What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-08-01 compared with 2021-08-02 · 107 added, 91 removed, 233 unchanged (46% of the section changed)

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Business Overview

Results of Operations - an analysis and comparison of our consolidated results of operations for the fiscal years ended May 29, 2021, May 30, 2020 and June 1, 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 fiscal years ended May 29, 2021, May 30, 2020 and June 1, 2019, and a discussion of changes in our financial position.

Results of Operations - an analysis and comparison of our consolidated results of operations for the fiscal years ended May 28, 2022, May 29, 2021 and May 30, 2020, 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 fiscal years ended May 28, 2022, May 29, 2021 and May 30, 2020, 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;

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 flat panel detector solutions, replacement parts, tubes and service training for diagnostic imaging equipment;

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.

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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.

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.

We have three operating and reportable segments.

Starting with our first quarter earnings release in October for fiscal 2023, we will introduce our new Green Energy Solutions (“GES”) segment.

This segment is carved out of our existing PMT segment as we continue to focus on power management applications that support the green energy market globally.

Accordingly, in the first quarter of fiscal 2023, we will begin reporting on four segments.

The three operating and reportable segments for fiscal 2022, fiscal 2021 and fiscal 2020 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.

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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 and deliver better clinical outcomes while lowering the cost of healthcare delivery.

Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.

We currently have operations in the following major geographic regions:

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Gross margin was 31.9% of net sales during fiscal 2022, compared to 33.2% of net sales during fiscal 2021.

Selling, general and administrative expenses, including the $1.6 million legal settlement, were $55.9 million, or 31.6% of net sales, during fiscal 2021, compared to $51.3 million, or 32.9% of net sales, during fiscal 2020.

Operating income during fiscal 2021 was $2.9 million, compared to an operating loss of $1.7 million during fiscal 2020.

Other expense during fiscal 2021 was $0.6 million, compared to other income of $0.4 million during fiscal 2020.

Net income during fiscal 2021 was $1.7 million, compared to a net loss of $1.8 million during fiscal 2020.

Selling, general and administrative expenses were $55.7 million, or 24.8% of net sales, during fiscal 2022, compared to $55.9 million, or 31.6% of net sales, during fiscal 2021.

Operating income during fiscal 2022 was $16.0 million, compared to an operating income of $2.9 million during fiscal 2021.

Other expense during fiscal 2022 was $0.2 million, compared to other expense of $0.6 million during fiscal 2021.

Net income during fiscal 2022 was $17.9 million, compared to a net income of $1.7 million during fiscal 2021.

Net Sales and Gross Profit Analysis

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Sales for PMT increased by 29.7%, Canvys sales increased by 20.0% and Healthcare sales increased by 10.1%.

During fiscal 2020, consolidated net sales decreased by 6.5% compared to fiscal 2019.

Sales for PMT decreased by 8.1%, Canvys sales increased by 3.4% and Healthcare sales decreased by 13.2%.

The increase in PMT was mainly due to strong growth from our Power and Microwave Group (PMG) new technology partners in various applications including power management, green energy, and 5G infrastructure, and increased revenue from our Semiconductor Wafer Fabrication Equipment customers buying engineered solutions.

We also had growth in various Electron Device (EDG) product lines.

The increase in Canvys was primarily due to strong sales in the European and North American markets.

The increase in Healthcare was primarily due to strong part sales and increase in demand for the ALTA750 TM tubes.

During fiscal 2021, consolidated net sales increased by 13.5% compared to fiscal 2020.

Sales for PMT increased by 15.9%, Canvys sales increased by 1.4% and Healthcare sales increased by 21.7%.

Gross profit by segment and percent of segment net sales for fiscal 2022, fiscal 2021 and fiscal 2020 were as follows ( in thousands ):

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Consolidated gross profit was $71.7 million during fiscal 2022, compared to $58.8 million during fiscal 2021.

