PART I

Richardson Electronics, Ltd. is a specialized global provider of engineered solutions serving the RF and wireless communications, industrial power conversion, security and display systems markets. The Company provides "engineered solutions" to its customers through product manufacturing, systems integration, prototype design and assembly, testing and logistics. The Company's products include radio frequency ("RF") and microwave components, power semiconductors, electron tubes, microwave generators, data display monitors and electronic security products and systems. These products are used to control, switch or amplify electrical power or signals, or as display, recording or alarm devices in a variety of industrial, communication, and security applications.

The Company's objective is to be the preeminent international supplier of niche electronic components to industrial and commercial users. To fulfill this objective, the Company employs the following basic strategies:

Capitalize on Engineering and Manufacturing Expertise. Richardson believes that its success is largely attributable to its core engineering and manufacturing competency and skill in identifying cost competitive solutions for its customers. Historically, the Company's primary business was the distribution and manufacture of electron tubes and it continues to be a major supplier of these products. The Company has small-scale manufacturing and prototype capabilities supported by engineering and manufacturing expertise. Richardson uses this expertise to identify engineered solutions for customers' applications, not only in electron tube technology but also in each product area in which it specializes. Approximately 50% of the Company's sales are derived from products the Company designed-in, engineered, modified, manufactured, tested, or sold under its own brand names.

Specialize in Selected Niche Markets. The Company specializes in selected niche markets that demand technical service and where price is not the primary competitive factor. Richardson seldom competes against commodity distributors. In many parts of its business, the Company's principal competitors are not other distributors but rather original equipment manufacturers ("OEMs"). The Company offers engineered solutions to its customers including the design, manufacturing and/or electrical or mechanical modification and distribution of approximately 80,000 products ranging in price from $1 to $100,000 each. The Company estimates that over 50% of its sales are attributable to products intended for replacement and repair applications, in contrast to use as components in new original equipment.

Leverage Customer Base. The Company strives to grow by offering new products to its existing customer base. The Company has followed the migration of its customers from electron tubes to newer technologies, primarily semiconductors. Sales of products other than electron tubes represented 81.3% of sales in the year ended May 31, 2002, compared to 56.9 % five years ago.

Maintain Superior Customer Service. The Company maintains more than 300,000 part numbers in its inventory database. More than 80% of all orders received by 6:00 p.m. are shipped complete the same day.

Provide Global Service. Richardson has kept pace with the globalization of the electronics industry and addresses the growing demands in lesser developed countries for modern business and industrial equipment, related parts, service and technical assistance. Today, the Company's operations are worldwide in scope through 69 sales offices, including 47 located outside of the United States. The Company has offices in 25 countries and authorized representatives in an additional 21 countries. In fiscal 2002, 54.1% of sales were to customers based outside of the United States. As Richardson continues to extend its geographic reach, the Company works with its vendors to include new geographies in its franchise agreements. In addition, Richardson's global presence is a competitive advantage and growth opportunity since many of its multinational customers prefer local support.

Maintain State-of-the-Art Information Systems. Through a global information systems network, all offices have real-time access to the Company's database including customer information, product cross-referencing, market analysis, stock availability and quotation activity. Customers have on-line access to product information and purchasing capability via Richardson's web site, www.rell.com and catalog at catalog.rell.com The Company offers electronic data interchange (EDI) to those customers requiring this service. All systems are available on a 24 hours a day, seven days a week schedule ("24/7"). The Company is committed to continually improve its technology, simultaneously improving efficiencies in asset utilization and reducing operating expenses as a percent of sales.

In fiscal 2002, the marketing, sales, product management and purchasing functions of Richardson were organized as strategic business units serving specific markets: RF & Wireless Communication Group (RFWC), Industrial Power Group (IPG), Medical Systems Group (MSG), Security Systems Division (SSD) and Display Systems Group (DSG).

The Company sold its Medical Glassware (Glassware) business on February 22, 2002. The Glassware business represented about half of the Company's MSG revenues with medical monitors and associated display products making up the majority of the balance. The retained medical monitor business is included in the Display Systems Group. Fiscal 2001 and 2000 data has been reclassified to conform to the current presentation.

