# Richardson Electronics, LTD.: Form 10-Q for the period ended Feb 25, 2023

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2023-04-06
- Accepted by EDGAR: Apr 6, 2023, 14:05 ET
- Period: 2023-02-25
- Accession: 0000950170-23-012040
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000095017023012040/rell-20230225.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000095017023012040/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-02-25.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-11-27 to 2023-02-25 | $70.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-05-29 to 2023-02-25 | $203.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-11-27 to 2023-02-25 | $48.0m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-05-29 to 2023-02-25 | $136.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-11-27 to 2023-02-25 | $22.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-05-29 to 2023-02-25 | $67.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-11-27 to 2023-02-25 | $14.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-05-29 to 2023-02-25 | $43.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-11-27 to 2023-02-25 | $7.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-05-29 to 2023-02-25 | $23.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-11-27 to 2023-02-25 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-05-29 to 2023-02-25 | $5.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-11-27 to 2023-02-25 | $6.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-05-29 to 2023-02-25 | $18.2m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2022-11-27 to 2023-02-25 | 12,666,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-05-29 to 2023-02-25 | 12,524,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-11-27 to 2023-02-25 | −$4.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2022-05-29 to 2023-02-25 | −$11.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-11-27 to 2023-02-25 | $2.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2022-05-29 to 2023-02-25 | $5.0m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2022-11-27 to 2023-02-25 | $834.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2022-05-29 to 2023-02-25 | $2.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2023-02-25 | $24.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-02-25 | $170.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-02-25 | $199.2m | us-gaap:Assets |
| Current liabilities | at 2023-02-25 | $42.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-02-25 | $44.3m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-02-25 | $154.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,324 characters.

### AND RESULTS OF OPERATIONS

*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; economic, labor and political systems and conditions; global business disruption caused by the Russia invasion in Ukraine and related sanctions: currency exchange fluctuations; and the ability of the Company to manage its growth and the risk factors set forth in our Annual Report on Form 10-K filed with the SEC on August 1, 2022. 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.*

### INTRODUCTION

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 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 three and nine month periods ended February 25, 2023 and February 26, 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 nine month periods ended February 25, 2023 and February 26, 2022, and a discussion of changes in our financial position.

### Business Overview

Richardson Electronics, Ltd. is a leading global manufacturer of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. More than 60% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair through its global infrastructure.

Some of the Company's products are manufactured in China and are imported into the United States. The Office of the United States Trade Representative ("USTR") instituted additional 10% to 25% tariffs on the importation of a number of products into the United States from China effective July 6, 2018, with additional products added August 23, 2018 and September 24, 2018. These additional tariffs are a response to what the USTR considers to be certain unfair trade practices by China. A number of the Company's products manufactured in China are now subject to these additional duties of 25% when imported into the United States.

Management continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our customers’ markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.

The Company began reporting the results for its new Green Energy Solutions ("GES") segment in the first quarter of fiscal 2023 due to its focus on the power applications that support the green energy market. The GES segment has been carved out of our existing Power and Microwave Technologies (“PMT”) segment. Accordingly, the Company is reporting its financial performance based on four operating and reportable segments. The results for fiscal 2022 presented herein were adjusted to reflect the presentation of the new GES segment separately from the PMT segment.

The Company's four operating and reportable segments are defined as follows:

Power and Microwave Technologies combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.

Green Energy Solutions combines our key technology partners and engineered solutions capabilities to design and manufacture key products for the fast-growing energy storage market and power management applications. As a designer, manufacturer, technology partner and authorized distributor, GES’s strategy is to provide specialized technical expertise and engineered solutions using our core design engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our existing global infrastructure. GES’s focus is on products for numerous green energy applications such as wind, solar, hydrogen and Electric Vehicles, and other power management applications that support green solutions such as synthetic diamond manufacturing.

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.

Refer to Note 7, *Segment Reporting*, to our unaudited consolidated financial statements for additional information on the changes in operating and reportable segments.

We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.

