RICHARDSON ELECTRONICS LTD/DE - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended May 31, 1998

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to

Commission File No. 0-12906

RICHARDSON ELECTRONICS, LTD.
(Exact name of registrant as specified in its charter)

Delaware 36-2096643
(State of incorporation) (I.R.S. Employer Identification No.)

40W267 Keslinger Road, P.O. Box 393, LaFox, Illinois 60147-0393
(Address of principal executive offices)

Registrant's telephone number including area code: (630) 208-2200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:Common Stock, $.05
par value

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]

As of August 24, 1998, there were outstanding 11,288,726 shares of Common
Stock, $.05 par value, and 3,235,621 shares of Class B Common Stock, $.05 par
value, which are convertible into Common Stock on a share for share basis, of
the registrant and the aggregate market value of such shares, based on the
reported last sale price of the common stock on such date, held by non-
affiliates of the registrant was approximately $104,800,000.

(Cover page continued)

page 1

Portions of the 1998 Annual Report to Stockholders of registrant for fiscal
year ended May 31, 1998 are incorporated in Parts I, II, and IV of this Report.
Portions of the registrant's Proxy Statement dated September 3, 1998 for the
Annual Meeting of Stockholders scheduled to be held October 6, 1998, which will
be filed pursuant to Regulation 14(A), are incorporated by reference in Part
III of this Report. Except as specifically incorporated herein by reference,
the above mentioned Annual Report to Stockholders and Proxy Statement are not
deemed filed as part of this report.

The exhibit index is located at pages 16 through 23.

Page 2

PART I

Item 1. Business

Introduction and Business Strategy

Richardson Electronics, Ltd. is a specialized international distributor of
electronic components, equipment and assemblies primarily for niche industrial
applications. Its products include electron tubes, microwave generators, radio
frequency ("RF") and microwave components, power semiconductors, 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, medical
and scientific applications. Richardson differentiates itself by providing
engineered solutions to its customers. Its capabilities extend beyond simple
product distribution to include specialty product manufacturing and systems
integration and include value-added services such as component assembly,
prototype design and manufacture, testing, kitting and logistics.

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. Today, the Company out-sources manufacturing
requirements for products sold in volume, but retains its engineering and
manufacturing expertise, leveraging this knowledge in finding engineered
solutions for the customers' applications, not only in electron tube technology
but in each of the product areas in which it specializes. Approximately 45% of
the Company's sales are derived from products the Company electronically or
physically modifies or sells under its own brand names.

Specialize in Selected Niche Markets. The Company specializes in selected niche
markets which 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,
prototype 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 60% 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

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customers from electron tubes to newer technologies, primarily semiconductors.
Sales of products other than electron tubes represented 60.8% of sales in the
year ended May 31, 1998, compared to 38.5% five years ago.

Maintain Superior Customer Service. The Company maintains more than 300,000
part numbers in its inventory data base. 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, as well as related
parts, service and technical assistance. Today, the Company's operations are
worldwide in scope through 88 sales offices, including 31 located outside of
the United States. In fiscal 1998, 51.6% of sales were derived from outside the
United States.

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, competitive market
analysis, stock availability and quotation activity. Customers have on-line
access to product information via Richardson's web site. The Company offers
electronic data interchange to those customers requiring this type of service.

Growth Strategy

Richardson's long range plan for growth and profit maximization is defined
in three broad categories: internal growth, continuous operational improvement
and acquisitions. Each category is discussed in the following paragraphs:

Internal Growth. The Company believes that, in most circumstances, internal
growth provides the best means of expanding its business. Both geographic and
product line expansion have and will be employed. In many instances,
Richardson's original product line, electron tubes, provides the foundation for
establishing new customer relationships, particularly in developing countries
where older technologies are still predominately employed. From that base, the
Company can identify and capitalize on new market opportunities for its other
products. Over the last five years the Company has expanded its sales offices
from 22 to 88 to support its new business development efforts.

Expansion of the Company's product offerings is an on-going program. Of
particular note, the following areas have generated significant recent sales
gains: microwave generators; medical imaging components; amplifiers,
transmitters and pallets for wireless communication; and CCTV security systems.
Additional opportunities currently being explored include flat panel displays,
monitors and solar energy power tubes.

Continuous Operational Improvement. During the last three years, the Company
embarked on a vigorous program to improve operating efficiencies and asset
utilization. Incentive programs were revised to heighten Richardson managers'
commitment to these goals. As a result, selling, general and administrative
expenses as a percent of sales were reduced from 23.4% in fiscal 1995 to 21.5%
in 1998. Inventory turns improved from 1.7 to 2.2 over the same period.

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Additional programs are on-going. The Company believes European logistics and
stocking levels may offer additional opportunities for cost savings.

Acquisitions. The Company has a successful record of acquiring and integrating
businesses. Since 1980, 24 companies or significant product lines have been
acquired by the Company. The Company evaluates acquisition opportunities on an
ongoing basis. The Company's acquisition criteria require that a target
provide either (i) product line growth opportunities permitting Richardson to
leverage its existing customer base or (ii) additional geographic coverage of
Richardson's existing product offerings. In the last three years, the Company's
acquisition pace has accelerated with the purchases of eight businesses includ-
ing, most significantly, Tubemaster (medical imaging-EDG), Compucon
(interconnect devices for RF applications-SSC) and Burtek and Security Service
International (security systems-SSD).

Strategic Business Units

The marketing, sales, product management and purchasing functions of
Richardson are organized as four strategic business units: Electron Device
Group ("EDG"), Solid State and Components ("SSC"), Display Products Group
("DPG") and Security Systems Division ("SSD"). Common logistics, information
systems, finance, legal, human resources and general administrative functions
support the entire organization. The Company is highly centralized with most
corporate functions located at its administrative headquarters and principal
stocking facility in LaFox, Illinois.

Electron Device Group

EDG's principal products, electron tubes, are used to control, switch, os-
cillate or amplify electrical power. This technology has been used for more
than 80 years in electronic circuitry throughout the industrialized world. With
such a vast installed base, replacement applications represent EDG's primary
focus. In certain situations, including high power broadcasting and industrial
equipment, electron tubes are the only economical technology capable of meeting
power requirements or withstanding severe environmental or other operating
conditions.

EDG serves a multitude of industries including automotive, avionics, commu-
nications, marine, plastics, rubber, steel and textile. Several major applica-
tions include dielectric and induction heating, motor speed controls, radar,
resistance welding equipment and television and radio broadcast equipment.
Microwave generator systems are designed and assembled by the Company for use
in the manufacture of wafers for the semiconductor industry and other
industrial heating applications.

In addition to the industries set forth above, Richardson believes the in-
creased emphasis on containment of medical costs offers significant
opportunities to supply the diagnostic medical imaging market, estimated by the
Company at $900 million annually. EDG distributes high voltage switch tubes, x-
ray tubes and image intensifiers used in x-ray imaging equipment and specialty
tubes for analytical equipment, as well as camera tubes, photomultipliers,
switch tubes, magnetrons, hydrogen thyratrons and imaging equipment to the

5

medical industry. In the last several years, the Company has capitalized on its
engineering skill, expanding its product offering to include assistance in
systems integration and upgrades of existing medical equipment to incorporate
state-of-the-art imaging systems. In 1996, Richardson purchased two North
American facilities, one for x-ray tube reloading and the second for digital
imaging systems. During 1997, the Company continued its growth in the medical
imaging market and established a European facility to supply the European
market with reloaded x-ray tubes.

Certain sectors of the electron tube market in which the Company partici-
pates are modestly contracting due to the continued substitution of
semiconductor technology for traditional electron tube applications. EDG is
expanding its customer base beyond North America and Europe. As industrialized
countries convert to solid state, equipment employing tube technology is
frequently redeployed to lesser developed areas of the world. Richardson's
global expansion is, in part, to capitalize on this opportunity. The annual
global market for electron tubes served by EDG is estimated by the Company to
be more than $3.0 billion. As a result of product line and global expansion,
EDG sales increased in each of the last three years.

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

Power Amplifier / Oscillator Tubes are vacuum or gas-filled tubes used in
applications where current or voltage amplification and/or oscillation is
required. Some areas of use are induction heating, diathermy equipment,
communications and radar systems and power supplies for voltage regulation or
amplification.

X-ray Tubes and X-ray Image Intensifiers are glass and glass/metal vacuum
tubes which generate high-frequency radiation for use in industrial, analytical
and medical equipment. Stationary anode x-ray tubes are used primarily for
inspection and non-destructive testing of solid materials and in
crystallography. Rotating anode x-ray tubes are primarily used in medical
applications, including fluoroscopy and computer-aided tomography (CAT-scan).

Microwave Generators incorporate magnetrons which are high vacuum oscilla-
tor 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.

Broadcast Equipment includes video products, camera tubes, klystrons,
transmitters and accessories used for radio and television broadcasting.

Hydrogen Thyratrons are electron tubes capable of high speed and high volt-
age switching. They are used to control the power in laser and radar equipment
and in linear accelerators for cancer treatment.

6

Thyratrons and Rectifiers are 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.

Industrial Receiving Tubes are vacuum tubes used to regulate or amplify small
amounts of power in a wide variety of electrical and electronic equipment.
Communications, medical instrumentation, consumer electronics, audiophile and
industrial controls are typical applications for this product.

Ignitrons are 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.

Solid State and Components

SSC serves many of the same customers and industries as EDG and focuses its
broad product offerings on two specialized markets. Because of the Company's
expertise in electron tube technology, it developed a strong competency in
power semiconductors. From this base in power semiconductors, SSC has expanded
into related products for Radio Frequency ("RF") and microwave components. In
addition to the distribution of products, SSC provides design, prototype
assembly, kitting, testing and other essential services to these markets. SSC's
RF and microwave components are used by the emerging wireless and
telecommunications markets as well as Richardson's traditional communications,
broadcast and avionics customers. SSC's power semiconductors and related
components serve industrial markets in power conversion applications.

The majority of SSC's business is with OEMs. Because time-to-market is so
critical in today's electronics industry, OEMs are outsourcing engineering
design-in of devices and components. Richardson employs its core engineering
expertise and distribution competency in wireless and industrial applications
to meet customer requirements for design-in and prototype assembly of silicon
controlled rectifier assemblies, amplifiers, pallets and other components.

In October 1996, the Company acquired Compucon, a distributor of intercon-
nect devices operating in the northeastern United States. This acquisition
brought to the Company a new product line and management with the specialized
knowledge of its applications. The Company has achieved significant growth in
this line by expanding Compucon's regional specialization through its worldwide
sales network.

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

RF and Microwave Devices include a wide variety of components, such as mix-
ers, switches, amplifiers, oscillators and RF diodes, which are used in telecom
munications and other related markets, such as broadcast, cable TV, cellular
and PCS, satellite, wireless LANs and various other wireless applications.

7

Power Semiconductors are 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.

Interconnect Devices are passive components used to connect all types of
electronic equipment including those employing RF technology.

Silicon Controlled Rectifiers ("SCRs"), Heat Sink Assemblies and Power
Semiconductor Modules are 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 are 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.

Display Products Group

DPG sells data display and instrumentation cathode ray tubes ("CRTs") that
are used in data display, marine, medical, radar and avionic applications. It
recently expanded its product line to include flat panel displays and monitors.
DPG's primary market is users of replacement CRTs and related components,
principally large manufacturing and service companies. Its customer base also
includes both independent and original equipment service organizations.
Richardson estimates worldwide annual factory sales of CRTs excluding
television tubes to be $2 billion. DPG offers a cost effective alternative to
purchasing a complete data display monitor by replacing only the defective CRT.
In addition to product sales, DPG provides engineered solutions to its
customers including system integration, extensive cross-referencing and other
value-added capabilities that enable DPG to offer off-the-shelf availability
for more than 200,000 manufacturers' part numbers from an inventory of
approximately 200 standard CRTs.

