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 our Annual Report on Form 10-K. We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise. You should consider carefully the risk factors described in our Annual Report on Form 10-K, in addition to the other information included and incorporated by reference in this Quarterly Report on Form 10-Q.

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 unaudited condensed consolidated financial statements and the accompanying notes thereto appearing elsewhere herein. This section is organized as follows:

• Business Overview

• Results of Continuing Operations - an analysis and comparison of our consolidated results of operations for the three months ended August 30, 2008, and September 1, 2007, as reflected in our unaudited condensed consolidated statements of operations.

• Liquidity, Financial Position, and Capital Resources - a discussion of our primary sources and uses of cash for the three months ended August 30, 2008, and September 1, 2007, and a discussion of selected changes in our financial position.

BUSINESS OVERVIEW

Richardson Electronics, Ltd. ("we", "us", and "our") was originally incorporated in the state of Illinois in 1947 and is currently incorporated in the state of Delaware. We are a global provider of engineered solutions and a global distributor of electronic components to the radio frequency ("RF"), wireless and power conversion, electron device, and display systems markets. Utilizing our core engineering and manufacturing capabilities, we are committed to a strategy of providing specialized technical expertise and value-added products, or "engineered solutions," in response to our customers' needs. These solutions include products which we manufacture or modify and products which are manufactured to our specifications by independent manufacturers under our own private labels. Additionally, we provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, and logistics for end products of our customers. Design-in support includes component modifications or the identification of lower-cost product alternatives or complementary products.

Our products include RF and microwave components, power semiconductors, electron tubes, microwave generators, and data display monitors. These products are used to control, switch or amplify electrical power signals, or are used as display devices in a variety of industrial, commercial, and communication applications.

Our sales and marketing, product management, and purchasing functions are organized as follows:

RF, Wireless & Power Division ("RFPD") serves the global RF and wireless communications market, including infrastructure, wireless networks, and the power conversion market.

Electron Device Group ("EDG") provides engineered solutions and distributes electronic components to customers in diverse markets including the steel, automotive, textile, plastics, semiconductor manufacturing, and broadcast industries.

Display Systems Group("DSG") provides global integrated display products, systems and digital signage solutions serving financial, corporate enterprise, healthcare, and industrial markets.

We currently have operations in the following major geographic regions:

• North America;

• Asia/Pacific;

• Europe; and

• Latin America.

During the first quarter of fiscal 2009, we moved our Cathode Ray Tube ("CRT") product line from our DSG segment to our EDG segment. As a result of implementing a new business plan for DSG during the third quarter of fiscal 2008, we felt that the CRT product line more closely aligned with the existing EDG business model. Prior period segment information has been restated to reflect this change.

RESULTS OF CONTINUING OPERATIONS

Overview - Three Months Ended August 30, 2008

• Net sales for RFPD increased 14.9%, or $12.6 million, during the first quarter of fiscal 2009 compared to the first quarter of fiscal 2008 primarily due to a major communications infrastructure project within our Asian operations. Net sales for EDG and DSG decreased 4.0% and 4.3%, respectively, during the first quarter of fiscal 2009 as compared to the first quarter last year.

• Consolidated gross margin percentage declined to 23.5% during the first quarter of fiscal 2009 compared to 25.2% during the first quarter last year primarily due to the lower gross margin related to the communications infrastructure project within our Asian operations. Gross margin for DSG increased to 25.3% during the first quarter of fiscal 2009 compared to 21.3% during the first quarter of fiscal 2008 reflecting an increased focus on profitable sales. Gross margin for EDG decreased to 30.5% during the first quarter of fiscal 2009 compared to 32.2% during the first quarter of fiscal 2008 due to shifts to lower margin products.

• Selling, general, and administrative expenses decreased to $28.2 million, or 20.3% of net sales, during the first quarter of fiscal 2009 compared to $30.0 million, or 23.1% of net sales, during the first quarter last year.

• Operating income during the first quarter of fiscal 2009 was $4.5 million, up 67%, compared to operating income of $2.7 million during the first quarter of fiscal 2008.

Net Sales and Gross Profit Analysis

During the first quarter of fiscal 2009, consolidated net sales increased 7.3% due primarily to an increase in wireless and power conversion products partially offset by a decrease in sales of display systems and electron device products.

Net sales by segment and percent change during the first quarter of fiscal 2009 and 2008 were as follows (in thousands):

Net Sales



                                   FY 2009       FY 2008    % Change
                  First Quarter
                  RFPD            $  96,872     $  84,306       14.9 %
                  EDG                25,051        26,085       (4.0 %)
                  DSG                17,113        17,887       (4.3 %)
                  Corporate             (89 )       1,187

                  Total           $ 138,947     $ 129,465        7.3 %

Consolidated gross profit increased slightly during the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008. Consolidated gross margin as a percentage of net sales decreased to 23.5% during the first quarter of fiscal 2009 as compared to 25.2% during the first quarter of fiscal 2008 primarily due to the lower gross margin related to the communications infrastructure project within our Asian operations.