### RESULTS OF OPERATIONS

### Financial Summary – Three Months Ended February 25, 2023

- The third quarter of fiscal 2023 and fiscal 2022 each contained 13 weeks.
- Net sales during the third quarter of fiscal 2023 were $70.4 million, an increase of 27.2%, compared to net sales of $55.3 million during the third quarter of fiscal 2022.
- Gross margin remained at 31.8% during the third quarter of fiscal 2023 compared to 31.8% during the third quarter of fiscal 2022.
- Selling, general and administrative expenses were $14.8 million or 21.0% of net sales during the third quarter of fiscal 2023 compared to $13.9 million or 25.2% of net sales during the third quarter of fiscal 2022.
- Operating income during the third quarter of fiscal 2023 was $7.6 million compared to $3.6 million during the third quarter of fiscal 2022.
- Net income during the third quarter of fiscal 2023 was $6.3 million compared to $2.9 million during the third quarter of fiscal 2022.

### Financial Summary – Nine Months Ended February 25, 2023

- The first nine months of fiscal 2023 and fiscal 2022 each contained 39 weeks.
- Net sales during the first nine months of fiscal 2023 were $203.8 million, an increase of 25.1%, compared to net sales of $163.0 million during the first nine months of fiscal 2022.
- Gross margin increased to 33.0% during the first nine months of fiscal 2023 compared to 31.6% during the first nine months of fiscal 2022.
- Selling, general and administrative expenses were $43.7 million or 21.4% of net sales during the first nine months of fiscal 2023 compared to $40.6 million or 24.9% of net sales during the first nine months of fiscal 2022.
- Operating income during the first nine months of fiscal 2023 was $23.6 million compared to $11.0 million during the first nine months of fiscal 2022.
- Net income during the first nine months of fiscal 2023 was $18.2 million compared to $9.6 million during the first nine months of fiscal 2022.

We issued a Press Release on March 21, 2023 in which we announced, on a preliminary basis, certain results summarized above and described in this Form 10-Q.

As previously disclosed in the notes to our financial statements, we made certain changes in our reporting structure for fiscal 2023. As a result of these changes, we revised our reportable segments as further discussed in Note 7, *Segment Reporting,* to our unaudited consolidated financial statements. For comparability purposes, segment reporting for the prior periods have been adjusted to conform to the current presentation.

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change during the third quarter and first nine months of fiscal 2023 and fiscal 2022 were as follows (*in thousands):*

| Net Sales | Three Months Ended February 25, 2023 | February 26, 2022 | FY23 vs. FY22 % Change |
| --- | ---: | ---: | ---: |
| PMT | $46,822 | $38,381 | 22.0% |
| GES | 11,471 | 5,651 | 103.0% |
| Canvys | 9,685 | 8,141 | 19.0% |
| Healthcare | 2,386 | 3,135 | -23.9% |
| Total | $70,364 | $55,308 | 27.2% |

21

|  | Nine Months Ended February 25, 2023 | February 26, 2022 | FY23 vs. FY22 % Change |
| --- | ---: | ---: | ---: |
| PMT | $132,761 | $115,642 | 14.8% |
| GES | 32,275 | 13,136 | 145.7% |
| Canvys | 30,177 | 25,732 | 17.3% |
| Healthcare | 8,613 | 8,481 | 1.6% |
| Total | $203,826 | $162,991 | 25.1% |

During the third quarter of fiscal 2023, consolidated net sales increased 27.2% compared to the third quarter of fiscal 2022. Sales for PMT increased 22.0%, sales for GES increased 103.0%, sales for Canvys increased 19.0% and sales for Healthcare decreased 23.9%. The increase in PMT was mainly due to strong growth in both the semi-wafer fabrication industry and the RF and Microwave products for various applications. The increase in GES was mainly due to growth in our EV locomotive battery modules and niche products for wind turbines. The increase in Canvys was primarily due to strong sales in the North American market. The decrease in Healthcare was due to decreases in part sales as well as CT tubes sold to China partially offset by an increase in equipment sales.

During the first nine months of fiscal 2023, consolidated net sales increased 25.1% compared to the first nine months of fiscal 2022. Sales for PMT increased 14.8%, sales for GES increased 145.7%, sales for Canvys increased 17.3% and sales for Healthcare increased 1.6%. The increase in PMT was mainly due to strong growth in the semi-wafer fabrication industry. The increase in GES was due to the growth in our ULTRA3000 and other related product sales into the wind turbine industry as well as increased sales into the Electric Vehicle market including both electric cars and locomotives. The increase in Canvys was primarily due to strong sales in the North American market. The increase in Healthcare was due to increases in part sales and equipment sales partially offset by a decrease in CT tube sales.