Computer terminals and monitors, broadcast monitors, viewfinders and Tele-
PrompTersr, radar and instrumentation displays are some of the many product
applications. Large mainframe systems, using multiple data display terminals,
represent the largest market served by DPG. Typical users include hospitals,
airports, airlines, brokerage offices, banks, television studios, utilities and
assembly lines.

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

Cathode Ray Tubes are vacuum tubes which 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 electronic data
is shared by large user groups. The product line includes both monochrome and
color tubes.

8

Data Display Monitors are peripheral components incorporating a color or
monochrome CRT capable of displaying an analog or digitally generated video
signal.

Flat Panel Displays are display monitors incorporating a liquid crystal
display or plasma panel, rather than a CRT, typically a few inches in depth and
ranging from 10" to 42" measured diagonally.

Security Systems Division

SSD serves the commercial security and surveillance industry with a primary
emphasis on closed circuit television ("CCTV") systems and components. SSD's
strategy is to leverage Richardson's existing customer base of Fortune 1000
customers and other large end users, as opposed to security dealers or
retailers. SSD's principal value-added service is system design. The Company
believes that due to heightened concerns over crime and the increasing
incidence of liability claims, industrial and commercial organizations are
expanding the use of CCTV systems to monitor and document activities in a wide
range of applications. Industry sources estimate that North American wholesale
sales of CCTV and related security equipment were $750 million in 1997 with a
projected annual growth rate of 10% through 2000. In addition to its CCTV
product offerings, SSD provides electronic components for burglar and fire
detection systems, access control systems and commercial sound systems.

Technology is changing continuously in the electronic surveillance indus-
try. SSD offers its customers engineered solutions including systems
integration, education and training. These engineered solutions assure SSD's
customers remain at the forefront of the industry in terms of product knowledge
and end user requirements.

SSD's sales increased significantly in 1996, 1997 and 1998. Acquisitions
and a significant increase in SSD's field sales force were principally
responsible for these significant sales gains. In February 1997 and August
1997, respectively, the Company acquired Burtek and Security Services
International, both of which are security systems distributors operating in
Canada, with combined annual sales of $38 million.

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

CCTV Products which include cameras, lenses, monitors, scanners, time lapse
recorders and associated accessories, are used in surveillance applications and
for monitoring hazardous environments in the workplace.

Burglar and Fire Detection Systems are devices used to detect unauthorized
access to an area or the presence of smoke or fire.

Commercial Sound Systems are sound reproduction components used in back-
ground music, paging and telephonic interconnect systems.

Distribution and Marketing

The Company purchases vacuum tubes, RF and power semiconductors, related
electronic components and electronic security products and systems from various
sources, including Advanced Power Technology, Burle Industries, Clinton

9

Electronics, Communication and Power Industries ("CPI"), Covimag, Dunlee,
Ericsson, General Electric, Hi Sharp, Huber & Suhner, Jennings, Litton, M/A-
COM, MPD, New Japan Radio, Orion/Daewoo, Panasonic, Pelco, Philips, Powerex,
QMI, RF Prime, RF Products, Samsung, Samtell, Sanyo, SGS THOMSON, Semtech,
Sensormatic, Sony, Stanford Microdevices, Stellex Microwave Systems, Teletube,
Toshiba, Triton Services, and Varian Associates. No single outside supplier
accounted for more than 10% of the Company's purchases in any one of the last
three years, other than CPI, which accounted for 8.4%, 10.3% and 12.6% of
purchases in fiscal 1998, 1997 and 1996, respectively.

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. Covimag is the entity formed to
acquire the Company's former Brive, France manufacturing operation. 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 managed by the same individuals previously employed by the Company
at this facility. Covimag is highly dependent on Richardson, which is its
primary customer. Settlement of purchases under the contract are 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.

In addition to the agreement with Covimag, the Company has marketing dis-
tribution agreements with various manufacturers in the electron tube,
semiconductor and CCTV industries. The most significant distributor agreement
is with CPI under which the Company is 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.

Customer orders are taken by the regional sales offices and generally di-
rected to one of Richardson's principal distribution facilities in LaFox,
Illinois; Houston, Texas; Vancouver, British Columbia; or Lincoln, England.
There are 28 additional stocking locations throughout the world. The Company
utilizes a sophisticated data processing network which provides on-line, real-
time interconnection of all sales offices and central distribution operations.
Information on stock availability, cross-reference information, customers and
competitive market analyses are instantly obtainable throughout the entire
distribution network.

Manufacturing

The Company distributes its proprietary products principally under the
trade names "National," "Cetron," "RF Gain", 'Amperex." and "MONORAY". Approxi-
mately 22% of the Company's sales are from products it manufactures or modifies
through value-added services. The Company also sells products under these brand
names made by independent manufacturers to the Company's specifications.

10

The products currently manufactured by the Company, or subcontracted on a
proprietary basis for the Company, include thyratrons and rectifiers, power
tubes, ignitrons, microwave generators, solar collector power tubes, electronic
display tubes, phototubes, SCR assemblies, spark gap tubes, RF amplifiers,
transmitters and pallet assemblies. Richardson reloads and remanufactures
medical x-ray 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.

Employees

As of May 31, 1998, the Company employed 792 individuals on a full-time ba-
sis. Of these, 470 are located in the United States, including 60 employed in
administrative and clerical positions, 313 in sales and distribution and 97 in
value-added and product manufacturing. The Company's international subsidiaries
employ an additional 322 individuals engaged in administration, sales, distribu
tion 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 distribu-
tor of electron tubes, RF and power semiconductors and subassemblies, 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.

Item 2. Properties

The Company's corporate facility and largest distribution center is owned
by the Company and is located on approximately 300 acres in LaFox, Illinois,
consisting of approximately 255,000 square feet of manufacturing, warehouse and
office space. Richardson also owns a building containing approximately 45,000
square feet of warehouse space on 1.5 acres in Geneva, Illinois. Owned
facilities outside of the United States are located in England, Spain and
Italy.

The Company also maintains branch sales offices in or near major cities
throughout the world, including 35 locations in North America, 13 in Europe, 9
in the Far East / Pacific Rim and 3 in Latin America. The Company leases
production facilities in Texas, Virginia and the Netherlands for its medical

11

tube reloading operations. The Company also leased facilities in Franklin Park,
Illinois, from a trust, of which Edward J. Richardson, Chairman of the Board of
the Company, is the principal beneficiary, for a term which expired June 30,
1998. Under the terms of this net lease, the Company made rental payments of
$68,705 per year. In the opinion of management, the lease was on terms no less
favorable to the Company than similar leases which would have been available
from unrelated third parties.

Item 3. Legal Proceedings

The Company is a defendant in Panache Broadcasting of Pennsylvania v.
Richardson Electronics, Ltd. in United States District Court, Northern District
of Illinois, filed in 1990. The complaint purports to be a class action on
behalf of all persons and businesses in the United States who purchased
electron power tubes from one or more of the defendant corporations at any time
since February 26, 1986. The complaint alleges antitrust violations and seeks
treble damages, injunctive relief and attorneys fees. The Company has denied
the material allegations. The case remains primarily in the preliminary
discovery stage.

The Company is also a defendant in Arius, Inc. v. Richardson Electronics,
Ltd. pending in state court in Orlando, Florida. The complaint, filed in 1995,
alleges a breach of a confidentiality agreement between Richardson and Arius
and other causes of action against Richardson and three employees. The court
entered an order prohibiting, among other things, contact by Richardson and one
of its employees with Arius customers, except in the ordinary course of
business. Shortly after entry of this order, Arius filed a Chapter 7 bankruptcy
petition and ceased to be a going concern. In early 1998, Arius' bankruptcy
trustee filed a motion seeking to penalize Richardson for having made sales to
alleged Arius customers subsequent to the date Arius filed its bankruptcy
petition. The motion was denied by the court on July 14, 1998.

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.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of stockholders, through the solicita-
tion of proxies or otherwise, during the fourth quarter of the fiscal year
ended May 31, 1998.

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PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters

Incorporated herein by reference to pages 8 (for dividend payments) and 17
(for market data) of the Annual Report.

Item 6. Selected Financial Data

Incorporated herein by reference to page 3 of the Annual Report.

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Incorporated herein by reference to pages 4 to 6 of the Annual Report.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable until Report on Form 10-K for fiscal year ended May 31,
1999.

Item 8. Financial Statements and Supplementary Data

Incorporated herein by reference to pages 7 through 16 of the Annual
Report.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

No event has occurred within the 24 month period prior to the date of the
Company's most recent financial statements, which would require disclosure
under Item 9 of this Report.

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PART III

Item 10. Directors and Executive Officers of the Registrant

Information concerning Directors and Executive Officers of the Company is
contained in the Company's Proxy Statement to be used in connection with its
Annual Meeting of Stockholders scheduled to be held October 6, 1998, under the
captions "ELECTION OF DIRECTORS - Information Relating to Directors, Nominees
and Executive Officers", "ELECTION OF DIRECTORS - Affiliations" and "SECTION 16
FILINGS", which information is incorporated herein by reference.

Item 11. Executive Compensation

Incorporated herein by reference is information concerning executive
compensation contained in the Company's Proxy Statement to be used in
connection with its Annual Meeting of Stockholders scheduled to be held October
6, 1998, under the captions "ELECTION OF DIRECTORS - Directors Compensation"
and "EXECUTIVE COMPENSATION", except for captions "REPORT ON EXECUTIVE
COMPENSATION" and "PERFORMANCE GRAPH".

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information concerning security ownership of certain beneficial owners and
management is contained in the Company's Proxy Statement to be used in
connection with its Annual Meeting of Stockholders scheduled to be held October
6, 1998, under the caption "ELECTION OF DIRECTORS - Information Relating to
Directors, Nominees and Executive Officers" and "PRINCIPAL STOCKHOLDERS", which
information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions is
contained in the Company's Proxy Statement to be used in connection with its
Annual Meeting of Stockholders scheduled to be held October 6, 1998, under the
caption "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider
Participation", which information is incorporated herein by reference.

14

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following consolidated financial statements of the registrant and
its subsidiaries included on pages 7 through 16 of the Annual Report are
incorporated herein by reference:

Filing Method
Report of Independent Accountants E
1. FINANCIAL STATEMENTS:
Consolidated Balance Sheets - May 31, 1998 and
1997 E

Consolidated Statements of Operations - Years
ended May 31, 1998, 1997 and 1996 E

Consolidated Statements of Cash Flows - Years
ended May 31, 1998, 1997 and 1996 E

Consolidated Statements of Stockholders' Equity -
Years ended May 31, 1998, 1997 and 1996 E

Notes to Consolidated Financial Statements E

The following consolidated financial information for the fiscal years
1998, 1997 and 1996 is submitted herewith:

2. FINANCIAL STATEMENT SCHEDULES:

II. Valuation and Qualifying Accounts E

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore,
have been omitted.

(b) REPORTS ON FORM 8-K.

None.

15
(c) EXHIBITS

Filing Method

3(b) By-laws of the Company, as amended, incorporated by NA
reference to the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997.

4(a) Restated Certificate of Incorporation of the Com- NA
pany, incorporated by reference to Appendix B to
the Proxy Statement / Prospectus dated November 13,
1986, incorporated by reference to the Company's
Registration Statement on Form S-4, Commission File
No. 33-8696.

4(b) Specimen forms of Common Stock and Class B Common NA
Stock certificates of the Company incorporated by
reference to Exhibit 4(a) to the Company's Regis-
tration Statement on Form S-1, Commission File No.
33-10834.

4(c) Indenture between the Company and Continental NA
Illinois National Bank and Trust Company of Chicago
(including form of 7 1/4% Convertible Subordinated
Debentures due December 15, 2006) incorporated by
reference to Exhibit 4(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1987.

4(c)(1) First Amendment to the Indenture between the Com- NA
pany and First Trust of Illinois, a National Asso-
ciation, as successor to Continental Illinois
National Bank and Trust Company of Chicago, dated
February 18, 1997, incorporated by reference to
Exhibit 4(a) to the Company's Quarterly Report on
Form 10-Q for the quarter ended February 28, 1997.

