years of the Adoption Date. Non-Employee Directors who are elected or
appointed to the Board after the Adoption Date must attain the required Guideline Ownership Level within three
(3) years of the date on which such Director was elected or appointed to the Board of Directors of the Company.
Until a Non-Employee Director has satisfied the Guideline Ownership Level, such Director will be required to
hold all Company common stock that he or she owns until the Guideline Ownership Level is reached, including,
for the avoidance of doubt, any net shares received upon the vesting or settlement of RSUs and PSUs and the
exercise of stock options, if applicable. Non-Employee Directors cannot sell shares that would result in such
director falling below the Guideline Ownership Level. As long as a Non-Employee Director continues to own
the number of shares that resulted in satisfying the Guideline Ownership Level, the Director will be deemed to
be in compliance with these guidelines.
This Program can be amended, modified and terminated at any time, on a prospective basis, by the Company’s Board of
Directors in its sole and absolute discretion.
*
*
*
*
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April 2024
Exhibit 14
RICHARDSON ELECTRONICS, LTD.
CODE OF CONDUCT
Effective April 2024
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April 2024
TABLE OF CONTENTS
1. ETHICAL COMMITMENT
5
1.1.
Honest and Integrity 5
1.2.
Responsibilities as Leaders 6
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 7
2. RESPONSIBILITY TO PROTECT
7
2.1.
Tangible Corporate Assets
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
9
2.2.5. Protecting Employee Information (Employee Privacy) 10
2.3.
Document Ownership and Retention 10
2.4.
Avoiding Misrepresentation 10
3. CONFLICTS OF INTEREST 11
3.1.
Family and Friends
11
3.2.
Conflict Disclosure Requirements
12
3.3.
Gifts and Entertainment
12
3.3.1. Gifts and Entertainment to/from Government Officials
13
3.4.
Purchasing Decisions and Supplier Relations
14
3.5.
Employment Outside the Company 14
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April 2024
3.6.
Ownership in Other Businesses
15
3.7.
Misappropriation of Business Opportunities 15
3.8.
Political Activity and Contributions
15
4. ACCURATE REPORTING AND RECORDS MANAGEMENT
15
4.1.
Corporate Disclosure Requirements
16
4.2.
Proper Accounting and Recordkeeping
16
5. RESPECT AND COMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS 17
5.1.
Labor and Employment
17
5.2.
Fair Competition and Antitrust
17
5.2.1. Dealing with Customers
18
5.2.2. Dealing with Competitors
19
5.2.3. Participating in Industry Associations 20
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
20
5.3.1. Foreign Government Officials Defined
21
5.3.2. Bribes and Kickbacks 21
5.3.3. Commissioned Agents, Sales Representative and
Consultants
22
5.3.4. Recordkeeping
22
5.3.5. Facilitation Payments 22
5.4.
Environmental, Health and Safety
23
5.5.
Promoting Diversity, Equity & Inclusion 23
5.6.
Import and Export Laws
23
6. REPORTING PROCEDURES
24
6.1.
Obligation to Report 24
6.2.
Retaliation Prohibited 24
6.3.
Confidential Reporting
24
6.4.
Whistleblower Protection Rights
26
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April 2024
7. IMPLEMENTATION OF THE CODE 27
7.1.
Administration 27
7.2.
Acknowledgment
27
7.3.
Disciplinary Actions
27
7.4.
Waivers of the Code 27
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April 2024
1.
ETHICAL COMMITMENT
As a Richardson Electronics, Ltd. employee or Director, you are expected to act in the best
interests of the Company and in a manner that is consistent with the highest legal, moral, and
ethical business standards. This high standard is crucial to upholding the integrity of our
corporation.
As employees and Directors, we are accountable to behave honestly and with integrity in all of
our business practices, including when we deal with customers, suppliers, other third parties and
with one another. By doing so we help to shape Richardson Electronics, Ltd.’s reputation – an
intangible asset that, when positive, is so important to have, so easy to lose and so difficult to
recapture. We will walk away from business we cannot achieve ethically and legally.
The following commitments establish the basis for the Company’s Code of Conduct:
•
To our employees: We are committed to providing all employees the opportunity to work
in an environment free of harassment and unsafe conditions.
•
To our suppliers: We are committed to being a good customer, encouraging and practicing
fair competition, maintaining a sense of responsibility, and building professional and
ethical relationships.
•
To our customers: We are committed to providing value through high- quality service and
products.
•
To our communities: We are committed to responsible actions within our greater
community.
This Code of Conduct will provide a framework and a set of guidelines for compliance with the
ethical standards which guide our daily business activities. In conducting our business we support
Richardson Electronics, Ltd.’s interests by understanding and practicing the spirit of the guidelines
set forth in this Code of Conduct. Observing this Code is of utmost importance to Richardson
Electronics, Ltd. The character of Richardson Electronics, Ltd. is reflected by the daily actions of
its employees.
This Code of Conduct cannot and is not intended to cover every applicable law or provide answers
to all questions that might arise; for that we must ultimately rely on each person’s sense of what
is right, including a sense of when it is proper to seek guidance from others on the appropriate
course of conduct.
Whether you are new to Richardson Electronics, Ltd. or have been contributing to our success
for many years, please take the time to review these guidelines carefully.
1.1.
Honesty and Integrity
There are two dimensions to honesty: honesty in communications and honesty in
conduct.
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
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deceived. Honesty in communications requires:
•
Truthfulness: The ethical principle of truthfulness requires the good- faith intent
to tell the truth. Truthfulness precludes intentional misrepresentations of fact,
intent or opinion.
•
Sincerity: Sincerity means that we will not create belief or impressions that are
untrue, misleading or deceptive, including deliberate omissions, half-truths and
out-of-context statements.
•
Candor: In relationships involving legitimate expectations of trust, honesty may
also require candor, the obligation to volunteer information that the other
person needs or wants to know.
Honesty in conduct precludes stealing, cheating, fraud, deception and other forms of
dishonesty to acquire anything of value (including money, jobs, competitive
information or the approval of others).
Integrity embraces but means more than honesty. Integrity refers to the ethical
principle of consistency between principle and practice. Integrity requires us to treat
our beliefs about right and wrong as the ground rules for our daily behavior and
decision-making. It requires us to walk our talk and to make decisions consistent with
our values, especially our ethical values.
There are two aspects to integrity: being principled and having moral courage.
•
Being principled involves the elevation of principle over expediency or self-
interest and requires a consistency between words and actions. You don’t just
say what you believe about ethics, you show it.
•
Moral Courage requires us to do what is right even when it is likely to cost us
more than we want to pay and more than we think is fair. It occasionally
requires us to stand up and be counted, to fight for our beliefs, to demonstrate
the courage of our convictions in spite of social, economic or political
pressures.
1.2.
Responsibilities as Leaders
Each of Richardson Electronics, Ltd.’s leaders has a unique responsibility to
encourage discussion of the ethical and legal implications of business decisions. This
responsibility includes creating and sustaining a work environment in which
employees, business partners, suppliers and contract workers and consultants know
that ethical and legal behavior is expected of them. Such an environment requires
open and honest two-way communications and being alert to indications that unethical
or illegal conduct has occurred. At all times leaders are to advance, ethically and
legally, the interests of Richardson Electronics, Ltd. This includes notifying appropriate
executive management and taking appropriate action when it is determined that
violations may have occurred.
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1.3.
A Simple Test for Ethical Decision Making
If you are not certain that your actions are proper, a simple check is to ask yourself
the following questions:
•
How would I feel if my family or friends knew of my actions?
•
Would I behave differently if I knew my actions would be reported on the
evening news?
•
Does this meet “the treat others as you would like them to treat you” test?
If the threat of public scrutiny makes you squirm, then your conscience is
saying something important. Pay attention. You're playing with something that
could tarnish a reputation, yours and Richardson Electronics, Ltd.'s. If in doubt,
ask. Talk it out with your supervisor.
1.4.
Purpose of the Code of Conduct
The purpose of the Company’s Code of Conduct is to provide guidelines for conducting
Company business in a legally and ethically appropriate manner. Each Director and
employee is responsible for ensuring that his or her own conduct complies with this
Code. Any person who violates the Code of Conduct will be held accountable for his
or her action(s). Disciplinary action for violations of the Code may range up to and
include immediate termination.
All statements contained in this Code are intended to reflect general policies,
principles, and procedures, do not represent contractual commitments on the part of
the Company, and may be changed at any time without notice.
Without limiting the generality of the foregoing, nothing in this Code should be
construed to grant to any employee any right to benefits under any employee benefit
plan, program or arrangement.
Any time that you have questions about the Code of Conduct, or the application of
these principles, contact your supervisor, your Human Resources Representative or,
if necessary, the Chief Executive Officer of the Company.
1.5.