Gross profit by segment and percent of net sales for the third quarter and first nine months of fiscal 2023 and fiscal 2022 were as follows (*in thousands):*

| Gross Profit | Three Months Ended February 25, 2023 | % of Net Sales | February 26, 2022 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $15,404 | 32.9% | $12,209 | 31.8% |
| GES | 2,948 | 25.7% | 1,954 | 34.6% |
| Canvys | 3,103 | 32.0% | 2,618 | 32.2% |
| Healthcare | 950 | 39.8% | 788 | 25.1% |
| Total | $22,405 | 31.8% | $17,569 | 31.8% |

|  | Nine Months Ended February 25, 2023 | % of Net Sales | February 26, 2022 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $44,950 | 33.9% | $36,795 | 31.8% |
| GES | 10,132 | 31.4% | 4,285 | 32.6% |
| Canvys | 9,364 | 31.0% | 8,348 | 32.4% |
| Healthcare | 2,837 | 32.9% | 2,095 | 24.7% |
| Total | $67,283 | 33.0% | $51,523 | 31.6% |

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 increased to $22.4 million during the third quarter of fiscal 2023 compared to $17.6 million during the third quarter of fiscal 2022. Consolidated gross margin as a percentage of net sales remained unchanged at 31.8% during the third quarter of fiscal 2023 when compared to 31.8% during the third quarter of fiscal 2022, primarily due to product mix in PMT and improved manufacturing absorption and decreased component scrap expense in Healthcare. The unfavorable product mix and foreign currency effects in Canvys and unfavorable product mix in GES offset the favorable gross margin impact for PMT and Healthcare.

Consolidated gross profit increased to $67.3 million during the first nine months of fiscal 2023 compared to $51.5 million during the first nine months of fiscal 2022. Consolidated gross margin as a percentage of net sales increased to 33.0% during the first nine months of fiscal 2023 from 31.6% during the first nine months of fiscal 2022, primarily due to product mix in PMT and improved manufacturing absorption and decreased component scrap expense in Healthcare. The unfavorable product mix and foreign currency effects in Canvys and unfavorable product mix in GES partially offset the favorable gross margin impact for PMT and Healthcare.

### Power and Microwave Technologies

PMT net sales increased 22.0% to $46.8 million during the third quarter of fiscal 2023 from $38.4 million during the third quarter of fiscal 2022. The increase was mainly due to strong growth in both the semi-wafer fabrication industry and the RF and Microwave products for various applications. Gross margin as a percentage of net sales increased to 32.9% during the third quarter of fiscal 2023 as compared to 31.8% during the third quarter of fiscal 2022 due to product mix.

PMT net sales increased 14.8% to $132.8 million during the first nine months of fiscal 2023 from $115.6 million during the first nine months of fiscal 2022. The increase was mainly due to strong growth in the semi-wafer fabrication industry. Gross margin as a percentage of net sales increased to 33.9% during the first nine months of fiscal 2023 as compared to 31.8% during the first nine months of fiscal 2022 due to product mix.

### Green Energy Solutions

GES net sales increased 103.0% to $11.5 million during the third quarter of fiscal 2023 from $5.7 million during the third quarter of fiscal 2022. The increase was mainly due to growth in our EV locomotive battery modules and niche products for wind turbines. Gross margin as a percentage of net sales decreased to 25.7% during the third quarter of fiscal 2023 as compared to 34.6% during the third quarter of fiscal 2022 due to product mix.

GES net sales increased 145.7% to $32.3 million during the first nine months of fiscal 2023 from $13.1 million during the first nine months of fiscal 2022. The increase was mainly due to growth in our ULTRA3000 and other related product sales into the wind turbine industry. We also saw an increase in sales into the Electric Vehicle market including both electric cars and locomotives. Gross margin as a percentage of net sales decreased to 31.4% during the first nine months of fiscal 2023 as compared to 32.6% during the first nine months of fiscal 2022 due to product mix.