Consolidated gross margin as a percentage of net sales increased to 33.2% during fiscal 2021, from 31.9% during fiscal 2020, primarily due to improved product mix in all business units.

Gross margin during fiscal 2021 included expense related to inventory provisions for PMT of $0.6 million, $0.1 million for Canvys and $0.4 million for Healthcare.

Consolidated gross margin as a percentage of net sales decreased to 31.9% during fiscal 2022, from 33.2% during fiscal 2021, primarily due to PMT’s product mix, higher freight costs and foreign exchange effects in Canvys and increased component scrap expenses in Healthcare.

Gross margin during fiscal 2022 included expense related to inventory provisions for PMT of $0.4 million and $0.1 million for Healthcare.

Consolidated gross profit was $58.8 million during fiscal 2021, compared to $49.7 million during fiscal 2020.

Consolidated gross margin as a percentage of net sales increased to 31.9% during fiscal 2020, from 31.0% during fiscal 2019, primarily due to improved product mix and manufacturing efficiencies for PMT.

Consolidated gross margin as a percentage of net sales increased to 33.2% during fiscal 2021, from 31.9% during fiscal 2020, primarily due to improved product mix in all business units.

Gross margin during fiscal 2021 included expense related to inventory provisions for PMT of $0.6 million, $0.1 million for Canvys and $0.4 million for Healthcare.

Power and Microwave Technologies Group

Power and Microwave Technologies

Net sales for PMT increased 29.7% to $178.1 million during fiscal 2022 from $137.3 million during fiscal 2021.

The increase was mainly due to strong growth from our Power and Microwave Group (PMG) technology partners in various applications including power management, green energy, and 5G infrastructure, and increased revenue from our Semiconductor Wafer Fabrication Equipment customers buying engineered solutions.

We also had strong growth in various Electron Device (EDG) product lines.

Gross margin as a percentage of net sales decreased to 32.6% during fiscal 2022 as compared to 33.5% during fiscal 2021, primarily due to product mix.

Net sales for PMT increased 15.9% to $137.3 million during fiscal 2021, from $118.5 million during fiscal 2020.

This increase was due to strong growth in 5G and power management applications in our Power and Microwave Group (PMG).

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Gross margin as a percentage of net sales increased to 33.5% during fiscal 2021 as compared to 32.3% during fiscal 2020, primarily due to improved product mix and manufacturing efficiencies.

Net sales for PMT decreased 8.1% to $118.5 million during fiscal 2020, from $128.9 million during fiscal 2019.

This decrease was mainly due to a slowdown in the MRO replacement tube market and COVID-19 related market decline but was partially offset by growth in 5G and other RF and Power markets from new technology suppliers in our Power and Microwave Group (PMG).

Gross margin as a percentage of net sales increased to 32.3% during fiscal 2020 as compared to 31.2% during fiscal 2019, primarily due to an improved product mix and manufacturing efficiencies.

Canvys – Visual Technology Solutions

Net sales for Canvys increased 20.0% to $35.2 million during fiscal 2022, from $29.3 million during fiscal 2021.

Sales increased primarily due to strong sales in the European and North American markets.

Gross margin as a percentage of net sales decreased to 32.0% during fiscal 2022 as compared to 35.0% during fiscal 2021 mainly due to increasing freight costs resulting from the COVID-19 pandemic and foreign currency effects.

Net sales for Canvys increased 1.4% to $29.3 million during fiscal 2021, from $28.9 million during fiscal 2020.

Sales increased due to the addition of new customers and programs as well as increased customer demand in North America.

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Gross margin as a percentage of net sales increased to 35.0% during fiscal 2021 as compared to 32.2% during fiscal 2020, primarily due to product mix and foreign currency effects.

Net sales for Canvys increased 3.4% to $28.9 million during fiscal 2020, from $28.0 million during fiscal 2019.

Sales were up due to the addition of new customers and programs as well as increased customer demand in North America.

