<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1996
Commission File Number: 0-9788
RICHEY ELECTRONICS, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0594451
- ------------------------------------ -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
7441 Lincoln Way, Garden Grove, California 92641
-----------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(714) 898-8288
-------------------------------------------------------------
(Registrant's Telephone Number, including Area Code)
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
--- ---
As of November 5, 1996, 9,062,685 shares of the registrant's Common
Stock, $0.001 par value, were issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RICHEY ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
September 27, December 31,
1996 1995
-------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 31,000 $ 572,000
Trade receivables 27,232,000 25,622,000
Inventories 37,817,000 31,450,000
Deferred income taxes 3,948,000 3,948,000
Other current assets 1,008,000 1,481,000
-------------- -------------
Total current assets $ 70,036,000 $ 63,073,000
-------------- -------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 3,673,000 $ 3,469,000
-------------- -------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 3,825,000 $ 4,979,000
Deferred debt costs 2,764,000 500,000
Other 561,000 661,000
Goodwill 47,561,000 46,259,000
-------------- -------------
$ 54,711,000 $ 52,399,000
-------------- -------------
$ 128,420,000 $ 118,941,000
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 263,000 $ 835,000
Accounts payable 20,838,000 18,250,000
Accrued expenses 4,497,000 6,088,000
Accrued restructuring costs 1,127,000 3,824,000
-------------- -------------
Total current liabilities $ 26,725,000 $ 28,997,000
-------------- -------------
ACCRUED RESTRUCTURING COSTS $ 900,000 $ 900,000
-------------- -------------
LONG-TERM DEBT
Subordinated notes payable $ 2,958,000 $ 2,982,000
Convertible subordinated notes payable 55,755,000 -
Other long-term debt 10,034,000 58,670,000
-------------- -------------
$ 68,747,000 $ 61,652,000
-------------- -------------
STOCKHOLDERS' EQUITY
Preferred Stock - -
Common Stock 9,000 9,000
Additional paid-in-capital 21,001,000 20,976,000
Retained earnings 11,038,000 6,407,000
-------------- -------------
Total stockholders' equity $ 32,048,000 $ 27,392,000
-------------- -------------
$ 128,420,000 $ 118,941,000
-------------- -------------
-------------- -------------
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------- ---------------------------
September 27, September 29 September 27 September 29
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $53,713,000 $28,803,000 $170,309,000 $83,704,000
Cost of Goods Sold 39,597,000 21,872,000 127,074,000 63,600,000
------------- ------------ ------------ ------------
Gross Profit $14,116,000 $ 6,931,000 $ 43,235,000 $20,104,000
------------- ------------ ------------ ------------
Operating expenses
Selling, warehouse,
general, and
administrative $ 9,298,000 $ 4,957,000 $ 30,284,000 $14,658,000
Amortization of intangibles 369,000 107,000 1,072,000 317,000
------------- ------------ ------------ ------------
$ 9,667,000 $ 5,064,000 $ 31,356,000 $14,975,000
------------- ------------ ------------ ------------
Operating income $ 4,449,000 $ 1,867,000 $ 11,879,000 $ 5,129,000
Interest Expense 1,519,000 80,000 4,150,000 687,000
------------- ------------ ------------ ------------
Income before income taxes $ 2,930,000 $ 1,787,000 $ 7,729,000 $ 4,442,000
Federal and state income taxes 1,176,000 717,000 3,098,000 1,783,000
------------- ------------ ------------ ------------
Net income $ 1,754,000 $ 1,070,000 $ 4,631,000 $ 2,659,000
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Earnings per Share
Primary $0.19 $0.12 $0.51 $0.35
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Fully Diluted $0.18 $0.12 $0.50 $0.35
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Weighted Average number of shares
outstanding
Primary 9,063,000 9,054,000 9,059,000 7,688,000
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Fully Diluted 13,010,000 9,054,000 12,153,000 7,688,000
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 27, September 29,
1996 1995
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,631,000 $ 2,659,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,325,000 636,000
Deferred income taxes 1,154,000 991,000
Changes in operating assets and liabilities:
(Increase) in trade receivables (215,000) (2,563,000)
(Increase) in inventories (5,589,000) (2,032,000)
Decrease in other assets 460,000 115,000
(Decrease) in accounts payable
and accrued expenses (291,000) (889,000)
-------------- -------------
Net cash provided by (used in) operating activities $ 2,475,000 ($1,083,000)
