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 filed on July 27, 2012, and in the Company's Proxy Statement on Schedule 14A filed on August 30, 2012. 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 unaudited 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 periods ended September 1, 2012, and September 3, 2011, as reflected in our unaudited consolidated statements of comprehensive income.

• Liquidity, Financial Position, and Capital Resources - a discussion of our primary sources and uses of cash for the three month periods ended September 1, 2012, and September 3, 2011, and a discussion of changes in our financial position.

BUSINESS OVERVIEW

Richardson Electronics, Ltd. ("we", "us", "the Company", and "our") is incorporated in the state of Delaware. We are a leading global provider of engineered solutions, power grid and microwave tubes and related components, and customized display solutions, serving customers in the alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. Our strategy is to provide specialized technical expertise and "engineered solutions" based on our core engineering and manufacturing capabilities. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair.

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 used as display devices in a variety of industrial, commercial, medical, and communication applications.

On March 1, 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of, our RF, Wireless and Power Division ("RFPD"), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. ("Arrow") in exchange for $238.8 million, which included an estimated pre-closing working capital adjustment of approximately $27.0 million ("the Transaction.") During the fourth quarter of fiscal 2011, we recorded a working capital adjustment of $4.2 million in our results from discontinued operations. During the second quarter of fiscal 2012, we paid Arrow $3.9 million to settle the agreed upon working capital adjustment.

On September 5, 2011, we acquired the assets of Powerlink Specialist Electronics Support Limited ("Powerlink") for approximately $2.3 million, including a working capital adjustment of $0.2 million related to payables of approximately $0.2 million that were paid by Powerlink prior to the close. Powerlink, a UK-based technical service company with locations in London and Dubai, services traveling wave tube ("TWT") amplifiers and related equipment for the Satellite Communications market throughout Europe and the Middle East. This acquisition positions us to provide cost-effective service of microwave and power grid tube equipment for communications, industrial, military, and medical users around the world.

On September 4, 2012, we acquired the assets of D and C Import-Export, Inc. ("D and C") for approximately $2.6 million. D and C, a Florida-based distributor of power grid tubes and associated RF components, services the commercial, broadcast, medical, industrial, scientific, and military markets. This acquisition provides us with access to additional product lines, vendors, and customers.

We have two operating segments, which we define as follows:

Electron Device Group ("EDG") provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. EDG 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. EDG also offers its customers technical services for both microwave and industrial equipment.

Canvys provides global customized display solutions serving the corporate enterprise, financial, healthcare, industrial, and medical original equipment manufacturer ("OEM") markets.

We currently have operations in the following major geographic regions:

• North America;

• Asia/Pacific;

• Europe; and

• Latin America.

RESULTS OF CONTINUING OPERATIONS

FINANCIAL SUMMARY - THREE MONTHS ENDED SEPTEMBER 1, 2012

• Net sales for the first quarter of fiscal 2013 were $35.7 million, down 14.1%, compared to net sales of $41.5 million during the first quarter of last year.

• Gross margin as a percentage of net sales decreased to 29.9% during the first quarter of fiscal 2013 compared to 30.6% during the first quarter of last year.

• SG&A expenses during the first quarter of fiscal 2013 were $10.2 million, or 28.5% of net sales, compared to $10.8 million, or 25.9% of net sales, during the first quarter of last year.

• Operating income during the first quarter of fiscal 2013 was $0.5 million, or 1.4% of net sales, compared to operating income of $2.0 million, or 4.8% of net sales, during the first quarter of last year.

• Loss from discontinued operations, net of tax, was $0.1 million, during the first quarter of fiscal 2013 compared to income from discontinued operations, net of tax, of $2.6 million, or $0.15 per diluted common share, during the first quarter of last year.

• Net income during the first quarter of fiscal 2013 was $0.6 million, or $0.04 per diluted common share, compared to net income of $3.6 million, or $0.21 per diluted common share, during the first quarter of last year.

Net Sales and Gross Profit Analysis

During the first quarter of fiscal 2013, consolidated net sales decreased 14.1% to $35.7 million, compared to $41.5 million during the first quarter of fiscal 2012.

Net sales by segment and percent change during the first quarter of fiscal 2013 and 2012 were as follows (in thousands):

Net Sales



                                  FY 2013      FY 2012       % Change
                  First Quarter
                  EDG             $ 25,627     $ 30,729          (16.6 %)
                  Canvys            10,023       10,782           (7.0 %)

                  Total           $ 35,650     $ 41,511          (14.1 %)

Consolidated gross profit as a percentage of net sales decreased to 29.9% during the first quarter of fiscal 2013, as compared to 30.6% during the first quarter of fiscal 2012.