Gross margin as a percentage of net sales decreased to 32.2% during fiscal 2020 as compared to 32.5% during fiscal 2019 primarily due to product mix and foreign currency effects.

Net sales for Healthcare increased 10.1% to $11.4 million during fiscal 2022, from $10.3 million during fiscal 2021.

The increase in sales was primarily due to strong parts sales and an increase in demand for the ALTA 750D TM tubes.

Gross margin as a percentage of net sales was 21.2% during fiscal 2022, compared to 25.1% during fiscal 2021.

The decrease is primarily due to increased component scrap expenses.

Net sales for Healthcare increased 21.7% to $10.3 million during fiscal 2021, from $8.5 million during fiscal 2020.

The increase in sales was primarily due to a significant increase in demand for the ALTA 750D TM tubes.

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This increase was primarily due to improved equipment margins as a result of installing ALTA 750D TM tubes in the equipment, offset by under absorbed manufacturing expenses.

Net sales for Healthcare decreased 13.2% to $8.5 million during fiscal 2020, from $9.8 million during fiscal 2019.

The decrease in sales was primarily due to the COVID-19 global pandemic.

Gross margin as a percentage of net sales was 24.4% during fiscal 2020, nearly flat compared to 24.5% during fiscal 2019.

This decrease was primarily due to high scrap expenses associated with CT tube development and lower sales, partially offset by improved manufacturing efficiencies and favorable product mix.

Sales by Geographic Area

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Latin America

Other primarily includes net sales not allocated to a specific geographical region, unabsorbed value-add costs and other unallocated expenses.

(1) Other 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.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) increased during fiscal 2021 to $55.9 million from $51.3 million during fiscal 2020.

Selling, general and administrative expenses (“SG&A”) decreased during fiscal 2022 to $55.7 million from $55.9 million during fiscal 2021.

However, when considering the non-recurrence of the $1.6 million legal settlement in fiscal 2021, the SG&A expense for fiscal 2022 was $1.4 million or 2.6% higher than fiscal 2021.

This increase in SG&A expense from fiscal 2021 was mainly due to higher employee compensation expenses including incentive expense, partially offset by lower legal fees.

SG&A as a percentage of sales decreased to 24.8% during fiscal 2022 as compared to 31.6% during fiscal 2021.

Selling, general and administrative expenses increased during fiscal 2021 to $55.9 million from $51.3 million during fiscal 2020.

This increase included the $1.6 million legal settlement which is discussed in the following section.

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SG&A as a percentage of sales decreased to 31.6% during fiscal 2021 as compared to 32.9% during fiscal 2020.

Selling, general and administrative expenses (“SG&A”) decreased during fiscal 2020 to $51.3 million from $52.2 million during fiscal 2019.

SG&A as a percentage of sales increased to 32.9% during fiscal 2020 as compared to 31.3% during fiscal 2019.

The decrease in expense was primarily due to lower travel, severance, legal and IT expenses, partially offset by higher employee compensation expenses.

Legal Settlement

On October 15, 2018, Varex Imaging Corporation (“Varex”) filed its original Complaint (Case No.

1:18-cv-06911) against Richardson Electronics, Ltd.

(“Richardson”) in the Northern District of Illinois, which was subsequently amended on November 27, 2018.

Varex alleged counts of infringement of U.S.

6,456,692 and 6,519,317.

Subsequently, on October 24, 2018, Varex filed a motion for preliminary injunction to stop the sale of Richardson’s ALTA750 TM product.

Richardson filed an opposition to the preliminary injunction.

In January 2019, the Court took evidence on the preliminary injunction issue.

On September 30, 2019, the Court denied Varex’s Motion for Preliminary Injunction.

On August 6, 2020, Varex amended its Complaint to add claims of trade secret misappropriation and Richardson moved to dismiss that Amended Complaint on September 9, 2020.

On April 2, 2021, as part of an overall settlement where Richardson did not admit liability but wanted to move forward, Richardson agreed to pay Varex $1.6 million to settle this matter, which was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income (Loss).