Applicability of the Code of Conduct
These guidelines apply equally to Directors, Company officers, employees and
individuals who are engaged to assist or render services on behalf of Richardson
Electronics, Ltd. This includes attorneys, business consultants, advisors, agents,
contractors and other representatives in providing such services. It is contrary to our
code of conduct to engage another individual to do something on our behalf that would
be in violation of our code and that we are prohibited from doing ourselves.
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
8
April 2024
time, intellectual property (e.g. patents and trademarks), competitive information and other
proprietary or sensitive information. Each of us has a responsibility to protect Company assets
from theft, loss, damage, and waste so as to avoid a negative impact on the Company’s
profitability, value and prospects.
2.1.
Tangible Corporate Assets
Any use of Company property, facilities, or employee services must comply with the
appropriate Company policies. These policies include, but are not limited to, the
policies described in the Employee Handbook. Company personnel have
accountability for the acquisition, use or misuse, and disposition of Company property.
Employees may not take or divert Company property, equipment, or employee
services for personal use.
Proper use and safeguarding of Richardson Electronics, Ltd.’s information systems
assets is governed by the Policy on the Use of Company Property and
Communications Systems.
2.2.
Intangible Corporate Assets
2.2.1. Richardson Electronics, Ltd. Confidential/Proprietary Information and
Intellectual Property
Each Richardson Electronics, Ltd. employee is responsible for safeguarding
and appropriately using the Company’s intangible assets, such as
confidential/proprietary information, intellectual property and innovative ideas.
Richardson Electronics, Ltd. employees shall not, at any time during or
subsequent to employment, disclose any confidential/proprietary information
or intellectual property to any person or entity that is not an employee of
Richardson Electronics, Ltd. This responsibility to protect confidential
information is subject to Whistleblower Protection Rights.
“Confidential/proprietary information” means any information not generally
known or previously published to the public by Richardson Electronics, Ltd.
which concerns any of Richardson Electronics, Ltd.’s business or prospective
future business. This includes, for example, non-public financial, business and
operating information, budgets, sales or earnings forecasts, business and
strategic plans, pricing information and contract terms, information about
customer, supplier or prospects, marketing plans, new product or service
information, and other proprietary business information and methods.
Intellectual property assets are not limited to those in written form, but also
include information in electronic form as well as information that may be held
in the minds and memories of Richardson Electronics, Ltd. employees.
“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
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April 2024
purposes only, and not for personal benefit or the benefit of others.
2.2.2.
Confidential/Proprietary Information of Others
Confidential/proprietary information belonging to other companies must be
given protection against unauthorized disclosure and use consistent with the
specific obligations Richardson Electronics, Ltd. agreed to when it accepted
such information. In the absence of such specific obligations, third-party
confidential and proprietary information is to be given the same level of
protection against unauthorized disclosure and use that we give our own
information.
2.2.3. Protecting Competitive Information
To compete and succeed in the global marketplace, every Richardson
Electronics, Ltd. employee has a responsibility to protect the company’s
competitive information. To that end, employees should:
▪
Avoid taking sensitive documents from Company premises. If you must,
keep valuable papers with you at all times. Documents left unattended
are subject to compromise or theft.
▪
Mark confidential documents when sending electronically or otherwise
to customers, suppliers, Richardson Electronics, Ltd. employees and
other authorized recipients.
▪
Be guarded in what you say on the telephone in public settings and on
mobile phones.
▪
Guard your laptop computer. Stealing laptops is a common way of
acquiring business secrets.
▪
Be careful what you say in casual conversation with "friendly" strangers.
Pay attention to those around you who might overhear a business
conversation.
▪
Remember that trashed papers, disks, audio tapes and other items can
be treasures for unauthorized people who are interested in knowing
more about Richardson Electronics, Ltd.'s business. Use appropriate
practices (shredding, secure containers, etc.) when disposing of
sensitive materials.
▪
Theft of briefcases is common; take care not to leave your brief case
unattended. Avoid leaving computers, briefcases or other sensitive
materials in unattended vehicles.
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
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April 2024
should be directed to the Chief Financial Officer.
2.2.5. Protecting Employee Information (Employee Privacy)
Richardson Electronics, Ltd. requires access to personal employee information
in order to administer programs such as payroll and benefits. Information such
as personal phone number(s), address, Social Security Number, family
information, benefits selections, medical conditions, salary and performance
ratings is considered confidential. This data as well as employee personnel
files can be accessed only by authorized employees for business purposes or
other purposes permitted by law. Additionally, this information will be shared
outside of the Company only as required by law, to administer benefits or other
programs, to make decisions about the applicability of certain laws, or as
necessary for other business reasons.
If, as an employee, you have access to personal information about any of our
employees as part of your job, you must use it solely for business purposes or
as permitted/required by law.
2.3.
Document Ownership and Retention
Procedures have been established to assure that records are maintained for required
periods and that records no longer needed are destroyed on a timely basis. Record
retention schedules should be reviewed regularly and followed consistently.
All documents created by any of the Richardson Electronics, Ltd.’s employees in the
performance of their job duties are the property of the Richardson Electronics, Ltd. If
you have any doubt about the propriety or legality of disposing of a document, it is
imperative that you consult with your Supervisor, your Human Resources
Representative or, if necessary, the Chief Executive Officer of the Company. Directors
and Company Officers should consult with the Chief Executive Officer or, if necessary,
the Chairman of the Audit Committee. Destruction of records to avoid disclosure in a
legal proceeding may constitute a criminal offense.
If you have reason to believe that other individuals have withheld, unlawfully disposed
of, falsified, or are considering destroying or falsifying potentially relevant documents,
you must report your suspicions immediately to your Supervisor, your Human
Resources Representative or, if necessary, the Chief Executive Officer of the
Company.
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.
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April 2024
3.
CONFLICTS OF INTEREST
Each employee, Director and Company Officer will act with honesty and integrity, including the
ethical handling of actual or apparent conflicts of interest among personal and professional
relationships. All Company Directors and employees are expected to make business decisions
based on the best interests of Richardson Electronics, Ltd. as a whole and not based on personal
interests, relationships or benefits. We are accountable to perform our job responsibilities in an
ethical manner to avoid inappropriate conflicts of interest or the appearance of such conflicts.
A conflict of interest generally arises when an individual’s personal or private interest in a situation
or transaction influences or appears to influence the individual’s ability to act in the best interests
of the Company as a whole or otherwise impairs that individual’s objective judgment as to what
is best for the Company.
Actual or potential conflict of interest situations may arise directly or indirectly, through the
involvement of a family member or close personal friend. Such situations include, but are not
limited to, making purchasing decisions based on self-interest rather than the Company’s interest,
taking on outside work that makes it difficult to objectively or effectively carry out our
responsibilities to the Company, engaging in personal relationships that might impair our
independence or judgment, or accepting unearned personal benefits as a result of our position at
Richardson Electronics, Ltd. Although it is impossible to identify every situation in which such
conflicts could occur, sections 3.3 through 3.8 of this Code provide guidance regarding some
common conflicts of interest.
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.
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.
12
April 2024
•
If you have a relative or friend who works for a competitor, you should discuss
with the Chief Executive Officer. Potential problems can then be discussed.
3.2.
Conflict Disclosure Requirements
In response to the Sarbanes-Oxley Act of 2002, 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. Part of this certification process requires full disclosure 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.
Disclosure is specifically required for 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 regardless of materiality. Disclosure does not necessarily represent
an inappropriate business relationship or transaction. If the disclosure is found to be
conflicting, appropriate action will be taken to ensure proper compliance.
3.3.
Gifts and Entertainment
The purpose of business gifts and entertainment in a commercial setting should be to
promote business relationships and goodwill, and not to create an unfair advantage or
improper influence. It is recognized that under certain circumstances and in some
cultures, gifts and entertainment play an important role in business relationships. The
problem arises when they begin to compromise, or even appear to compromise, our
ability to make objective and fair business decisions. For this reason, Richardson
Electronics, Ltd. requires moderation and discretion in the provision and acceptance
of gifts, entertainment and other business courtesies. All employees must avoid any
situation that could conflict, or appear to conflict, with the best interests of the
Company, or prejudice the way the Company does business.
While Richardson Electronics, Ltd. understands the value of proper business
courtesies, no gift or entertainment should be offered, given, provided or accepted by
any Director or employee or our agents if it may reasonably affect the recipient’s ability
or willingness to act in the best interests of the Company. Additionally, no gift or
entertainment should be offered, given, provided or accepted if it is accompanied by
an express or implied understanding that the recipient is obligated, or may appear
obligated, to provide preferential treatment to the provider in exchange for the gift.
Gifts are defined as anything given as a result of a business relationship for which the
recipient does not pay fair market value, including intangible goods and services such
as travel, lodging and entertainment.
