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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

For the fiscal year ended December 31, 2003

Commission file number 0-26844

RADISYS CORPORATION

5445 N.E. Dawson Creek Drive

(503) 615-1100

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

Securities registered pursuant to Section 12(g) of the Act:

      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 the filing requirements for the past 90 days.     Yes þ     No o

      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 in any amendment to this Form 10-K.     þ

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)     Yes þ     Noo

      The aggregate market value of the voting stock (based upon the closing price of the Nasdaq National Market on June 30, 2003 of $13.40) of the Registrant held by non-affiliates of the Registrant at that date was approximately $210,282,234. For purposes of the calculation executive officers, directors and holders of 10% or more of the outstanding Common Stock are considered affiliates.

Number of shares of Common Stock outstanding as of March 1, 2004: 18,628,415

DOCUMENTS INCORPORATED BY REFERENCE

RADISYS CORPORATION

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PART I

Item 1.     Business

Introduction

      RadiSys is a leading provider of advanced embedded systems for the service provider, commercial and enterprise markets. Through close customer collaboration, and combining innovative technologies and industry leading architecture, we help our customers bring better products to market faster and more economically. Our products include embedded software, boards, platforms and systems, which are used in today’s complex computing, processing and network intensive applications.

End Markets

      We provide advanced embedded solutions to three distinct markets:

	•	Service Provider Systems — The service provider systems market includes embedded communication systems that are used in voice, video and data systems within public network systems. Examples of these products include 2, 2.5 and 3G wireless infrastructure, wireline infrastructure, packet-based switches and unified messaging products.
	•	Commercial Systems — The commercial systems market includes the following sub-markets: medical equipment, transaction terminals, test and measurement equipment, semiconductor capital equipment and automated industrial equipment. Examples of products into which our embedded solutions are incorporated include 4D ultrasound systems, blood analyzers, CT scanners, ATM terminals, point of sale terminals, high-end test equipment and electronics assembly equipment.
	•	Enterprise Systems — The enterprise systems market includes embedded compute, processing and networking systems used in private enterprise IT infrastructure. Examples of products that our embedded solutions are used in include blade-based servers, unified messaging systems, IP-enabled PBX systems, storage systems and local area network interface input/output (“I/ O”) cards.

Market Drivers

      There are a number of fundamental drivers for growth in the embedded systems market, including :

	•	Increasing focus by system makers to provide higher value systems by focusing their internal development efforts on their key areas of competency and combining their internal development efforts with merchant-supplied platforms from partners like RadiSys to deliver a complete system with a time-to-market advantage and a lower total cost of ownership.
	•	Increasing levels of programmable, intelligent and networked functionality embedded in a variety of systems, including systems for monitoring and control, real-time information processing and high-bandwidth network connectivity.
	•	Increasing demand for standards-based solutions, such as Advanced Telecommunication Architecture (“AdvancedTCA”), that motivates system makers to discontinue developing their own proprietary architectures.
	•	The emergence of new technologies such as switch fabrics, network I/ O cards, packet processing, network processing and voice processing, following the embedded systems model.

Strategy

      Our strategy is to provide our customers with a “virtual division” where embedded systems, or functional building blocks, are conceived, developed, supplied and managed for them. We believe that this enables our customers to focus their limited resources and development efforts on their key areas of competency allowing them to provide higher value systems with a time-to-market advantage and a lower total cost of ownership. Historically, system makers had been largely vertically integrated, developing most, if not all, of the functional

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Products

      We design and deliver a broad range of products at different levels of integration:

	•	Complete Turnkey Systems for the service provider, commercial and enterprise markets;
	•	Embedded Subsystems and Functional Platforms including AdvancedTCA, CompactPCI, PICMG 2.16 Packet Switching Backplane, and customer-specific platforms;
	•	Compute, I/ O, Interworking and Packet Processing Blades; mezzanines and modules utilizing general purpose, network, and digital signal processors; and
	•	Software, Middleware, and Microcode, including embedded Operating Systems, BIOS, SAF-HPI, IPMI, and various protocol stacks including signaling, management and data plan protocols.