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. Corporate gross profit includes certain freight costs and other miscellaneous charges.

Gross profit by segment and percent of segment sales during the first quarter of fiscal 2009 and 2008 were as follows (in thousands):

Gross Profit



                                             % of                     % of
                              FY 2009      Net Sales     FY 2008    Net Sales
              First Quarter
              RFPD            $ 20,906          21.6 %   $ 20,372        24.2 %
              EDG                7,629          30.5 %      8,412        32.2 %
              DSG                4,330          25.3 %      3,817        21.3 %
              Corporate           (146 )                       37

              Total           $ 32,719          23.5 %   $ 32,638        25.2 %

RF, Wireless & Power Division

RFPD net sales were $96.9 million during the first quarter of fiscal 2009, a $12.6 million increase, or 14.9%, from $84.3 million during the first quarter of fiscal 2008. The net sales increase was due primarily to an increase in sales of infrastructure, power conversion, network access, and passive/interconnect products. Infrastructure net sales increased 20.2% to $26.2 million during the first quarter of fiscal 2009 from $21.8 million during the first quarter of fiscal 2008. The net sales growth for infrastructure products was primarily in Asia/Pacific which was due primarily to the deployment of the next infrastructure build-out of the Time Division-Synchronous Code Division Multiple Access ("TD-SCDMA") project in China. Phase two of TD-SCDMA project was deployed during the first quarter of fiscal 2009 which is expected to be completed by the end of fiscal 2009, while phase one of the project occurred during fiscal 2007. Power conversion net sales increased 18.9% to $15.1 million during the first quarter of fiscal 2009 from $12.7 million during the first quarter of fiscal 2008. The growth in net sales of power conversion products during the first quarter fiscal 2009 was primarily in Asia/Pacific. Net sales of power conversion products in Asia/Pacific benefited from RFPD's penetration of the welding and steel manufacturing market with induction heating and power supply applications. Alternative energy application growth in Asia/Pacific also contributed to the increase in power conversion net sales. Network access net sales increased 12.4% to $36.2 million during the first quarter of fiscal 2009 from $32.2 million during the first quarter of fiscal 2008. Net sales for network access products increased in all four geographic regions during the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008. The increase in network access products was due primarily to the resolution of production issues with key suppliers during fiscal 2009. Passive/interconnect net sales increased 9.4% to $15.2 million during the first quarter of fiscal 2009 from $13.9 million during the first quarter of fiscal 2008. Net sales for passive/interconnect products increased primarily in Asia/Pacific, North America, and Europe. The net sales growth of passive/interconnect products in Asia/Pacific and Europe was due primarily to the expansion of a consumer wireless franchise. Gross margin as a percent of net sales declined to 21.6% during the first quarter of fiscal 2009 from 24.2% during the first quarter of fiscal 2008. The decline in gross margin as a percent of net sales was due primarily to the lower margins generated from the TD-SCDMA project in China.

Electron Device Group

EDG net sales were $25.1 million during the first quarter of fiscal 2009, a $1.0 million decrease, or 4.0%, from $26.1 million during the first quarter of fiscal 2008. The net sales decline was due primarily to a decline in semiconductor fabrication equipment products and tube sales, partially offset by an increase in passive components. Semiconductor fabrication equipment net sales declined 18.5% to $4.4 million during the first quarter of fiscal 2009 from $5.4 million during the first quarter of fiscal 2008. The semiconductor fabrication equipment industry has experienced an overall decline during the past couple of years. Net sales of tubes decreased 2.3% to $16.8 million during the first quarter of fiscal 2009 from $17.2 million during the first quarter of fiscal 2008. Net sales of tubes declined primarily in North America, which were partially offset by increases in Europe and Asia/Pacific. The decrease in net sales of tubes in North America was due primarily to the conversion from analog to digital television in the U.S which takes place in February 2009. Net sales of passive components increased 40.0% to $2.8 million during the first quarter of fiscal 2009 from $2.0 million during the first quarter of fiscal 2008. The increase in net sales of passive components was due primarily to increased

sales of vacuum capacitors in Asia/Pacific, Europe, and Latin America. Gross margin as a percent of sales decreased to 30.5% during the first quarter of fiscal 2009 as compared to 32.2% during the first quarter of fiscal 2008. The decline in gross margin for EDG was due primarily to a shift in product mix toward lower-margin products.