-------------- -------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment ($1,005,000) ($722,000)
Payment of acquisition and restructuring costs (5,892,000) (1,261,000)
-------------- -------------
Net cash (used in) investing activities ($6,897,000) ($1,983,000)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on short-term revolving line of credit - ($5,712,000)
Payments on long-term revolving line of credit ($8,361,000) -
Payments on long-term debt (40,871,000) (5,194,000)
Proceeds from issuance of convertible debt 55,755,000 -
Transaction costs associated with refinancing activities (2,667,000) (466,000)
Proceeds from issuance of common stock 25,000 16,205,000
-------------- -------------
Net cash provided by financing activities $ 3,881,000 $ 4,833,000
-------------- -------------
Increase (decrease) in cash ($541,000) $ 1,767,000
CASH
Beginning $ 572,000 $ 9,000
-------------- -------------
Ending $ 31,000 $ 1,776,000
-------------- -------------
-------------- -------------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 27, September 29,
1996 1995
-------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash Payments For:
Interest $ 3,479,000 $ 983,000
============== =============
Income taxes $ 349,000 $ 573,000
============== =============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of MS Electronics:
Working capital acquired $ 888,000
Fair market value of other assets acquired
including goodwill 2,231,000
--------------
Purchase price and related transaction costs $ 3,119,000
==============
Acquisition of Inland Empire Interconnects:
Working capital acquired $ 156,000
Fair market value of equipment acquired 520,000
Fair market value of other assets acquired including goodwill 711,000
-------------
Purchase price and related transaction costs $ 1,387,000
=============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 27, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
Additional
Preferred Shares paid-in Retained
Stock Outstanding Par Value Capital Earnings Total
----------- ------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 - 9,054,000 $9,000 $20,976,000 $6,407,000 $27,392,000
Stock issued for options & - 9,000 - 25,000 - 25,000
other
Net income - - - - 4,631,000 4,631,000
----------- ------------- ----------- ------------ ----------- -----------
Balance, September 27, 1996 - 9,063,000 $9,000 $21,001,000 $11,038,000 $32,048,000
=========== ============= =========== ============ =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Richey Electronics, Inc. is a specialty distributor of electronic
components and a provider of related value-added assembly services. The
Company distributes a broad line of connectors, switches, wire, cable and
heat shrinkable tubing and other interconnect, electromechanical and passive
components used in the assembly and manufacturing of electronic equipment.
Richey Electronics also provides a wide variety of value-added assembly
services. These value-added assembly services consist of (i) component
assembly, which is the assembly of components to manufacturer specifications
and (ii) contract assembly, which is the assembly of cable assemblies,
battery packs and mechanical assemblies to customer specifications. The
Company's customers are primarily small- and medium-sized original equipment
manufacturers.
SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In management's opinion, the accompanying
financial statements reflect all material adjustments, consisting of only
normal and recurring adjustments, necessary for a fair statement of the
results for the interim periods presented. The results for the interim
periods ended September 27, 1996 and September 29, 1995 are not necessarily
indicative of the results which will be reported for the entire year.
EARNINGS PER SHARE
The weighted average number of shares used for computing fully diluted
earnings per share assumes that the 7% Convertible Subordinated Notes due
2006 (the "Notes") which were sold by the Company in the first quarter of
1996 through a private offering (the "Note Offering") are converted at
$14.125 per share on the date they were issued. The Notes are not common
stock equivalents and, therefore, are not considered in determining the
primary weighted average number of shares. Net income used in computing
fully diluted earnings per share is increased for the interest expense, net
of tax, associated with the Notes.
7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
INCOME TAXES
Income tax expense in these interim financial statements is recorded
based upon the Company's expected annual effective income tax rate.
For further information, refer to the audited financial statements of
the Company and notes thereto for the year ended December 31, 1995, included
in the Company's Annual Report on Form 10-K.