      We have specific technical expertise in the following areas:

	•	System Architecture and Design;
	•	Software Development;
	•	Embedded Operating Systems;
	•	Microprocessors (with particular expertise in Intel Architecture);
	•	Network Processors (with particular expertise in Intel Architecture);
	•	ASIC Design; and
	•	Signaling Protocols and Implementation.

      Perfect Fit Solutions. Our perfect fit solutions are products tailored or customized to meet specific customer or application requirements. These solutions range from modifications of standard or existing products to full-up development and supply of customized solutions. We draw on our extensive experience and large design library to create products with varying degrees of customization. The development of custom solutions requires close and frequent communication with customers during the development process as well as deep technical and supply management capability to assure meeting complex customer product requirements.

      Standard Products. We provide a highly differentiated set of standard products. We can deliver CPU platforms, system platforms, voice and image processing products, network interface modules, network processor products, signaling products, embedded chipsets, software, and OS-9 operating systems on many key architectures.

Competition

      We have three different types of competitors:

	•	System Makers — The largest of our competitors are the system makers themselves when they design and supply their own systems. However, we believe there is a trend away from this all-internal mode of system development and supply.
	•	Diversified Conglomerates — These competitors are divisions or business units within large conglomerates, and include Force Computers, a unit of Solectron, Inc., divisions within Intel Corporation, and Motorola Computer Group, a unit of Motorola Inc.
	•	Independent Embedded Solutions Providers — These competitors include Advantech Co., Ltd, Kontron AG, Performance Technologies, and SBS Technologies.

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Customers

      Our customers include many leading system makers in a variety of end markets. Examples of these customers include: Agilent Technologies, Applied Materials, Inc., Avaya, Inc., Beckman Coulter Inc., Comverse Network Systems, LTD., Diebold, Inc., Hewlett Packard Inc., International Business Machines Corporation (“IBM”), International Gaming Technology, Lucent Technologies, Inc., Nokia Corporation, Nortel Networks Limited, Philips Medical Systems N.E.D. B.V, Siemens AG, Tektronix, Inc. and Universal Instruments.

      Our five largest customers, which accounted for approximately 58% of revenues in 2003, are listed below with a representative example of the type of application into which the customers incorporate RadiSys products:

      Nokia and Nortel were our largest customers in 2003 accounting for 20% and 19% of total 2003 revenues, respectively.

Research, Development and Engineering

      We believe our research, development and engineering expertise represents an important competitive advantage. Our research and development staff consisted of 176 engineers and technicians at February 20, 2004.

      Part of our research, development and engineering efforts are focused on “perfect-fit” integrated solutions for our customers, where existing functional building blocks are tailored to meet the customers’ specific needs. For these programs, our engineering team works closely with the customer’s engineering team to architect, develop and deliver solutions that meet their specific requirements using RadiSys functional building blocks. In some cases, the customer will pay non-recurring engineering fees as pre-defined milestones are achieved. We engage in close and frequent communication during the design and supply process, allowing us to operate as a “virtual division” within a customer’s organization. Our in-depth understanding of embedded systems provides customers with competitive solutions enabling us to respond to current and future system requirements and earning a strong incumbent position.

      We retain the rights to technology developed during the design process. In some cases, we agree to share technology rights, manufacturing rights, or both, with the customer. However, we retain nonexclusive rights to use any shared technology.

      In addition to “perfect fit” products, we develop standard products based on our expertise in a wide variety of applications and technologies. We are increasing our investment in standard products, such as AdvancedTCA. We believe this will allow us to provide a broader set of products and building blocks to take to market which will grow the base of products that can be optimized to specific customer needs. In addition, we are increasingly combining our standard products to create more integrated hardware and software based systems.

      Our research and development is focused on three fundamental applications:

	•	Computing, networking and processing, including blades, platforms, systems, software-rich blades, and I/ O blades;

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	•	Internetworking, including user-plane interface modules and service inter-working gateways;
	•	Packet Switching Fabrics, including cell-based switching with packet processing.

      In 2003, 2002, and 2001, we invested $22.8 million, $27.7 million, and $33.2 million, respectively, in research and development.

Sales and Marketing

      We utilize a direct sales force to engage our largest customers and a network of distributors for other customers. The total direct sales and marketing headcount was 78 at February 20, 2004. We use our sales cycle and dedicated cross-functional teams to develop long-term relationships with our customers, which is a means by which we achieve collaborative success. Our cross-functional teams include sales, marketing, program management, supply chain management, finance and design engineering. These teams partner with our customers to understand their business so that we can identify and provide our customers with solutions that achieve higher quality, lower cost and faster time to market for their products.

      We market our products in North America, Europe and Israel (“EMEA”), and Asia Pacific. In each of these geographies, products are sold principally through a direct sales force with RadiSys sales resources located in the United States, Europe, Israel, China and Japan. In addition, in each of these geographies we make use of an indirect distribution model to access some of our customers. In 2003, global revenues were comprised geographically of 54% from North America, 42% from EMEA, and 4% from Asia.

      Financial information regarding the Company’s domestic and foreign operations is presented in Note 18 of the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

Manufacturing and Supply

      We utilize a combination of internal and outsourced manufacturing. Total manufacturing operations headcount was 312 at February 20, 2004. We currently manufacture approximately half of our own products but intend to outsource more of our higher-volume products to contract manufacturing partners for reduced cost and increased flexibility. Our strategy is to manufacture lower volume and/or higher complexity products internally and outsource higher volume products to our contract manufacturing partners.

      We have an automated ISO9001 certified plant in Hillsboro, Oregon that provides board assembly and test as well as system assembly, configuration and test. This plant has two automated lines for SMT double-sided board assembly and facilities for systems integration, configuration and test. Because the products into which building blocks are integrated typically have long life reliability requirements, dynamic stress testing of our products must be particularly rigorous. We believe our testing processes represent a competitive advantage in this area.

      Although many of the raw materials and much of the equipment used in our internal and outsourced manufacturing operations are available from a number of alternative sources, some of these materials and some equipment are obtained from a single supplier or a limited number of suppliers. We utilize a few contract manufacturers, mainly Sanmina-SCI and Manufacturers’ Services Limited (“MSL”), for outsourced board and system production. This production could either be moved internally or transferred to other contract manufacturers. Such transfers would require technical and logistical activities and would not be instantaneous. We are dependent on third parties for a continuing supply of the components used in the manufacture of our products. For example, we are dependent solely on Intel for the supply of some microprocessors and other components, and we depend on Epson Electronic America, Lucent Technologies, Inc., Maxim Integrated Products, Inc., Texas Instruments, Inc., and Toshiba America Inc. as the sole source suppliers for other components. Alternative sources of supply for some of these components would be difficult to locate.

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Backlog

      As of December 31, 2003, our backlog was approximately $31.8 million, compared to $23.8 million as of December 31, 2002. We include all purchase orders scheduled for delivery within 12 months in backlog. The general trend within our addressable markets is for shorter lead times and supplier managed inventory.

Intellectual Property

      We own 24 U.S. utility patents, four of which have corresponding foreign patents pending or issued. We have pending one additional U.S. patent application related to technology incorporated into our products; however, we rely principally on trade secrets for protection of our intellectual property. We believe that our competitiveness depends much more on the pace of our product development, trade secrets, and our relationships with customers. We have from time to time been made aware of others in the industry who assert exclusive rights to certain technologies, usually in the form of an offer to license certain rights for fees or royalties. Our policy is to evaluate such claims on a case-by-case basis. We may seek to enter into licensing agreements with companies having or asserting rights to technologies if we conclude that such licensing arrangements are necessary or desirable.

Employees

      As of February 20, 2004 we had 637 employees, of which 523 were regular employees and 114 were agency temporary employees or contractors. We are not subject to any collective bargaining agreement, have never been subject to a work stoppage, and believe that we have maintained good relationships with our employees.

Corporate History

      RadiSys Corporation was incorporated in March 1987 under the laws of the State of Oregon for the purpose of developing, producing and marketing embedded computers across a number of markets.

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FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K may contain forward-looking statements. Our statements concerning expectations and goals for revenues, gross margin, research and development expenses, selling, general, and administrative expenses, the impact of our restructuring events on future revenues, the anticipated cost savings effects of our restructuring activities, and our projected liquidity are some of the forward-looking statements contained in this Annual Report on Form 10-K. All statements that relate to future events or to our future performance are forward-looking statements. In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “expect,” “plans,” “seeks,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “seek to continue,” “intends,” or other comparable terminology. These forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industries’ actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements.

      Forward-looking statements in this Annual Report on Form 10-K include discussions of our goals, including those discussions set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. We cannot provide assurance that these goals will be achieved.

      Although forward-looking statements help provide complete information about us, investors should keep in mind that forward-looking statements are only predictions, at a point in time, and are inherently less reliable than historical information. In evaluating these statements, you should specifically consider the risks outlined above and those listed under “Risk Factors.” These risk factors may cause our actual results to differ materially from any forward-looking statement.

      We do not guarantee future results, levels of activity, performance or achievements and we do not assume responsibility for the accuracy and completeness of these statements. The forward-looking statements contained in this Annual Report on Form 10-K are based on information as of the date of this report. We assume no obligation to update any of these statements based on information after the date of this report.

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RISK FACTORS

Risk Factors Related to Our Business

      During 2003, we derived 58% of our revenues from five customers. These five customers were Nokia, Nortel, IBM, Comverse and Diebold. During 2003, revenues attributable to Nokia and Nortel were 20% and 19%, respectively. We believe that sales to these customers will continue to be a substantial percentage of our revenues. A financial hardship experienced by, or a substantial decrease in sales to any one of our top customers could materially affect revenues and profitability.

      We derive a majority of our revenues from design wins. We announced 41 design wins during 2003 and 46 design wins during 2002. A design win is a project estimated at the time of the design win to produce more than $500,000 in revenue per year assuming full production. Design wins that ramp into production do so at varying rates. If a design win actually ramps into production, the average ramp into production begins about 12 months after the win, although some more complex wins can take up to 24 months or longer. After that, there is an additional time lag from the start of production ramp to peak revenue. Not all design wins ramp into production and even if a win is ramped into production, the volumes derived from such design win may not be as significant as we had originally estimated. The determination of a design win is highly subjective and is based on information available to us at the time of the project estimate. Design wins are sometimes canceled or delayed, or can perform below original expectations, which can adversely impact anticipated revenues and profitability. Due to the confidential nature of the relationships we maintain with our customers, as a general practice, we do not update design win information for actual results.

      We derive our revenues from a number of diverse end markets, some of which are subject to significant cyclical changes in demand. In 2003, we derived 38%, 32% and 30% of our revenues from the service provider systems market, the commercial systems market and the enterprise systems market, respectively. We believe that our revenues will continue to be divided among these three markets. Service provider revenues include, but are not limited to, telecommunications sales to Comverse, Lucent, Nokia and Nortel. Enterprise systems revenues include, but are not limited to, sales to Avaya, Inc., IBM and Nortel. Commercial systems revenues include, but are not limited to, sales to Agilent Technologies, Beckman Coulter Inc., Diebold, Philips Medical Systems N.E.D. B.V and Seimens AG. Generally, our customers are not the end-users of our products. If our customers experience adverse economic conditions in the markets into which they sell our products (end markets), we would expect a significant reduction in spending by our customers. Some of these end markets are characterized by intense competition, rapid technological change, economic uncertainty and structural financial problems. Our exposure to economic cyclicality and any related fluctuation in customer demand in these end markets could have a material adverse effect on our revenues and financial condition. Significant reduction in our customers’ spending, such as what we experienced in 2001 and 2002, will result in decreased revenues and earnings. We continue to execute on our strategy of expanding into new end markets either through new design wins with our existing customers or through new customer relationships, but no assurance can be given that this strategy will be successful.

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      We depend on a few suppliers, or in some cases one supplier, for a continuing supply of the components we use in the manufacture of our products and any disruption in supply could adversely impact our financial performance. For example, we are dependent solely on Intel for the supply of some microprocessors and other components, and we depend on Epson Electronic America, Lucent Technologies, Inc., Maxim Integrated Products, Inc., Texas Instruments, Inc., and Toshiba America Inc. as the sole source suppliers for other components. Alternative sources of supply for some of these components would be difficult to locate.

      Although, we utilize several contract manufacturers for outsourced board and system production, we depend on two primary contract manufacturing partners, Manufacturers’ Services Limited and Sanmina-SCI, and any failed or less than optimal execution on their behalf could temporarily affect our revenues and profitability. In addition, our outsourced board and system production could either be moved internally or transferred to other contract manufacturers. Such transfers would require technical and logistical activities and would not be instantaneous. At the end of 2003, our two primary contract manufacturing partners were manufacturing approximately half of all RadiSys unit volume.

      We compete with a number of companies providing embedded systems, including Advantech Co. LTD., Force Computers, a division of Solectron, Inc., divisions within Intel Corporation, Kontron AG, Motorola Computer Group, a unit of Motorola Inc., Performance Technologies and SBS Technologies. Because the embedded systems market is growing, it is attracting new non-traditional competitors. These non-traditonal competitors include contract-manufacturers that provide design services, Asia-based original design manufacturers (“ODM”), and providers of traditional IT infrastructure products. Some of our competitors and potential competitors have a number of significant advantages over us, including:

	•	a longer operating history;
	•	greater name recognition and marketing power;
	•	preferred vendor status with our existing and potential customers; and
	•	significantly greater financial, technical, marketing and other resources, which allow them to respond more quickly to new or changing opportunities, technologies and customer requirements.

      Furthermore, existing or potential competitors may establish cooperative relationships with each other or with third parties or adopt aggressive pricing policies to gain market share.

      As a result of increased competition, we could encounter significant pricing pressures. These pricing pressures could result in significantly lower average selling prices for our products. We may not be able to offset the effects of any price reductions with an increase in the number of customers, cost reductions or otherwise. In addition, many of the industries we serve, such as the communications industry, are encountering market consolidation, or are likely to encounter consolidation in the near future, which could result in increased pricing pressure and additional competition.

      Future acquisitions and partnerships may involve the use of significant amounts of cash, potentially dilutive issuances of equity or equity-linked securities, issuance of debt and amortization of intangible assets with determinable lives. Moreover, to the extent that any proposed acquisition or strategic investment is not

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	•	difficulties in the assimilation of the operations, technologies, products and personnel of the acquired company;
	•	the diversion of management’s attention from other business concerns;
	•	risks of entering markets in which we have no or limited prior experience; and
	•	the potential loss of key employees of the acquired company.

      In the event that an acquisition or a partnership does occur and we are unable to successfully integrate operations, technologies, products or personnel that we acquire, our business, results of operations and financial condition could be materially adversely affected.

      We derived 42% of our 2003 revenues from EMEA and 4% from Asia Pacific. In addition, we have a design center located in Birmingham, United Kingdom. As a result, we are subject to worldwide economic and market conditions risks generally associated with global trade, such as fluctuating exchange rates, tariff and trade policies, domestic and foreign tax policies, foreign governmental regulations, political unrest, wars and other acts of terrorism and changes in other economic conditions. These risks, among others, could adversely affect our results of operations or financial position.

      We cannot provide absolute assurance that we will generate sufficient taxable income to fully utilize the net deferred tax assets of $28.8 million as of December 31, 2003. We may not generate sufficient taxable income due to losses from operations and events related to restructurings and acquisitions. Accordingly, we may record a full valuation allowance against the deferred tax assets if our expectations of taxable future income are not achieved. On the other hand, if we generate taxable income in excess of our expectations, the valuation allowance may be reduced accordingly. We also cannot provide absolute assurance that future income will support the carrying amount of goodwill and intangibles of $34.0 million on the Consolidated Balance Sheet as of December 31, 2003, and therefore, we may incur an impairment charge in the future.

      We provide long-life support to our customers and therefore we have material levels of customer-specific inventory. A financial hardship experienced by our customers could materially affect the viability of the dedicated inventory, and ultimately adversely impact our profitability.

      We develop and supply a mix of perfect fit and off-the-shelf products. Off-the-shelf products for embedded computing applications are often based on industry standards, which are continually evolving. Our future success in these products will depend, in part, upon our capacity to invest in, and successfully develop and introduce new products based on emerging industry standards. Our inability to invest in or conform to these standards could render parts of our product portfolio uncompetitive, unmarketable or obsolete. As our addressable markets develop new standards, we may be unable to successfully invest in, design and manufacture new products that address the needs of our customers or achieve substantial market acceptance.

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      We are a technology dependent company, and our success depends on developing and protecting our intellectual property. We rely on patents, copyrights, trademarks and trade secret laws to protect our intellectual property. At the same time, our products are complex, and are often not patentable in their entirety. We also license intellectual property from third parties and rely on those parties to maintain and protect their technology. We cannot be certain that our actions will protect proprietary rights. If we are unable to adequately protect our technology, or if we are unable to continue to obtain or maintain licenses for protected technology from third parties, it could have a material adverse effect on our results of operations.

      The price of our common stock may be subject to wide, rapid fluctuations. Our period-to-period revenues and operating results have varied in the past and may continue to vary in the future, and any such fluctuations may cause our stock price to fluctuate. Fluctuations in the stock price may also be due to other factors, such as changes in analysts’ estimates regarding earnings, or may be due to factors relating to the service provider systems, enterprise systems and commercial systems markets in general. Shareholders should be willing to incur the risk of such fluctuations. We reported revenues of $202.8 million, $200.1 million, and $227.7 million for the years ended December 31, 2003, 2002 and 2001, respectively. We reported income (loss) from continuing operations of $6.0 million, ($1.8) million, and ($33.1) million for the years ended December 31, 2003, 2002 and 2001, respectively. We reported net income (loss) of $1.3 million, ($3.3) million, and ($34.5) million for the years ended December 31, 2003, 2002 and 2001, respectively. The high and low closing price of our common stock during 2003 was $21.30 and $5.35, respectively. The high and low closing price of our common stock during 2002 was $21.54 and $3.41, respectively. The high and low closing price of our common stock during 2001 was $28.88 and $11.48, respectively.

      Additionally, during 2003, we issued 1.375% Senior Convertible Notes with a face value or principal amount of $100 million. The notes are convertible prior to maturity into shares of our common stock under certain circumstances that include but are not limited to (i) conversion due to the closing price of our common stock on the trading day prior to the conversion date reaching 120% or more of the conversion price of the notes on such trading date and (ii) conversion due to the trading price of the notes falling below 98% of the conversion value. The conversion price is $23.57 per share, which is equal to a conversion rate of 42.4247 shares per $1,000 principal amount of notes. The closing price as reported on NASDAQ on March 1, 2004 was $21.28 per share or 90% of the conversion price. As of December 31, 2003, the total number of as-if converted shares excluded from the earnings per share calculation associated with the convertible senior notes was 4.2 million.

      Our articles of incorporation and our bylaws contain anti-takeover provisions that could delay or prevent a change of control of our company, even if a change of control would be beneficial to our shareholders. These provisions:

	•	authorize our board of directors to issue up to 10,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without prior shareholder approval to increase the number of outstanding shares and deter or prevent a takeover attempt;
	•	establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings;

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	•	prohibit cumulative voting in the election of directors, which would otherwise allow less than a majority of shareholders to elect director candidates; and
	•	limit the ability of shareholders to take action by written consent, thereby effectively requiring all common shareholder actions to be taken at a meeting of our common shareholders.

      In addition, provisions of Oregon law condition the voting rights that would otherwise be associated with any shares of our common stock that may be acquired in specified transactions deemed to constitute “control share acquisitions” upon approval by our shareholders (excluding, among other things, the acquirer in any such transaction). Provisions of Oregon law also restrict, subject to specified exceptions, the ability of a person owning 15% or more of our common stock to enter into any “business combination transaction” with us.

      The foregoing provisions of Oregon law and our articles of incorporation and bylaws could limit the price that investors might be willing to pay in the future for shares of our common stock.

      Other risk factors include, but are not limited to, changes in the mix of products sold, regulatory and tax legislation, changes in effective tax rates, inventory risks due to changes in market demand or our business strategies, potential litigation and claims arising in the normal course of business, credit risk of customers and other risk factors. Proposed changes to accounting rules, including proposals to account for employee stock options as a compensation expense, could, if mandated, materially increase the expense that we report under generally accepted accounting principles and adversely affect our operating results.

INTERNET INFORMATION

      Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website (www.radisys.com) as soon as reasonably practicable after we electronically file the information with, or furnish it to, the Securities and Exchange Commission.

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Item 2.     Properties

      Information concerning our principal properties at December 31, 2003 is set forth below:

      In addition to the above properties, we own two parcels of land adjacent to our Hillsboro, Oregon facility, which are being held for future expansion. We also lease offices in the United States located in Houston, Texas; San Diego, and Campbell, California; Charlotte, North Carolina; and Marlborough, Massachusetts. Internationally, we lease office space in the following cities: Munich, Germany; Rehovot, Israel; Tokyo, Japan; Dublin, Ireland; and Shanghai, China.

      Beginning in the first quarter of 2001, we initiated a restructuring of our operations. As a result, we committed to vacate properties according to our restructuring plans. We partially vacated facilities in Boca Raton, Florida and vacated completely the facilities in Campbell, California and Houston, Texas. At the end of 2003, we were utilizing or subleasing the majority of space in our facilities that were not vacated as a result of our restructuring plans.

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      We have no material litigation pending.

      Not applicable.

PART II

      Our Common Stock is traded on the Nasdaq National Market under the symbol “RSYS.” The following table sets forth, for the periods indicated, the highest and lowest closing sale prices for the Common Stock, as reported by the Nasdaq National Market.

      The closing price as reported on NASDAQ on March 1, 2004 was $21.28 per share. As of March 1, 2004, there were approximately 356 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders because a large portion of our outstanding Common Stock is held of record in broker “street names” for the benefit of individual investors.

Dividend Policy

      We have never paid any cash dividends on our common stock and do not expect to declare cash dividends on the common stock in the foreseeable future in compliance with our policy to retain all of our earnings to finance future growth.

Issuance of Unregistered Securities

      In November 2003, we completed a private placement of $100 million aggregate principal amount of 1.375% Convertible Senior Notes due November 15, 2023 (the “Convertible Notes”) to Credit Suisse First Boston LLC and Banc of America Securities LLC (the “Initial Purchasers”) under the exemption from registration provided in Rule 144A of the Securities Act of 1933. The Convertible Notes are convertible prior to maturity into shares of our common stock only under the following circumstances:

	•	the closing price of our common stock on the trading day prior to the conversion date reaches 120% or more of the conversion price of the Convertible Notes on such trading date;
	•	we have called the Convertible Notes for redemption;
	•	during the five business day period following any five consecutive trading day period in which the trading price of the Convertible Notes falls to less than 98% of the conversion value (the closing price of our shares of common stock multiplied by the then current conversion rate); or

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	•	we make certain distributions to holders of our common stock or we enter into specified corporate transactions.

      The initial conversion price is $23.5712 per share (except under limited circumstances on or after November 15, 2018), subject to adjustment for certain events. The conversion price is equivalent to a conversion rate of approximately 42.4247 shares per $1,000 principal amount of Convertible Notes. Upon conversion, we will have the right to deliver, in lieu of our common stock, cash or a combination of cash and shares of our common stock, in our sole discretion.

      We originally issued the Convertible Notes to the Initial Purchasers at a price of 97% of their principal amount or $97 million.