4(d) Indenture between the Company and American National NA
Bank and Trust Company, as Trustee, for 8 1/4% Con-
vertible Senior Subordinated Debentures due June
15, 2006 (including form of 8 1/4% Convertible Senior
Subordinated Debentures due June 15, 2006) incorpo-
rated by reference to Exhibit 10 of the Company's
Schedule 13E-4, filed February 18, 1997.

10(a) Loan Agreement dated as of March 1, 1998 among NA
Richardson Electronics, Ltd., various lending
institutions and American National Bank and Trust
Company of Chicago as Agent, establishing a
$50,000,000 Credit Facility, incorporated by refer-
ence to Exhibit 10(a) to the Company's Quarterly
Report on Form 10-Q for the quarter ended February
28, 1998.

16

10(b) Industrial Building Lease, dated April 10, 1996 NA
between the Company and the American National Bank
and Trust Company, as trustee under Trust No. 56120
dated 2-23-83 incorporated by reference to Exhibit
10(b) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996.

10(c) Amended and Restated Credit Agreement made as of NA
March 1, 1998 between Burtek Systems, Inc. as
Borrower and First Chicago NBD Bank, Canada as
Lender Richardson Electronics, Ltd. as Guarantor,
incorporated by reference to Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1998.

10(d) The Corporate Plan for Retirement NA
The Profit Sharing / 401(k) Plan
Fidelity Basic Plan Document No. 07 dated June 1,
1996, incorporated by reference to Exhibit 10(d) to
the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.

10(e) The Company's Amended and Restated Incentive Stock NA
Option Plan effective April 8, 1987 incorporated by
reference to Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1987.

10(e)(1)First Amendment to the Company's Amended and Re- NA
stated Incentive Stock Option Plan effective April
11, 1989 incorporated by reference to Exhibit
10(l)(1) to the Company's Annual Report on Form 10-
K for the fiscal year ended May 31, 1989.

10(e)(2)Second Amendment to the Company's Amended and NA
Restated Incentive Stock Option Plan effective
April 11, 1989 incorporated by reference to Exhibit
10(l)(2) to the Company's Annual Report on Form 10-
K for the fiscal year ended May 31, 1991.

10(e)(3)Third Amendment to the Company's Amended and Re- NA
stated Incentive Stock Option Plan effective April
11, 1989 dated August 15, 1996, incorporated by
reference to the Company's Proxy Statement used in
connection with its Annual Meeting of Stockholders
held October 1, 1996.

17

10(f) Richardson Electronics, Ltd. Employees 1996 Stock NA
Purchase Plan incorporated by reference to Appendix
A of the Company's Proxy Statement dated September
3, 1996 for its Annual Meeting of Stockholders held
on October 1, 1996.

10(g) Employees Stock Ownership Plan and Trust Agreement, NA
effective as of June 1, 1987, dated July 14, 1994,
incorporated by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1994.

10(g)(1)First Amendment to Employees Stock Ownership Plan NA
and Trust Agreement, dated July 12, 1995, incorpo-
rated by reference to Exhibit 10(g)(1) to the
Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1995.

10(g)(2)Second Amendment to Employees Stock Ownership Plan NA
and Trust Agreement, dated July 12, 1995, dated
April 10, 1996, incorporated by reference to the
Company's Proxy Statement used in connection with
its Annual Meeting of Stockholders held October 1,
1996.

10(g)(3)Third Amendment to Employees Stock Ownership Plan E
and Trust Agreement, dated July 12, 1995, dated
April 9, 1997.

10(h) Stock Option Plan for Non-Employee Directors incor- NA
porated by reference to Appendix A to the Company's
Proxy Statement dated August 30, 1989 for its
Annual Meeting of Stockholders held on October 18,
1989.

10(i) Richardson Electronics, Ltd. 1996 Stock Option Plan NA
for Non-Employee Directors, incorporated by refer-
ence to Appendix C of the Company's Proxy Statement
dated September 3, 1996 for its Annual Meeting of
Stockholders held on October 1, 1996.

10(j) The Company's Employees' Incentive Compensation NA
Plan incorporated by reference to Appendix A to the
Company's Proxy Statement dated August 31, 1990 for
its Annual Meeting of Stockholders held on October
9, 1990.

10(j)(1)First Amendment to Employees Incentive Compensation NA
Plan incorporated by reference to Exhibit 10(p)(1)
to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1991.

18

10(j)(2)Second Amendment to Employees Incentive Compensa- NA
tion Plan dated August 15, 1996, incorporated by
reference to the Company's Proxy Statement used in
connection with its Annual Meeting of Stockholders
held October 1, 1996.

10(k) Richardson Electronics, Ltd. Employees' 1994 Incen- NA
tive Compensation Plan incorporated by reference to
Exhibit A to the Company's Proxy Statement dated
August 31, 1994 for its Annual Meeting of Stock-
holders held on October 11, 1994.

10(k)(1)First Amendment to the Richardson Electronics, Ltd. NA
Employees' 1994 Incentive Compensation Plan dated
August 15, 1996, incorporated by reference to the
Company's Proxy Statement used in connection with
its Annual Meeting of Stockholders held October 1,
1996.

10(l) Richardson Electronics, Ltd. 1996 Incentive Compen- E
sation Plan incorporated by reference to Appendix B
of the Company's Proxy Statement dated September 3,
1996 for its Annual Meeting of Stockholders held on
October 1, 1996.

10(m) Richardson Electronics, Ltd. 1998 Incentive Compen- NA
sation Plan incorporated by reference to Appendix A
of the Company's Proxy Statement dated September 3,
1998 for its Annual Meeting of Stockholders held on
October 6, 1998.

10(n) Correspondence outlining Agreement between the NA
Company and Arnold R. Allen with respect to Mr.
Allen's employment by the Company, incorporated by
reference to Exhibit 10(v) to the Company's Annual
Report on Form 10-K, for the fiscal year ended May
31, 1985.

10(n)(1)Letter dated February 3, 1992 between the Company NA
and Arnold R. Allen outlining Mr. Allen's engage-
ment as a consultant by the Company, incorporated
by reference to Exhibit 10 (r)(1) to the Company's
Annual Report on Form 10-K, for the fiscal year
ended May 31, 1992.

10(n)(2)Letter dated April 1, 1993 between the Company and NA
Arnold R. Allen regarding Mr. Allen's engagement as
consultant by the Company, incorporated by refer-
ence to Exhibit 10(i)(2) to the Company's Annual
Report on Form 10-K for the fiscal year ended May
31, 1994.

19

10(o) Letter dated January 14, 1992 between the Company NA
and Jacques Bouyer setting forth the terms of Mr.
Bouyer's engagement as a management consultant by
the Company for Europe, incorporated by reference
to Exhibit 10(t)(1) to the Company's Annual Report
on Form 10-K for the fiscal year ended on May 31,
1992.

10(o)(1)Letter dated January 15, 1992 between the Company NA
and Jacques Bouyer setting forth the terms of Mr.
Bouyer's engagement as a management consultant by
the Company for the United States, incorporated by
reference to Exhibit 10(t)(1) to the Company's
Annual Report on Form 10-K for the fiscal year
ended on May 31, 1992.

10(p) Letter dated January 13, 1994 between the Company NA
and Samuel Rubinovitz setting forth the terms of
Mr. Rubinovitz' engagement as management consultant
by the Company incorporated by reference to Exhibit
10(m) to the Company's Annual Report on Form 10-K
for the fiscal year ended on May 31, 1994.

10(q) Letter dated April 4, 1994 between the Company and NA
Bart F. Petrini setting forth the terms of Mr.
Petrini's employment by the Company, incorporated
by reference to Exhibit 10(o) to the Company's
Annual Report on Form 10-K for the fiscal year
ended on May 31, 1994.

10(r) Letter dated May 20, 1994 between the Company and NA
William J. Garry setting forth the terms of Mr.
Garry's employment by the Company, incorporated by
reference to Exhibit 10(p) to the Company's Annual
Report on Form 10-K for the fiscal year ended on
May 31, 1994.

10(s) Employment, Nondisclosure and Non-Compete Agreement E
dated June 1, 1998 between the Company and Flint
Cooper setting forth the terms of Mr. Cooper's
employment by the Company.

10(t) Agreement dated January 16, 1997 between the Com- NA
pany and Dennis Gandy setting forth the terms of
Mr. Gandy's employment by the Company, incorporated
by reference to Exhibit 10(b) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997.

20

10(u) Agreement dated March 21, 1997 between the Company NA
and David Gilden setting forth the terms of Mr.
Gilden's employment by the Company, incorporated by
reference to Exhibit 10(c) to the Company's Quar-
terly Report on Form 10-Q for the quarter ended
February 28, 1997.

10(v) Employment agreement dated as of November 7, 1996 NA
between the Company and Bruce W. Johnson incorpo-
rated by reference to Exhibit (c)(4) of the Com-
pany's Schedule 13 E-4, filed December 18, 1996.

10(w) Employment agreement dated as of January 26, 1998 NA
between the Company and Norman Hilgendorf, incorpo-
rated by reference to Exhibit 10(c) of the Com-
pany's Quarterly Report on Form 10-Q for the quar-
ter ended February 28, 1998.

10(x) Employment agreement dated as of May 10, 1993 as NA
amended March 23, 1998 between the Company and
Pierluigi Calderone incorporated by reference to
Exhibit 10(d) of the Company's Quarterly Report on
Form 10-Q for the quarter ended February 28, 1998.

10(y) The Company's Directors and Officers Liability NA
Insurance Policy issued by Chubb Group of Insurance
Companies Policy Number 8125-64-60A, incorporated
by reference to Exhibit 10(t) to the Company's
Annual Report on Form 10-K for the fiscal year
ended May 31, 1991.

10(y)(1)The Company's Directors and Officers Executive E
Liability and Indemnification Insurance Policy
renewal issued by Chubb Group of Insurance Compa-
nies - Policy Number 8125-64-60E.

10(y)(2)The Company's Excess Directors and Officers Liabil- E
ity and Corporate Indemnification Policy issued by
St. Paul Mercury Insurance Company - Policy Number
900DX0414.

10(y)(3)The Company's Directors and Officers Liability E
Insurance Policy issued by CNA Insurance Companies
- Policy Number DOX600028634.

10(z) Distributor Agreement, executed August 8, 1991, NA
between Registrant and Varian Associates, Inc.,
incorporated by reference to Exhibit 10(d) of the
Company's Current Report on Form 8-K for September
30, 1991.

21

10(z)(1)Amendment, dated as of September 30, 1991, between NA
Registrant and Varian Associates, Inc., incorpo-
rated by reference to Exhibit 10(e) of the Com-
pany's Current Report on Form 8-K for September 30,
1991.

10(z)(2)First Amendment to Distributor Agreement between NA
Varian Associates, Inc. and the Company as of April
10, 1992, incorporated by reference to Exhibit
10(v)(5) of the Company's Annual Report on Form 10-
K for the fiscal year ended May 31, 1992.

10(z)(3)Consent to Assignment and Assignment dated August NA
4, 1995 between Registrant and Varian Associates
Inc., incorporated by reference to Exhibit 10(s)(4)
of the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1995.

10(z)(4)Final Judgment, dated April 1, 1992, in the matter NA
of United States of America v. Richardson Electron-
ics, Ltd., filed in the United States District
Court for the Northern District of Illinois, East-
ern Division, as Docket No. 91 C 6211 incorporated
by reference to Exhibit 10(v)(7) to the Company's
Annual Report on Form 10-K for the fiscal year
ended May 31, 1992.

10(aa) Trade Mark License Agreement dated as of May 1, NA
1991 between North American Philips Corporation and
the Company incorporated by reference to Exhibit
10(w)(3) of the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1991.

10(bb) Agreement among Richardson Electronics, Ltd., NA
Richardson Electronique S.A., Covelec S.A. (now known
as Covimag S.A.), and Messrs. Denis Dumont and
Patrick Pertzborn, delivered February 23, 1995,
translated from French, incorporated by reference to
Exhibit 10(b) to the Company's Report on Form 8-K
dated February 23, 1995.