NOTE 2. BUSINESS COMBINATIONS
INLAND EMPIRE INTERCONNECTS
On August 16, 1995, the Company completed the purchase (the "IEI
Acquisition") of the assets and business of Inland Empire Interconnects
("IEI"), an Ontario, California cable assembly company specializing in molded
interconnect products. The IEI Acquisition was accounted for as a purchase.
The results of operations of IEI subsequent to the date of the IEI
Acquisition are included in the Company's financial statements.
EDAC AND SUBSIDIARY (DEANCO ACQUISITION)
On December 20, 1995, the Company completed the purchase (the "Deanco
Acquisition") of all the issued and outstanding capital stock of Electrical
Distribution Acquisition Company ("EDAC") and its wholly owned subsidiary,
Deanco, Inc. ("Deanco"). The Deanco Acquisition was accounted for as a
purchase. The results of operations of Deanco subsequent to the date of the
Deanco Acquisition are included in the Company's financial statements.
In connection with the Deanco Acquisition, the Company has consolidated
facilities and eliminated significant redundant administrative costs. As
part of the consolidation, the Company has closed certain of its own
facilities and incurred other integration costs. During the fourth quarter
of 1995, the Company recognized a restructuring charge of $1,450,000. During
the nine-month period ended September 27, 1996, $1,250,000 of these
restructuring costs were paid. No adjustments were made to the original
estimates of this restructuring charge.
Also in connection with the Deanco Acquisition, the Company accrued
restructuring costs of $3,100,000 relating to the consolidation of Deanco's
operations into the Company.
8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Those costs were recorded as a purchase accounting adjustment, resulting in
an increase in goodwill in the preliminary purchase price allocation. The
preliminary allocation of the Deanco purchase price will be finalized when
all final costs are established. No adjustments were made to the original
estimates of these restructuring costs. At September 27, 1996, $1,523,000 of
these costs have been paid.
The Company merged EDAC into the Company in January 1996 and merged
Deanco into the Company in October 1996.
MS ELECTRONICS
On March 19, 1996, the Company completed the acquisition (the "MS
Acquisition") of the assets and business of MS Electronics, Inc. ("MS
Electronics"). MS Electronics specializes in the distribution of
interconnect, electromechanical and passive electronic components and
provides value-added assembly services in the Baltimore/Washington
marketplace. The MS Acquisition was accounted for as a purchase. The
purchase price and related transaction costs, including the assumption of MS
Electronics' debt of $525,000, were approximately $3,119,000 and were paid in
cash. The allocation of the purchase price is as follows: $2,231,000 to
estimated fair value of tangible assets acquired, $1,288,000 to liabilities
assumed and $2,176,000 to cost in excess of net assets of business acquired
(goodwill to be amortized over 15 years). The results of operations of MS
Electronics subsequent to the date of the MS Acquisition are included in the
Company's financial statements.
9
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
PRO FORMA FINANCIAL INFORMATION
The following pro forma results of continuing operations assume that the
Deanco Acquisition (which occurred on December 20, 1995) had occurred on
January 1, 1995, after giving effect to certain adjustments including
amortization of acquired intangibles and goodwill, elimination of duplicate
facilities and redundant salaries, interest expense and related tax effects.
Quarter Ended Nine Months Ended
September 29, 1995 September 29, 1995
------------------ ------------------
Net sales $ 54,096,000 $ 161,610,000
Net income $ 1,532,000 $ 3,871,000
Earnings per share $ .17 $ .50
Weighted average number
of shares outstanding 9,054,000 7,688,000
The IEI and MS Electronics Acquisitions would not have materially
changed pro forma net sales or net income. This pro forma financial
information does not purport to be indicative of the results of operations
that would have occurred had the Deanco Acquisition actually taken place at
the beginning of 1995.
10
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 3. PUBLIC COMMON STOCK OFFERING, PRIVATE CONVERTIBLE DEBT OFFERING,
STOCK OPTIONS AND NET OPERATING LOSS CARRYFORWARDS
PUBLIC COMMON STOCK OFFERING
In the second quarter of 1995, the Company issued 3,165,000 shares of
its common stock in a secondary offering. The net proceeds to the Company
from that offering were approximately $15,700,000. The Company used the net
proceeds to reduce the Company's existing indebtedness.