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.

Gross profit by segment and percent of segment net sales during the first quarter of fiscal 2013 and 2012 were as follows (in thousands):

Gross Profit



                                           % of                          % of
                           FY 2013       Net Sales       FY 2012       Net Sales
           First Quarter
           EDG             $  8,000            31.2 %    $  9,671            31.5 %
           Canvys             2,646            26.4 %       3,031            28.1 %

           Total           $ 10,646            29.9 %    $ 12,702            30.6 %

Electron Device Group

Net sales for EDG decreased 16.6% to $25.6 million during the first quarter of fiscal 2013, from $30.7 million during the first quarter of fiscal 2012. Net sales of tubes decreased to $20.4 million during the first quarter of fiscal 2013, as compared to $25.2 million during the first quarter of fiscal 2012, due primarily to a weaker demand in the marine and semiconductor fabrication markets. Gross margin as a percentage of net sales decreased slightly to 31.2% during the first quarter of fiscal 2013, as compared to 31.5% during the first quarter of fiscal 2012. The overall decrease in gross margin primarily reflects the sales mix between Original Equipment Manufacturers ("OEMs") and aftermarket customers as well as geographical sales mix.

Net sales for EDG increased 11.8% to $30.7 million during the first quarter of fiscal 2012, from $27.5 million during the first quarter of fiscal 2011. The increase in net sales is primarily due to sales growth for our industrial tube products, due to a strategic distribution agreement, and an increase in demand for our products that support the semiconductor fabrication market. Net sales of tubes increased to $25.2 million during the first quarter of fiscal 2012, as compared to $23.7 million during the first quarter of fiscal 2011, due primarily to increases in the textile markets. Net sales of continuous wave magnetrons and related assemblies sold primarily into the semiconductor fabrication market increased to $2.6 million during the first quarter of fiscal 2012, as compared to $1.6 million during the first quarter of fiscal 2011. Gross margin as a percentage of net sales decreased to 31.5% during the first quarter of fiscal 2012, as compared to 32.9% during the first quarter of fiscal 2011. The overall decrease in gross margin primarily reflects the sales mix between Original Equipment Manufacturers ("OEMs") and aftermarket customers as well as geographical sales mix.

Canvys

Canvys net sales decreased 7.0% to $10.0 million during the first quarter of fiscal 2013, from $10.8 million during the first quarter of fiscal 2012. Sales increased in the North America Custom OEM and Healthcare segments, while sales in Europe were down due to the continuing effect of the economic crisis on German exports. Gross margin as a percentage of net sales decreased to 26.4% during the first quarter of fiscal 2013 as compared to 28.1% during the first quarter of fiscal 2012, due primarily to lower margin in Europe associated with customer mix and currency exchange.

Canvys net sales increased 7.6% to $10.8 million during the first quarter of fiscal 2012, from $10.0 million during the first quarter of fiscal 2011. Sales increased in the North America OEMs market and Europe. Healthcare revenues were down. Gross margin as a percentage of net sales increased to 28.1% during the first quarter of fiscal 2012 as compared to 23.3% during the first quarter of fiscal 2011, due primarily to continued growth and focus on the more profitable OEM business in both North America and Europe, in addition to a decline in inbound freight costs during the first quarter of fiscal 2012, as compared to the first quarter of fiscal 2011.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses ("SG&A") decreased during the first quarter of fiscal 2013 to $10.1 million from $10.8 million during the first quarter of fiscal 2012. The $0.7 million decrease includes a $0.3 million reduction of SG&A for Canvys and a $0.4 million reduction of total company support function costs. The decrease of $0.3 million within Canvys was due primarily to a reduction in bad debt expense. The decrease of $0.4 million in support functions was due primarily to headcount reductions, offset slightly by increases in professional services. SG&A for EDG was $3.9 million for both the first quarters of fiscal 2013 and fiscal 2012.

SG&A increased slightly during the first quarter of fiscal 2012 to $10.8 million from $10.5 million during the first quarter of fiscal 2011. The $0.3 million increase includes a $0.5 million increase in EDG, a $0.2 million increase in Canvys, offset by a decrease of $0.4 million in support functions and other administrative expenses. The increase of $0.5 million within EDG was due primarily to increases in employee costs related to additional headcount and facility costs. The increase of $0.2 million in Canvys was due primarily to increases in bad debt expense. The decrease in support functions and other administrative costs was due primarily to headcount reductions.