Display Systems Group

DSG net sales were $17.1 million during the first quarter of fiscal 2009, a $0.8 million decrease, or 4.3%, from $17.9 million during the first quarter of fiscal 2008. The net sales decline was due primarily to a decline in medical imaging products, partially offset by an increase in digital signage products. During the third quarter of fiscal 2008, DSG implemented a new business plan, part of which included exiting unprofitable market segments and the distribution of low margin branded products. As a result of this new business plan, short-term results of top line sales have been negatively impacted. We believe DSG's net sales will return to fiscal 2008 sales levels by the end of fiscal 2009. Due to a focus on profitable sales growth, gross margin improved to 25.3% during the first quarter of fiscal 2009 from 21.3% during the first quarter of fiscal 2008, which we believe will be a sustainable long-term improvement.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses ("SG&A") decreased during the first quarter of fiscal 2009 to $28.2 million from $30.0 million during the first quarter of fiscal 2008. The decrease in SG&A expense during the first quarter of fiscal 2009 was due primarily to a decline in consulting, employee-related, and facility expenses. SG&A as a percent of net sales declined to 20.3% of net sales during the first quarter of fiscal 2009 as compared with 23.1% of net sales during the first quarter of fiscal 2008.

Other (Income) Expense

Other (income) expense was $0.1 million of income during the first quarter of fiscal 2009 as compared to an expense of $2.7 million during the first quarter of fiscal 2008. The change to income from expense was due primarily to favorable changes in foreign currency exchange rates and a decrease in interest expense. Other (income) expense included a foreign exchange gain of $1.0 million during the first quarter of fiscal 2009 as compared to a foreign exchange loss of $0.4 million during the first quarter of fiscal 2008. Interest expense decreased to $1.2 million during the first quarter of fiscal 2009 as compared to $2.6 million during the first quarter of fiscal 2008. See Note 7 "Debt" of our unaudited condensed consolidated financial statements for additional discussion on interest expense.

Income Tax Provision

The effective income tax rate for the first quarter of fiscal 2009 was a provision of 19.1% as compared with a provision of 407.8% for the first quarter of fiscal 2008. The difference between the effective tax rates as compared to the U.S. federal statutory rate of 34% primarily results from our geographical distribution of taxable income or losses and valuation allowances related to net operating losses. For the first quarter of fiscal 2009, we realized a tax benefit related to the partial release of the valuation allowances related to net operating losses of $0.9 million. The tax provision includes $0.6 million related to prior years income tax of one of our foreign jurisdictions.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. We are no longer subject to either U.S. federal, state, or local tax examinations by tax authorities for years prior to fiscal year 2004. With few exceptions, we are no longer subject to non-U.S. income tax examinations by tax authorities for years prior to fiscal year 2002. Our primary foreign tax jurisdictions are the United Kingdom, Germany, Singapore, and the Netherlands. We have tax years open in Singapore beginning in fiscal year 2002; in Germany and the Netherlands beginning in fiscal year 2003; in the U.S. beginning in fiscal year 2004; and in the United Kingdom beginning in fiscal year 2006.

We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited condensed consolidated statement of operations. There were no significant changes to our penalties and interest relating to uncertain tax positions in the three months ended August 30, 2008.

It is reasonably possible that there will be a change in the unrecognized tax benefits in the range of $0 to approximately $1.3 million due to the expiration of various statutes of limitations within the next 12 months.

Net Income (Loss) and Per Share Data

Net income during the first quarter of fiscal 2009 was $3.7 million, or $0.20 per diluted common share and $0.18 per Class B diluted common share as compared with a net loss of $0.4 million during the first quarter of fiscal 2008, or $0.02 per diluted common share and $0.02 per Class B diluted common share.

LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

We have financed our growth and cash needs largely through income from operations, borrowings under the revolving credit facilities, issuance of convertible senior subordinated notes, and sale of assets. Liquidity is reduced by working capital requirements, debt service, capital expenditures, dividends, and business acquisitions. Liquidity is increased by proceeds from borrowings, disposition of businesses and assets, and improved working capital management.

Cash and cash equivalents were $37.1 million as of August 30, 2008, as compared to $40.0 million as of May 31, 2008.

Cash Flows from Operating Activities

Cash used in operating activities during the first quarter of fiscal 2009 was $1.0 million, due primarily to higher inventory balances and lower accrued liability balances, partially offset by higher accounts payable balances and lower accounts receivable balances. The increase in inventory balances of $7.6 million, excluding the impact of foreign currency exchange of $1.4 million, during the first quarter of fiscal 2009 was due primarily to purchases of inventory necessary to support higher-than-anticipated sales volume in future quarters. The decline in accrued liability balances of $1.7 million, excluding the impact of foreign currency exchange of $0.3 million, during the first quarter of fiscal 2009 was due primarily to the timing of accrued interest payments on long-term debt. The increase in accounts payable balances of $3.8 million, excluding the impact of foreign currency exchange of $0.7 million, during the first quarter of fiscal 2009 was due primarily to negotiating favorable payment terms with many of our vendors. The decline in account receivable balances of $1.2 million, excluding the impact of foreign currency of $2.6 million, during the first quarter of fiscal 2009 was due primarily to improved cash collections related to past due balances.