PRIVATE CONVERTIBLE DEBT OFFERING
In the first quarter of 1996, the Company sold through the Note Offering
$55,755,000 aggregate principal amount of its 7% Convertible Subordinated
Notes due 2006. The Notes are convertible into 3,947,000 shares of the
Company's common stock at a conversion price of $14.125 per share (subject to
adjustment). The Company has filed a shelf registration statement with the
Securities and Exchange Commission to register resales of the Notes and the
common stock issuable upon conversion. This registration statement became
effective on June 7, 1996. The net proceeds from the Note Offering were
approximately $53,600,000 and were used to repay the Company's $30,000,000
term loan and to pay down its revolving line of credit.
STOCK OPTIONS
The Company has a stock option plan adopted in 1992. The options
granted vest at a rate of 25% per year over a four-year period and, in
general, expire ten years from the date of grant. The options granted were
granted at fair market value at the date of grant. Total options authorized
for grant are 905,432, of which 628,371 have been granted as of September 27,
1996. During the nine months ended September 27, 1996, 135,300 options were
granted at average prices of $9.50 to $11.00, 8,360 options were exercised,
and 7,363 options expired and became available again for grant. As of
September 27, 1996, 284,424 options were available for grant.
11
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had net operating loss
carryforwards ("NOLs") with the following expiration dates:
Expiration Date Federal California
--------------- ----------- ------------
1998 . . . . . . . . . $ - $144,000
1999 . . . . . . . . . 600,000 269,000
2000 . . . . . . . . . 490,000 -
2005 . . . . . . . . . 2,000,000 -
2006 . . . . . . . . . 2,222,000 -
2007 . . . . . . . . . 9,673,000 -
2008 . . . . . . . . . 2,588,000 -
2009 . . . . . . . . . 771,000 -
----------- ------------
$18,344,000 $413,000
=========== ============
Section 382 of the Internal Revenue Code of 1986, as amended and the
related regulations and California law impose certain limitations on a
corporation's ability to use NOLs if more than a 50% ownership change occurs.
The Company's issuance of additional common stock in 1995, together with the
1993 merger of RicheyImpact Electronics, Inc. and Brajdas Corporation,
constitute a more than 50% ownership change. As a result, the usage of the
NOLs is restricted to approximately $5,000,000 on an annual basis.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SUMMARY OF SELECTED DATA
(UNAUDITED)
The following table sets forth certain items in the statements of
operations as a percent of net sales for periods shown and additional items
of a statistical nature.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------- ---------------------
Sept. 27, Sept. 29, Sept. 27 Sept. 29
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Statements of Operations Data:
- ------------------------------
Net Sales . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold . . . . . . . . . . . . . . 73.7 75.9 74.6 76.0
--------- -------- -------- --------
Gross Profit . . . . . . . . . . . . . 26.3 24.1 25.4 24.0
--------- -------- -------- --------
Selling, warehouse, general & administrative . 17.3 17.2 17.8 17.5
Amortization of intangibles . . . . . . . . . . 0.7 0.4 0.6 0.4
--------- -------- -------- --------
Operating Income . . . . . . . . . . . 8.3 6.5 7.0 6.1
Interest Expense . . . . . . . . . . . . . . . 2.8 0.3 2.5 0.8
--------- -------- -------- --------
Income before income taxes . . . . . . 5.5 6.2 4.5 5.3
Federal and state income taxes . . . . . . . . 2.2 2.5 1.8 2.1
--------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . 3.3% 3.7% 2.7% 3.2%
========= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Sept. 27, June 28, March 29, Dec. 31, Sept. 29,
1996 1996 1996 1995 1995
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
- -------------------
Total assets (000) . . . . . . . . . . . . . . . . . $128,420 $129,828 $128,099 $118,941 $42,332
Working capital (000) . . . . . . . . . . . . . . . $ 43,311 $ 41,221 $ 39,717 $ 34,076 $19,996
Ratio of current assets to current liabilities . . . 2.6 2.4 2.4 2.2 2.3