Other (Income) Expense

Other (income) expense was $0.4 million of income during the first quarter of fiscal 2013, as compared to $0.4 million of expense during the first quarter of fiscal 2012. Other (income) expense included a foreign exchange gain of less than $0.1 million during the first quarter of fiscal 2013, as compared to a foreign exchange loss of $0.8 million during the first quarter of fiscal 2012. Our foreign exchange gains and losses are primarily due to the translation of our U.S. dollars we hold in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency. The first quarter of fiscal 2013 and fiscal 2012 also included $0.4 million of investment/interest income.

Income Tax Provision

The effective income tax rate from continuing operations during the first quarter of fiscal 2013 was 22.2% as compared to 35.8% for the first quarter of fiscal 2012. The decrease in the rate during the first quarter of fiscal 2013, as compared to fiscal 2012, was due to the change in U.S. tax liability on forecasted cash available to distribute in foreign jurisdictions with respect to ASC 740-30, Income Taxes - Other Considerations or Special Areas ("ASC 740"). The effective rate as compared to the U.S. federal statutory rate of 34.0% resulted from our geographical distribution of taxable income or losses, apportionment of income to various states, in addition to our position with respect to ASC 740.

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, or non-U.S. tax examinations by tax authorities for years prior to fiscal 2004. Currently, we are under federal audit in the U.S. for fiscal years 2009, 2010, and 2011. Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany and the Netherlands beginning in fiscal 2007.

As of September 1, 2012, $35.0 million of cumulative positive earnings of certain of our foreign subsidiaries are still considered permanently reinvested pursuant to ASC 740. It is not practical to determine what, if any, tax liability might exist if such earnings were to be repatriated.

As of September 1, 2012, our worldwide liability for uncertain tax positions related to continuing operations, excluding interest and penalties, was $0.4 million as compared to $0.5 million as of June 2, 2012. We record penalties and interest relating to uncertain tax positions in the income tax expense line item within the unaudited consolidated statements of comprehensive income.

It is reasonably possible that there will be a change in the unrecognized tax benefits related to continuing operations, excluding interest and penalties, of less than $0.1 million due to the expiration of various statutes of limitations within the next 12 months.

Discontinued Operations

Arrow Transaction

On March 1, 2011, we completed the sale of the assets primarily used or held for use in, and certain liabilities of, our RF, Wireless and Power Division ("RFPD"), as well as certain other Company assets, including our information technology assets, to Arrow Electronics, Inc. ("Arrow") in exchange for $238.8 million, which included an estimated pre-closing working capital adjustment of approximately $27.0 million ("the Transaction.") During the fourth quarter of fiscal 2011, we recorded a working capital adjustment of $4.2 million in our results from discontinued operations. During the second quarter of fiscal 2012, we paid Arrow $3.9 million to settle the agreed upon working capital adjustment.

Financial Summary - Discontinued Operations

Summary financial results for the three months ended September 1, 2012, and
September 3, 2011, are presented in the following table (in thousands):



                                                                  Three Months
                                                      Sept 1, 2012            Sept 3, 2011
Net sales                                             $         221          $          875
Gross profit (loss)                                             (93 )                  (109 )
Selling, general, and administrative expenses                    65                    (317 )
Additonal gain on sale                                           -                     (266 )
Income tax benefit                                              (71 )                (2,128 )
Income (loss) from discontinued operations, net
of tax                                                $         (87 )        $        2,602

Net sales and gross profit (loss) for the three months ended September 1, 2012, reflect our financial results relating to the Manufacturing Agreement with Arrow that we entered into in connection with the Transaction. Pursuant to the three-year agreement, we agreed to continue to manufacture certain RFPD products for Arrow. During the first quarter ended September 3, 2011, in connection with an examination by the Internal Revenue Service, we reduced our deferred tax liability by $2.1 million related to our un-repatriated foreign earnings based on a determination of the earnings and profits that would remain in certain foreign subsidiaries after the Arrow transaction.

Assets and liabilities classified as discontinued operations on our unaudited consolidated balance sheets as of September 1, 2012, and June 2, 2012, include the following (in thousands):

                                               Sept 1, 2012       Jun 2, 2012
        Inventories                            $         358     $         503
        Prepaid expenses and other assets                 -                 11

        Discontinued operations-Assets         $         358     $         514

        Accrued liabilities-current (1)        $         178     $         253
        Long-term income tax liabilities (2)           1,380             1,361

        Discontinued operations-Liabilities    $       1,558     $       1,614

(1) Included in accrued liabilities as of September 1, 2012, is a payable to Arrow for transition services of $1.3 million, $0.1 million of other accrued liabilities, offset by a receivable due to us from Arrow for transition services of $1.2 million.

