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 Operations - an analysis and comparison of our consolidated results of operations for the three month period ended August 29, 2009, and August 30, 2008, as reflected in our unaudited condensed consolidated statements of operations and comprehensive income (loss).

• Liquidity, Financial Position, and Capital Resources - a discussion of our primary sources and uses of cash for the three month period ended August 29, 2009, and August 30, 2008, and a discussion of selected changes in our financial position.

BUSINESS OVERVIEW

Richardson Electronics, Ltd. ("we", "us", "our", and "the Company") 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, our strategy is to provide specialized technical expertise and value-add, or "engineered solutions." 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 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, 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.

Canvys 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.

RESULTS OF OPERATIONS

Overview - Three Months Ended August 29, 2009

• Net sales for the first quarter of fiscal 2010 were $109.5 million, down 21.2%, compared to net sales of $138.9 million during the first quarter of last year.

• Gross margin as a percent of net sales increased to 24.2% during the first quarter of fiscal 2010, compared to 23.5% during the first quarter of last year.

• SG&A expenses decreased to $22.9 million during the first quarter of fiscal 2010, compared to $28.2 million during the first quarter of last year.

• Operating income during the first quarter of fiscal 2010 was $3.5 million, compared to operating income of $4.5 million during the first quarter of last year.

• Net income during the first quarter of fiscal 2010 was $1.9 million versus net income of $3.7 million during the first quarter of last year.

Net Sales and Gross Profit Analysis

During the first quarter of fiscal 2010, consolidated net sales decreased 21.2%
as all three segments experienced a net sales decline compared to prior year.

Net sales by segment and percent change during the first quarter of fiscal 2010
and 2009 were as follows (in thousands):



                 Net Sales        FY 2010     FY 2009       % Change
                 First Quarter
                 RFPD            $  79,478   $  96,872         (18.0 )%
                 EDG                18,796      25,051         (25.0 )%
                 Canvys             11,218      17,113         (34.4 )%
                 Corporate              -          (89 )

                 Total           $ 109,492   $ 138,947         (21.2 )%

Consolidated gross profit decreased during the first quarter of fiscal 2010 as compared to the first quarter of fiscal 2009, due primarily to the decline in net sales. Consolidated gross margin as a percentage of net sales increased to 24.2% during the first quarter of fiscal 2010, as compared to 23.5% during the first quarter of fiscal 2009, due primarily to a shift in sales mix between product lines and geographic regions, partially offset by sales within our higher-margin businesses, specifically EDG and Canvys, declining at a faster rate than sales for RFPD.

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 net sales during the first quarter of fiscal 2010 and 2009 were as follows (in thousands):

                                         % of                         % of
            Gross Profit    FY 2010    Net Sales      FY 2009       Net Sales
            First Quarter
            RFPD            $ 17,402        21.9 %    $ 20,906           21.6 %
            EDG                6,267        33.3 %       7,629           30.5 %
            Canvys             2,800        25.0 %       4,330           25.3 %
            Corporate             -                       (146 )

            Total           $ 26,469        24.2 %    $ 32,719           23.5 %

RF, Wireless & Power Division

RFPD net sales decreased 18.0% to $79.5 million during the first quarter of fiscal 2010, from $96.9 million during the first quarter of fiscal 2009. The decline in net sales included most product lines including power conversion, network access, passive/interconnect, and infrastructure products. Net sales also continue to be negatively impacted with declining demands reflecting the weak global economy. Gross margin as a percent of net sales increased slightly to 21.9% during the first quarter of fiscal 2010 from 21.6% during the first quarter of fiscal 2009.

Electron Device Group

EDG net sales decreased 25.0% to $18.8 million during the first quarter of fiscal 2010, from $25.1 million during the first quarter of fiscal 2009, due primarily to a decline in semiconductor fabrication equipment products and tube sales. The semiconductor fabrication equipment industry continues to experience an overall decline. In addition, net sales continue to be negatively impacted

with declining demands reflecting the weak global economy. Tubes declined in North America during the first quarter of fiscal 2010 as compared to the first quarter of fiscal 2009. Gross margin as a percent of net sales increased to 33.3% during the first quarter of fiscal 2010, as compared to 30.5% during the first quarter of fiscal 2009, due primarily to a shift in sales mix between product lines and geographic regions.

Canvys

Canvys net sales decreased 34.4% to $11.2 million during the first quarter of fiscal 2010, from $17.1 million during the first quarter of fiscal 2009. Canvys net sales declined due to capital spending project delays within the healthcare and medical OEM sectors. Gross margin decreased slightly to 25.0% during the first quarter of fiscal 2010 from 25.3% during the first quarter of fiscal 2009.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses ("SG&A") decreased $5.3 million during the first quarter of fiscal 2010 to $22.9 million, from $28.2 million during the first quarter of fiscal 2009. The decrease in SG&A expense during the first quarter of fiscal 2010 reflects our ongoing cost reduction initiatives including headcount reductions, significant reductions in discretionary spending, and re-negotiating contracts.