Legal Settlement – Fiscal 2021

On April 2, 2021, as part of a settlement where the Company did not admit liability, Richardson agreed to pay Varex Imaging Corporation (“Varex”) $1.6 million to settle alleged counts of patent infringement and claims of trade secret misappropriation.

This settlement was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income for the third quarter of fiscal 2021.

Other Income/Expense

Other income/expense was an expense of $0.6 million during fiscal 2021, compared to income of $0.4 million during fiscal 2020.

Other income/expense was an expense of $0.2 million during fiscal 2022, compared to an expense of $0.6 million during fiscal 2021.

Fiscal 2022 had $0.1 million of investment income compared to $0.1 million of investment income for fiscal 2021.

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dollars held in non-U.S.

The foreign exchange loss reported for fiscal 2021 totaled $0.8 million, compared to a slight gain for fiscal 2020.

The foreign exchange loss reported for fiscal 2022 totaled $0.3 million, compared to a $0.8 million loss for fiscal 2021.

We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Income Tax Provision

Our income tax provision during fiscal 2021, fiscal 2020 and fiscal 2019 was $0.7 million, $0.6 million and $1.0 million, respectively.

Our income tax (benefit) provision during fiscal 2022, fiscal 2021 and fiscal 2020 was ($2.2 million), $0.7 million and $0.6 million, respectively.

The effective income tax rates during fiscal 2022, fiscal 2021 and fiscal 2020 were (13.7%), 28.3% and (51.4%), respectively.

The difference between the effective income tax rates as compared to the U.S.

federal statutory rate of 21.0% during fiscal 2021, fiscal 2020 and fiscal 2019 was primarily driven by the impact of recording a valuation allowance against all of our U.S.

federal statutory rate of 21.0% during fiscal 2022, fiscal 2021 and fiscal 2020 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).

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The Company is not subject to the BEAT provision due to the revenue thresholds .

During fiscal 2021, final regulations were released that provide taxpayers with a high tax exception (“HTE”) election.

Given the Company’s tax profile, the Company intends to make such election with its fiscal 2021 tax return, and the forecasted GILTI inclusion has been estimated assuming the HTE is elected.

The Company made this election on its fiscal 2020 tax return, adjusting its NOL and offsetting valuation allowance.

As of May 29, 2021, we had approximately $3.0 million of net deferred tax assets related to federal net operating loss (“NOL”) carryforwards, compared to $3.7 million as of May 30, 2020.

As of May 28, 2022, we have utilized all net deferred tax assets related to federal net operating loss (“NOL”) carryforwards, compared to $3.0 million as of May 29, 2021.

Net deferred tax assets related to domestic state NOL carryforwards at May 28, 2022 amounted to approximately $2.4 million, compared to $3.9 million at May 29, 2021.

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We also had a domestic net deferred tax asset of $1.8 million of foreign tax credit carryforwards as of both May 28, 2022 and May 29, 2021.

We did not have any alternative minimum tax credit carryforward as of May 29, 2021.

We have historically determined that undistributed earnings of our foreign subsidiaries, to the extent of cash available, will be repatriated to the U.S.

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The deferred tax liability related to undistributed earnings of our foreign subsidiaries was less than $0.1 million in both fiscal 2022 and fiscal 2021.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to support a more likely than not assertion that its deferred tax assets will be realized.

A significant component of objective evidence evaluated was the cumulative income or loss incurred in each jurisdiction over the three-year period ended May 28, 2022.

Such objective evidence limits the ability to consider subjective evidence such as future income projections.

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 weight of this positive evidence is not sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S.

jurisdiction.

As of May 29, 2021, a valuation allowance of $12.2 million was established to record only the portion of the deferred tax asset that will more likely than not be realized.

including the subpart F and GILTI inclusions of our foreign earnings, the changes in our business performance in recent years, and the utilization of federal NOLs.