### Canvys

Canvys net sales increased 19.0% to $9.7 million during the third quarter of fiscal 2023 from $8.1 million during the third quarter of fiscal 2022, primarily due to strong sales in the North American market. Gross margin as a percentage of net sales decreased to 32.0% during the third quarter of fiscal 2023 from 32.2% during the third quarter of fiscal 2022 primarily due to product mix and foreign currency effects.

Canvys net sales increased 17.3% to $30.2 million during the first nine months of fiscal 2023 from $25.7 million during the first nine months of fiscal 2022 primarily due to strong sales in the North American market. Gross margin as a percentage of net sales decreased to 31.0% during the first nine months of fiscal 2023 from 32.4% during the first nine months of fiscal 2022 primarily due to product mix and foreign currency effects.

### Healthcare

Healthcare net sales decreased 23.9% to $2.4 million during the third quarter of fiscal 2023 from $3.1 million during the third quarter of fiscal 2022 due to decreases in part sales as well as CT tubes sold to China partially offset by an increase in equipment sales. Gross margin as a percentage of net sales increased to 39.8% during the third quarter of fiscal 2023 as compared to 25.1% during the third quarter of fiscal 2022 primarily due to improved manufacturing absorption and decreased component scrap expense.

Healthcare net sales increased 1.6% to $8.6 million during the first nine months of fiscal 2023 from $8.5 million during the first nine months of fiscal 2022 due to increases in part sales and equipment sales partially offset by a decrease in CT tube sales. Gross margin as a percentage of net sales increased to 32.9% during the first nine months of fiscal 2023 as compared to 24.7% during the first nine months of fiscal 2022 primarily due to improved manufacturing absorption and decreased component scrap expense.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) increased to $14.8 million during the third quarter of fiscal 2023 from $13.9 million in the third quarter of fiscal 2022. The increase was mainly due to higher employee compensation expenses, including incentive expense from higher operating income and higher travel expenses. However, as a percentage of net sales, SG&A for the third quarter of fiscal 2023 decreased to 21.0% compared to 25.2% for the third quarter of fiscal 2022.

Selling, general and administrative expenses increased to $43.7 million during the first nine months of fiscal 2023 from $40.6 million in the first nine months of fiscal 2022. The increase was mainly due to higher employee compensation expenses, including incentive expense from higher operating income and higher travel expenses. However, as a percentage of net sales, SG&A for the first nine months of fiscal 2023 decreased to 21.4% compared to 24.9% for the first nine months of fiscal 2022.

### Other Income/Expense

Other income was $0.4 million during the third quarter of fiscal 2023, compared to other expense of $0.1 million for the third quarter of fiscal 2022. Other income during the third quarter of fiscal 2023 was mainly attributable to foreign exchange. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Other expense was $0.1 million during the first nine months of fiscal 2023, compared to other expense of less than $0.1 million for the first nine months of fiscal 2022. Other expense during the first nine months of fiscal 2023 was mainly attributable to foreign exchange with a partial offset for investment income. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities.

### Income Tax Provision

The income tax provision was $1.7 million and $0.6 million for the third quarter of fiscal 2023 and for the third quarter of fiscal 2022, respectively. The effective income tax rate during the third quarter of fiscal 2023 was a tax provision of 20.7% as compared to a tax provision of 17.4% during the third quarter of fiscal 2022. The difference in rate during the first nine months of fiscal 2023 as compared to the first nine months of fiscal 2022 reflects changes in the valuation allowance recorded at year end fiscal 2022, absence of Net Operating Losses (“NOL”) for utilization in fiscal 2023, our geographical distribution of income (loss), which is primarily driven by an increase in U.S. earnings for fiscal 2023 and a state income tax provision.