Other (Income) Expense

Other (income) expense was $1.9 million of expense during the first quarter of fiscal 2010 as compared to $0.1 million of income during the first quarter of fiscal 2009. The change to expense from income during the first quarter of fiscal 2010 was due primarily to unfavorable changes in foreign currency exchange rates. Other (income) expense included a foreign exchange loss of $0.8 million during the first quarter of fiscal 2010 as compared to a foreign exchange gain of $1.0 million during the first quarter of fiscal 2009.

Income Tax Provision

The effective income tax rate for the first quarter of fiscal 2010 was a tax benefit of 19.3%, as compared to a tax provision of 19.1% for the first quarter of fiscal 2009.

For the first quarter of fiscal 2010, the difference between the effective tax rate as compared to the U.S. federal statutory rate of 34% results from our geographical distribution of taxable income or losses, a benefit of $0.4 million related to prior year's income tax of one of our foreign jurisdictions, and a benefit from the release of approximately $0.5 million of reserves due to expiring statute of limitations.

For the first quarter of fiscal 2009, the primary differences between the effective tax rates as compared to the U.S. federal statutory rate of 34% were from our geographical distribution of taxable income or losses, valuation allowances related to net operating losses, the tax benefit realized by the partial release of the valuation allowances related to net operating losses of $0.9 million and a tax provision of $0.6 million related to prior year's 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 China, Japan, Germany, Singapore, and the Netherlands. We have tax years open in Singapore beginning in fiscal year 2002; in the Netherlands, Germany and Japan beginning in fiscal year 2004; and in China beginning in fiscal year 2006.

As of August 29, 2009, our worldwide liability for uncertain tax positions, excluding interest and penalties, was $4.1 million as compared to $4.3 million as of May 30, 2009. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited condensed consolidated statements of operations and comprehensive income (loss). The net liability for uncertain tax positions decreased in the three months ended August 29, 2009, primarily due to the expiration of certain statutes of limitation.

It is reasonably possible that there will be a change in the unrecognized tax benefits, excluding interest and penalties, in the range of $0 to approximately $0.8 million due to the expiration of various statutes of limitations within the next 12 months.

Net Income and Per Share Data

Net income during the first quarter of fiscal 2010 was $1.9 million, or $0.11 per diluted common share and $0.10 per Class B diluted common share as compared to net income of $3.7 million during the first quarter of fiscal 2009, or $0.20 per diluted common share and $0.18 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 $41.8 million as of August 29, 2009, as compared to $43.9 million as of May 30, 2009.

Cash Flows from Operating Activities

Cash used in operating activities during the first quarter of fiscal 2010 was $2.2 million, due primarily to lower accounts payable and higher inventory balances, partially offset by lower accounts receivable balances. The decline in accounts payable balances of $7.7 million, excluding the impact of foreign currency exchange of $0.2 million, during the first quarter of fiscal 2010 was due primarily to the timing of payments. The increase in inventory of $1.8 million, excluding the impact of foreign currency exchange of $0.6 million, during the first quarter of fiscal 2010 was due primarily to investments in inventory for anticipated sales in future quarters. The decline in accounts receivable balances of $5.8 million, excluding the impact of foreign currency exchange of $1.0 million, during the first quarter of fiscal 2010 was due primarily to accelerated cash collection efforts.

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 accelerated cash collections related to past due balances.

Cash Flows from Investing Activities

Net cash used in investing activities was $0.3 million and $0.2 million during the first quarter of fiscal 2010 and 2009, respectively, was due primarily to capital expenditures.

Cash Flows from Financing Activities

Net cash used in financing activities of $0.3 million during the first quarter of fiscal 2010 and 2009 was due to cash dividends paid.

As of August 29, 2009, we maintained $52.4 million in long-term debt in the form of two series of convertible notes.

We entered into a $40.0 million revolving credit agreement on July 27, 2007, which included a Euro sub-facility and a Singapore sub-facility. The U.S. facility is reduced by the amounts drawn on the Euro sub-facility and Singapore sub-facility. Pursuant to an amendment to the revolving credit agreement entered into on July 20, 2009, the total capacity was reduced from $40.0 million to $25.0 million. As of August 29, 2009, there were no amounts outstanding under the revolving credit agreement. Outstanding letters of credit were approximately $0.1 million and we also had $2.5 million reserved for usage on our commercial credit card program, leaving an unused line of $22.4 million as of August 29, 2009. Based on our loan covenants, actual available credit as of August 29, 2009, was $22.4 million. We were in compliance with our loan covenants as of August 29, 2009.

Pursuant to an amendment to the revolving credit agreement entered into on July 20, 2009, the definition of the leverage ratio has been modified to exclude goodwill impairment charges, severance expense, and inventory write-downs in the calculation of adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"), for the fiscal year ended May 30, 2009. We were in compliance with our loan covenants as of May 30, 2009, 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 our credit arrangements, will provide sufficient resources to meet known capital requirements and working capital needs for the fiscal year ending May 29, 2010.