The weight of this positive evidence is sufficient to outweigh other negative evidence in evaluating our need for a valuation allowance in the U.S.

federal jurisdiction.

As a result of the positive evidence outweighing the negative evidence for the year ended May 28, 2022, we have released the full valuation allowance on the U.S.

federal and state deferred tax items.

In addition, we partially released the valuation allowance on the state NOL deferred tax item, based on the amount of the NOLs that management believes it is more likely than not to realize.

We have maintained a full valuation allowance against the foreign tax credit deferred tax asset based on negative evidence relating to the Company’s ability to utilize the foreign tax credit carryforward in the future.

As of May 28, 2022, a valuation allowance of $3.5 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 29, 2021 was $12.2 million.

We recorded a valuation allowance for all domestic federal and state net deferred tax assets considering the significant cumulative losses in the U.S.

jurisdiction and the reversal of the deferred tax liability for foreign earnings.

The valuation allowance also related to deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred.

The remaining valuation allowance relates to foreign tax credits ($1.8 million), state NOLs ($0.2 million) and deferred tax assets in foreign jurisdictions where historical taxable losses have been incurred ($1.5 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 .

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tax jurisdictions.

We are currently under examination in Thailand (fiscal 2008 through 2011) and Germany (fiscal 2015 through 2018).

We are currently under examination in Germany for fiscal 2015 through fiscal 2018.

This audit is expected to be closed in the first quarter of fiscal 2023.

Our primary foreign tax jurisdictions are Germany and the Netherlands.

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We have not recorded a liability for interest and penalties as of May 28, 2022 or May 29, 2021.

It is not expected that there will be a change in the unrecognized tax benefits due to the expiration of various statutes of limitations within the next twelve months.

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 $43.3 million at May 29, 2021.

Cash and cash equivalents at May 29, 2021 consisted of $26.1 million in North America, $8.8 million in Europe, $1.2 million in Latin America and $7.2 million in Asia/Pacific.

We repatriated a total of $0.9 million to the United States in fiscal 2021 from several of our foreign entities.

This amount includes $0.7 million from our entities in Italy and South Korea in the third quarter of fiscal 2021 and $0.2 million from our entity in France in the fourth quarter of fiscal 2021.

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.

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 this Annual Report on Form 10-K for further information.

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.

Cash and cash equivalents were $43.3 million at May 29, 2021.

Cash and cash equivalents by geographic area at May 29, 2021 consisted of $26.1 million in North America, $8.8 million in Europe, $1.2 million in Latin America and $7.2 million in Asia/Pacific.

We repatriated a total of $0.9 million to the United States in fiscal 2021 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.

This amount includes $0.7 million from our entities in Italy and South Korea in the third quarter of fiscal 2021 and $0.2 million from our entity in France in the fourth quarter of fiscal 2021.

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.

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Based on past performance and current expectations, w e 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.

Cash Flows from Operating Activities

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We had net income of $17.9 million during fiscal 2022, which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option awards and restricted stock awards, $0.5 million of inventory provisions, and depreciation and amortization expense of $3.4 million associated with our property and equipment as well as amortization of our intangible assets.

Changes in our operating assets and liabilities resulted in a use of cash of $16.5 million during fiscal 2022, primarily due to the increase in inventories of $20.6 million, an increase in accounts receivable of $6.2 million and an increase in prepaid expenses of $0.2 million.

These uses of cash were partially offset by the increase in our accounts payable and accrued liabilities of $10.1 million.

The majority of the inventory increase was to support our

manufacturing, Canvys and PMG businesses.

The increase in accounts receivable was primarily due to the sales increase in fiscal 2022.

The increase in our accounts payable was due to higher inventory levels to support sales growth, and the increase in accrued liabilities was due to the higher employee compensation expenses and payroll taxes as well as increased deferred revenue .

Operating activities provided $0.8 million of cash during fiscal 2021.

We had net income of $1.7 million during fiscal 2021, which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option awards and restricted stock awards, $1.0 million of inventory provisions and depreciation and amortization expense of $3.4 million associated with our property and equipment as well as amortization of our intangible assets.