Cash provided by operating activities during the first quarter of fiscal 2008 was $5.9 million due primarily to lower accounts receivables balances and higher accounts payable balances, partially offset by higher inventory balances and lower accrued liability balances. The decline in the accounts receivable balance of $8.9 million, excluding the impact of foreign currency exchange of $0.6 million, during the first quarter of fiscal 2008 was due primarily a decline in sales volume. The increase in the accounts payable balance of $8.7 million, excluding the impact of foreign currency exchange of $0.1 million, during the first quarter of fiscal 2008 was due primarily to the timing of payments related to inventory purchases. The increase in inventory balances of $6.6 million, excluding the impact of foreign exchange of $1.2 million, was due primarily a decline in sales volume during the first quarter of fiscal 2008. The decline in accrued liabilities of $5.8 million, excluding the impact of foreign currency exchange of $0.2 million, during the first quarter of fiscal 2008 was due primarily to the timing of accrued interest payments on long-term debt, the timing of payments on accrued payroll related items, and payment of accrued transaction expenses related to the SSD/Burtek sale.

Cash Flows from Investing Activities

Net cash used in investing activities of $0.2 million during the first quarter of fiscal 2009 was due primarily to capital expenditures of $0.1 million and contingent purchase price payments of $0.1 million.

Net cash used in investing activities of $1.5 million during the first quarter of fiscal 2008 was due primarily to capital expenditures for information technology projects.

Cash Flows from Financing Activities

Net cash used in financing activities of $0.3 million and $0.2 million during
the first quarter of fiscal 2009 and 2008, respectively, are summarized in the
following table (in thousands):



                                                                 Three Months Ended
                                                          August 30,           September 1,
                                                             2008                  2007
Net debt borrowings on revolving credit agreement        $         -          $        4,200
Net debt payments on multi-currency revolving
credit agreement ("credit agreement")                              -                 (65,711 )
Use of restricted cash to pay down credit agreement                -                  61,899
Cash dividends paid                                              (352 )                 (702 )
Other                                                               5                    140

Cash used in financing activities                        $       (347 )       $         (174 )

As of August 30, 2008, we maintained $55.7 million in long-term debt in the form of two series of convertible notes. We entered into a revolving credit agreement on July 27, 2007, which included a Euro sub-facility of $15.0 million and a Singapore sub-facility of $5.0 million. Pursuant to an amendment to the revolving credit agreement entered into on February 29, 2008, the Euro sub-facility and Singapore sub-facility individual limits were increased to $20.0 million each; however, the total amount of the combined Euro sub-facility and Singapore sub-facility is limited to $25.0 million. The U.S. facility is reduced if amounts drawn on the Euro sub-facility and Singapore sub-facility exceed $20.0 million, maintaining a total capacity of $40.0 million on the revolving credit agreement. This revolving credit agreement expires in July 2010 and bears interest at applicable LIBOR, SIBOR, or prime rates plus a margin varying with certain quarterly borrowings under the revolving credit agreement. This revolving credit agreement is secured by a lien on our U.S. assets and also contains a financial covenant requiring us to maintain a leverage ratio of less than 2.0 to 1.0. Pursuant to an amendment to the revolving credit agreement entered into on November 29, 2007, the leverage ratio was increased to 3.0 to 1.0 for the fiscal quarters ended December 1, 2007, and March 1, 2008. The commitment fee related to the revolving credit agreement is 0.25% per annum payable quarterly on the average daily unused portion of the aggregate commitment. As of August 30, 2008, there were no amounts outstanding under the revolving credit agreement. Outstanding letters of credit were approximately $0.1 million and we also had $1.1 million reserved for usage on our commercial credit card program, leaving an unused line of $38.8 million as of August 30, 2008. Based on our loan covenants, actual available credit as of August 30, 2008, was $40.0 million.

Pursuant to an amendment to the revolving credit agreement entered into on July 29, 2008, the definition of the leverage ratio has been modified to exclude the goodwill impairment charge in the calculation of adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), for the fiscal year ended May 31, 2008. We were in compliance with our loan covenants as of May 31, 2008, without this amendment to our revolving credit agreement.

We believe that the existing sources of liquidity, including current cash, as well as cash provided by operating activities, supplemented as necessary with funds available under credit arrangements, will provide sufficient resources to meet known capital requirements and working capital needs for the fiscal year ending May 30, 2009.