10(cc) Settlement Agreement by and between the United States NA
of America and Richardson Electronics, Ltd. dated May
31, 1995 incorporated by reference to Exhibit 10(a)
to the Company's Report on Form 8-K dated May 31,
1995.

13 Annual Report to Stockholders for fiscal year E
ending May 31, 1998 (except for the pages and
information thereof expressly incorporated by
reference in this Form 10-K, the Annual Report to
Stockholders is provided solely for the information
of the Securities and Exchange Commission and is
not deemed "filed" as part of this Form 10-K).

22

21 Subsidiaries of the Company. E

23 Consent of Independent Auditors. E

27 Financial Data Schedule. E

23

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RICHARDSON ELECTRONICS, LTD.
By:/s/ By:/s/
Edward J. Richardson, Bruce W. Johnson,
Chairman of the Board and President and Chief Operating
Chief Executive Officer Officer

By:/s/
William J. Garry
Senior Vice President
Date: August 24, 1998 Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the regis-
trant and in the capacities and on the dates indicated.
/s/ /s/
Edward J. Richardson, Chairman Bruce W. Johnson, President,
of the Board, Chief Executive Chief Operating Officer, and Director
Officer (principal executive officer) August 24, 1998
and Director
August 24, 1998

/s/ /s/
William J. Garry, Senior Vice Ad Ketelaars, Director
President and Chief Financial August 24, 1998
Officer (principal financial and
accounting officer) and Director
August 24, 1998

/s/ /s/
Scott Hodes, Director Samuel Rubinovitz, Director
August 24, 1998 August 24, 1998

/s/ /s/
Arnold R. Allen, Director Kenneth J. Douglas, Director
August 24, 1998 August 24, 1998

/s/ /s/
Jacques Bouyer, Director Harold L. Purkey, Director
August 24, 1998 August 24, 1998

24

The following portions of the Company's Annual Report to Stockholders for the
Year Ended May 31, 1998 are incorporated by reference. The page numbers as
indicated are the same as he printed copy which was distributed to the
shareholders.

Five-Year Financial Review

(in thousands, except per share amounts)
Statement of Operations Data

Year Ended May 31
------------------------------------------------
1998 1997 (1) 1996 1995 (2) 1994 (3)
-------- -------- -------- -------- --------

Net sales $304,172 $255,139 $239,667 $208,118 $172,094
Cost of products sold 217,509 187,675 169,123 152,785 151,203
Selling, general and administrative
Expenses 65,393 62,333 52,974 48,674 41,226
Other expense, net 7,334 7,856 5,559 4,028 5,874
-------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item 13,936 (2,725) 12,011 2,631 (26,209)
Income tax provision (benefit) 4,200 (1,720) 3,900 150 (6,400)
-------- -------- -------- -------- --------
Income (loss) before extraordinary item 9,736 (1,005) 8,111 2,481 (19,809)
Extraordinary gain (loss), net of tax -- (488) -- 527 --
-------- -------- -------- -------- --------
Net income (loss) $ 9,736 $ (1,493) $ 8,111 $ 3,008 $(19,809)
======== ======== ======== ======== ========
Income (loss) per share - basic:
Before extraordinary item $ .79 $ (.08) $ .70 $ .22 $ (1.76)
Extraordinary gain (loss), net of tax -- (.04) -- .05 --
-------- -------- -------- -------- --------
Net income (loss) per share $ .79 $ (.12) $ .70 $ .27 $ (1.76)
======== ======== ======== ======== ========
Income (loss) per share - diluted:
Before extraordinary item $ .77 $ (.08) $ .68 $ .21 $ (1.76)
Extraordinary gain (loss), net of tax -- (.04) -- .05 --
-------- -------- -------- -------- --------
Net income (loss) per share $ .77 $ (.12) $ .68 $ .26 $ (1.76)
======== ======== ======== ======== ========
Dividends per common share $ .16 $ .16 $ .16 $ .16 $ .16
======== ======== ======== ======== ========

Net Sales by Strategic Business Unit Year Ended May 31
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Net Sales by Strategic Business Unit:
Electron Device Group (EDG) $119,157 $113,700 $109,925 $105,454 $ 91,736
Solid State & Components (SSC) 88,014 74,209 67,976 52,409 42,274
Display Products Group (DPG) 30,639 29,377 36,154 36,502 27,150
Security Systems Division (SSD) 66,362 37,853 25,612 13,753 10,934
-------- -------- -------- -------- --------
Consolidated $304,172 $255,139 $239,667 $208,118 $172,094
======== ======== ======== ======== ========

Balance Sheet Data As of May 31
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Receivables $ 63,431 $ 53,333 $ 48,232 $ 42,768 $ 34,901
Inventories 96,443 92,194 94,327 81,267 73,863
Working capital, net 149,577 140,821 133,151 106,235 96,494
Property, plant and equipment, net 18,477 17,526 16,054 16,388 16,932
Total assets 209,700 192,514 180,158 173,514 179,467

Long-term debt 87,427 107,275 92,025 79,647 86,421
Stockholders' equity 91,585 59,590 62,792 56,154 52,573

(1)In 1997, the Company recorded special charges for severance and other costs
related to a corporate reorganization and a re-evaluation of reserve estimates
which increased cost of products sold by $7,200 and selling, general and
administrative expenses by $3,800. Net of tax, these charges reduced income by
$6,712, or $.56 per share. The Company also recorded an extraordinary loss of
$800, less a related tax benefit of $312, or $.04 per share, on the exchange of
certain of the Company's debentures. (See Note B to the Consolidated Financial
Statements.)

(2)In 1995, the Company recorded a charge which reduced gross margin by $4,700
and net income by $2,300, or $.25 per share, for the settlement of a claim
related to a 1989 contract.

(3)In 1994, cost of products sold included a $26,500 provision, of which
$21,400 was for the disposition of the Company's manufacturing operations in
Brive, France, and $5,100 for incremental costs related to a provision for the
phase-down of domestic manufacturing operations established in 1991. Net of
tax, these charges reduced results of operations by $19,500, or $1.72 per
share.

3

Management's Discussion and Analysis

Results of Operations

Sales and Gross Margin Analysis

Richardson Electronics, Ltd. is a specialized international distributor of
electronic components, equipment and assemblies primarily for niche industrial
applications. The marketing and sales structure of the Company is organized in
four strategic business units (SBUs): Electron Device Group (EDG), Solid State
and Components (SSC), Display Products Group (DPG) and Security Systems
Division (SSD). Consolidated sales in fiscal 1998 were a record $304.2 million.
Sales by SBU and percent of consolidated sales are presented in the following
table (in thousands):

Sales 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
EDG $119,157 39.2 $113,700 44.6 $109,925 45.8
SSC 88,014 28.9 74,209 29.1 67,976 28.4
DPG 30,639 10.1 29,377 11.5 36,154 15.1
SSD 66,362 21.8 37,853 14.8 25,612 10.7
-------- ----- -------- ----- -------- -----
Consolidated $304,172 100.0 $255,139 100.0 $239,667 100.0
======== ===== ======== ===== ======== =====

Gross margin for each SBU and margin as a percent of sales are shown in
the following table. Gross margin reflects the distribution product margin less
overstock, customer returns and other provisions. In 1997, gross margin was
reduced by a $7.2 million charge - see Note B to the Consolidated Financial
Statements. Manufacturing variances, warranty provisions, LIFO provisions and
miscellaneous costs are included under the caption "other" (in thousands):

Gross Margins 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
EDG $37,219 31.2 $32,220 28.3 $33,416 30.4
SSC 25,160 28.6 19,923 26.8 20,840 30.7
DPG 10,464 34.2 8,465 28.8 13,156 36.4
SSD 15,335 23.1 8,267 21.8 5,425 21.2
-------- -------- --------
Total 88,178 29.0 68,875 27.0 72,837 30.4
Other (1,515) (1,411) (2,293)
-------- -------- --------
Consolidated $86,663 28.5 $67,464 26.4 $70,544 29.4
======== ======== ========

On a geographic basis, the Company categorizes its sales by destination:
North America, Europe and Rest of World (ROW). Sales and gross margin by
geographic area are as follows (in thousands):

Sales 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
North America $189,221 62.2 $153,221 60.1 $139,743 58.3
Europe 65,996 21.7 55,881 21.9 57,219 23.9
Rest of World 48,955 16.1 46,037 18.0 42,705 17.8
-------- ----- -------- ----- -------- -----
Consolidated $304,172 100.0 $255,139 100.0 $239,667 100.0
======== ===== ======== ===== ======== =====

Gross Margins 1998 % 1997 % 1996 %
-------- ----- -------- ----- -------- -----
North America $ 53,421 28.2 $ 40,514 26.4 $ 41,257 29.5
Europe 20,456 31.0 16,194 29.0 19,186 33.5
Rest of World 14,301 29.2 12,167 26.4 12,394 29.0
-------- -------- --------
Total 88,178 29.0 68,875 27.0 72,837 30.4
Other (1,515) (1,411) (2,293)
-------- -------- --------
Consolidated $ 86,663 28.5 $ 67,464 26.4 $ 70,544 29.4
======== ======== ========

North American sales increased 23.5% in 1998, following a 9.6% increase in
1997. In both years, the sales gains were primarily attributable to SSD, and,
to a lesser extent, SSC and EDG. Sales in Europe increased 18.1% in 1998, after
a 2.3% decrease in 1997. In 1998, European sales increased in each SBU, with
SSC up 37.7%, SSD up 35.2%, DPG up 19.2% and EDG up 6.4%. In 1997, significant
sales gains by SSD and SSC were more than offset by a 32.6% decline in DPG
European sales from the loss of a customer. ROW sales increased 6.3% in 1998,
following a 7.8% gain in 1997. In both years, the largest ROW sales gains were
achieved by SSD and SSC.

Sales denominated in currencies other than U. S. dollars were 39%, 34%,and
32% of total sales in 1998, 1997 and 1996, respectively. Foreign currency
exchange rate changes reduced foreign sales by an average of 5.9% in 1998 and
increased foreign sales by 2.9% in 1997. Average selling prices, excluding the
effects of exchange rate changes, declined 0.3% in 1998, were unchanged in 1997
and increased 2.4% in 1996.

Sales and gross margin trends are analyzed for each strategic business
unit in the following sections.

Electron Device Group

EDG serves the vacuum tube industry, which is characterized by mature
products, the emergence of tube rebuilders, and vigorous price competition. The
Company estimates that overall industry sales are modestly contracting. EDG's
sales gains of 4.8% in 1998 and 3.4% in 1997 result from an increase in market
share and emphasis on medical x-ray imaging. Foreign sales as a percent of
total sales for EDG were 54.8% in 1998 and 56.5% in 1997 and 1996.

The medical electronics replacement business is a growth segment of the
vacuum tube industry. Demand for the replacement of x-ray, computed tomography
(CT), medical resonance imaging (MRI) and radiation therapy components is
expected to continue to grow in response to the cost effectiveness of
purchasing rebuilt components as opposed to purchasing new or rebuilt products
directly from original equipment manufacturers. The Company has invested in
expanding its medical sales force and has acquired x-ray tube and image
intensifier reloading facilities in the United States and established a similar
facility in the Netherlands. Sales in this EDG product line increased 21.9% to
$21.4 million in 1998, following a 56.5% increase in 1997. Other growth areas
in EDG include microwave generators, pulse power tubes, industrial magnetrons
and broadcast transmitters.

Gross margin as a percent of sales increased to 31.2% in 1998, compared to
30.6% in 1997 and 30.4% in 1996. For this comparison, the 1997 gross margin has
been adjusted to exclude the effect of the special charge for re-evaluation of
overstock provisions, which is described below. Gross margin improvement in
1998, 1997, and 1996 resulted from additional focus on pricing policies,
emphasis on proprietary product lines and value-added services.

4

Management's Discussion and Analysis

Solid State and Components

SSC operates in several markets, including the rapidly growing wireless
telecommunications industry. Sales increased 18.6% in 1998 to $88.0 million,
following a 9.2% increase in 1997. Sales outside of the United States
represented 39.8%, 37.6% and 36.3% of SSC's sales in 1998, 1997 and 1996,
respectively.