We recorded an income tax provision of $5.3 million and $1.3 million for the first nine months of fiscal 2023 and the first nine months of fiscal 2022, respectively. The effective income tax rate during the first nine months of fiscal 2023 was a tax provision of 22.5% as compared to a tax provision of 12.1% during the first nine months of fiscal 2022. The difference in rate during the first nine months of fiscal 2023 as compared to the first nine months of fiscal 2022 reflects changes in the valuation allowance recorded at year end fiscal 2022, absence of Net Operating Losses (“NOL”) for utilization in fiscal 2023, our geographical distribution of income (loss), which is primarily driven by an increase in U.S. earnings for fiscal 2023 and a state income tax provision. The 22.5% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss), which is primarily driven by an increase in U.S. earnings for fiscal 2023 and a state income tax provision.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2017 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We were under examination for fiscal 2015 through fiscal 2018 in Germany. The audit was settled in the fourth quarter of fiscal 2022. In the second quarter of fiscal 2023, the Company paid the audit assessment for the fiscal 2015 through fiscal 2018 years. The Company recorded a tax expense of less than $0.1 million due to receiving the final assessment for the German audit. The $0.1 million of uncertain tax positions recorded in prior quarters has been fully utilized as of February 25, 2023. On May 28, 2022, our worldwide liability for uncertain tax positions related to continuing operations was $0.1 million, excluding interest and penalties. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2019 and the Netherlands beginning in fiscal 2021.

### Net Income and Per Share Data

Net income during the third quarter of fiscal 2023 was $6.3 million, or $0.44 per diluted common share and $0.40 per Class B diluted common share as compared to $2.9 million during the third quarter of fiscal 2022 or $0.21 per diluted common share and $0.19 per Class B diluted common share.

Net income during the first nine months of fiscal 2023 was $18.2 million, or $1.27 per diluted common share and $1.15 per Class B diluted common share as compared to $9.6 million during the first nine months of fiscal 2022 or $0.71 per diluted common share and $0.64 per Class B diluted common share.

### 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 $24.6 million at February 25, 2023. Cash and cash equivalents by geographic area at February 25, 2023 consisted of $9.2 million in North America, $7.5 million in Europe, $1.4 million in Latin America and $6.5 million in Asia/Pacific. No funds were repatriated to the United States in the first nine months of fiscal 2023. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes. See Note 7, *Income Taxes* of the notes to our consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended May 28, 2022, filed with the SEC on August 1, 2022 for further information.

Cash, cash equivalents and investments were $40.5 million at May 28, 2022. Cash, cash equivalents and investments by geographic area at May 28, 2022 consisted of $25.7 million in North America, $6.0 million in Europe, $1.5 million in Latin America and $7.3 million in Asia/Pacific. We repatriated a total of $1.5 million to the United States in fiscal 2022 from our foreign entities. This amount includes $0.7 million in the first quarter from our entity in China, $0.3 million in the second quarter from our entity in Taiwan and $0.5 million in the third quarter from our entity in Japan.

Our short-term and long-term liquidity requirements primarily arise from: (i) working capital requirements, (ii) capital expenditure needs and (iii) cash dividend payments (if and when declared by our Board of Directors). Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control. The Company continues to monitor the impact of COVID-19, including the extent, duration and effectiveness of containment actions taken, the speed and extent of vaccination programs, the impact of the pandemic on its supply chain, manufacturing and distribution operations, customers and employees, as well as the U.S. economy in general. However, due to the uncertain and constantly evolving impacts of the COVID-19 pandemic across the globe, the Company cannot currently predict the long-term impact on its operations and financial results. The uncertainties associated with the COVID-19 pandemic and its effects include potential adverse effects on the overall economy, the Company’s supply chain, transportation services, employees and customers. The COVID-19 pandemic and its effects could adversely affect the Company’s revenues, earnings, liquidity and cash flows and may require significant actions in response, including expense reductions. Conditions surrounding COVID-19 change rapidly and additional impacts of which the Company is not currently aware may arise. Based on past performance and current expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months. Additionally, while our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for growth in our markets, we believe our existing sources of liquidity as well as our ability to generate operating cash flows will satisfy our future obligations and cash requirements.

On March 20, 2023, the Company established a senior, secured revolving credit facility agreement with a three-year term in an aggregate principal amount not to exceed $30 million, including a Swingline Loan sub-facility and a Letter of Credit sub-facility (collectively, the "Revolving Credit Facility") with PNC Bank. The Revolving Credit Facility is guaranteed by the Company's domestic subsidiaries. Proceeds of the borrowings under the Revolving Credit Facility will be used for working capital and general corporate purposes of the Company and its subsidiaries. As of the date of this report, no amounts were outstanding under the Revolving Credit Facility.

