Richardson Electronics, Ltd. — FY2021 Form 10-K
Reporting period: Fiscal year ended May 29, 2021 (52 weeks); comparison is fiscal year ended May 30, 2020. The company supplies engineered electronics solutions through Power and Microwave Technologies Group (PMT), Canvys display solutions, and Healthcare imaging products and services.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $176.9 million | $155.9 million |
| Gross profit / margin | $58.8 million / 33.2% | $49.7 million / 31.9% |
| SG&A | $55.9 million (31.6% of sales) | $51.3 million (32.9% of sales) |
| Operating income (loss) | $2.9 million | $(1.7) million |
| Net income (loss) | $1.7 million; $0.13 per common share | $(1.8) million; $(0.14) per common share |
| Cash from operating activities | $0.8 million | $1.9 million |
Sales rose 13.5%, with higher revenue in each segment: PMT +15.9% to $137.3 million, Canvys +1.4% to $29.3 million, and Healthcare +21.7% to $10.3 million. Management attributed improved consolidated gross margin chiefly to product mix; PMT also benefited from manufacturing efficiencies. Fiscal 2021 included $1.6 million of SG&A expense for the Varex settlement. Foreign-exchange loss was $0.8 million, compared with a small gain in FY2020.
Fourth quarter: FY2021 Q4 sales were $50.5 million versus $37.4 million in FY2020 Q4; gross profit was $16.4 million versus $11.4 million; net income was $1.9 million versus a $1.3 million loss.
Liquidity, cash flow and capital
At year-end, cash and cash equivalents were $43.3 million, current assets $134.3 million, current liabilities $32.2 million, and stockholders’ equity $121.6 million. Working capital was approximately $102.1 million. The balance sheet reports no conventional borrowings; lease liabilities totaled $2.4 million, including $1.1 million current. Cash, cash equivalents and investments totaled $46.5 million at the prior year-end, including $16.0 million of investments; those investments were liquidated during FY2021.
Operating cash flow was $0.8 million, as working-capital needs—particularly a $4.9 million inventory increase and $4.2 million increase in receivables—offset earnings and noncash items. Investing activities provided $13.4 million, largely from investment maturities, partly offset by $2.6 million of capital expenditures. Financing used $3.0 million, primarily for $3.1 million of dividends. The annual common dividend was $0.24 per share and the Class B dividend was $0.22; future dividends remain at the board’s discretion.
Inventory was $63.5 million net of a $5.9 million reserve, up from $57.5 million net and a $5.4 million reserve. Approximately $17.8 million, or 41% of cash and cash equivalents, was held by foreign subsidiaries. Management said existing liquidity should cover known capital requirements and working-capital needs for the next 12 months. The filing does not provide specific fiscal 2022 revenue or earnings guidance.
Changes, outlook and material matters
- The company returned to annual profitability after net losses in FY2020 and FY2019. FY2021 comprehensive income was $5.1 million, including a $3.4 million foreign-currency translation gain.
- PMT growth reflected strong demand in 5G, power management and semiconductor wafer-fab markets. Healthcare growth was primarily tied to ALTA 750D tube demand. Canvys gained customers and programs in North America, partly offset by weaker European demand.
- COVID-19 caused demand declines in the segments at different points in FY2021 and some component delays, but the company remained operational as an essential supplier and reported no major supply-chain interruption. Management could not estimate the pandemic’s full FY2022 effects.
- Varex litigation was settled on April 2, 2021 for $1.6 million; Richardson did not admit liability. The expense was recorded in SG&A.
- Inventory obsolescence and forecast risk are significant: the auditor identified PMT’s inventory-reserve estimate as a critical audit matter. The company recorded $1.0 million of inventory provisions during FY2021.
- Other material risks include supplier dependence (one supplier was 15% of cost of sales), tariff exposure on certain China-origin imports, foreign-exchange volatility (no derivatives or forward contracts), customer credit risk, cybersecurity, and ongoing pandemic and logistics uncertainty. A 10% unfavorable currency move was estimated to reduce FY2021 foreign-currency-denominated sales by $10.0 million.
- A $12.2 million valuation allowance was recorded against deferred tax assets, principally reflecting domestic cumulative losses. The company deferred $0.9 million of employer Social Security taxes under the CARES Act.
Investor facts to verify
- Whether sales and margin gains—especially in PMT and Healthcare—persist, and whether recovery in Canvys continues.
- Inventory aging, demand assumptions and reserve adequacy, along with conversion of higher inventory and receivables into operating cash flow.
- Dividend sustainability given FY2021 operating cash flow of $0.8 million, capital expenditures of $2.6 million and dividends paid of $3.1 million.
- COVID-19, tariffs, supplier concentration and currency movements’ effects on costs, supply and demand; also monitor the company’s ability to fund U.S. needs from globally held cash.
- Developments in tax-asset realizability and any further consequences or payments associated with the Varex settlement.
- Edward J. Richardson held approximately 64% of voting power as of July 26, 2021. The auditor gave an unqualified opinion on the financial statements and found internal control over financial reporting effective.