Gross margin as a percent of sales was 28.6% in 1998, compared to 30.1% in
1997 and 30.7% in 1996. For this comparison, the 1997 gross margin has been
adjusted to exclude the effect of the special charge. The gradual decline in
margin reflects competitive pricing pressures and changes in product mix.

Display Products Group

DPG sales increased 4.3% in 1998 and declined 18.7% in 1997. The 1997
sales decline is largely attributable to the loss of a major customer in
Europe. Sales in 1997 were hampered by product shortages, primarily for color
CRTs, as glass manufacturers were unable to meet demand. Sales outside the
United States represented 48.8%, 46.1% and 51.4% of DPG's sales in 1998, 1997
and 1996, respectively.

Gross margin as a percent of sales was 34.2% in 1998, compared to 35.1% in
1997 and 36.4% in 1996. For this comparison, the 1997 gross margin has been
adjusted to exclude the effect of the special charge. The margin trend reflects
competitive pressure, a shift in product mix from CRT's to monitors and other
display products and industry shortages.

Security Systems Division

SSD operates in the rapidly expanding security systems market. In August
1997, the Company acquired Security Service International, Inc. (SSI), a
Canadian security systems distributor, with annual sales of $20.0 million. The
acquisition follows the acquisition in February 1997 of Burtek Systems Inc.
(Burtek), a Canadian security systems distributor, with annual sales of $18
million. These acquisitions contributed to the 75.3% growth in sales in 1998
and the 47.8% sales growth in 1997. Sales outside of the United States
represented 63.5% of SSD's sales in 1998, 47.7% in 1997, and 38.8% in 1996.

Gross margin was 23.1%, 21.8% and 21.2% of sales in 1998, 1997 and 1996.
The improvement in gross margin rates reflects proprietary product lines and
franchises obtained with the SSI and Burtek acquisitions. Inventory turnover
rates achieved by SSD are significantly higher than the Company's other SBU's,
which mitigates the effect of lower gross margin rates.

Cost of Sales and Gross Margins

The following table reconciles product margins on distribution activities
to gross margins reported in the Consolidated Statements of Operations:

(% of sales) 1998 1997 1996
-------- -------- --------
Distribution product margin 29.6 % 29.9 % 31.0 %
Overstock provisions 0.1 % (3.0)% (0.1)%
Customer returns and scrap (0.6)% (0.3)% (0.7)%
Manufacturing and warranty costs 0.0 % (0.1)% (0.3)%
Other costs (0.6)% (0.1)% (0.5)%
-------- -------- --------
Gross margin 28.5 % 26.4 % 29.4 %
======== ======== ========

Fluctuations in distribution margins primarily reflect the shift in
product mix as SSD sales have increased as a percent of consolidated sales.
Distribution margins are also affected by changes in selling prices, product
costs, and foreign exchange rate variations. In the third quarter of 1997, in
conjunction with a corporate reorganization and review of operations, and in
response to changed market conditions, the Company re-evaluated its reserves
for overstock inventory. As a result of this review, the Company provided a
$7.2 million charge to cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses represented 21.5% of sales in
1998, 24.4% in 1997 and 22.1% in 1996. The 1998 improvement reflects policy and
procedural changes initiated by the Company to reduce these costs. In 1997,
selling, general and administrative expenses included a $3.8 million special
charge for severance and other costs related to a corporate reorganization.
Excluding the special charge, 1997 expenses were 22.9% of sales and increased
$5.6 million over 1996, reflecting business acquisitions and the expansion of
the EDG medical and SSC sales forces.

Other (Income) Expense

Interest expense increased 6.0% in 1998, reflecting higher borrowing
levels during the year. Investment income includes realized capital gains of
$506,000 in 1998 and $1.1 million in 1996. Foreign exchange and other expenses
primarily reflect changes in the value of the U. S. dollar relative to foreign
currencies. A general strengthening of the dollar in fiscal 1997 and, to a
lesser extent in 1998 and 1996, resulted in net foreign exchange losses.
Income Tax Provision

The effective tax rates were 30.1% in fiscal 1998, 63.1% in 1997 and 32.5%
in 1996. The 1998 and 1996 rates differ from the statutory rate of 34.0%
primarily due to the Company's foreign sales corporation benefit on export
sales. The 1997 rate reflects the realization of tax benefits on prior years'
foreign losses, foreign sales corporation benefits on export sales and state
taxes.

Net Income (Loss) and per Share Data

The comparability of net income (loss) and net income (loss) per share for
1998, 1997 and 1996 is affected by certain events in 1997. A special charge was
recorded in 1997 for severance and other costs related to a corporate
reorganization and the re-evaluation of certain reserves which reduced net
income before extraordinary loss by $6.7 million, or $.56 per share. Also in
1997, an extraordinary loss reduced net income by $488,000, or $.04 per share.

5

Management's Discussion and Analysis

Financial Condition

Liquidity

The Company offers engineered solutions, including prototype design and
assembly, in niche product areas to its customers. Additionally, many of these
products represent trailing-edge technology which may not be available from
other sources, and may not be currently manufactured. Also, in many cases, the
products are components of production equipment for which immediate
availability is critical to the customer. Accordingly, the Company enjoys
higher gross margins, but necessarily has larger investments in inventory than
those of a commodity electronics distributor.

Liquidity is provided by the operating activities of the Company,
adjusted for non-cash items, and is reduced by working capital requirements,
debt service, capital expenditures, dividends and business acquisitions. Cash
provided by (used in) operations was $6.3 million in fiscal 1998, $3.6 million
in 1997 and $(7.9) million in 1996. Additional investments in working capital
to support sales growth were $10.6 million, $7.3 million and $22.0 million in
1998, 1997 and 1996, respectively.

At May 31, 1998, the Company had net operating loss carryforwards of $7.9
million for U. S. federal and state income tax purposes, which are available to
offset future tax liabilities. Current earnings levels are sufficient to
realize these carryforwards before they expire.

The Company has proposed a plan to the Illinois Environmental Protection
Agency to monitor and process soil and groundwater at the LaFox facility.
Contamination is believed to have resulted from practices previously employed
at the site. The present value of the estimated future remediation costs was
$600,000 and is included in accrued liabilities at May 31, 1998.

Financing

On February 15, 1997, the Company exchanged $40.0 million of new 8 1/4%
convertible debentures for an equivalent face value of its outstanding 7 1/4%
convertible debentures (See Note E to the Consolidated Financial Statements).
The principal purpose of the exchange was to improve the Company's future
liquidity and capital position by refinancing a sufficient number of the
debentures to eliminate sinking fund requirements until December 15, 2004.

To complete the acquisition of Burtek, a subsidiary of the Company
entered into a revolving credit agreement and term loan aggregating $6.0
million with an affiliate of the Company's primary bank. An additional $5.5
million was borrowed under this agreement in August 1997 to finance the
acquisition of the assets of Security Services International, Inc. At May 31,
1998, $9.4 million remained outstanding under this agreement. The loan is
guaranteed by the Company, bears interest at the Canadian prime rate and
matures March 1, 2001.

In March 1998, the Company replaced its existing senior revolving credit
note agreement with a new $50.0 million floating-rate revolving credit
agreement which expires March 1, 2001. Loans under the agreement bear interest
at prime or 125 basis points over the London Inter-Bank Offered Rate (LIBOR),
at the Company's option. The premium over LIBOR varies with certain performance
benchmarks. At May 31, 1998, $43.4 million was available under this line.

In May 1998, the Company sold 2,070,000 shares of its common stock in a
public offering at a price of $12.50 per share. The net proceeds to the
Company, after deducting an underwriting discount of 6% and issuance costs of
$253,000, were $24.1 million. The proceeds were used to reduce borrowings under
the Company's revolving debt agreement.

Annual dividend payments approximate $2.3 million. The policy regarding
payment of dividends is reviewed periodically by the Board of Directors in
light of the Company's operating needs and capital structure.

Currency Fluctuations

The Company's foreign denominated assets and liabilities are cash,
accounts receivable, inventory and accounts payable, primarily in Canada and
member countries of the European community and, to a lesser extent, in Asia /
Pacific and Latin America. The Company monitors its foreign exchange exposures
and may enter into forward contracts to hedge significant transactions. Other
tools which may be used to manage foreign exchange exposures include the use of
currency clauses in sales contracts and the use of local debt to offset asset
exposures.

Impact of Year 2000

The year 2000 issue is the result of computer programs which are written
using two digits rather than four to define the applicable year. The Company's
current computer database correctly stores date stamps which include four digit
years. Based on a recent assessment, the Company anticipates its systems will
function properly with respect to dates in the year 2000 and thereafter. In
addition, the Company does not anticipate significant year 2000 issues relating
to interface systems with third parties. Based upon the foregoing, the Company
does not currently expect that the year 2000 issue will have a material impact
on its financial condition or results of operations.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995

Except for the historical information contained herein, the matters discussed
in this Annual Report (including the Annual Report on Form 10-K) are forward-
looking statements relating to future events which involve certain risks and
uncertainties, including those identified herein and in the Annual Report on
Form 10-K.

6

Consolidated Balance Sheets
May 31
--------------------
(in thousands) 1998 1997
--------- ---------
Assets
Current assets
Cash and equivalents $ 8,031 $ 10,012
Receivables, less allowance of $2,230
and $2,102 63,431 53,333
Inventories 96,443 92,194
Other 9,681 10,497
--------- ---------
Total current assets 177,586 166,036
Property, plant and equipment, net 18,477 17,526
Other assets 13,637 8,952
--------- ---------
Total assets $ 209,700 $ 192,514
========= =========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 17,320 $ 12,766
Accrued liabilities 10,689 12,449
--------- ---------
Total current liabilities 28,009 25,215
Long-term debt 87,427 107,275
Deferred income taxes 2,679 434
--------- ---------
Total liabilities 118,115 132,924
Stockholders' equity
Common Stock, $.05 par value 561 437
Class B Common Stock, convertible, $.05 par
value 162 162
Preferred Stock, $1.00 par value -- --
Additional paid-in capital 80,606 53,512
Retained earnings 16,842 9,082
Foreign currency translation adjustment (6,586) (3,603)
--------- ---------
Total stockholders' equity 91,585 59,590
--------- ---------
Total liabilities and stockholders' equity $ 209,700 $ 192,514
========= =========
See notes to consolidated financial statements.

7

Consolidated Statements of Operations
Year Ended May 31
---------------------------------
(in thousands, except per share amounts) 1998 1997 1996
--------- --------- ---------
Net sales $ 304,172 $ 255,139 $ 239,667
Costs and expenses:
Cost of products sold 217,509 187,675 169,123
Selling, general and
administrative expenses 65,393 62,333 52,974
--------- --------- ---------
282,902 250,008 222,097
--------- --------- ---------
Operating income 21,270 5,131 17,570
Other (income) expense:
Interest expense 8,084 7,622 6,624
Investment income (1,005) (392) (1,238)
Foreign exchange and other 255 626 173
--------- --------- ---------
7,334 7,856 5,559
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item 13,936 (2,725) 12,011
Income tax provision (benefit) 4,200 (1,720) 3,900
--------- --------- ---------
Income (loss) before extraordinary item 9,736 (1,005) 8,111
Extraordinary loss, net of tax benefit -- (488) --
--------- --------- ---------
Net income (loss) $ 9,736 $ (1,493) $ 8,111
========= ========= =========

Income (loss) per share - basic:
Before extraordinary item $ .79 $ (.08) $ .70
Extraordinary loss, net of tax benefit -- (.04) --
--------- --------- ---------
Net income (loss) per share $ .79 $ (.12) $ .70
========= ========= =========
Average shares outstanding 12,264 11,892 11,659

Income (loss) per share - diluted:
Before extraordinary item $ .77 $ (.08) $ .68
Extraordinary loss, net of tax benefit -- (.04) --
--------- --------- ---------
Net income (loss) per share $ .77 $ (.12) $ .68
========= ========= =========
Average shares outstanding 12,689 11,892 12,002

Dividends per common share $ .16 $ .16 $ .16
========= ========= =========
Comprehensive income (loss):
Net income (loss) $ 9,736 $ (1,493) $ 8,111
Foreign currency translation adjustment (2,983) (1,190) (1,864)
--------- --------- ---------
Comprehensive income (loss) $ 6,753 $ (2,683) $ 6,247
========= ========= =========
See notes to consolidated financial statements.