### Cash Flows from Operating Activities

Cash flows from operating activities primarily resulted from our net income adjusted for non-cash items and changes in our operating assets and liabilities.

Operating activities used $11.4 million of cash during the first nine months of fiscal 2023. We had a net income of $18.2 million during the first nine months of fiscal 2023, which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.3 million and depreciation and amortization expense of $2.7 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $33.4 million in cash during the first nine months of fiscal 2023, net of foreign currency exchange gains and losses, included an increase in accounts receivable of $12.7 million, an increase in inventory of $21.8 million and an increase in prepaid expenses of $0.6 million. Partially offsetting the cash utilization for accounts receivable, inventory and prepaid expenses was an increase in accounts payable and accrued liabilities of $1.3 million. The increase in accounts receivable was primarily due to increased sales. The majority of the inventory increase supported the product growth in LaFox manufacturing, Green Energy Solutions and Canvys, in addition to increases in the inventory for electron tubes. The increase in accounts payable was related to the inventory increase and the increase in accrued liabilities was timing related.

Operating activities used $1.5 million of cash during the first nine months of fiscal 2022. We had a net income of $9.6 million during the first nine months of fiscal 2022, which included non-cash stock-based compensation expense of $0.5 million associated with the issuance of stock option and restricted stock awards, $0.2 million for inventory reserve provisions and depreciation and amortization expense of $2.6 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $14.4 million in cash during the first nine months of fiscal 2022, net of foreign currency exchange gains and losses, included an increase in accounts receivable of $7.4 million, an increase in inventory of $12.3 million and an increase in prepaid expenses of $1.1 million. Partially offsetting the cash utilization for accounts receivable, inventory and prepaid expenses was an increase in accounts payable and accrued liabilities of $6.3 million. The increase in accounts receivable was primarily due to increased sales revenue. The majority of the inventory increase was to support the growth in LaFox manufacturing and the RF and microwave components business. The increase in accounts payable was related to the inventory increase and the increase in accrued liabilities was timing related.

### Cash Flows from Investing Activities

Cash flows from investing activities consisted primarily of capital expenditures and purchases and maturities of investments. Our purchases and proceeds from investments consist of time deposits and CDs. The purchasing of future investments varies from period to period due to interest and foreign currency exchange rates.

Cash provided by investing activities of $0.2 million during the first nine months of fiscal 2023 was mainly due to the proceeds from investment maturities as well as proceeds from the sale of assets partially offset by capital expenditures. Capital expenditures were primarily related to our IT system, as well as our LaFox manufacturing business and facilities, which also supports both EDG and Green Energy Solutions. The Company did not have any investment purchases in the first nine months of fiscal 2023.

Cash used in investing activities of $2.2 million during the first nine months of fiscal 2022 was due to capital expenditures. Capital expenditures related primarily to capital used for our Healthcare business, IT system and manufacturing facilities. The Company did not have any investment purchases or maturities in the first nine months of fiscal 2022.

### Cash Flows from Financing Activities

Cash flows used in financing activities consisted primarily of cash dividends and cash flows provided by financing activities consisted primarily of the proceeds from the issuance of stock.

Cash provided by financing activities of $0.9 million during the first nine months of fiscal 2023 primarily resulted from the $3.4 million proceeds from the issuance of stock less the $2.5 million of dividend payments to stockholders.

Cash provided by financing activities of $0.1 million during the first nine months of fiscal 2022 primarily resulted from the $2.6 million proceeds from the issuance of stock less the $2.4 million of dividend payments to stockholders.

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.

## Market risk

As filed, 869 characters.

### 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.

The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks are set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 28, 2022, filed with the SEC on August 1, 2022.

## Controls and procedures

As filed, 1,611 characters.

(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 February 25, 2023.

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 188 characters.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May 28, 2022, filed with the SEC on August 1, 2022.

Filed Apr 6, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-012040. Last ingested by Listed: Nov 2, 2026, 11:55 ET. No prices; not investment advice.