# Richardson Electronics, LTD.: Form 10-Q for the period ended Aug 29, 2020

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2020-10-08
- Accepted by EDGAR: Oct 8, 2020, 11:45 ET
- Period: 2020-08-29
- Accession: 0001564590-20-046071
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000156459020046071/rell-10q_20200829.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000156459020046071/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-08-29.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-05-31 to 2020-08-29 | $38.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-05-31 to 2020-08-29 | $26.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2020-05-31 to 2020-08-29 | $12.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2020-05-31 to 2020-08-29 | $13.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-05-31 to 2020-08-29 | −$617.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2020-05-31 to 2020-08-29 | $124.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-05-31 to 2020-08-29 | −$1.1m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2020-05-31 to 2020-08-29 | 13,167,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-05-31 to 2020-08-29 | −$3.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-05-31 to 2020-08-29 | $718.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2020-05-31 to 2020-08-29 | $780.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2020-08-29 | $33.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-08-29 | $126.6m | us-gaap:AssetsCurrent |
| Total assets | at 2020-08-29 | $150.3m | us-gaap:Assets |
| Current liabilities | at 2020-08-29 | $28.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-08-29 | $31.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2020-08-29 | $119.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 22,865 characters.

*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 quarterly report on Form 10Q for the quarter ended August 29, 2020 as well as our Annual Report on Form 10-K filed on August 3, 2020. 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, critical accounting policies and estimates and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:

- **Business Overview**
- **Results of Operations –** an analysis and comparison of our consolidated results of operations for the three month periods ended August 29, 2020 and August 31, 2019, as reflected in our consolidated statements of comprehensive income (loss).
- **Liquidity, Financial Position and Capital Resources –** a discussion of our primary sources and uses of cash for the three month periods ended August 29, 2020 and August 31, 2019, and a discussion of changes in our financial position.

### Business Overview

Richardson Electronics, Ltd. is a leading global provider of engineered solutions, power grid and microwave tubes and related consumables; power conversion and RF and microwave components; high value flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment; and customized display solutions. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair through its global infrastructure.

Our products include electron tubes and related components, microwave generators, subsystems used in semiconductor manufacturing and visual technology solutions. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, medical and communication applications.

We have three operating and reportable segments which we define as follows:

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

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes, 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 help our customers improve efficiency and deliver better clinical outcomes while lowering the cost of healthcare delivery.

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

### RESULTS OF OPERATIONS

### Financial Summary – Three Months Ended August 29, 2020

- The first three months of fiscal 2021 and fiscal 2020 each contained 13 weeks.
- Net sales during the first quarter of fiscal 2021 were $38.8 million, a decrease of 4.5%, compared to net sales of $40.7 million during the first quarter of fiscal 2020.
- Gross margin decreased slightly to 31.8% during the first quarter of fiscal 2021 compared to 31.9% during the first quarter of fiscal 2020.
- Selling, general and administrative expenses were $13.0 million, or 33.4% of net sales, during the first quarter of fiscal 2021 compared to $12.8 million, or 31.6% of net sales, during the first quarter of fiscal 2020.
- Operating loss during the first quarter of fiscal 2021 was $0.6 million compared to operating income of $0.1 million during the first quarter of fiscal 2020.
- Net loss during the first quarter of fiscal 2021 was $1.1 million compared to net income of $0.2 million during the first quarter of fiscal 2020.

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change during the first quarter of fiscal 2021 and fiscal 2020 were as follows (*in thousands):*

| Net Sales | Three Months Ended August 29, 2020 | August 31, 2019 | FY21 vs. FY20 % Change |
| --- | ---: | ---: | ---: |
| PMT | $30,252 | $30,567 | -1.0% |
| Canvys | 6,712 | 7,277 | -7.8% |
| Healthcare | 1,848 | 2,809 | -34.2% |
| Total | $38,812 | $40,653 | -4.5% |

During the first quarter of fiscal 2021, consolidated net sales decreased 4.5% compared to the first quarter of fiscal 2020. Sales for PMT decreased 1.0%, sales for Canvys decreased 7.8% and sales for Healthcare decreased 34.2%. The decrease in PMT was mainly due to economic softness in the power grid tube business and the effect of the coronavirus, partially offset by strong growth from our Power and Microwave new technology partners in various applications including 5G infrastructure, and increased year-over- year revenue from our Semiconductor Wafer Fabrication customers buying engineered solutions. The decrease in Canvys was due to continuing struggles in the European market partially offset by strong sales in the North American market. The decrease in Healthcare was due to the impact of the coronavirus global pandemic as well as ongoing economic issues in Latin America.