8

Consolidated Statements of Cash Flows
(in thousands)
Year Ended May 31
----------------------------
1998 1997 1996
-------- -------- --------
Operating Activities:

Net income (loss) $ 9,736 $(1,493) $ 8,111

Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation 3,477 2,627 2,709
Amortization of intangibles and
financing costs 632 1,318 360
Deferred income taxes 2,779 (3,305) 2,338
Stock contribution to employee
ownership plan 285 800 500
Special charges -- 11,000 --
-------- -------- --------
Net adjustments 7,173 12,440 5,907
-------- -------- --------
Changes in working capital, net of currency
translation effects and business
acquisitions:
Receivables (9,170) (4,277) (5,310)
Inventories (3,658) 406 (12,920)
Other current assets 186 253 1,567
Accounts payable 4,366 (3,719) (3,448)
Accrued liabilities (2,350) 28 (1,843)
-------- -------- --------
Net changes in working capital (10,626) (7,309) (21,954)
-------- -------- --------
Net cash provided by (used in)
operating activities 6,283 3,638 (7,936)
-------- -------- --------
Financing activities:
Proceeds from borrowings 16,731 57,890 22,200
Payments on debt (35,642) (42,640) (19,679)
Proceeds from sale of common stock 26,933 536 1,713
Cash dividends (1,976) (1,855) (1,822)
-------- -------- --------
Net cash provided by financing
activities 6,046 13,931 2,412
-------- -------- --------
Investing activities:
Business acquisitions (6,798) (9,902) (1,450)
Capital expenditures (4,116) (4,004) (2,352)
Other (3,396) (435) 4,959
-------- -------- --------
Net cash (used in) provided by
investing activities (14,310) (14,341) 1,157
-------- -------- --------
(Decrease) increase in cash
and equivalents (1,981) 3,228 (4,367)

Cash and equivalents at beginning of year 10,012 6,784 11,151
-------- -------- --------
Cash and equivalents at end of year $ 8,031 $10,012 $ 6,784
======== ======== ========

See notes to consolidated financial statements.

9

Consolidated Statements of Stockholder's Equity

Consolidated Statements of Stockholders' Equity

Shares Issued Accumulated
--------------- Additional Other
(shares and dollars Class B Par Paid-in Retained Comprehensive
in thousands) Common Common Value Capital Earnings Income(Loss) Total
------ ------ ------ --------- -------- ------------ --------

Balance June 1, 1995 8,225 3,247 $ 573 $ 49,989 $ 6,141 $ (549) $ 56,154
Shares contributed to ESOP 69 -- 3 497 -- -- 500
Shares issued under ESPP
and stock option plans 265 -- 14 1,699 -- -- 1,713
Conversion of Class B
Shares to common shares 3 (3) -- -- -- -- --
Dividends -- -- -- -- (1,822) -- (1,822)
Currency translation -- -- -- -- -- (1,864) (1,864)
Net income -- -- -- -- 8,111 -- 8,111
------ ----- ------ ------ -------- ------------ ------
Balance May 31, 1996 8,562 3,244 590 52,185 12,430 (2,413) 62,792

Shares contributed to ESOP 84 -- 5 795 -- -- 800
Shares issued under ESPP
and stock option plan 74 -- 4 532 -- -- 536
Conversion of Class B
Shares to common shares 1 (1) -- -- -- -- --
Dividends -- -- -- -- (1,855) -- (1,855)
Currency translation -- -- -- -- -- (1,190) (1,190)
Net loss -- -- -- -- (1,493) -- (1,493)
------ ----- ------ ------ -------- ------------ ------
Balance May 31, 1997 8,721 3,243 599 53,512 9,082 (3,603) 59,590

Shares contributed to ESOP 34 -- 2 283 -- -- 285
Shares issued under ESPP
And stock option plan 354 -- 19 2,845 -- -- 2,864
Public stock offering 2,070 -- 103 23,966 -- -- 24,069
Conversion of Class B
4 (4) -- -- -- -- --
Dividends -- -- -- -- (1,976) -- (1,976)
Currency translation -- -- -- -- -- (2,983) (2,983)
Net income -- -- -- -- 9,736 -- 9,736
------ ----- ------ -------- -------- ------------ -------
Balance May 31, 1998 11,183 3,239 $ 723 $ 80,606 $ 16,842 $ (6,586) $91,585
====== ===== ====== ======== ======== ============ =======

See notes to consolidated financial statements

10

Notes to Consolidated Financial Statements
(in thousands, except per share amounts)

Note A -- Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include the
accounts and operations of the Company and its subsidiaries. All significant
intercompany transactions are eliminated.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash Equivalents: The Company considers short-term investments that have a
maturity of three months or less, when purchased, to be cash equivalents. The
carrying amounts reported in the balance sheet for cash and equivalents
approximate the fair market value of these assets.

Inventories: Inventories are stated at the lower of cost or market. Inventory
costs determined using the last-in, first-out (LIFO) method represent 80% of
total inventories at May 31, 1998 and 78% at May 31, 1997. For the remaining
inventories, cost is determined on the first-in, first-out (FIFO) method. If
the FIFO method had been used for all inventories, the total amount of
inventories would have been increased by $3,569 and $4,742 at May 31, 1998 and
1997, respectively. As a result of the increase in overstock reserves recorded
in 1997, the LIFO carrying value of all inventories approximated market value
at May 31, 1998 and 1997. Substantially all inventories represent finished
goods held for sale.

Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Provisions for depreciation are computed principally using the straight-
line method over the estimated useful life of the asset. Property, plant and
equipment consist of the following:

May 31
------------------------
1998 1997
-------- --------
Land and improvements $ 2,721 $ 2,620
Buildings and improvements 18,479 18,251
Machinery and equipment 28,595 25,098
-------- --------
Property at cost 49,795 45,969
Accumulated depreciation (31,318) (28,443)
-------- --------
Property, net $ 18,477 $ 17,526
======== ========

Other Assets: Deferred financing costs, goodwill and other deferred charges are
amortized using the straight-line method. Other assets consist of the
following:

May 31
------------------------
1998 1997
-------- --------
Investments (at market) $ 2,931 $ 2,152
Notes receivable 3,158 86
Deferred financing costs, net 502 511
Goodwill, net 5,558 4,831
Other deferred charges, net 1,488 1,372
-------- --------
Other assets, net $ 13,637 $ 8,952
======== ========

Accrued Liabilities: Accrued liabilities consist of the following:

May 31
------------------------
1998 1997
-------- --------
Compensation and payroll taxes $ 5,072 $ 4,320
Interest 2,546 2,849
Income taxes 362 712
Other accrued expenses 2,306 4,568
Notes and current portion of debt 403 -
-------- --------
Accrued liabilities $ 10,689 $ 12,449
======== ========

Foreign Currency Translation: Foreign currency balances and financial
statements are translated into U. S. dollars at end-of-period rates, except
that revenues, costs and expenses are translated at the current rate on the
date of the transaction. Gains and losses resulting from foreign currency
transactions are included in income currently. Foreign currency transaction
losses reflected in operations were $299, $563, and $228 in 1998, 1997, and
1996, respectively. Gains and losses resulting from translation of foreign
subsidiary financial statements are credited or charged directly to a separate
component of stockholders' equity.

Revenue Recognition: Revenues are recorded upon shipment.

Income Taxes: Deferred tax assets and liabilities are established for
differences between financial reporting and tax accounting of assets and
liabilities and are measured using the marginal tax rates.

Stock-Based Compensation: The Company accounts for its stock option plans in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. Statement of
Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation", requires estimation of the fair value of options granted to
employees. As permitted by SFAS No. 123, the Company presents this estimated
fair value information in Note G, and continues to apply APB Opinion No. 25 for
the determination of compensation expense.

Comprehensive Income: SFAS No. 130, "Reporting Comprehensive Income" requires
the presentation of comprehensive income in the financial statements for fiscal
years beginning after December 15, 1997. The Company has elected early adoption
of this statement, and has included the calculation of comprehensive income in
the Consolidated Statement of Operations.

Earnings per Share: Net income (loss) per share amounts and average shares
outstanding for all periods presented have been restated in accordance with
SFAS No. 128 "Earnings per Share", which became effective December 1997. The
restatement of primary earnings per share to basic earnings per share resulted
in an increase in net income per share of $.02 in 1996 and no change in 1997.
Under SFAS No. 128, net income per share is reported by two amounts: basic
earnings per share and diluted earnings per share. Basic earnings per share is
calculated by dividing net income (loss) by the weighted average number of

11

Notes to Consolidated Financial Statements
(in thousands, except per share amounts)

Common and Class B Common shares outstanding. Diluted earnings per share is
calculated by dividing net income (loss) by the basic shares outstanding and
share equivalents that would arise from the exercise of stock options. The per
share amounts presented in the Consolidated Statement of Operations were based
on the following amounts:

1998 1997 1996
------- ------- -------
Numerator for basic and diluted EPS:
Net income (loss) before
extraordinary item $ 9,736 $(1,005) $ 8,111
Extraordinary loss, net of tax benefit - (488) -
------- ------- -------
Net income (loss) $ 9,736 $(1,493) $ 8,111
======= ======= =======
Denominator for basic EPS:
Shares outstanding at
beginning of period 11,964 11,806 11,472
Additional shares for stock
issued 300 86 187
------- ------- -------
Weighted average shares
outstanding 12,264 11,892 11,659
======= ======= =======
Denominator for diluted EPS:
Weighted average shares
outstanding 12,264 11,892 11,659
Effect of dilutive stock
options 425 - 343
------- ------- -------
Adjusted average shares
outstanding 12,689 11,892 12,002
======= ======= =======

Out-of-the-money (exercise price higher than market price) stock options and
the Company's 8 1/4% and 7 1/4% convertible debentures were excluded from the
calculation because they were anti-dilutive. In-the-money stock options were
excluded from the calculation in 1997 because the Company reported a net loss.

Reclassifications: Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform to the 1998 presentation.

Note B -- Special Charges and Extraordinary Item

In the third quarter of fiscal 1997, the Company re-evaluated its reserve
estimates in light of changed market conditions and provided for severance and
other costs associated with a corporate reorganization. Inventory reserve
adjustments of $7,200 were included in cost of sales, and provisions for
accounts receivable, severance and other costs of $3,800 were included in
selling, general and administrative expense. Collectively, these charges
amounted to $11,000 pre-tax, or $6,712, net of tax, reducing earnings per share
by $.56.

Also in the third quarter of fiscal 1997, the Company recorded an $800
extraordinary charge for the write-off of unamortized debt issuance costs
associated with the Company's 7 1/4% convertible subordinated debentures, which
were exchanged for a new issue (See Note E). Net of tax, the charge was $488,
or $.04 per share.

Note C -- Acquisitions

In August 1997 the Company's SSD unit acquired the assets of Security
Service International, Inc. (SSI), a Canadian distributor of security systems
with annual sales of $20.0 million.

In February 1997, the SSD unit acquired Burtek Systems, Inc., (Burtek) a
security systems distributor operating in Canada with annual sales of $18.0
million. In October 1996, the SSC business unit acquired Compucon Distributors,
Inc., a distributor of interconnect devices operating in the northeastern
United States with annual sales of $8.0 million.

Each of the acquisitions was accounted for by the purchase method, and
accordingly, their results of operations are included in the consolidated
statements of operations from the respective dates of acquisition. The impact
of these acquisitions on results of operations was not significant and would
not have been significant if they had been included for the entire year.