Changes in our operating assets and liabilities resulted in a use of cash of $6.0 million during fiscal 2021, primarily due to the increase in inventories of $4.9 million, an increase in accounts receivable of $4.2 million and a decrease in accounts payable of $0.6 million.

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The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services and the increase in accrued liabilities was due to the timing of employee compensation and payroll tax payments, as well as increased deferred revenue.

Operating activities provided $1.9 million of cash during fiscal 2020.

We had net loss of $1.8 million during fiscal 2020, which included non-cash stock-based compensation expense of $0.7 million associated with the issuance of stock option awards and restricted stock awards, $1.0 million of inventory provisions and depreciation and amortization expense of $3.4 million associated with our property and equipment as well as amortization of our intangible assets.

Changes in our operating assets and liabilities resulted in a use of cash of $1.3 million during fiscal 2020, primarily due to the increase in inventories of $5.5 million and the decrease in accrued liabilities of $0.9 million.

These uses of cash were partially offset by the decrease in accounts receivable of $3.9 million, the increase in our accounts payable of $0.6 million and the decrease in prepaid expenses and other assets of $0.6 million.

The majority of the inventory increase was to support our electron tube and Canvys businesses and the impact of COVID-19 on sales.

The decrease in accounts receivable was primarily due to the decrease in sales and better collection of receivables.

The increase in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services.

Cash Flows from Investing Activities

The cash flow from investing activities consisted primarily of purchases and maturities of investments and capital expenditures.

Cash used by investing activities of $8.1 million during fiscal 2022 was mainly attributed to the $5.0 million purchase of a Certificate of Deposit (CD) and $3.1 million in capital expenditures.

Capital expenditures were primarily related to our manufacturing, Healthcare business and IT systems.

Cash provided by investing activities of $13.4 million during fiscal 2021 included the proceeds from the maturities of investments of $25.0 million, partially offset by purchases of investments of $9.0 million and $2.6 million in capital expenditures.

Capital expenditures related primarily to capital used for our IT system and Healthcare manufacturing business.

Cash used in investing activities of $9.8 million during fiscal 2020 included purchases of investments of $29.0 million and $1.8 million in capital expenditures, partially offset the proceeds from the maturities of investments of $21.0 million.

Capital expenditures related primarily to capital used for our IT system, and Healthcare and LaFox manufacturing businesses.

Capital expenditures were primarily related to our Healthcare business and IT systems.

Our purchases and proceeds from investments consist of time deposits and CDs.

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The cash flow from financing activities primarily consists of cash dividends paid.

Cash used in financing activities of $3.0 million during fiscal 2021 resulted primarily from cash used to pay dividends, partially offset by proceeds from the issuance of common stock from stock option exercises.

Cash used in financing activities of $0.4 million during fiscal 2022 resulted primarily from the $3.2 million used to pay dividends to shareholders, partially offset by proceeds from the issuance of common stock from stock option exercises.

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Revenue Recognition

The Company has a number of defined revenue streams across our reportable segments.

Distribution is the Company’s largest revenue stream.

The distribution business does not include a separate service bundled with the product sold or sold on top of the product.

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

Services revenue

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.

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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.

The Company also sells products that are manufactured or assembled in our manufacturing facility.

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.

The Company recognizes services revenue when the repair, installation or training is performed.

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 cancelation, 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.

Repair, installation or training activities generate services revenue.

The services we provide are relatively short in duration and typically completed in one or two weeks.

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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 also record discounts taken and estimate returns based on historical experience.

Our products are often manufactured to meet the specific design needs of our customers’ applications.

Our engineers work closely with customers to ensure that our products will meet their needs.

Our customers are under no obligation to compensate us for designing the products we sell.

We record discounts taken based on historical experience .

The policy varies by business unit.

The Company allows returns with prior written authorization .

Inventories, net

40 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis