RELL 10-Q Quarter ended Feb. 27, 2010

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended February 27, 2010

OR

For the transition period from To

Commission File Number: 0-12906

RICHARDSON ELECTRONICS, LTD.

(Exact name of registrant as specified in its charter)

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

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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of April 5, 2010, there were outstanding 14,592,837 shares of Common Stock, $0.05 par value and 3,048,258 shares of Class B Common Stock, $0.05 par value, which are convertible into Common Stock of the registrant on a share for share basis.

Table of Contents

TABLE OF CONTENTS

1

Table of Contents

Richardson Electronics, Ltd.

(in thousands, except per share amounts)

2

Table of Contents

Richardson Electronics, Ltd.

and Comprehensive Income (Loss)

(in thousands, except per share amounts)

3

Table of Contents

Richardson Electronics, Ltd.

(in thousands)

4

Table of Contents

Richardson Electronics, Ltd.

Unaudited Condensed Consolidated Statement of Stockholders’ Equity

(in thousands)

5

Table of Contents

RICHARDSON ELECTRONICS, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE COMPANY

Richardson Electronics, Ltd. (“we”, “us”, and “our”) was originally incorporated in the state of Illinois in 1947 and is currently incorporated in the state of Delaware. We are a global provider of engineered solutions and a global distributor of electronic components to the radio frequency (“RF”), wireless and power conversion, electron device, and display systems markets. Utilizing our core engineering and manufacturing capabilities, our strategy is to provide specialized technical expertise and value-add, or “engineered solutions.” We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, and logistics for end products of our customers. Design-in support includes component modifications or the identification of lower-cost product alternatives or complementary products.

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

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

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

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

Canvys provides global integrated display products, systems and digital signage solutions serving financial, corporate enterprise, healthcare, and industrial markets.

We currently have operations in the following major geographic regions:

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Item 10 of Regulation S-K and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements.

References to GAAP issued by the Financial Accounting Standards Board (“FASB”) in these footnotes are to the FASB Accounting Standards Codification , ^TM sometimes referred to as the Codification or ASC. The FASB finalized the codification effective for periods ending on or after September 15, 2009.

In the opinion of management, all adjustments necessary for a fair presentation of the results of interim periods have been made. All inter-company transactions and balances have been eliminated. The

6

Table of Contents

RICHARDSON ELECTRONICS, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

unaudited condensed consolidated financial statements presented herein include the accounts of our wholly owned subsidiaries. The results of operations and cash flows for the three and nine months ended February 27, 2010, are not necessarily indicative of the results that may be expected for the fiscal year ending May 29, 2010.

Our fiscal quarter ends on the Saturday nearest the end of the quarter ending month. The first nine months of fiscal 2010 and 2009 each contain 39 weeks.

The financial information contained in this report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended May 30, 2009.

3. DISCONTINUED OPERATIONS

On May 31, 2007, we completed the sale of the Security Systems Division/Burtek Systems (“SSD/Burtek”) to Honeywell International Inc. (“Honeywell”). The sale agreement of SSD/Burtek to Honeywell contemplated a post-closing working capital-based purchase price adjustment.

On December 18, 2009, we reached an agreement with Honeywell to settle the pending working capital disputes as well as other related claims. As a result, we recorded $1.2 million of expense, net of zero tax effect, as a loss from discontinued operations during the second quarter of fiscal 2010. During the third quarter of fiscal 2010, a cash settlement of $1.0 million was paid.

4. INVESTMENT IN MARKETABLE EQUITY SECURITIES

Our investments are primarily equity securities, all of which are classified as available-for-sale and are carried at their fair value, based on the quoted market prices. The fair value of our equity securities, which are included in other non-current assets, were $0.3 million as of February 27, 2010, and May 30, 2009. Proceeds from the sale of securities were an immaterial amount during the third quarter of fiscal 2010 and 2009. Proceeds from the sale of securities were $0.1 million and $0.2 million during the first nine months of fiscal 2010 and 2009, respectively. The cost of the equity securities sold was based on a specific identification method. Gross realized gains and losses on those sales were less than $0.1 million during the third quarter and first nine months of fiscal 2010 and 2009. Net unrealized holding gains of less than $0.1 million during the third quarter and first nine months of fiscal 2010 have been included in accumulated other comprehensive income. Net unrealized holding gains of less than $0.1 million during the third quarter of fiscal 2009 have been included in accumulated other comprehensive income. Net unrealized holding losses of $0.1 million during the first nine months of fiscal 2009 have been included in accumulated other comprehensive income.