Short-term debt (000) . . . . . . . . . . . . . . . $ 263 $ 219 $ 136 $ 835 $ 3,131
Subordinated notes payable (000) . . . . . . . . . . $ 2,958 $ 2,956 $ 2,982 $ 2,982 $ 0
Convertible subordinated notes payable (000) . . . . $ 55,755 $ 55,755 $ 55,755 $ 0 $ 0
Other long-term debt (000) . . . . . . . . . . . . . $ 10,034 $ 10,546 $ 11,377 $ 58,670 $ 0
Inventory turnover . . . . . . . . . . . . . . . . . 4.2 4.9 5.2 5.0 5.0
Days sales outstanding in accounts receivable . . . 46.1 46.4 45.7 41.8 45.0
Stockholders' equity (000) . . . . . . . . . . . . . $ 32,048 $ 30,288 $ 28,555 $ 27,392 $27,183
</TABLE>
13
<PAGE>
RESULTS OF OPERATIONS
Net income for the third quarter of 1996 was $1,754,000 compared with
net income of $1,070,000 for the third quarter of 1995, an increase of
$684,000 or 64%. For the third quarter of 1996, earnings per share increased
to $0.18 based on fully diluted weighted average number of shares outstanding
of 13,010,000, up from $0.12 per share for the third quarter of 1995, based
on weighted average number of shares outstanding of 9,054,000. Net income
for the nine-month period ended September 27, 1996 was $4,631,000 ($0.50 per
share, fully diluted) compared with $2,659,000 ($0.35 per share) for the
corresponding period in 1995, an increase of 74%.
Net sales for the quarter ended September 27, 1996 rose to $53,713,000
from $28,803,000 for the quarter ended September 29, 1995, an increase of
86%. Net sales for the first nine months of 1996 were $170,309,000 compared
to net sales of $83,704,000 for the same period in 1995, an increase of 103%.
Net sales of electronic components increased to $36,454,000 in the third
quarter of 1996 from $20,523,000 in the third quarter of 1995, an increase of
78%. Net sales of value-added assembly services increased to $17,259,000 for
the third quarter of 1996 from $8,280,000 for the corresponding period of
1995, an increase of 108%. Component and value-added sales increased as a
result of acquisitions and an increase in product offerings due to new
franchises and expanded geographic coverage of existing franchises. Pro
forma for the Deanco Acquisition, net sales would have been $54,096,000 for
the third quarter of 1995 and $161,610,000 for the first nine months of 1995.
Net sales for the third quarter of 1996 declined 8% as compared to
net sales for the second quarter of 1996. The decline was a result of poor
industry-wide market conditions, reflected by decreases in incoming orders
and order quantities from the Company's component distribution customers and
decreases in their inventory stocking levels. Sales of value-added assembly
services remained strong in the third quarter, as customers continued to look
to distribution to outsource their assembly requirements. Stronger gross
margins, expense controls in light of market conditions and operating
leverage from acquisition integrations resulted in a 1% increase in net
income for the third quarter compared to the second quarter, despite the
decline in net sales.
During the third quarter of 1996, the Company decided to
discontinue its representation of AMP in the component distribution market,
effective January 1, 1997. The decision was made in response to new polices
of AMP which would have required the Company to discontinue its
representation of certain competitors of AMP. The distribution of AMP
interconnect products represents approximately 3.5% of the Company's net
sales. Management expects to replace a significant part of these sales by
substituting interconnect products of other suppliers. AMP will continue as
a supplier of the Company's value-added services business.
The Company believes that order backlog (confirmed orders from customers
for shipment within the next 12 months) generally averages two to three
months' sales in the
14
<PAGE>
electronics distribution industry. Order backlog at September 27, 1996 was
$51,000,000, up from $30,300,000 at September 29, 1995 and down from
$53,000,000 at December 31, 1995. The reduction of $2,000,000 in order
backlog in the first nine months of 1996 is attributable to conforming
Deanco's December 31, 1995 order backlog to Company policies and the decline
in business activity in the third quarter.