Note D -- Marketing Agreements

The Company is party to several marketing distribution agreements with
various manufacturers in the electron tube and semiconductor businesses. The
most significant is a distribution agreement with Communications and Power
Industries, Inc., formerly the Electron Device Group of Varian Associates, Inc.
Product sales under this distribution agreement accounted for 10%, 13%, and
15%, of net sales in fiscal 1998, 1997 and 1996, respectively.

Note E -- Debt Financing

Long-term debt consists of the following:
May 31
------------------------
1998 1997
--------- ---------
8 1/4% Convertible debentures, due
June 2006 $ 40,000 $ 40,000
7 1/4% Convertible debentures, due
December 2006 30,825 30,825
Floating-rate revolving credit
facility, due March 2001
(6.92% at May 31, 1998) 6,582 30,332
Revolving credit and term loan due
March 2001 (6.46% at May 31, 1998) 9,365 5,704
Other 1,010 414
--------- ---------
Long-term debt 87,782 107,275
Less current portion (355) --
--------- ---------
Long-term debt $ 87,427 $ 107,275
========= =========

On February 15, 1997, the Company exchanged $40.0 million of new 8 1/4%
convertible debentures for an equivalent face value of its outstanding 7 1/4%
convertible debentures. The new debentures are payable at maturity in June
2006, and are convertible to common stock at $18.00 per share. The principal
purpose of the exchange was to improve the Company's future liquidity and
capital position by refinancing a sufficient number of the 7 1/4% convertible
debentures to eliminate sinking fund requirements until December 15, 2004. The
8 1/4% convertible debentures are subordinated to senior debt.

The 7 1/4% convertible debentures are unsecured and subordinated to other
long-term debt, including the 8 1/4% convertible debentures. Each $1,000
debenture is convertible into the Company's Common Stock at any time prior to
maturity at $21.14 per share. The Company is required to make sinking fund
payments of $3,850 in 2004 and $6,225 in 2005.

Effective March 1998, the Company replaced its existing senior revolving
credit note agreement with a new $50.0 million floating-rate revolving credit
facility which expires March 1, 2001. Loans under the agreement bear interest
at prime or 125 basis points over LIBOR, at the Company's option. The premium
over LIBOR varies with certain performance benchmarks.

To complete the acquisition of Burtek, a subsidiary of the Company entered
into a revolving credit and term loan agreement aggregating $6.0 million with a

12

Notes to Consolidated Financial Statements
(in thousands, except per share amounts)

Canadian affiliate of the Company's primary bank. The loan is guaranteed by the
Company and bears interest at the Canadian prime rate. The amount of this
agreement was increased to $12.1 million in August 1997 to facilitate the
acquisition of SSI and matures March 1, 2001.

The debt agreements contain financial covenants with which the Company was
in full compliance at May 31, 1998. The most restrictive covenants set
benchmark levels for tangible net worth, debt to tangible net worth ratio, cash
flow to senior funded debt and annual debt service coverage.

Aggregate maturities of debt during the next five years are: $355 in 1999,
$328 in 2000 and $16,274 in 2001. Cash payments for interest were $8,387,
$7,463 and $6,445 in 1998, 1997 and 1996, respectively.

In the following table, the fair values of the Company's 7 1/4% and 8 1/4%
convertible debentures are based on quoted market prices. The fair values of
the bank term loans are based on carrying value, adjusted for market interest
rate changes.
1998 1997
--------------------- ---------------------

Carrying Fair Carrying Fair
Value Value Value Value
-------- -------- -------- --------
8 1/4% Convertible
debentures $ 40,000 $ 38,000 $ 40,000 $ 31,800
7 1/4% Convertible
debentures 30,825 27,126 30,825 24,044
Floating-rate revolving
credit facility 6,582 6,582 30,332 30,330
Revolving credit and
term loan 9,365 9,365 5,704 5,704
Other 1,010 1,010 414 414
-------- -------- -------- --------
Total 87,782 82,083 107,275 92,292
Less current portion (355) (355) -- --
-------- -------- -------- --------
Total $ 87,427 $ 81,728 $107,275 $ 92,292
======== ======== ======== ========
Note F -- Income Taxes

The components of income (loss) before income taxes and extraordinary item
are:

1998 1997 1996
--------- --------- ---------
United States $ 11,070 $ (4,558) $ 9,954
Foreign 2,866 1,833 2,057
--------- --------- ---------
Income (loss) before taxes
and extraordinary item $ 13,936 $ (2,725) $ 12,011
========= ========= =========

The provision (benefit) for income taxes differs from income taxes
computed at the federal statutory tax rate of 34% as a result of the following
items:

1998 1997 1996
--------- --------- ---------
Federal statutory rate 34.0 % 34.0 % 34.0 %
Effect of:
State income taxes, net of
federal tax benefit 3.5 11.3 3.5
FSC benefit on export sales (6.2) 12.3 (3.2)
Realization of tax benefit on
prior years' foreign losses - 14.7 (2.5)
Foreign taxes at other rates (0.3) (7.5) -
Other (0.9) (1.7) 0.7
--------- --------- ---------
Effective tax rate 30.1 % 63.1 % 32.5 %
========= ========= =========

In 1995, due to the timing and nature of a claim settlement, the Company
utilized a ten-year carryback provision permitted by the Internal Revenue
Service. The Company's U. S. federal tax returns have been examined through
1995. As part of this examination, in December 1997, the Internal Revenue
Service contested the Company's carryback of the aforementioned claim
settlement. The Company is appealing the IRS position. However, if the Company
were ultimately unsuccessful, the claim would be available for carryforward at
the then current statutory rate and the impact on the Company's financial
position and results of operations would not be material.

The provisions (benefits) for income taxes before extraordinary item
consist of the following:

1998 1997 1996
--------- --------- ---------
Currently payable:
Federal $ 973 $ 299 $ 1,158
State 155 -- 139
Foreign 293 609 274
--------- --------- ---------
Total currently payable 1,421 908 1,571
--------- --------- ---------
Deferred:
Federal 1,867 (2,626) 1,806
State 275 (441) 498
Foreign 637 439 25
--------- --------- ---------
Total deferred 2,779 (2,628) 2,329
--------- --------- ---------
Income tax provision (benefit) $ 4,200 $ (1,720) $ 3,900
========= ========= =========

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Non-current deferred tax
assets and liabilities are offset on the balance sheet within tax
jurisdictions. Significant components of the Company's deferred tax assets and
liabilities as of May 31, 1998 and 1997 are as follows:

Balance Sheet Presentation
--------------------------
Current Noncurrent
Asset (1) Liability
---------- ----------
At May 31, 1998:
Deferred tax assets:
Operating loss carryforward $ -- $ 180
Intercompany profit in inventory 1,372 --
Inventory valuation 5,748 --
Environmental and other reserves -- 955
Other, net 15 --
---------- ----------
Deferred tax assets 7,135 1,135
Deferred tax liabilities:
Accelerated depreciation -- (3,633)
Other, net -- (181)
---------- ----------
Net deferred tax $ 7,135 $ (2,679)
At May 31, 1997:
Deferred tax assets:
Operating loss carryforward $ -- $ 1,778
Intercompany profit in inventory 1,422 --
Inventory valuation 6,312 --
Environmental and other reserves -- 1,368
Other, net 14 --
---------- ----------
Deferred tax assets 7,748 3,146
Deferred tax liabilities:
Accelerated depreciation -- (3,516)
Other, net -- (64)
---------- ----------
Net deferred tax $ 7,748 $ (434)
========== ==========
(1) Included in other current assets on the balance sheet

Operating loss carryforwards of $7.9 million for U. S. tax purposes expire
in 2009 and 2010. Net income taxes paid (refunded) were $850, $523, and
$(1,112) in 1998, 1997 and 1996, respectively.

13

Notes to Consolidated Financial Statements
(in thousands, except per share amounts)

Note G -- Stockholders' Equity

The Company has authorized 30.0 million shares of Common Stock, 10.0
million shares of Class B Common Stock, and 5.0 million shares of Preferred
Stock. The Class B Common Stock has ten votes per share and generally votes
together with the Common Stock. The Class B Common Stock has transferability
restrictions; however, it may be converted into Common Stock on a share-for-
share basis at any time. With respect to dividends and distributions, shares of
common stock and Class B common stock rank equally and have the same rights,
except that Class B common stock is limited to 90% of the amount of common
stock cash dividends.

In May 1998, the Company sold 2,070 shares of its common stock through a
public offering at a price of $12.50 per share. The net proceeds to the
Company, after deducting an underwriting discount of 6% and issuance costs of
$253 were $24,069. Proceeds were used to pay down the revolving credit
facility.

Total common stock issued and outstanding at May 31, 1998 was 11,183
shares. An additional 9,791 shares of common stock have been reserved for
future issuance under the Employee Stock Purchase and Option Plans and
potential conversion of the convertible debentures and Class B Common Stock.

The Employee Stock Purchase Plan (ESPP) provides substantially all
employees an opportunity to purchase common stock of the Company at 85% of the
stock price at the beginning of the year or the end of the year, whichever is
lower. The plan has reserved 71 shares for future issuance.

On July 14, 1998, the Board of Directors approved the Employees 1998
Incentive Compensation Plan. The plan is subject to stockholders' approval,
which will be voted at the annual meeting on October 6, 1998. The information
in this footnote assumes stockholders' approval.

The Employees' 1998 Incentive Compensation Plan authorizes the issuance of
up to 800 shares as incentive stock options, non-qualified stock options or
stock awards. Under this plan and predecessor plans, 2,394 shares are reserved
for future issuance. The Plan authorizes the granting of incentive stock
options at the fair market value at the date of grant. Generally, these options
become exercisable over staggered periods and expire up to ten years from the
date of grant.

Under the 1996 Stock Option Plan for Non-Employee Directors and a
predecessor plan, 400 shares have been reserved for future issuance relating to
stock options exercisable based on the passage of time. Each option is
exercisable over a period from its date of grant at the market value on the
grant date and expires after ten years.

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its option plans. Accordingly, no compensation expense has been
recognized for the Company's option plans in the accompanying Consolidated
Statement of Operations. SFAS No. 123 requires the calculation of the fair
value of each option granted. This fair value is estimated on the date of grant
using the Black-Scholes option-pricing model with the assumptions indicated
below. Had compensation cost for the Company's option plans and stock purchase
plan been determined consistent with SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would have been as follows:

1998 1997 1996
------- ------- -------
Net income (loss), as reported $ 9,736 $(1,493) $ 8,111
Effect of options (475) (307) (134)
------- ------- -------
Adjusted net income (loss) $ 9,261 $(1,800) $ 7,977
======= ======= =======

Net income (loss) per share - diluted:
As reported $ .77 $ (.12) $ .68
Effect of options (.04) (.03) (.02)
------- ------- -------
Adjusted net income (loss) $ .73 $ (.15) $ .66
======= ======= =======
Assumptions used:
Risk-free interest rate 5.5% 5.2% 5.6%
Annual standard deviation
of stock price 40% 40% 40%
Weighted average expected life (years) 5.6 6.0 6.0
Annual dividend rate $ .16 $ .16 $ .16
Weighted average fair value
per option $ 3.49 $ 3.07 $ 2.95
Option value of ESPP per share $ 1.19 $ 1.50 $ 1.14
Fair value of options granted
during the year $ 948 $ 940 $ 776

The effect of applying SFAS No. 123 in this pro forma disclosure is not
indicative of the effects on future years, because SFAS No. 123 does not apply
to grants issued prior to fiscal 1996.