Gross profit by segment and percent of net sales for the first quarter of fiscal 2021 and fiscal 2020 were as follows (*in thousands):*

| Gross Profit | Three Months Ended August 29, 2020 | % of Net Sales | August 31, 2019 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $9,971 | 33.0% | $9,679 | 31.7% |
| Canvys | 2,284 | 34.0% | 2,321 | 31.9% |
| Healthcare | 104 | 5.6% | 951 | 33.9% |
| Total | $12,359 | 31.8% | $12,951 | 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 decreased to $12.4 million during the first quarter of fiscal 2021 compared to $13.0 million during the first quarter of fiscal 2020. Consolidated gross margin as a percentage of net sales decreased slightly to 31.8% during the first quarter of fiscal 2021 from 31.9% during the first quarter of fiscal 2020, primarily due to under absorbed manufacturing expenses in Healthcare partially offset by favorable product mix in both PMT and Canvys and improved manufacturing efficiencies in PMT.

### Power and Microwave Technologies Group

PMT net sales decreased 1.0% to $30.3 million during the first quarter of fiscal 2021 from $30.6 million during the first quarter of fiscal 2020. The decrease was mainly due to economic softness in the power grid tube business and the effect of the coronavirus, partially offset by strong growth from our Power and Microwave new technology partners in various applications including 5G infrastructure, and increased year-over-year revenue from our Semiconductor Wafer Fabrication customers buying engineered solutions. Gross margin as a percentage of net sales increased to 33.0% during the first quarter of fiscal 2021 as compared to 31.7% during the first quarter of fiscal 2020 primarily due to favorable product mix and improved manufacturing efficiencies.

### Canvys

Canvys net sales decreased 7.8% to $6.7 million during the first quarter of fiscal 2021 from $7.3 million during the first quarter of fiscal 2020 due to continuing struggles in the European market partially offset by strong sales in the North American market. Gross margin as a percentage of net sales increased to 34.0% during the first quarter of fiscal 2021 from 31.9% during the first quarter of fiscal 2020 due to favorable product mix.

### Healthcare

Healthcare net sales decreased 34.2% to $1.8 million during the first quarter of fiscal 2021 from $2.8 million during the first quarter of fiscal 2020. The decrease in sales was primarily due to the impact of the global pandemic as well as ongoing economic issues in Latin America. Gross margin as a percentage of net sales decreased to 5.6% during the first quarter of fiscal 2021 as compared to 33.9% during the first quarter of fiscal 2020 primarily due to under absorbed manufacturing expenses.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $13.0 million during the first quarter of fiscal 2021 from $12.8 million in the first quarter of fiscal 2020, primarily due to higher employee compensation expenses and higher legal expenses, partially offset by lower travel expenses.

### Other Income/Expense

Other income/expense was expense of $0.4 million during the first quarter of fiscal 2021, compared to income of $0.2 million during the first quarter of fiscal 2020. Other income/expense during the first quarter of fiscal 2021 included $0.4 million of foreign exchange losses. Other income/expense during the first quarter of fiscal 2020 included $0.1 million of investment/interest income and $0.1 million of foreign exchange gains. 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.

### Income Tax Provision

We recorded an income tax provision of $0.1 million and $0.2 million for the first three months of fiscal 2021 and the first three months of fiscal 2020, respectively. The effective income tax rate during the first three months of fiscal 2021 was a tax provision of (12.1)% as compared to a tax provision of 53.0% during the first three months of fiscal 2020. The difference in rate during the first three months of fiscal 2021 as compared to the first three months of fiscal 2020 reflects changes in our geographical distribution of income (loss). The (12.1)% effective income tax rate differs from the federal statutory rate of 21% as a result of our geographical distribution of income (loss) and the movement of the valuation allowance against our U.S. state and federal net deferred tax assets.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We are currently under examination in Thailand (fiscal 2008 through 2011). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2015 and the Netherlands beginning in fiscal 2018.

### Net (Loss) Income and Per Share Data

Net loss during the first quarter of fiscal 2021 was $1.1 million or ($0.09) per diluted common share and ($0.08) per Class B diluted common share as compared to net income of $0.2 million during the first quarter of fiscal 2020 or $0.01 per diluted common share and $0.01 per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

Our operations and cash needs have been primarily financed through cash on hand and investments.