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April 2024
Gifts of nominal value, or normal business sales promotion items, may be offered or
accepted if they are customary in the trade and would not cause, or appear to cause,
the donor to be embarrassed or the recipient to be embarrassed or obligated. For
purposes of these guidelines, gifts valued at or perceived to have a retail value greater
than $100 are considered to be outside of the definition of nominal.
Business entertainment (including meals, golfing, lodging, and transportation) should
be reasonable and appropriate for the occasion. Good judgment must be exercised,
and entertainment must not appear unusual, lavish or extravagant as viewed by an
objective third party. A legitimate business purpose for all entertainment must exist
and, if an employee expense report is to be filed, appropriate documentation
supporting the expenses must be provided in accordance with corporate policy. To
avoid the appearance of an obligation or of improper influence, both the business
associate and the employee must be present.
When local customs or other circumstances make it very difficult or embarrassing for
an employee not to accept a gift with a value in excess of $100, the employee must
report the acceptance or the offering of the gift to the Chief Financial Officer.
Depending on the value of the accepted gift and specific circumstances, the gift may
become Company property. If required by local customs or other circumstances, gifts
given in excess of $100 must be approved in advance, accurately and completely
accounted for and reported on company books and records.
The following are also subject to the aforementioned guidelines:
•
Gifts received, or won, while an employee is participating in an event as a
representative of Richardson Electronics, Ltd.
•
Gifts to an employee’s spouse, partner or other family member.
•
Gifts exchanged during traditional gift-giving or holiday seasons.
•
Gifts exchanged as part of a company event.
Under no circumstances are employees to solicit personal gifts, cash, cash
equivalents, loans, travel or personal discounts from Company business contacts.
3.3.1. 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.
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April 2024
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.
3.4.
Purchasing Decisions and Supplier Relations
Personal conflicts of interest must be avoided when making purchasing decisions of
any kind.
When dealing with, influencing or making decisions affecting suppliers, employees
must be careful not to inadvertently obligate either themselves or the Company to a
supplier. When conducting business with suppliers, employees are expected to act
fairly, objectively and in the Company's best interest at all times. Purchasing decisions
must be based on need, price, quality, service and supply capabilities. In practice, this
means no employee will accept or solicit any benefit from a supplier or potential
supplier that might compromise, or even appear to compromise, his or her objective
assessment of the supplier's product. Such benefits include personal gifts, cash, cash
equivalents, loans, travel, personal discounts, employment offers for family or friends,
or anything else of other than nominal value.
All invoices submitted by a supplier or vendor must be in writing with sufficient and
accurate descriptions of all services rendered and applicable charges. No employee
will require suppliers to give up trade with our competitors or require suppliers to buy
our products to retain their supply agreements with us. No employee will pressure
another employee to make a purchasing decision motivated by that employee's
personal self-interest. To avoid even the appearance of putting pressure on suppliers,
no Company employee will solicit or accept gifts of merchandise or services from
suppliers for Company events or charitable activities.
3.5.
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;
15
April 2024
•
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.
3.6.
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.
3.7.
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.
3.8.
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.
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
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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 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.
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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.
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.
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Directors and employees are required to promptly report to the Chief Executive Officer
any instance in which a third party has raised any of the topics covered in sections
5.2.1 and 5.2.2 or otherwise suggested collaboration, or any other violations of
antitrust laws.
5.2.1. Dealing with Customers
Certain activities with respect to customers, such as pricing below cost, price
discrimination, exclusive dealing, requiring tie-in sales or disparaging a
competitor's products or services can raise serious antitrust issues. This
section describes these practices generally and identifies those situations
where it is important to consult with the Chief Executive Officer before taking
action.
Predatory Pricing/Pricing Below Cost: Predatory pricing arises where
below-cost pricing is intended to drive out smaller rivals and allow the one
company to control market pricing of its products. Antitrust rules in this area
are very complex and you are encouraged to contact the Chief Financial Officer
when pricing below cost questions arise.
Price Discrimination: Another pricing practice that may raise antitrust or
regulatory concerns is discriminating in price, promotional allowances or
services between different purchasers of the same or similar goods or
offerings. In some circumstances, a court may look to the "net" price of a
product sold to different purchasers after deducting the value of incentives,
allowances and other services. On the other hand, the law provides defenses
for discriminatory prices that are necessary to compete. Also, there are many
situations when a different price to another customer(s) is legally justified, as
where the sales volume is substantially different or the product or customer (s)
is participating in a different business or economic market. Here again,
discriminatory pricing law is very complex and you should contact the Chief
Financial Officer whenever any of our prices could be regarded, or perceived,
as discriminatory.
Disparagement of Others/Describing Our Own Products: Although we can
compare our products and services to those of our competitors, we must be
careful in our day-to-day marketing contacts with our customers not to make
untrue comments or comparisons about our rivals' products or 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
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sales offering in order to establish added value for the customer and to make
the offering as a whole more attractive. It is strongly suggested that the Chief
Financial Officer be consulted in advance of such offerings to discuss any
potential arrangements that might be considered illegal.
Reciprocity: Reciprocity means agreeing to buy the products or services of a
supplier on the condition that the supplier also agrees to buy products and
services from us. A company with great buying power in a particular market
should be particularly careful to avoid using that buying power to coerce its
suppliers to buy its products and services. However, in many cases reciprocal
arrangements may be legally acceptable because they are beneficial to and
desired by both parties. The Chief Financial Officer should be consulted prior
to entering into reciprocal arrangements.
5.2.2. Dealing with Competitors
United States antitrust laws, the European Union Competition Law and the
laws of many other countries are designed to preserve a competitive economy
and to promote fair and vigorous competition. A person or company purchasing
goods in the marketplace should be able to select from a variety of products at
competitive prices that are unrestricted by artificial restraints such as price
fixing, illegal monopolies and cartels, boycotts and tie-ins. Richardson
Electronics, Ltd. believes in open and fair competition and is committed to
conducting its business in compliance with these laws.
It is Company policy for Richardson Electronics, Ltd. to make its own
independent decisions concerning what products and services to offer, where
and how to offer and produce them, how much to charge for them and to do so
without any consultation or notice to any competitor. As such, discussion of
any of the following subjects with competitors (either directly or through an
intended intermediary), whether relating to Richardson Electronics, Ltd.'s or
the competitor's products, is prohibited without the express approval in
advance by the Chief Executive Officer: past, present or future prices; pricing
policies; bids; discounts; promotions; profits; costs; terms or conditions of sale;
royalties; warranties; choice of customers; territorial markets; production
capacities or plans; and inventories.
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
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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.
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
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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.
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
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April 2024
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 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.
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There are international, federal, state and local laws that guide our efforts regarding
the production of products and disposal of materials. Employees are expected to act
in accordance with these laws.
5.5.
Promoting Diversity, Equity & Inclusion
Richardson Electronics, Ltd. understands, respects, and values the similarities as well
as the differences of its employees and values a globally diverse and inclusive culture,
based in ethical behaviors and standards. Richardson Electronics, Ltd. is committed
to fostering, cultivating, and preserving a culture of diversity, equity, inclusion, and
belonging and to maintaining a workplace free from discrimination, harassment and
violence. The Company’s effectiveness in maximizing the talents of people of different
backgrounds, experiences, and perspectives is key to our continued global success.
The Company does not tolerate discrimination based on race, color, religion, religious
creed, sex, national origin, ancestry, age, physical or mental disability, medical
condition, genetic information, military and veteran status, marital status, pregnancy,
gender, gender expression, gender identity, sexual orientation, or other characteristic
protected by applicable law, regulation or ordinance.
5.6.
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.
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April 2024
6. REPORTING PROCEDURES
6.1.
Obligation to Report
If you know of a violation or a possible violation of this Code or the Company’s policies
and procedures, you must report that information immediately to your Supervisor, your
Human Resources Representative or, if necessary, the Chief Executive Officer of the
Company; provided, however, that the Officers and Directors must report any
violations or possible violations to the Chief Executive Officer or, if necessary, the
Chairman of the Audit Committee.
All reported violations of the Code or of the Company’s policies and procedures will
be treated confidentially to the extent that doing so is reasonable under the
circumstances, given the need to investigate.
6.2.
Retaliation Prohibited
You should never hesitate to ask a question or report a concern. If you become aware
of a situation in which you believe Richardson Electronics, Ltd.’s Code of Conduct or
other policies have been violated, or if you feel you are being pressured or being asked
to compromise our Company values or violate this Code or another Company policy,
it is your responsibility to communicate this concern. It is important for you to know
that you will not be disciplined, lose your job or be retaliated against in any way for
asking questions or voicing concerns about our ethical or legal obligations, as long as
you are acting in good faith. Good faith does not mean that you have to be right, but it
does mean that you believe you are providing truthful information.
6.3.
Confidential Reporting
Richardson's company policies and practices contain ethical and legal standards
which must be followed by employees in conducting Richardson's business.