Common logistics, information systems, finance, legal, human resources and general administrative functions support the entire organization. These support organizations are highly centralized with most corporate functions located at the Company’s administrative headquarters and principal stocking facility in LaFox, Illinois.

RF & Wireless Communications Group (RFWC)

The RF & Wireless Communications Group serves the global RF and wireless communications market and the radio and television broadcast industry, predominately for infrastructure applications. Our product and sales team of RF and wireless engineers and global design centers assists our customers with circuit design, selecting cost effective components, planning reliable and timely supply, prototype testing and assembly.

Long term growth in wireless applications is likely as the demand for all types of wireless communication gains in popularity worldwide. In addition to voice communication, the demand for high-speed data transmission will require major investments in both system upgrades and new systems to handle broader bandwidth.

Richardson supports these growth opportunities by becoming associated with many of the key RF and wireless component manufacturers. A key to our success in relationships with our existing vendors, and our success in attracting new vendors, is the visibility we give them to worldwide demand for their current products and products in development. Richardson's global information system includes programs that our sales force employ to forecast product demand by potential design opportunity based on dialog with our customers. This information is shared with our manufacturing suppliers to help them predict near and long-term demand and product life cycles. Richardson has global distribution agreements with such leading semiconductor suppliers as ANADIGICS, Anaren/RF Power Components, Ericsson, M/A-COM, Motorola, QMI/Tensolite, Sirenza Microdevices, and WJ Communications. In addition, Richardson has relationships with many niche RF and wireless suppliers to form the most comprehensive RF and wireless resource in the industry.

The following is a description of RFWC's major product groups:

• RF and Microwave Devices - a wide variety of components, such as mixers, switches, amplifiers, oscillators and RF diodes, which are used in telecommunications and other related markets, such as broadcast, cable TV, cellular and PCS, satellite, wireless LANs and various other wireless applications.
• Interconnect Devices - passive components used to connect all types of electronic equipment including those employing RF technology.
• Fiber Optics - components including laser diodes, photo detector, transamplifiers, and transceiver modules used in fiber optic communications for data communication and hybrid fiber coax and telecommunication markets.
• Broadcast Equipment - video products, camera tubes, klystrons, transmitters and accessories used for radio and television broadcasting.

Richardson participates in every RF and wireless application and market in the world, focused on infrastructure rather than consumer-driven subscriber applications. In the past year, we believe we gained market share in RF and wireless applications used in industrial, broadcast, avionics and cellular markets through the expansion of our engineering sales organization, addition of new vendor franchises and an acquisition of a business operating in the Nordic regions of Sweden, Finland, Denmark, and Norway.

Industrial Power Group (IPG)

Richardson serves a broad range of customers across many business sectors including the steel, automotive, textile, plastics, semiconductor and transportation industries. Our engineering skill and products are used in countless applications, such as motor speed controls, industrial heating, laser technology, semiconductor manufacturing equipment, radar and welding.

IPG serves the industrial market’s need for both vacuum tube and solid-state technologies. The Group supports both replacement products for systems using electron tubes and the design and assembly of new systems employing power semiconductors.

We are committed to a specialized strategy of providing engineered solutions for our customers. With our technical expertise and value-added capabilities, we offer the customer: design services, lower-cost product alternatives, complementary products, system integration, component modification and assembly. This broad array of services supports both OEM's and end-users.

Richardson is a leading systems integrator and supplier of components and assemblies for microwave equipment which is used in the manufacture of wafers. Wafers are essential in the production of semiconductors. In addition, the Group’s products are employed in the manufacture of printed circuit boards. Designing our products into new OEM applications also increases the probability of our participation in after-market sales.

We represent the leading manufacturers of electronics used in industrial power applications. Among the suppliers we support are APT, Bussmann, Cornell-Dubilier, CPI, Electronic Devices, Inc., Ferraz, General Electric, Hitachi, Jennings, Nissei-Arcotronics, Ohmite, Powerex, Toshiba, Triton, Tyco Electronics, United Chemi-Con, Varian, Wakefield, and Westcode. In fiscal 2002, we expanded our product offering to include International Rectifier.