(2) Included in long-term income tax liabilites as of September 1, 2012, is the reserve for uncertain tax positions.

In accordance with ASC 230, Statement of Cash Flows, entities are permitted but not required to separately disclose, either in the statement of cash flows or footnotes to the financial statements, cash flows pertaining to discontinued operations. Entities that do not present separate operating cash flows information related to discontinued operations must do so consistently for all periods presented, which may include periods long after the sale or liquidation of the operation. Cash flows related to our discontinued operations are not material.

Net Income and Per Share Data

Net income during the first quarter of fiscal 2013 was $0.6 million, or $0.04 per diluted common share and $0.04 per Class B diluted common share, as compared to net income of $3.6 million during the first quarter of fiscal 2012, or $0.21 per diluted common share and $0.19 per Class B diluted common share.

LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES

Our growth and cash needs have been primarily financed through income from operations. Cash and cash equivalents for the first quarter ended September 1, 2012, were $41.2 million. In addition, time deposits and CD's classified as short-term investments were $98.7 million and long-term investments were $11.0 million, including equity investments of $0.4 million. Cash and investments at September 1, 2012, consisted of $92.5 million in North America, $17.7 million in Europe, $1.1 million in Latin America, and $39.2 million in Asia/Pacific. At June 2, 2012, cash and cash equivalents were $43.9 million. Time deposits and CD's classified as short-term investments were $105.0 million and long-term investments were $10.7 million, including equity investments of $0.4 million. Cash and investments at June 2, 2012, consisted of $94.3 million in North America, $20.7 million in Europe, $0.7 million in Latin America, and $43.5 million in Asia/Pacific.

Cash Flows from Discontinued Operations

In accordance with ASC 230, Statement of Cash Flows, entities are permitted but not required to separately disclose, either in the statement of cash flows or footnotes to the financial statements, cash flows pertaining to discontinued operations. Entities that do not present separate operating cash flows information related to discontinued operations must do so consistently for all periods presented, which may include periods long after the sale or liquidation of the operation. Cash flows related to our discontinued operations are not material.

Cash Flows from Operating Activities

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

Operating activities, which include our discontinued operations, used $3.3 million of cash during the first three months of fiscal 2013. We had net income of $0.6 million in the first three months of fiscal 2013, which included non-cash stock-based compensation expense of $0.1 million associated with the issuance of stock option awards primarily to our directors and officers and non-cash depreciation and amortization expense of $0.3 million associated with our investments in property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $4.4 million of cash during the first three months of fiscal 2013, due primarily to decreases in our operating liabilities, including accounts payable and accrued liabilities, and increases in our operating assets including prepaid expenses, inventories, and receivables. The decrease in accounts payable of $1.4 million was due primarily to the timing of vendor payments. The decrease in accrued liabilities of $1.0 million, excluding the impact of foreign currency exchange of $0.1 million, was due primarily to a reduction in employee related compensation accruals. The increase in prepaid expenses of $0.6 million was due primarily to $0.4 million of cash used to renew our liability insurance coverage and $0.2 million of cash used for computer support services. The increase in inventories of $0.6 million, excluding the impact of foreign currency exchange of $0.1 million, was due primarily to increased purchasing to support expected future sales growth. The increase in receivables of $0.6 million, excluding the impact of foreign currency exchange of $0.2 million, was due primarily to the timing of customer payments.

Operating activities, which include our discontinued operations, used $47.6 million of cash during the first three months of fiscal 2012. We had net income of $3.6 million in the first three months of fiscal 2012, which included non-cash stock-based compensation expense of $0.2 million associated with the issuance of stock option awards to our directors and officers and non-cash depreciation expense of $0.3 million associated with our investments in property and equipment. Changes in our operating assets and liabilities used $51.4 million of cash during the first three months of fiscal 2012, due primarily to decreases in our operating liabilities, including accounts payable, accrued liabilities, and long-term income tax liabilities, as well as increases in our operating assets including prepaid expenses, inventories, and income tax receivable. The decrease in accounts payable of $2.6 million, excluding the impact of foreign currency exchange of $0.1 million, was due primarily to the timing of vendor payments. The decrease in accrued liabilities of $33.6 million, excluding the impact of foreign currency exchange of $0.1 million, was due primarily to $33.9 million of cash used for our tax payment related to the sale of RFPD. The decrease in long-term income tax liabilities of $11.4 million was . . .