Gross profit margin for the first nine months of 1996 was 25.4% compared
to gross profit margin of 24.0% for the first nine months of 1995. Gross
profit margin for the third quarter of 1996 was 26.3%, an improvement from
24.5% in the first quarter of 1996 and 25.4% in the second quarter of 1996.
The gross profit margin for the third quarter of 1996 rose by 2.2% from
margins achieved in the third quarter of 1995. Growth in the Company's
higher margin, value-added services business contributed to higher gross
margins. In addition, there was an increased percentage of component orders
to be shipped in under 30 days which typically have higher margins than
orders with longer shipment schedules.
Operating expenses for the quarter ended September 27, 1996 increased to
$9,667,000 from $5,064,000 for the corresponding period in 1995 due primarily
to acquisitions. As a percentage of net sales, operating expenses increased
0.4% for the quarter ended September 27, 1996 compared to the same period in
1995, of which 0.3% was attributable to the amortization of intangibles
associated with the Deanco Acquisition. Operating expenses for the first
nine months of 1996 increased to $31,356,000 from $14,975,000 for the first
nine months of 1995. Operating expenses, as a percentage of net sales, were
18.4% for the first nine months of 1996 and 17.9% for the corresponding
period in 1995. This increase in expenses as a percentage of sales was
primarily due to the fact that Deanco's expenses as a percentage of sales
were historically significantly higher than those of the Company and during
the first few months of 1996 the Company realized only a portion of the
expected costs savings from the integration of Deanco into the Company. The
operational integration of Deanco and MS Electronics was completed in the
third quarter of 1996 and contributed to a $900,000 reduction in operating
expenses for the third quarter from the second quarter of 1996.
Interest expense for the third quarter of 1996 was $1,519,000 as
compared with $80,000 for the third quarter of 1995. The increase in
interest expense was primarily due to the Company's financing activities
relating to acquisitions.
Federal and state income tax expense increased to $1,176,000 (40%
effective rate) for the quarter ended September 27, 1996 from $717,000 (40%
effective rate) for the corresponding period of 1995. This increase was
proportional to the increase in pre-tax earnings for the quarter. See Note 3
of Notes to Condensed Financial Statements for further discussion of income
tax matters.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1996, the Company sold, through a private
offering, $55,755,000 aggregate principal amount of its 7% Convertible
Subordinated Notes due 2006. The net proceeds from the Note Offering were
approximately $53,600,000 and were used to repay the Company's $30,000,000
term loan and to pay down its revolving line of credit. See Note 3 of Notes
to Condensed Financial Statements.
The Company currently maintains with Wells Fargo Bank, N.A., as
successor to First Interstate Bank of California, a $45 million revolving
line of credit. As of September 27, 1996, the Company had outstanding
borrowings under this revolving line of credit of $10,000,000 and additional
borrowing capacity of $31,000,000.
Working capital increased to $43,311,000 on September 27, 1996 from
$34,076,000 on December 31, 1995, an increase of $9,235,000. During the
first nine months of 1996, the Company generated $14,204,000 of earnings
before interest, income taxes, depreciation and amortization ("EBITDA") as
compared to EBITDA of $5,765,000 for the first nine months of 1995, an
increase of 146%.
During the first nine months of 1996, operating activities
generated $8,570,000 in cash from net income, depreciation, amortization,
deferred income taxes and decreases in other assets. During the same period,
the Company invested $215,000 in receivables, $5,589,000 in inventories and
$291,000 in accounts payable and accrued expenses. Thus, operating
activities for the first nine months of 1996 provided net cash of $2,475,000,
as compared to net cash of $1,083,000 used in operating activities for the
first nine months of 1995. During the first nine months of 1996, the Company
used an additional $6,897,000 of cash for investing activities, including
$1,005,000 for capital expenditures, $3,119,000 for acquisition costs
relating to the MS Acquisition and $2,773,000 for payment of restructuring
costs accrued in connection with the Deanco Acquisition. See Note 2 of Notes
to Condensed Financial Statements. This use of cash was financed by
borrowings.