The following is a description of IPG's major product groups:

• Power Semiconductors - solid-state, high-frequency power amplifiers used in broadcast, cellular, aircraft and satellite communications and in many types of electronic instrumentation. In many circumstances, the customer prefers to acquire the complete assembly as opposed to the discrete transistor. Accordingly, the Company expanded its product offering to include design and prototype assembly of amplifiers and pallets incorporating RF power transistors.
• Silicon Controlled Rectifiers ("SCRs"), Heat Sink Assemblies and Power Semiconductor Modules - components used in many industrial control applications because of their ability to switch large amounts of power at high speeds. These silicon power devices are capable of operating at up to 4,000 volts at 2,000 amperes.
• High Voltage and Power Capacitors - devices used in industrial, avionics, medical and broadcast applications for filtering, high-current by-pass, feed-through capacitance for harmonic attenuation, pulse shaping, grid and plate blocking, tuning of tank circuits, antenna coupling and energy discharge.
• Power Amplifier / Oscillator Tubes - vacuum or gas-filled tubes used in applications where current or voltage amplification and/or oscillation is required. Applications include induction heating, diathermy equipment, communications and radar systems and power supplies for voltage regulation or amplification.
• Microwave Generators - devices that incorporate magnetrons, which are high vacuum oscillator tubes used to generate energy at microwave frequencies. The pulsed magnetron is predominantly used to generate high-energy microwave signals for radar applications. Magnetrons are also used in vulcanizing rubber, food processing, packaging, wood / glue drying, in the manufacture of wafers for the semiconductor industry and other industrial heating applications such as microwave ovens and by the medical industry for sterilization and cancer therapy.
• Hydrogen Thyratrons - electron tubes capable of high speed and high voltage switching. They are used to control the power in laser and radar equipment and in linear accelerators for cancer treatment.
  Thyratrons and Rectifiers - vacuum or gas-filled tubes used to control the flow of electrical current. Thyratrons are used to control ignitrons, electric motor speed controls, theatrical lighting and machinery such as printing presses and various types of medical equipment. Rectifiers are used to restrict electric current flow to one direction in power supply applications.
• Ignitrons - mercury pool tubes used to control the flow of large amounts of electrical current. Their primary applications are in welding equipment, power conversion, fusion research and power rectification equipment.

Geographically, our vacuum tube revenue base is spread broadly throughout the world, while solid-state sales are concentrated in North America. This imbalance represents an excellent opportunity to capitalize on our existing worldwide customer relationships and grow the industrial solid-state segment outside North America.

Security Systems Division (SSD)

Richardson is a full-line distributor of closed circuit television ("CCTV"), fire, burglary, access control, sound and communication products and accessories. We specialize in CCTV design-in support and have particular expertise in the industry’s fastest growth area – applications employing digital technology. Security Systems has 24 worldwide stocking locations with 17 in North America, 4 in Europe and 3 in Latin America.

The Group serves its worldwide market through a direct sales force averaging more than ten years of experience, a 130 page catalog and an e-commerce enabled web site, www.cctv.net.

Security Systems supports its customer base with products from more than 100 manufacturers including such well-known names as Aiphone, Mitsubishi, Panasonic, Paradox, Pelco, Sanyo, and Sony. In addition, the Company carries its own private label brands, National Electronics and Capture.

The following is a description of SSD's major product groups:

• CCTV Products - Used in surveillance applications and for monitoring hazardous environments in the workplace. Products include: cameras, lenses, monitors, multiplexers, time lapse recorders, computerized digital video recorders, Internet-based video servers and associated accessories.
• Burglar and Fire Alarms and Access Control Products - Devices used to detect unauthorized access to an area or the presence of smoke or fire.
• Commercial Sound Systems - Sound reproduction components used in background music, paging and telephonic interconnect systems.

The security systems industry is moving to digital imaging technology. Richardson participates in this transition with new products under the National Electronics and Capture brands including state-of-the-art equipment such as hard disk recording, Internet based transmission, covert applications, speed dome applications and telephone-control-based CCTV systems.

Display Systems Group (DSG)

Richardson provides custom display solutions and systems integration services for the medical, public information, financial, point-of-sale and general data display markets. The customer base includes organizations from virtually all areas of business, including, hospitals, stock exchanges, airlines, retail and restaurant franchises, as well as all types of industrial users of data display devices.

Our technical sales force assists customers in developing solutions for data display issues such as: special mounting, glare reduction, ruggedness, touch screen integration and many others.