The following table presents the disclosure as required by FASB Accounting Standards Codification (“ASC”) 320-10, Investments – Debt and Equity Securities , for the investment in marketable equity securities with fair values less than cost basis ( in thousands ):

7

Table of Contents

RICHARDSON ELECTRONICS, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. INTANGIBLE ASSETS

Intangible assets subject to amortization were as follows ( in thousands ):

Amortization expense during the three and nine month periods ended February 27, 2010, and February 28, 2009, was as follows ( in thousands ):

The amortization expense associated with the intangible assets subject to amortization for the next five years is presented in the following table ( in thousands ):

The weighted average number of years of amortization expense as of February 27, 2010, is 1.79.

On March 10, 2010, we notified the holders of our 7 ³ / 4 % convertible senior subordinated notes (7 ³ / 4 % notes) that we elected to redeem, at par value, $10.0 million in aggregate principal outstanding. The $10.0 million of the 7 ³ / 4 % notes were redeemed on March 22, 2010. The redemption of $10.0 million of the 7 ³ / 4 % notes resulted in a loss of less than $0.1 million due to the write-off of the associated deferred financing fees.

6. WARRANTIES

We offer warranties for specific products we manufacture. We also provide extended warranties for some products we sell that lengthen the period of coverage specified in the manufacturer’s original warranty. Our warranty terms generally range from one to three years, beyond the original manufacturer warranty, primarily related to the Canvys business.

Warranty reserves are established for costs that are expected to be incurred after the sale and delivery of products under warranty. The warranty reserves are determined based on known product failures, historical experience, and other available evidence. Warranty reserves, which are included in accrued liabilities on our unaudited condensed consolidated balance sheets, were approximately $0.2 million as of February 27, 2010, and May 30, 2009.

8

Table of Contents

RICHARDSON ELECTRONICS, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-term debt as of February 27, 2010, and May 30, 2009, was as follows ( in thousands ):

As of February 27, 2010, we maintained $43.8 million in long-term debt in the form of 7 ³ / 4 % notes.

On March 10, 2010, we notified the holders of our 7 ³ / 4 % notes that we elected to redeem, at par value, $10.0 million in aggregate principal outstanding. The $10.0 million of the 7 ³ / 4 % notes were redeemed on March 22, 2010. The redemption of $10.0 million of the 7 ³ / 4 % notes resulted in a loss of less than $0.1 million due to the write-off of the deferred financing costs associated with the 7 ³ / 4 % notes. As the revolving credit agreement allows us to retire up to $15.0 million of our outstanding notes or equity, we obtained a waiver to our credit agreement to allow for the $10.0 million redemption of the 7 ³ / 4 % notes.

On January 11, 2010, we redeemed all $7.7 million of the 8% convertible senior subordinated notes (8% notes) at par value. The redemption of the 8% notes resulted in a loss of approximately $0.2 million due to the write-off of the remaining deferred financing costs associated with the 8% notes. As the revolving credit agreement allows us to retire up to $15.0 million of our outstanding notes or equity, we did not need to obtain a waiver from our lending group to permit the retirement of the $7.7 million of the 8% notes.

On December 9, 2009, we retired $0.9 million of the 7 ³ / 4 % notes at approximately 97% of par value, which resulted in a gain of less than $0.1 million, net of deferred financing costs of less than $0.1 million. As the revolving credit agreement allows us to retire up to $15.0 million of our outstanding notes or equity, we did not need to obtain a waiver from our lending group to permit the retirement of the $0.9 million of the 7 ³ / 4 % notes.

We entered into a $40.0 million revolving credit agreement on July 27, 2007, which included a Euro sub-facility and a Singapore sub-facility. The U.S. facility is reduced by the amounts drawn on the Euro sub-facility and Singapore sub-facility. Pursuant to an amendment to the revolving credit agreement entered into on July 20, 2009, the total capacity was reduced from $40.0 million to $25.0 million. As of February 27, 2010, there were no amounts outstanding under the revolving credit agreement. Outstanding letters of credit were approximately $0.1 million and we also had $2.5 million reserved for usage on our commercial credit card program, leaving an unused line of $22.4 million as of February 27, 2010. Based on our loan covenants, actual available credit as of February 27, 2010, was $22.4 million. We were in compliance with our loan covenants as of February 27, 2010.

Pursuant to an amendment to the revolving credit agreement entered into on July 20, 2009, the definition of the leverage ratio has been modified to exclude goodwill impairment charges, severance expense, and inventory write-downs in the calculation of adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”), for the fiscal year ended May 30, 2009. We were in compliance with our loan covenants as of May 30, 2009, without this amendment to our revolving credit agreement.

9

Table of Contents

RICHARDSON ELECTRONICS, LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The estimated fair values of our 7 ³ / 4 % notes and 8% notes are based on price quotes at February 27, 2010, and May 30, 2009. The following table presents the disclosure under FASB ASC 825-10-50, Financial Instruments ( in thousands ):