Cash and cash equivalents were $33.5 million at August 29, 2020. Investments included a CD classified as short-term investment of $9.0 million. Total cash and investments were $42.5 million at August 29, 2020. Cash, cash equivalents and investment at August 29, 2020 consisted of $28.3 million in North America, $7.2 million in Europe, $0.9 million in Latin America and $6.1 million in Asia/Pacific.

Cash, cash equivalents and investments were $46.5 million at May 30, 2020. Cash, cash equivalents and investments at May 30, 2020, consisted of $30.6 million in North America, $8.3 million in Europe, $0.9 million in Latin America and $6.7 million in Asia/Pacific. We repatriated a total of $8.5 million to the United States in fiscal 2020 from several of our foreign entities. This amount includes $4.4 million from our entities in Germany and the Netherlands in the second quarter of fiscal 2020, $1.5 million from our entity in Japan in the third quarter of fiscal 2020 and $1.0 million from our entity in Italy in the fourth quarter of fiscal 2020. 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 9 “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 year ended May 30, 2020, filed August 3, 2020 for further information.

The Company continues to monitor the impact of the COVID-19 outbreak on its supply chain, manufacturing and distribution operations, customers and employees, as well as the U.S. economy in general. However, due to the uncertainty as to when governmental restrictions on business will be fully lifted, the impact thereof, and the duration and widespread nature of the COVID-19 outbreak, the Company cannot currently predict the long-term impact on its operations and financial results. The uncertainties associated with the COVID-19 outbreak include potential adverse effects on the overall economy, the Company’s supply chain, transportation services, employees and customers. The COVID-19 outbreak 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.

### Cash Flows from Operating Activities

The cash used in operating activities primarily resulted from net loss adjusted for non-cash items and changes in our operating assets and liabilities.

Operating activities used $3.4 million of cash during the first three months of fiscal 2021. We had a net loss of $1.1 million during the first three months of fiscal 2021, which included non-cash stock-based compensation expense of $0.2 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 $0.9 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 $3.5 million during the first three months of fiscal 2021, net of foreign currency exchange gains and losses, included a decrease of $2.7 million in accounts payable, an increase in inventory of $1.6 million and an increase in accounts receivable of $0.9 million, partially offset by an increase in accrued liabilities of $1.8 million. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services. The majority of the inventory increase was to support the electron tube and semi-conductor wafer fab equipment business. The increase in accounts receivable was primarily due to the sales increase compared to the fourth quarter of fiscal 2020. The increase in accrued liabilities is mainly due to timing of employee compensation and payroll tax payments.

Operating activities used $2.1 million of cash during the first three months of fiscal 2020. We had net income of $0.2 million during the first three months of fiscal 2020, which included non-cash stock-based compensation expense of $0.2 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 $0.8 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 $3.3 million during the first three months of fiscal 2020, net of foreign currency exchange gains and losses, included a decrease of $4.0 million in accounts payable, an increase in inventory of $1.4 million, a decrease in accrued liabilities of $0.9 million partially offset by a decrease in accounts receivable of $2.2 million and a decrease of $0.6 million in prepaid expenses and other assets. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services. The majority of the inventory increase was to support the continued growth of our RF and Power Technologies group.

### Cash Flows from Investing Activities

The cash flow provided by and used in investing activities consisted primarily of purchases of investments and capital expenditures partially offset by proceeds from the maturities of investments.

Cash provided by investing activities of $6.3 million during the first three months of fiscal 2021 included proceeds from the maturities of investments of $16.0 million, partially offset by purchases of investments of $9.0 million and $0.7 million in capital expenditures. Capital expenditures related primarily to capital used for our Healthcare business and our IT system.

Cash provided by investing activities of $7.7 million during the first three months of fiscal 2020 included proceeds from the maturities of investments of $8.0 million partially offset by $0.3 million in capital expenditures. Capital expenditures related primarily to capital used for our IT system and LaFox manufacturing business.

Our purchases of investments consisted of 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 used in financing activities consisted primarily of cash dividends paid.

Cash used in financing activities of $0.8 million during the first three months of fiscal 2021 primarily resulted from cash used to pay dividends.

Cash used in financing activities of $0.8 million during the first three months of fiscal 2020 resulted from cash used to pay dividends.

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, 846 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 year ended May 30, 2020, filed August 3, 2020.

## Controls and procedures

As filed, 1,609 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 August 29, 2020.

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 first quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 165 characters.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended May 30, 2020, filed August 3, 2020.

Filed Oct 8, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-046071. Last ingested by Listed: Nov 2, 2026, 11:55 ET. No prices; not investment advice.