The Group's legacy business, replacement cathode ray tubes (“CRT”) continues to be an important market. The Company’s success in this area was achieved by the development of an extensive cross-reference capability. This database, coupled with custom mounting hardware installed by the Group, enables Richardson to provide replacement tubes for more than 200,000 original manufacturers' models.

Richardson has long-standing relationships with key manufacturers including Clinton Electronics, Fujitsu General, Intel, NEC/Mitsubishi, Panasonic, Philips-FIMI, Siemens, Sony, and Dome Imaging, among others. These vendor relationships give the Group a well-balanced and leading-edge line of products.

The Company has design and integration operations in LaFox, Illinois and Boston, Massachusetts and stocking locations in LaFox, Boston and Lincoln, England.

The following is a description of Display's major product groups:

• Cathode Ray Tubes - vacuum tubes that convert an electrical signal into a visual image to display information on computer terminals or televisions. CRTs are used in various environments, including hospitals, financial institutions, airports and numerous other applications wherever large user groups share electronic data visually. The product line includes both monochrome and color tubes.
• Data Display Monitors - peripheral components incorporating a color or monochrome CRT capable of displaying an analog or digitally generated video signal.
• Flat Panel Displays - display monitors incorporating a liquid crystal or plasma panel, as an alternative to the traditional CRT technology, typically a few inches in depth and ranging from 10" to 52" measured diagonally.
• High Resolution Displays - an integral component of Picture and Archiving Communications Systems (“PACS”), displays are used in diagnostic and non-diagnostic imaging to display the digital image generated from CT, MRI, radiography and other digital modalities.

Medical Systems Group

Medical products include glassware, medical imaging intensifiers and tubes, generators, cable assemblies and test equipment. In February of 2002, the Company sold its Glassware business including the reloading and distribution of X-ray, CT, and image intensifier tubes to Phillips Medical System Group. The remaining medical monitor business has been integrated with our Display Systems Group.

Distribution and Marketing

The Company purchases RF and power semiconductors, vacuum tubes, monitors and flat panel displays, and electronic security products and systems from various sources, including APT-RF, ANADIGICS, Barco, Burle Industries, Communication and Power Industries (CPI), Computer Components Source, Covimag, Dome Imaging, Ericsson, Filtronic, Fujitsu, General Electric, HI Sharp Electronics, Hitachi, Hitron, Huber + Suhner, International Rectifier, Jennings, Kalatel, Litton, M/A-COM, Motorola, New Japan Radio, NEC Technologies, Panasonic, Paradox, Pelco, Perkin-Elmer Optoelectronics, Philips/FIMI, Powerex, QMI/Tensolite, Samsung, Semtech, Siemens, Sony, Sirenza Microdevices, ST Microelectronics, Teletube (Samtell), Thales Components Corporation, TOKO, TYCO, Toshiba, Triton Services, United Monolithic Semiconductor, UTI Technology, Vishay, and WJ Communications.

During fiscal 2002, Richardson added the following vendors: AVX/TPC, Dynex Semiconductor, Global Opticom, NEC RF and Wireless Semiconductors, International Rectifier, and NEC-Mitsubishi Electronics Display of America.

In 1991, the Company settled an antitrust suit with the U.S. Department of Justice related to its participation in the electron tube manufacturing industry. As a consequence, certain of its manufacturing activities became uneconomic and were divested or discontinued, including the sale of the Company's former Brive, France manufacturing operation to local management, who continued the business under the name, Covimag. Formal transfer of ownership occurred in January 1995. Under an evergreen agreement, the Company and Covimag negotiate a purchase commitment on an annual basis. Covimag is highly dependent on Richardson, which is its primary customer. Settlement of purchases under the contract is at standard terms. Except for the supply contract, Richardson has no other financial commitment to or from Covimag. Relationships under the supply contract are believed by the Company to be satisfactory. This contract is immaterial to the financial statements.

In addition to the agreement with Covimag, the Company has marketing and distribution agreements with various manufacturers in the electron tube, semiconductor and CCTV industries. The most significant distributor agreement is with CPI under which the Company functions as the exclusive distributor of power grid tubes throughout the world, with the exception of the United States and certain Eastern European countries. In these areas, however, the Company remains the only CPI stocking distributor. CPI represents approximately 5% of the Company's annual purchases.