Compliance with laws and regulations is specifically required. The Company
welcomes questions regarding these requirements. Also, every employee has the right
and duty to report to the Company, to the extent not contrary to local law, any conduct
which does not conform to these ethical and legal standards. The Richardson Hot Line
is established to receive reports of possible wrongdoing and to answer questions about
business conduct. Employees may report alleged violations anonymously by calling
Paul Plante, Chairman of the Richardson Electronics Audit Committee at 813-390-
3500.
You do not have to give your name. If you call, Mr. Plante will document the situation
with you in detail. The information gathered is then relayed to an appropriate party for
investigation and action. (In general, issues may be raised to unimplicated senior
management; financial issues will be raised to the Internal Audit representative and
the Chairman of the Audit Committee of the Board of Directors; personnel-related
issues will be raised to the Chief Financial Officer, the Chief 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.)
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April 2024
Employees at any level can call Paul Plante directly when they have a business
conduct issue, without fear of reprisal, as follows:
Hot Line: To report job-related violations of ethical standards, or laws or regulations,
including, without limitation, matters involving accounting, internal controls
or auditing. Hot Line reports may be made anonymously.
1.
PHONE NUMBERS.
Any employee in the United States or Canada who wants to make a Hot
Line call is urged to call:
Internal Audit Representative 630-208-2273
Audit Committee Chairman – Paul Plante
813-390-3500
2.
HOT LINE PROCEDURE
a. Hot Line
All Hot Line calls are received for evaluation and coordination of review.
b. Report Confidentiality
Hot Line reports are confidential. The names of reporting persons are
not released without the Audit Committee’s written permission, except
to designees of the above representatives as necessary for such
designee to assist with the investigation. Reports may be made
anonymously, if requested by the reporting person.
c. Investigation
Internal Audit reviews the report and assigns responsibility for further
action to the appropriate department(s). Normally, Internal Audit
coordinates the review. However, Legal Counsel may assume
coordination and direction of the review in cases where legal issues are
raised or legal advice is required. Each department or function
assigned action items as part of the review process promptly and
confidentially investigates and sends a completed "Hot Line
investigation" report to Internal Audit or Legal Counsel. Internal Audit
and Legal Counsel will report on all reports of violations they receive or
investigate to the Audit Committee.
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
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April 2024
are kept by anyone without Legal Counsel’s written permission. Internal
Audit and Legal Counsel will report on all reports of violations they
receive or investigate to the Audit Committee.
e. Corrective Action
Internal Audit or Paul Plante will inform the appropriate department(s)
of the review results and the need for any corrective action. Internal
Audit also reports the matter and any corrective action, including
government reporting requirements, to the Audit Committee of the
Board of Directors of Richardson.
f.
Report of Results
If requested, the person making the report is advised of the completion
and results of the review, if appropriate.
6.4.
Whistleblower Protection Rights
The Sarbanes-Oxley Act of 2002 (SOX Act) encourages the disclosure of corporate
fraud by providing protection to employees of publicly traded companies who engage
in whistleblowing activities. An employee engages in a protected whistleblowing
activity by providing information that he reasonably believes constitutes a violation of
federal mail, wire, bank or securities fraud; federal law relating to fraud against
shareholders; or any rule or regulation of the SEC.
To ensure Sarbanes-Oxley whistleblowers are afforded adequate protection against
reprisal, the SOX Act contains both a civil and criminal whistleblower provision. Under
Section 806 of the SOX Act, employees who believe that they were subjected to
retaliation because of their whistleblowing activities can file a civil complaint with the
Secretary of Labor within 90 days of the retaliatory action. Section 1107 of the SOX
Act, the criminal provision, makes it a crime for a person to knowingly retaliate against
a whistleblower for disclosing truthful information to a law enforcement officer
regarding an alleged federal offense. This criminal provision of the SOX Act is enforced
by the U.S. Department of Justice.
The Dodd-Frank Wall Street Reform and Consumer Protection Act and related SEC
rules also provide retaliation protections for whistleblowers.
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7.
IMPLEMENTATION OF THE CODE
7.1.
Administration
The Board has charged the Chief Executive Officer with the overall responsibility for
ensuring that the Code of Conduct and the Company’s policies and procedures govern
the business activities of all Company personnel. The Board of Directors of the
Company shall be responsible for the administration of this Code as it relates to
Directors, Officers and any other financial managers in the role of or performing
functions similar to financial controllers on behalf of the Company (the “Financial
Officers”).
7.2.
Acknowledgment
The Company requires that all of its Directors, Executive Officers, Financial Officers
and other personnel sign an acknowledgment confirming that they have received and
have read, understand, and subscribe to the standards and procedures contained in
this Code. To continue to be employed by the Company, employees must abide by
the standards and procedures outlined in the Code and by the Company’s policies and
procedures. All employees therefore will be asked to complete an annual
acknowledgment of this Code of Conduct.
7.3.
Disciplinary Actions
All Company personnel are responsible for adhering to the law, to this Code, and to
the Company’s policies and procedures. Disciplinary action may range up to and
including immediate termination of employment for violation of the law, of this Code,
or of the Company’s policies and procedures.
7.4.
Waivers of the Code
Waivers of this Code will be granted only in extraordinary circumstances. Generally,
there should be no waivers of this Code; however, in rare circumstances conflicts may
arise that necessitate them. Waivers of this Code for Company Officers and Directors
may be made on a case by case basis as circumstances dictate by the Audit
Committee of 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.
1
Approved: January 8, 2024
Exhibit 19.1
PROCEDURES AND GUIDELINES GOVERNING INSIDE TRADING AND TIPPING FOR ALL
DIRECTORS, OFFICERS AND EMPLOYEES, THEIR FAMILY MEMBERS, AND SPECIALLY
DESIGNATED OUTSIDERS
I.
PURPOSE
In order to comply with federal and state securities laws governing (a) trading in Company securities while
in the possession of “material nonpublic information” concerning the Company, and (b) tipping or
disclosing material nonpublic information to outsiders, and in order to prevent even the appearance of
improper insider trading or tipping, the Company has adopted this policy for all of its directors, officers and
employees, their family members, and specially designated outsiders who have access to the Company’s
material nonpublic information.
II.
SCOPE
A.
This policy covers all directors, officers and employees of the Company, their family
members (collectively referred to as “Insiders”), and any outsiders whom the Compliance
Officer may designate as Insiders because they have access to material nonpublic
information concerning the Company.
B.
The policy applies to any and all transactions in the Company’s securities, including its
common stock and options to purchase common stock, and any other type of securities that
the Company may issue, such as preferred stock, convertible debentures, warrants and
exchange-traded options or other derivative securities.
C.
The policy will be delivered to all Insiders and designated outsiders upon its adoption by
the Company, and to all new directors, officers, employees and designated outsiders at the
start of their employment or relationship with the Company. Upon first receiving a copy of
the policy or any revised versions, each Insider must sign an acknowledgment that he or
she has received a copy and agrees to comply with the policy’s terms. Section 16
Individuals and Key Employees, as defined below, may be required to certify compliance
with the policy on an annual basis.
III.
SECTION 16 INDIVIDUALS AND KEY EMPLOYEES
A.
SECTION 16 INDIVIDUALS
The Company has designated those persons listed on Exhibit A attached hereto as the
directors and officers who are subject to the reporting provisions and trading restrictions
of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
and the underlying rules and regulations promulgated by the SEC. Section 16 Individuals
must obtain prior approval of all trades in Company securities from the Compliance Officer
in accordance with the procedures set forth in Section VI.C below. The Company will
amend Exhibit A from time to time as necessary to reflect the addition, resignation or
departure of Section 16 Individuals.
2
Approved: January 8, 2024
B.
KEY EMPLOYEES
The Company has designated those persons listed on Exhibit B attached hereto as Key
Employees who, because of their position with the Company and their access to material
nonpublic information. The Company will amend Exhibit B from time to time as necessary
to reflect the addition, resignation or departure of Key Employees. Other employees may
be designated Key Employees by the Compliance Officer and listed on Exhibit B with
respect to certain transactions or certain periods as designated by the Compliance Officer.
IV.
INSIDER TRADING COMPLIANCE OFFICER
The Company has designated the Company’s General Counsel as its Insider Trading Compliance Officer
(the “Compliance Officer”). In the absence of a General Counsel, the Company’s Chief Financial Officer
will serve as the Compliance Officer. The Compliance Officer will review and either approve or prohibit
all proposed trades by Section 16 Individuals in accordance with the procedures set forth in Section VI.C
below.
In addition to the trading approval duties described in Section VI.C below, the duties of the Compliance
Officer will include the following:
A.
Administering this policy and monitoring and enforcing compliance with all policy
provisions and procedures.
B.
Responding to all inquiries relating to this policy and its procedures.
C.
Designating and announcing special trading blackout periods during which no Insiders, or
designated Insiders/Outsiders, may trade in Company securities.