A summary of the share activity and weighted average exercise prices for
the Company's option plans is as follows:

Outstanding Exercisable
------------------- --------------------
Shares Price Shares Price
-------- -------- -------- --------
At June 1, 1995 1,333 $ 6.99 1,055 $ 7.02
Granted 263 7.40
Exercised (245) 5.71
Cancelled (99) 9.91
--------
At May 31, 1996 1,252 7.10 855 7.16
Granted 286 8.00
Exercised (33) 4.82
Cancelled (16) 7.72
--------
At May 31, 1997 1,489 7.31 936 7.21
Granted 291 8.70
Exercised (308) 6.57
Cancelled (99) 7.26
--------
At May 31, 1998 1,373 7.74 697 7.52
========

The following table summarizes information about stock options outstanding
as of May 31, 1998:

Outstanding Exercisable
Exercise ------------------------ ----------------------
Price Range Shares Price Life Shares Price Life
- ----------------- ------- ----- ---- ------- ----- ----
$3.75 to $5.25 131 $4.32 6.1 102 $4.27 6.1
$6.00 to $7.50 458 6.88 6.3 272 6.72 5.3
$8.00 to $8.50 671 8.19 7.1 241 8.04 3.9
$10.813 to $12.95 113 12.46 5.8 82 12.69 4.4
------- -------
Total 1,373 7.74 6.6 697 7.52 4.8
======= ===== ==== ======= ===== ====

Note H -- Employee Retirement Plans

The Company's domestic employee retirement plans consist of a profit
sharing plan and a stock ownership plan (ESOP). Annual contributions in cash or
Company stock are made at the discretion of the Board of Directors. In
addition, the profit sharing plan has a 401(k) provision whereby the Company
matches 50% of employee contributions up to 4% of base pay. Charges to expense
for

14

Notes to Consolidated Financial Statements
(in thousands, except per share amounts)

discretionary and matching contributions to these plans were $1,341, $995 and
$1,075 in 1998, 1997 and 1996. Stock contributions to the ESOP were $285, $800
and $500 in 1998, 1997 and 1996, respectively, based on the stock price at the
date contributed. Shares are included in the calculation of earnings per share
and dividends are paid to the ESOP from the date the shares are contributed.
Foreign employees are covered by a variety of primarily government mandated
programs.

Note I -- Industry and Market Information

The Company operates in one industry as a distributor of electronic
components, including vacuum tubes, semiconductors and other products. The
Company invoices its customers and ships from two primary geographic locations:
North America (which services the U. S., Canada, Latin America and the Far
East) and Europe.

1998 1997 1996
-------- -------- --------
Sales:
North America $265,984 $223,277 $211,912
Less intersegment transfers 21,366 18,728 21,778
-------- -------- --------
To unaffiliated customers 244,618 204,549 190,134
-------- -------- --------
Europe 65,092 54,946 51,987
Less intersegment transfers 5,538 4,356 2,454
-------- -------- --------
To unaffiliated customers 59,554 50,590 49,533
-------- -------- --------
Consolidated $304,172 $255,139 $239,667
======== ======== ========

Operating income:
North America $ 16,060 $ 1,999 $ 13,040
Europe 6,689 4,949 6,263
Corporate expenses (1,479) (1,817) (1,733)
-------- -------- --------
Consolidated $ 21,270 $ 5,131 $ 17,570
======== ======== ========
Identifiable assets:
North America $163,624 $148,026 $143,536
Europe 39,910 34,905 32,794
Corporate assets 6,166 9,583 3,828
-------- -------- --------
Consolidated $209,700 $192,514 $180,158
======== ======== ========

Intersegment transfers originate mainly from the United States or Europe
and are accounted for on an "arm's length" basis with profits eliminated in
consolidation. Export sales shipped directly from the United States were
$39,814, $36,325 and $37,913 in 1998, 1997 and 1996.

Operating income was reduced by $11.0 million in North America in 1997 for
valuation reserve adjustments, severance and other costs.

The Company sells its products to companies in diversified industries and
performs periodic credit evaluations of its customers' financial condition.
Terms are generally on open account, payable net 30 days in North America and
Latin America, and vary throughout Europe and the Far East. Estimates of credit
losses are recorded in the financial statements based on periodic reviews of
outstanding accounts and actual losses have been consistently within
management's estimates.

Sales by product line and by geographic destination are summarized in
Management's Discussion and Analysis. The Financial Accounting Standards Board
has issued Statement No. 131 "Disclosures about Segments of an Enterprise and
Related Information" effective for years beginning after December 15, 1997. The
Company is currently reviewing its internal cost allocations and reporting
procedures in light of the Statement's requirements.

Note J -- Litigation

On June 19, 1990, the Company was served with a complaint in Panache
Broadcasting of Pennsylvania, Inc. v. Richardson Electronics, Ltd.; Varian
Associates, Inc.; and Varian Supply Company (VASCO - a joint venture between
the Company and Varian Associates, Inc.), in U. S. District Court for the
Eastern Division of Pennsylvania alleging violations of Sections 1 and 2 of the
Sherman Act and Section 7 of the Clayton Act. This action purports to be a
class action on behalf of all persons and businesses in the U. S. "who
purchased electron power tubes from one or more of the defendant corporations
at any time" since the formation of VASCO. The suit seeks treble damages
alleged to be in excess of $100,000, injunctive relief and attorneys' fees. The
litigation has been transferred to the U. S. District Court for the Northern
District of Illinois, Eastern Division as cause No. 90C6400, and is in the
discovery stage. The Court has not determined whether the action may be
maintained on behalf of a class. The Company is defending itself against this
action. It is not possible at this time to predict the outcome of this legal
action.

Note K -- Selected Quarterly Financial Data
(Unaudited)

Summarized quarterly financial data for 1998 and 1997 follow. There were
no material fourth quarter adjustments in 1998 or 1997. Third quarter 1997
results include valuation reserve adjustments and severance and other costs
which reduced gross margin by $7,200 and net income before extraordinary item
by $6,712 or $.56 per share, as described in Note B.

First Second Third Fourth
------- ------- ------- -------
1998:
Net sales $71,600 $78,646 $73,196 $80,730
Gross margin 20,638 22,348 20,860 22,817
Net income 1,808 2,740 2,182 3,006
Net income per
share - basic $ .15 $ .23 $ .18 $ .23
Net income per
share - diluted $ .15 $ .22 $ .17 $ .23

1997:
Net sales $57,544 $62,167 $64,163 $71,265
Gross margin 16,783 18,738 11,171 20,772
Net income (loss)
before
extraordinary item 1,293 1,932 (6,053) 1,823
Extraordinary loss,
net of tax - - (488) -
------- ------- ------- -------
Net income (loss) 1,293 1,932 (6,541) 1,823
Net income (loss) per
share - basic and
diluted, before
extraordinary loss $ .11 $ .16 $ (.51) $ .15
Net income (loss) per
share - basic
and diluted $ .11 $ . 16 $ (.55) $ .15

15

Report of Independent Auditors

Stockholders and Directors
Richardson Electronics, Ltd.
LaFox, Illinois

We have audited the accompanying consolidated balance sheets of Richardson
Electronics, Ltd. and subsidiaries as of May 31, 1998 and 1997, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended May 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Richardson
Electronics, Ltd. and subsidiaries at May 31, 1998 and 1997, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended May 31, 1998, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Chicago, Illinois
July 14, 1998

Corporate Officers and Board of Directors

Corporate Officers

Edward J. Richardson
Chairman of the Board and Chief Executive Officer
Bruce W. Johnson
President and Chief Operating Officer
Charles J. Acurio
Executive Vice President and General Manager, Display Products Group
Pierluigi Calderone
Vice President and Manager of European Operations
Page Y. Chiang
Vice President and Operations Manager, Security Systems Division
Kevin M. Connor
Vice President of Sales, Solid State and Components Group
Flint Cooper
Executive Vice President and General Manager, Security Systems Division
William J. Garry
Senior Vice President, Finance and Chief Financial Officer
Joseph C. Grill
Vice President, Human Resources
Norman A. Hilgendorf
Vice President and General Manager, Solid State and Components Group
Kathleen M. McNally
Vice President, Marketing Operations
Bart Petrini
Executive Vice President and General Manager, Electron Device Group
Robert Prince
Executive Vice President, Worldwide Sales
Kevin F. Reilly
Vice President and Chief Information Officer
William G. Seils
Senior Vice President, General Counsel and Corporate Secretary
Ronald G. Ware
Treasurer and Assistant Secretary

Board of Directors

Edward J. Richardson (1)
Arnold R. Allen
Consultant
Jacques Bouyer (6)
Consultant
Kenneth J. Douglas (2,3,4)
Chairman of the Board, West Suburban Hospital Medical Center
William J. Garry
Scott Hodes (2,3,5)
Partner, Law Firm of Ross & Hardies
Bruce W. Johnson (1)
Ad Ketelaars (6)
Consultant
Harold L. Purkey (2)
President, Forum Capital Markets
Samuel Rubinovitz (1,3,4,5,6)
Consultant and Chairman, LTX Corporation

(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Stock Option Committee
(5) Executive Oversight Committee
(6) Strategic Planning Committee

17

Stockholder Information

Corporate Office
Richardson Electronics, Ltd.
40W267 Keslinger Road
PO BOX 393
LaFox, Illinois 60147-0393
(630) 208-2200
Internet:www.rell.com
E-mail: info@rell.com

Annual Meeting
We encourage stockholders to attend the annual meeting scheduled for Tuesday,
October 6, 1998 at 3:15 p.m. at the Company's corporate office. Further details
are available in your proxy materials.

Transfer Agent and Registrar
Continental Stock Transfer Company
2 Broadway, 19th Floor
New York, NY 10004

Auditors
Ernst & Young LLP
233 S. Wacker Drive
Chicago, Illinois 60606

Brokerage Reports
Barrington Research
Cleary Gull Reiland & McDevitt Inc.
McDonald & Company Securities, Inc.
Pauli & Company

Market Makers
Barrington Research
William Blair & Co.
Cleary Gull Reiland & McDevitt Inc.
C. L. King & Associates
McDonald & Company Securities, Inc.
Pauli & Company
Smith Barney Shearson
Wechsler & Krumholz, Inc.

Form 10K and Other Information

A copy of the Company's Annual Report on Form 10K, filed with the Securities
and Exchange Commission is available without charge upon request. All inquiries
should be addressed to the Investor Relations Department, Richardson
Electronics, Ltd., 40W267 Keslinger Road, PO BOX 393, LaFox, Illinois 60147-
0393. Press releases and other information can be found on the Internet at the
Company's home page at http://www.rell.com.

Market Price of Common Stock

The common stock is traded on the NASDAQ National Market System under the
symbol "RELL".The number of stockholders of record of Common Stock and Class B
Common Stock at May 31, 1998 was 645 and 32, respectively. The Company believes
there are approximately an additional 1,300 holders who own shares of the
Company's Common Stock in street name. The quarterly market price ranges of the
Company's common stock were as follows:

1998 1997
------------------- --------------------
Fiscal Quarters High Low High Low
-------- -------- -------- --------
First 8 3/4 8 10 1/2 9
Second 13 3/4 8 3/8 10 7
Third 12 5/8 9 3/4 10 1/4 8
Fourth 14 1/2 10 1/4 8 1/4 6 3/4

17

Richardson Electronics, Ltd. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(in thousands)

COL. A COL. B COL. C COL. D COL. E
ADDITIONS
- ------------------------- --------- ------------------- ----------- -------
(1) (2)
Balance Charged Charged to Balance
at to Costs Other at
Beginning and Accounts- Deductions- End of
DESCRIPTION of Period Expenses Describe Describe Period
- ------------------------- --------- -------- --------- ----------- -------
Year ended May 31, 1998:
Allowance for sales
returns and doubtful
accounts $ 2,102 $ 431 $ - $ 303(1) $2,230
Other reserves $ 1,956 $ 41(2)$ - $ 635(3) $1,362

Year ended May 31, 1997:
Allowance for sales
returns and doubtful
accounts $ 1,461 $1,749 $ - $ 1,108(1) $2,102
Other reserves $ 1,539 $ 900(4)$ - $ 483(3) $1,956

Year ended May 31, 1996:
Allowance for sales
returns and doubtful
accounts $ 1,385 $ (42) $ - $ (118)(1) $1,461
Other reserves $ 1,728 $ 400(2)$ - $ 589 (3) $1,539

(1) Uncollectible amounts written off, net of recoveries and foreign currency
translation.
(2) Provision to increase EPA groundwater remediation reserve
(3) Expenditures made for reserved items
(4) Provision for corporate reorganization and increase in EPA groundwater
remediation reserve.