Customer orders are taken by the regional sales offices and supported by one of Richardson's principal distribution facilities in LaFox, Illinois; Houston, Texas; Vancouver, British Columbia; or Lincoln, England. There are 45 additional stocking locations throughout the world. The Company utilizes a sophisticated data processing network that provides on-line, real-time interconnection of all sales offices and central distribution operations, 24 hours per day, seven days per week ("24/7"). Information on stock availability, cross-reference information, customers and market analyses are instantly obtainable throughout the entire distribution network.

Manufacturing

The Company distributes its proprietary products principally under the trade names “Amperex,” “Capture,” "Cetron," "National," and "RF Gain." Approximately 25% of the Company's sales are from products it manufactures or modifies through value-added services. An additional 25% of the Company's sales are of products manufactured to its specifications by independent manufacturers under private label.

The products currently manufactured by the Company, or subcontracted on a proprietary basis for the Company, include RF amplifiers, transmitters and pallet assemblies thyratrons and rectifiers, power tubes, ignitrons, microwave generators, electronic display tubes, phototubes, SCR assemblies and spark gap tubes. The materials used in the manufacturing process consist of glass bulbs and tubing, nickel, stainless steel and other metals, plastic and metal bases, ceramics and a wide variety of fabricated metal components. These materials generally are readily available, but some components may require long lead times for production and some materials are subject to shortages or price fluctuations based on supply and demand.

Employees

As of May 31, 2002, the Company employed 1090 individuals on a full-time basis. Of these, 601 are located in the United States, including 88 employed in administrative and clerical positions, 437 in sales and distribution and 76 in value-added and product manufacturing. The remaining 489 individuals are employed by the Company's international subsidiaries engaged in administration, sales, distribution, manufacturing and value-added operations. All of Richardson's employees are non-union. The Company's relationship with its employees is considered to be good.

Competition

Richardson believes that, on a global basis, it is a significant distributor of RF and power semiconductors and subassemblies, electron tubes, CRTs and security systems. For many of its product offerings, the Company competes against the OEM for sales of replacement parts and system upgrades to service existing installed equipment. In addition, the Company competes worldwide with other general line distributors and other distributors of electronic components.

Patents and Trademarks

The Company holds or licenses certain manufacturing patents and trademark rights, including the trademarks "National," "Cetron" and "Amperex." The Company believes that although its patents and trademarks have value, they will not determine the Company's success, which depends principally upon its core engineering capability, marketing technical support, product delivery and the quality and economic value of its products.

From time to time the Company is involved in other litigation arising in the normal course of its business which is not expected to have a material adverse effect on the Company.

• Beginning fourth quarter of fiscal 2001 and continuing throughout fiscal 2002, operating results softened as the Company began feeling the effects of the general economic slowdown and particularly lower demand for RF and wireless products in the telecommunication markets. These conditions continued as of the date of this report.
• General economic or business conditions, domestic and foreign, may be less favorable than expected, resulting in lower sales or lower profit margins than expected and contrary to historical trends.
• Competitive pressures may increase or change through industry consolidation, entry of new competitors, marketing changes or otherwise. There can be no assurance that the Company will be able to continue to compete effectively with existing or potential competitors.
• Technological changes may affect the marketability of inventory on hand.
• Changes in relationships with customers or vendors, the ability to develop new relationships or the business failure of several customers or vendors may affect sales or profitability.
• Political, legislative or regulatory changes may adversely affect the businesses in which the Company operates.
• Changes in securities markets, interest rates or foreign exchange rates may adversely affect the Company’s performance or stock price.
• The failure to obtain or retain key executive or technical personnel could affect future performance.
• The Company’s growth strategy includes expansion through acquisitions. There can be no assurance that the Company will be able to successfully complete further acquisitions or that past or future acquisitions will not have an adverse impact on the Company’s operations.
• The potential future sale of Common Stock shares, possible anti-takeover measures available to the Company, dividend policies, as well as voting control of the Company by Edward J. Richardson, Chairman of the Board and Chief Executive Officer may affect the stock price.
• The continued availability of financing on favorable terms can not be assured.