D.
Providing copies of this policy and other appropriate materials to all current and new
Insiders and such other persons who the Compliance Officer determines have access to
material nonpublic information concerning the Company.
E.
Administering, monitoring and enforcing compliance with all federal and state insider
trading laws and regulations, including without limitation Sections 10(b), 16, 20A and 21A
of the Exchange Act and the rules and regulations promulgated thereunder, and Rule 144
under the Securities Act of 1933 (the “Securities Act); and assisting, if requested, in the
preparation and filing of all required SEC reports relating to insider trading in Company
securities, including without limitation Forms 3, 4, 5, and 144 and Schedules 13D and 13G.
F.
Revising the policy as necessary to reflect changes in federal or state insider trading laws
and regulations.
G.
Maintaining as Company records originals or copies of all documents required by the
provisions of this policy or the procedures set forth herein, and copies of all required SEC
reports relating to insider trading, including without limitation Forms 3, 4, 5, and 144 and
Schedules 13D and 13G.
H.
Maintaining the accuracy of the list of Section 16 Individuals and Key Employees as
attached on Exhibits A and B and updating them periodically as necessary to reflect
additions to or deletions from each category of individuals.
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Approved: January 8, 2024
I.
The Compliance Officer may designate one or more individuals who may perform the
Compliance Officer’s duties in the event that the Compliance Officer is unable or
unavailable to perform such duties.
V.
DEFINITION OF “MATERIAL NONPUBLIC INFORMATION”
•
“MATERIAL” INFORMATION
Information about the Company is “material if it would be expected to affect the investment
or voting decisions of the reasonable shareholder or investor, or if the disclosure of the
information would be expected to significantly alter the total mix of the information in the
marketplace about the Company. In simple terms, material information is any type of
information which could reasonably be expected to affect the price of Company securities.
While it is not possible to identify all information that would be deemed “material”, the
following types of information ordinarily would be considered material:
•
Financial performance, especially quarterly and year-end earnings, and significant
changes in financial performance or liquidity.
•
Company projections and strategic plans.
•
Potential mergers and acquisitions or the sale of Company assets or subsidiaries.
•
New major contracts, orders, suppliers, customers, or finance sources, or the loss
thereof.
•
Major discoveries or significant changes or developments in products or product
lines, research or technologies.
•
Significant changes or developments in supplies or inventory, including significant
product defects, recalls, or product returns.
•
Significant pricing changes.
•
Stock splits, public or private securities/debt offerings, or changes in Company
dividend policies or amounts.
•
Significant changes in senior management.
•
Significant labor disputes or negotiations.
•
Actual or threatened major litigation, or the resolution of such litigation (including
criminal indictments or government investigations).
•
Significant cybersecurity risks and incidents or investigations, such as a data
breach, or any other significant disruption in the company’s operations or loss,
potential loss, breach or unauthorized access of its property or assets, whether at
its facilities or through its information technology infrastructure.
4
Approved: January 8, 2024
•
The imposition of an event-specific restriction on trading in Company securities
or the securities of another company or the extension or termination of such
restriction.
•
“NONPUBLIC” INFORMATION
Material information is “nonpublic” if it has not been widely disseminated to the public
through major newswire services, national news services and financial news services. For
the purposes of this policy, information will be considered public, i.e., no longer
“nonpublic”, after the close of trading two full trading days following the Company’s
widespread public release of the information.
•
CONSULT THE COMPLIANCE OFFICER FOR GUIDANCE
Any Insiders who are unsure whether the information that they possess is material or
nonpublic must consult the Compliance Officer for guidance before trading in any
Company securities.
VI.
STATEMENT OF COMPANY POLICY AND PROCEDURES
A.
PROHIBITED ACTIVITIES
1.
No Insider may trade in Company securities while possessing material nonpublic
information concerning the Company.
2.
No Section 16 Individual or Key Employees listed on Exhibits A and B attached
hereto, as amended from time to time, or their family members, may trade in
Company securities outside of the applicable “trading windows” described in
Section VI.B below, or during any special trading blackout periods designated by
the Compliance Officer.
3.
No Section 16 Individual or Key Employee listed on Exhibits A and B attached
hereto, as amended from time to time, or their family members, may trade in
Company securities unless the trade(s) have been approved by the Compliance
Officer in accordance with the procedures set forth in Section VI.C below.
4.
The Compliance Officer and any of his or her family members may not trade in
Company securities unless the trade(s) have been approved by a more senior
executive officer or other member of senior management in accordance with the
procedures set for in Section VI.C below.
5
Approved: January 8, 2024
5.
No Insider may “tip” or disclose material nonpublic information concerning the
Company to any outside person (including family members, friends, business
contacts, analysts, individual investors, and members of the investment community
and news media), unless required as part of that Insider’s regular duties for the
Company and authorized by the Compliance Officer. In any instance in which such
information is disclosed to outsiders, the Company will take such steps as are
necessary to preserve the confidentiality of the information, including requiring
the outsider to agree in writing to comply with the terms of this policy and/or to
sign a confidentiality agreement. All inquiries from outsiders regarding material
nonpublic information about the Company must be forwarded to the Compliance
Officer.
6.
No Insider may give trading advice of any kind about the Company to anyone
while possessing material nonpublic information about the Company, except that
Insiders should advise others not to trade if doing so might violate the law or this
policy. The Company strongly discourages all Insiders from giving trading advice
concerning the Company to third parties even when the Insiders do not possess
material nonpublic information about the Company.
7.
No Insider may trade in any interest or position relating to the future price of
Company securities, such as a put, call, or short sale.
8.
No Insider may (a) trade in the securities of any other public company while
possessing material nonpublic information concerning that company, (b) “tip” or
disclose material nonpublic information concerning any other public company to
anyone, or (c) give trading advice of any kind to anyone concerning any other
public company while possessing material nonpublic information about that
company.
9.
No Insider may enter into hedging transactions with respect to Company securities.
B.
TRADING WINDOWS AND BLACKOUT PERIODS
1.
Trading Window for Section 16 Individuals and Key Employees and Their Family
Members. After obtaining trading approval, if required, from the Compliance
Officer in accordance with the procedures set for in Section VI.C below, Section
16 individuals and their family members may trade in Company securities only
during the period beginning after the close of trading two full days following the
Company’s widespread public release of quarterly or year-end earnings and ending
on the 20th day of the third month in each quarterly fiscal period of the Company.
The period beginning on the 21st day of the third month in each fiscal quarterly
period and continuing through the 2nd full trading day following the Company’s
widespread public release of earnings for such quarterly period shall be a blackout
period. The Compliance Officer may designate other periods as special blackout
periods during which trading in Company securities is not permitted.
2.
No Trading During Trading Windows While in the Possession of Material
Nonpublic Information. No Insiders possessing material nonpublic information
concerning the Company may trade in Company securities even during applicable
6
Approved: January 8, 2024
trading windows. Persons possessing such information may trade during a trading
window only after the close of trading on the second full trading day following the
Company’s widespread public release of the information.
3.
No Trading During Blackout Periods. No Section 16 Individuals or Key
Employees listed on Exhibits A and B, as amended from time to time, or their
family members may trade in Company securities outside of the applicable trading
windows (i.e., during the blackout period referred to in B.1 above) or during any
special blackout periods that the Compliance Officer may designate. No Insiders
may disclose to any outside third party that a special blackout period has been
designated.
4.
Exceptions for Hardship Cases. The Compliance Officer may, on a case-by-case
basis, authorize trading in Company securities outside of the applicable trading
windows (but not during special blackout periods) due to financial hardship or
other hardships, but only in accordance with the procedures set forth in Section
VI.C.2 below.
C.
PROCEDURES FOR APPROVING TRADES BY SECTION 16 INDIVIDUALS,
KEY EMPLOYEES AND HARDSHIP CASES
1.
Section 16 individual. No Section 16 Individual or their family members may trade
in Company securities until:
a.
the person trading has notified the Compliance Officer in writing of the
amount and nature of the proposed trade(s),
b.
the person trading has certified to the Compliance Officer in writing no
earlier than two business days prior to the proposed trade(s) that (i) he or
she is not in possession of material nonpublic information concerning the
Company and (ii) the proposed trade(s) do not violate the trading
restrictions of Section 16 of the Exchange Act or Rule 144 of the Securities
Act, and
c.
the Compliance Officer has approved the trade(s) and has certified his
approval in writing.
2.
Key Employees. Key Employees listed on Exhibit B, or their family members are
not required to obtain approval of the Compliance Officer to trade in Company
securities during any period that is not a blackout period or a special blackout
period provided they are not in possession of Material Nonpublic Information.
3.
Hardship Trades. The Compliance Officer may, on a case-by-case basis, authorize
trading in Company securities outside of the applicable trading windows due to
financial hardship or other hardships only after:
a.
the person trading has notified the Compliance Officer in writing of the
circumstances of the hardship and the amount and nature of the proposed
trade(s).
b.
the person trading has certified to the Compliance Officer in writing no
earlier than two business days prior to the proposed trade(s) that he or she
7
Approved: January 8, 2024
is not in possession of material nonpublic information concerning the
Company, and
c.
the Compliance Officer has approved the trade(s) and has certified his
approval in writing.
4.
No Obligation to Approve Trades. The existence of the foregoing approval
procedures does not in any way obligate the Compliance Officer to approve any
trades requested by Section 16 Individuals, Key Employees or hardship applicants.
The Compliance Officer may reject any trading requests in his sole reasonable
discretion.
D.
EXCEPTIONS
1.
Employee Stock Purchase Plans. The trading prohibitions and restrictions set forth
in this policy do not apply to periodic contributions by the Company or employees
to employee benefit plans (e.g., pension or 401K plans) which are used to purchase
Company securities pursuant to the employees’ advance instructions. However,
no officers or employees may alter their instructions regarding the purchase or sale
of Company securities in such plans while in the possession of material nonpublic
information.
2.
Equity Awards. The trading prohibitions and restrictions of this policy apply to all
sales of securities acquired through the exercise of stock options granted by the
Company, but not to the acquisition of securities through such exercises or vesting
of restricted stock or restricted stock units, or the exercise of a right to have the
Company withhold shares to satisfy the tax withholding consequences of vesting.
The trading prohibitions would apply to market sales of any shares received.
3.
Rule 10b5-1 Trading Plans. The trading prohibitions and restrictions set forth in
this policy do not apply to purchases or sales made pursuant to a Rule 10b5-1 plan
that is adopted and operated in compliance with the terms of Section VI.F below.
E.
PRIORITY OF STATUTORY OR REGULATORY TRADING RESTRICTIONS
The trading prohibitions and restrictions set forth in this policy will be superseded by any
greater prohibitions or restrictions prescribed by federal or state securities laws and
regulations, e.g., short-swing trading by Section 16 Individuals or restrictions on the sale
of securities subject to Rule 144 under the Securities Act of 1933. Any Insider who is
uncertain whether other prohibitions or restrictions apply should ask the Compliance
Officer.
8
Approved: January 8, 2024
F.
RULE 10b5-1 TRADING PLANS
1.
General Information. Under Rule 10b5-1 of the Exchange Act, an individual has
an affirmative defense against an allegation of insider trading if he or she
demonstrates that the purchase, sale or trade in question took place pursuant to a
binding contract, specific instruction or written plan that was put into place before
he or she became aware of material nonpublic information. Such contracts,
irrevocable instructions and plans are commonly referred to as Rule 10b5-1 plans.
Rule 10b5-1 plans have the obvious advantage of providing an affirmative defense
against insider trading liability. However, they also require advance commitments
regarding the amounts, prices and timing of purchases or sales of Company
securities and thus limit flexibility and discretion. In addition, once a Rule 10b5-1
plan has been adopted, it is generally not permissible to amend or modify such
plan. Accordingly, while some individuals may find Rule 10b5-1 plans attractive,
they may not be suitable for all Insiders.
9
Approved: January 8, 2024
2.
Specific Requirements.
a.
Pre-Approval. For a Rule 10b5-1 plan to serve as an adequate defense
against an allegation of insider trading, a number of legal requirements
must be satisfied. Accordingly, any Insider wishing to establish a Rule
10b5-1 plan must first receive approval from the Compliance Officer or
his or her designee. Section 16 Individuals wanting to establish a Rule
10b5-1 plan must also satisfy the following notice and certification
requirements:
(i)
the Section 16 Individual must certify to the Compliance Officer in
writing no earlier than two business days prior to submitting a
request to establish a Rule 10b5-1 plan that he or she is not in
possession of material nonpublic information concerning the
Company, and
(ii)
the Compliance Officer must approve the establishment of the Rule
10b5-1 plan and certified his approval in writing.
The Compliance Officer may disapprove any submitted Rule 10b5-1 plan,
or to require the inclusion of additional provisions in any submitted Rule
10b5-1 plan designed to protect the Company, whether before or after the
date of approval of such plan by the Compliance Officer.
b.
Material Nonpublic Information and Blackouts. An Insider desiring to
enter into a Rule 10b5-1 plan must enter into the plan at a time when the
Insider is not aware of any material nonpublic information about the
Company or otherwise subject to a special blackout period.
c.
Trading Window. In addition to VI.F.2.b., Section 16 Individuals and Key
Employees may only establish a Rule 10b5-1 plan during a trading
window.
d.
30-Day Waiting Period. To avoid even the appearance of impropriety, the
Company requires a waiting period of 30 days between the date the Rule
10b5-1 plan is adopted and the date of the first possible transaction under
the plan.
e.
Section 16 Reporting. Section 16 Individuals must report each trade under
Rule 10b5-1 plan immediately after it is made or a process should be
established whereby the Section 16 Individual’s broker reports such trades
to the Compliance Officer so that all required SEC reports relating to
insider trading may be timely filed.
f.
Trading outside of the Rule 10b5-1 Plan. Anyone making additional trades
under this policy outside of their Rule 10b5-1plan must satisfy all
applicable requirements of this policy in connection with such trades,
including having such trades pre-cleared by the Compliance Officer under
Section VI.C above, and restricting these trades to the established window
periods under Section VI.B above. Purchases and sales made outside of
the Rule 10b5-1 plan may not operate as a hedge against the actual or
anticipated trading established under the plan.
10
Approved: January 8, 2024
3.
Blackout Periods. No Approved 10b5-1 Plan may be adopted during a blackout
period. If you are considering entering into, modifying or terminating an Approved
10b5-1 Plan or have any questions regarding Approved Rule 10b5-1 Plans, please
contact the Compliance Officer. You should consult your own legal and tax
advisors before entering into, or modifying or terminating, an Approved 10b5-1
Plan. A trading plan, contract, instruction or arrangement will not qualify as an
Approved 10b5-1 Plan without the prior review and approval of the Compliance
Officer as described above.
VII.
POTENTIAL CIVIL, CRIMINAL AND DISCIPLINARY SANCTIONS
A.
CIVIL AND CRIMINAL PENALTIES
The consequences of prohibited insider trading or tipping can be severe. Persons violating
insider trading or tipping rules may be required to disgorge the profit made or the loss
avoided by the trading, pay the loss suffered by the person who purchased securities from
or sold securities to the insider tippee, pay civil penalties up to three times the profit made
or loss avoided, pay a criminal penalty of up to several million dollars, and serve a jail term
of up to twenty years. The Company and/or the supervisors of the person violating the rules
may also be required to pay major civil or criminal penalties.
B.
COMPANY DISCIPLINE
Violation of this policy or federal or state insider trading or tipping laws by any director,
officer or employee, or their family members, may subject the director to dismissal
proceedings and the officer or employee to disciplinary action by the Company up to and
including termination for cause.
C.
REPORTING OF VIOLATIONS
Any Insider who violates this policy or any federal or state laws governing insider trading
or tipping or knows of any such violation by any other Insiders, must report the violation
immediately to the Compliance Officer. Upon learning of any such violation, the
Compliance Officer will determine whether the Company should release any material
nonpublic information, or whether the Company should report the violation to the SEC or
other appropriate governmental authority.
11
Approved: January 8, 2024
VIII.
INQUIRIES
Please direct all inquiries regarding any of the provisions or procedures of this policy to the Compliance
Officer.
12
Approved: January 8, 2024
RECEIPT AND ACKNOWLEDGMENT
I, ______________________________, hereby acknowledge that I have received and read a copy of the
“Procedures and Guidelines Governing Insider Trading and Tipping” and agree to comply with its terms.
I understand that violation of insider trading or tipping laws or regulations may subject me to severe civil
and/or criminal penalties, and that violation of the terms of the above titled policy may subject me to
discipline by the Company up to and including termination for cause.
Signature
Date
13
Approved: January 8, 2024
EXHIBIT A
SECTION 16 INDIVIDUALS
EXHIBIT B
KEY EMPLOYEES
14
Approved: January 8, 2024
APPLICATION AND APPROVAL FORM FOR TRADING BY SECTION 16 INDIVIDUALS
Name:
Title:
Proposed Trade Date:
Type of Security to be Traded:
Type of Trade (Purchase/Sale):
EXAMPLES OF MATERIAL NONPUBLIC INFORMATION
While it is not possible to identify all information that would be deemed “material nonpublic information”,
the following types of information ordinarily would be included in the definition if not yet publicly released
by the Company:
•
Financial performance, especially quarterly and year-end earnings, and significant
changes in financial performance or liquidity.
•
Company projections and strategic plans.
•
Potential mergers and acquisitions or the sale of Company assets or subsidiaries.
•
New major contracts, orders, suppliers, customers, or finance sources, or the loss thereof.
•
Major discoveries or significant changes or developments in products or product lines,
research or technologies.
•
Significant changes or developments in supplies or inventory, including significant product
defects, recalls or product returns.
•
Significant pricing changes.
•
Stock splits, public or private securities/debt offerings, or changes in Company dividend
policies or amounts.
•
Significant changes in senior management.
•
Significant labor disputes or negotiations.
•
Actual or threatened major litigation or the resolution of such litigation.
15
Approved: January 8, 2024
CERTIFICATION
I, ______________________________, hereby certify that (i) I am not in possession of any “material
nonpublic information” concerning the Company (as defined in the Company’s “Procedures and Guidelines
Governing Insider Trading and Tipping”) and (ii) to the best of my knowledge, the proposed trade(s) listed
above do not violate the trading restrictions of Section 16 of the Securities Exchange Act of 1934 or Rule
144 under the Securities Act of 1933. I understand that if I trade while possessing such information or in
violation of such trading restrictions, I may be subject to severe civil and/or criminal penalties, and may be
subject to discipline by the Company up to and including termination for cause.
Signature
Date
REVIEW AND DECISION
The undersigned hereby certifies that the Insider Trading Compliance Officer has reviewed the foregoing
application and _____ APPROVES _____ PROHIBITS the proposed trade(s).
Insider Trading Compliance Officer
(or Designee)
Date
16
Approved: January 8, 2024
APPLICATION AND APPROVAL FORM FOR TRADING BY SECTION 16 INDIVIDUALS OR
KEY EMPLOYEES IN HARDSHIP SITUATIONS
Name:
Title:
Proposed Trade Date:
Type of Security to be Traded:
Type of Trade (Purchase/Sale):
Number of Shares to be Traded:
Reasons for Trading:
17
Approved: January 8, 2024
EXAMPLES OF MATERIAL NONPUBLIC INFORMATION
While it is not possible to identify all information that would be deemed “material nonpublic information”,
the following types of information ordinarily would be included in the definition if not yet publicly released
by the Company:
•
Financial performance, especially quarterly and year-end earnings, and significant changes
in financial performance or liquidity.
•
Company projections and strategic plans.
•
Potential mergers and acquisitions or the sale of Company assets or subsidiaries.
•
New major contracts, orders, suppliers, customers, or finance sources, or the loss thereof.
•
Major discoveries or significant changes or developments in products or product lines,
research or technologies.
•
Significant changes or developments in supplies or inventory, including significant product
defects, recalls or product returns.
•
Significant pricing changes.
•
Stock splits, public or private securities/debt offerings, or changes in Company dividend
policies or amounts.
•
Significant changes in senior management.
•
Significant labor disputes or negotiations.
•
Actual or threatened major litigation or the resolution of such litigation.
18
Approved: January 8, 2024
CERTIFICATION
I, ______________________________, hereby certify that (i) I am not in possession of any “material
nonpublic information” concerning the Company (as defined in the Company’s “Procedures and Guidelines
Governing Insider Trading and Tipping”) and (ii) to the best of my knowledge, the proposed trade(s) listed
above do not violate the trading restrictions of Section 16 of the Securities Exchange Act of 1934 or Rule
144 under the Securities Act of 1933. I understand that if I trade while possessing such information or in
violation of such trading restrictions, I may be subject to severe civil and/or criminal penalties, and may be
subject to discipline by the Company up to and including termination for cause.
Signature
Date
REVIEW AND DECISION
The undersigned hereby certifies that the Insider Trading Compliance Officer has reviewed the foregoing
application and _____ APPROVES _____ PROHIBITS the proposed trade(s).
Insider Trading Compliance Officer
(or Designee)
Date
19
Approved: January 8, 2024
APPLICATION AND APPROVAL FORM FOR ESTABLISHMENT OF 10B5-1 PLANS BY
SECTION 16 INDIVIDUALS
Name:
Title:
Proposed Establishment Date:
EXAMPLES OF MATERIAL NONPUBLIC INFORMATION
While it is not possible to identify all information that would be deemed “material nonpublic information”,
the following types of information ordinarily would be included in the definition if not yet publicly released
by the Company:
•
Financial performance, especially quarterly and year-end earnings, and significant changes
in financial performance or liquidity.
•
Company projections and strategic plans.
•
Potential mergers and acquisitions or the sale of Company assets or subsidiaries.
•
New major contracts, orders, suppliers, customers, or finance sources, or the loss thereof.
•
Major discoveries or significant changes or developments in products or product lines,
research or technologies.
•
Significant changes or developments in supplies or inventory, including significant product
defects, recalls or product returns.
•
Significant pricing changes.
•
Stock splits, public or private securities/debt offerings, or changes in Company dividend
policies or amounts.
•
Significant changes in senior management.
•
Significant labor disputes or negotiations.
•
Actual or threatened major litigation or the resolution of such litigation.
20
Approved: January 8, 2024
CERTIFICATION
I, ______________________________, hereby certify that I am not in possession of any “material
nonpublic information” concerning the Company (as defined in the Company’s “Procedures and Guidelines
Governing Insider Trading and Tipping”).
Signature
Date
REVIEW AND DECISION
The undersigned hereby certifies that the Insider Trading Compliance Officer has reviewed the foregoing
application and _____ APPROVES _____ PROHIBITS the establishment of a 10b5-1 plan.
Insider Trading Compliance Officer
(or Designee)
Date
Exhibit 21
SUBSIDIARIES OF THE COMPANY
Richardson Electronics Pty Limited
Australia
Richardson Electronics do Brasil Ltda.
Brazil
Richardson Electronics Canada, Ltd.
Canada
Richardson Electronics Trading (China) Co., Ltd.
China
Richardson Electronique SAS
France
Richardson Electronics GmbH
Germany
Richardson Electronics Hong Kong Limited
Hong Kong
Richardson Electronics India Private Limited
India
Aviv-Richardson Ltd.
Israel
Richardson Electronics S.r.l.
Italy
Richardson Electronics Japan K.K.
Japan
Richardson Electronics Korea Limited
Korea
Richardson Electronics S.A. de C.V.
Mexico
Richardson Electronics Benelux B.V.
Netherlands
Richardson Electronics Netherlands, B.V.
Netherlands
Richardson Electronics Global Holdings BV
Netherlands
Richardson Electronics Pte. Ltd.
Singapore
Richardson Electronics Iberica S.A.
Spain
Richardson Electronics Nordic AB
Sweden
Richardson Electronics (Thailand) Limited
Thailand
Richardson Electronics Limited
United Kingdom
Richardson Powerlink MEA
United Kingdom
Richardson International, Inc.
United States
Richardson Electronics 10-K
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Richardson Electronics, Ltd.
LaFox, Illinois
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-04767, 333-129828, 333-
182907, 333-206044, 333-227876 and 333-249383) of Richardson Electronics, Ltd. (the Company) of our reports dated August 5, 2024,
relating to the consolidated financial statements, and the effectiveness of the Company's internal control over financial reporting, which
appear in this Annual Report on Form 10-K.
/s/BDO USA, P.C.
Chicago, Illinois
August 5, 2024
Richardson Electronics 10-K
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Edward J. Richardson, certify that:
1.
I have reviewed this annual report on Form 10-K of Richardson Electronics, Ltd. for the fiscal year ended June 1, 2024;
2.
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;
3.
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;
4.
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)
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;
b)
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;
c)
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
d)
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)
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
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: August 5, 2024
Signature:
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board and Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO+
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Ben, certify that:
1.
I have reviewed this annual report on Form 10-K of Richardson Electronics, Ltd. for the fiscal year ended June 1, 2024;
2.
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;
3.
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;
4.
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)
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;
b)
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;
c)
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
d)
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)
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
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: August 5, 2024
Signature:
/s/ Robert J. Ben
Robert J. Ben
Chief Financial Officer and Chief Accounting Officer
Richardson Electronics 10-K
Exhibit 32
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 June 1,
2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward J. Richardson, Chairman of
the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ Edward J. Richardson
Edward J. Richardson
Chairman of the Board and Chief Executive Officer
August 5, 2024
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 June 1
2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Ben, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company
/s/ Robert J. Ben
Robert J. Ben
Chief Financial Officer and Chief Accounting Officer
August 5, 2024
Exhibit 97.1
RICHARDSON ELECTRONICS, LTD.
POLICY FOR THE
RECOVERY OF ERRONEOUSLY AWARDED
COMPENSATION
A.
OVERVIEW
In accordance with the applicable rules of the NASDAQ Global Select Market (the
“NASDAQ Rules”), Section 10D and Rule 10D-1 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (“Rule 10D-1”), the Board of Directors (the “Board”) of
Richardson Electronics, Ltd. (the “Company”) has adopted this Policy (the “Policy”) to provide
for the recovery of erroneously awarded Incentive-based Compensation from Executive
Officers. All capitalized terms used and not otherwise defined herein shall have the meanings
set forth in Section H, below.
B.
RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
(1)
In the event of an Accounting Restatement, the Company will reasonably
promptly recover the Erroneously Awarded Compensation Received in accordance with the
NASDAQ Rules and Rule 10D-1 as follows:
(i)
After an Accounting Restatement, the Compensation Committee (composed
entirely of independent directors) (the “Committee”) shall determine the amount
of any Erroneously Awarded Compensation Received by each Executive
Officer and shall promptly notify each Executive Officer with a written notice
containing the amount of any Erroneously Awarded Compensation and a
demand for repayment or return of such compensation, as applicable.
(a)
For Incentive-based Compensation based on (or derived from) the
Company’s stock price or total shareholder return, where the amount of
Erroneously Awarded Compensation is not subject to mathematical
recalculation directly from the information in the applicable Accounting
Restatement:
i.
The amount to be repaid or returned shall be determined by the
Committee based on a reasonable estimate of the effect of the
Accounting Restatement on the Company’s stock price or total
shareholder return upon which the Incentive-based Compensation
was Received; and
ii.
The Company shall maintain documentation of the determination
of such reasonable estimate and provide the relevant documentation
as required to the NASDAQ.
(ii)
The Committee shall have discretion to determine the appropriate means of
recovering Erroneously Awarded Compensation based on the particular facts
and circumstances. Notwithstanding the foregoing, except as set forth in Section
B(2) below, in no event may the Company accept an amount that is less than the
amount of Erroneously Awarded Compensation in satisfaction of an Executive
Officer’s obligations hereunder.
(iii)
To the extent that the Executive Officer has already reimbursed the Company
for any Erroneously Awarded Compensation Received under any duplicative
recovery obligations established by the Company or applicable law, it shall be
appropriate for any such reimbursed amount to be credited to the amount of
Erroneously Awarded Compensation that is subject to recovery under this
Policy.
(iv)
To the extent that an Executive Officer fails to repay all Erroneously Awarded
Compensation to the Company when due, the Company shall take all actions
reasonable and appropriate to recover such Erroneously Awarded
Compensation from the applicable Executive Officer. The applicable Executive
Officer shall be required to reimburse the Company for any and all expenses
reasonably incurred (including legal fees) by the Company in recovering such
Erroneously Awarded Compensation in accordance with the immediately
preceding sentence.
(2)
Notwithstanding anything herein to the contrary, the Company shall not be
required to take the actions contemplated by Section B(1) above if the Committee determines
that recovery would be impracticable and any of the following two conditions are met:
(i)
The Committee has determined that the direct expenses paid to a third party to
assist in enforcing the Policy would exceed the amount to be recovered. Before
making this determination, the Company must make a reasonable attempt to
recover the Erroneously Awarded Compensation, have documented such
attempt(s) and provided such documentation to the NASDAQ; or
(ii)
Recovery would likely cause an otherwise tax-qualified retirement plan, under
which benefits are broadly available to employees of the Company, to fail to
meet the requirements of Section 401(a)(13) or Section 411(a) of the Internal
Revenue Code of 1986, as amended, and regulations thereunder.
C.
DISCLOSURE REQUIREMENTS
The Company shall file all disclosures with respect to this Policy required by applicable
U.S. Securities and Exchange Commission (“SEC”) filings and rules.
D.
PROHIBITION OF INDEMNIFICATION
The Company shall not be permitted to insure or indemnify any Executive Officer against
(i) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered
pursuant to the terms of this Policy, or (ii) any claims relating to the Company’s enforcement
of its rights under this Policy. Further, the Company shall not enter into any agreement that
exempts any Incentive-based Compensation that is granted, paid or awarded to an Executive
Officer from the application of this Policy or that waives the Company’s right to recovery of
any Erroneously Awarded Compensation, and this Policy shall supersede any such agreement
(whether entered into before, on or after the Effective Date of this Policy).
E.
ADMINISTRATION AND INTERPRETATION
This Policy shall be administered by the Committee, and any determinations made by
the Committee shall be final and binding on all affected individuals.
The Committee is authorized to interpret and construe this Policy and to make all
determinations necessary, appropriate, or advisable for the administration of this Policy and for
the Company’s compliance with the NASDAQ Rules, Section 10D, Rule 10D-1 and any other
applicable law, regulation, rule or interpretation of the SEC or the NASDAQ promulgated or
issued in connection therewith.
F.
AMENDMENT; TERMINATION
The Committee may amend this Policy from time to time in its discretion and shall amend
this Policy as it deems necessary. Notwithstanding anything in this Section F to the contrary,
no amendment or termination of this Policy shall be effective if such amendment or termination
would (after taking into account any actions taken by the Company contemporaneously with
such amendment or termination) cause the Company to violate any federal securities laws, SEC
rule or NASDAQ rule.
G.
OTHER RECOVERY RIGHTS
This Policy shall be binding and enforceable against all Executive Officers and, to the
extent required by applicable law or guidance from the SEC or the NASDAQ, their
beneficiaries, heirs, executors, administrators or other legal representatives. The Committee
intends that this Policy will be applied to the fullest extent required by applicable law. Any
employment agreement, equity award agreement, compensatory plan or any other agreement or
arrangement with an Executive Officer shall be deemed to include, as a condition to the grant
of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this
Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any other
remedies or rights of recovery that may be available to the Company under applicable law,
regulation or rule or pursuant to the terms of any policy of the Company or any provision in any
employment agreement, equity award agreement, compensatory plan, agreement or other
arrangement.
H.
DEFINITIONS
For purposes of this Policy, the following capitalized terms shall have the meanings set forth
below.
(1)“Accounting Restatement” means an accounting restatement due to the material
noncompliance of the Company with any financial reporting requirement under the securities
laws, including any required accounting restatement to correct an error in previously issued
financial statements that is material to the previously issued financial statements (a “Big R”
restatement), or that would result in a material misstatement if the error were corrected in the
current period or left uncorrected in the current period (a “little r” restatement).
(2)“Clawback Eligible Incentive Compensation” means all Incentive-based Compensation
Received by an Executive Officer (i) on or after the effective date of the applicable NASDAQ rules,
(ii) after beginning service as an Executive Officer, (iii) who served as an Executive Officer at any
time during the applicable performance period relating to any Incentive-based Compensation (whether
or not such Executive Officer is serving at the time the Erroneously Awarded Compensation is
required to be repaid to the Company), (iv) while the Company has a class of securities listed on a
national securities exchange or a national securities association, and (v) during the applicable
Clawback Period (as defined below).
(3)“Clawback Period” means, with respect to any Accounting Restatement, the three
completed fiscal years of the Company immediately preceding the Restatement Date (as defined
below), and if the Company changes its fiscal year, any transition period of less than nine months
within or immediately following those three completed fiscal years.
(4) “Erroneously Awarded Compensation” means, with respect to each Executive
Officer in connection with an Accounting Restatement, the amount of Clawback Eligible
Incentive Compensation that exceeds the amount of Incentive-based Compensation that
otherwise would have been Received had it been determined based on the restated amounts,
computed without regard to any taxes paid.
(5) “Executive Officer” means each individual who is currently or was previously
designated as an “officer” of the Company as defined in Rule 16a-1(f) under the Exchange Act.
For the avoidance of doubt, the identification of an executive officer for purposes of this Policy
shall include each executive officer who is or was identified pursuant to Item 401(b) of
Regulation S-K as well as the principal financial officer and principal accounting officer (or, if
there is no principal accounting officer, the controller).
(6) “Financial Reporting Measures” means measures that are determined and presented
in accordance with the accounting principles used in preparing the Company’s financial
statements, and all other measures that are derived wholly or in part from such measures. Stock
price and total shareholder return (and any measures that are derived wholly or in part from
stock price or total shareholder return) shall, for purposes of this Policy, be considered Financial
Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be
presented in the Company’s financial statements or included in a filing with the SEC.
(7) “Incentive-based Compensation” means any compensation that is granted, earned or
vested based wholly or in part upon the attainment of a Financial Reporting Measure.
(8) “Received” means, with respect to any Incentive-based Compensation, actual or
deemed receipt, and Incentive-based Compensation shall be deemed received in the Company’s
fiscal period during which the Financial Reporting Measure specified in the Incentive-based
Compensation award is attained, even if the payment or grant of the Incentive-based
Compensation to the Executive Officer occurs after the end of that period.
(9) “Restatement Date” means the earlier to occur of (i) the date the Board, a committee
of the Board or the officers of the Company authorized to take such action if Board action is
not required, concludes, or reasonably should have concluded, that the Company is required to
prepare an Accounting Restatement, or (ii) the date a court, regulator or other legally authorized
body directs the Company to prepare an Accounting Restatement.
Effective as of November 30, 2023.