For the quarter ended September 27, 1996, inventory turnover was 4.2x
compared to 4.9x for the quarter ended June 28, 1996 and 5.0x for the quarter
ended December 31, 1995. The inventory turnover of 4.2x for the third
quarter of 1996 is below the Company's current target for inventory turnover
and was primarily due to component distribution customers decreasing their
inventory stocking levels and suppliers rescheduling their shipments in
response to changes in market conditions during the third quarter. The
Company has implemented programs to adjust inventory levels to the changes in
demand.
Days sales outstanding were 46.1 days at September 27, 1996 compared to
46.4 days at June 28, 1996 and 41.8 days at December 31, 1995. This increase
in the number of days outstanding is due primarily to the fact that Deanco's
days outstanding were historically higher than those of the Company.
Management is taking steps to improve the receivables days outstanding.
16
<PAGE>
The Company does not anticipate that the adoption of any of the recently
issued FASB statements will have a material impact on the Company's financial
statements.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
2.1 Stock Purchase Agreement, dated November 15, 1995, among
Richey Electronics, Inc., Deanco, Inc., Electrical
Distribution Acquisition Company and all of the stockholders
of Electrical Distribution Acquisition Company (Incorporated
by reference from the Current Report on Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3,
1996 as exhibit 2.1 thereof).
2.2 First Amendment to Stock Purchase Agreement and Instrument of
Joinder dated December 20, 1995 among Richey Electronics,
Inc., Deanco, Inc., Electrical Distribution Acquisition
Company and all of the stockholders of Electrical Distribution
Acquisition Company (Incorporated by reference from the
Current Report on Form 8-K for Richey Electronics, Inc. dated
December 20, 1995, filed January 3, 1996 as exhibit 2.2
thereof).
2.3 Sales Tax Indemnification Agreement dated December 20, 1995
among Richey Electronics, Inc. and the stockholders of
Electrical Distribution Acquisition Company identified therein
(Incorporated by reference from
18
<PAGE>
the Current Report on Form 8-K for Richey Electronics,
Inc. dated December 20, 1995, filed January 3, 1996 as exhibit
2.3 thereof).
3.1 Restated Certificate of Incorporation of Richey Electronics,
Inc. (Incorporated by reference from the Registration
Statement on Form S-1, filed January 7, 1994, Registration No.
33-73916 as exhibit 3.1 thereof).
3.2 Bylaws of Richey Electronics, Inc. (Incorporated by reference
from the Registration Statement on Form S-1, filed January 7,
1994, Registration No. 33-73916 as exhibit 3.2 thereof).
4.1 Indenture between Richey Electronics, Inc. and First Trust of
California, National Association, dated as of February 15,
1996 (Incorporated by reference from the Annual Report on Form
10-K for Richey Electronics, Inc. filed March 26, 1996 as
exhibit 4.1 thereof).
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
RICHEY ELECTRONICS, INC.
(Registrant)
By /s/ Richard N. Berger
--------------------------
Richard N. Berger
Vice President,
Chief Financial Officer
and Secretary
November 8, 1996
20
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
2.1 Stock Purchase Agreement, dated November 15, 1995, among
Richey Electronics, Inc., Deanco, Inc., Electrical
Distribution Acquisition Company and all of the stockholders
of Electrical Distribution Acquisition Company (Incorporated
by reference from the Current Report on Form 8-K for Richey
Electronics, Inc. dated December 20, 1995, filed January 3,
1996 as exhibit 2.1 thereof).
2.2 First Amendment to Stock Purchase Agreement and Instrument
of Joinder dated December 20, 1995 among Richey Electronics,
Inc., Deanco, Inc., Electrical Distribution Acquisition
Company and all of the stockholders of Electrical
Distribution Acquisition Company (Incorporated by reference
from the Current Report on Form 8-K for Richey Electronics,
Inc. dated December 20, 1995, filed January 3, 1996 as
exhibit 2.2 thereof).
2.3 Sales Tax Indemnification Agreement dated December 20, 1995
among Richey Electronics, Inc. and the stockholders of
Electrical Distribution Acquisition Company identified
therein (Incorporated by reference from the Current Report
on Form 8-K for Richey Electronics, Inc. dated December 20,
1995, filed January 3, 1996 as exhibit 2.3 thereof).
3.1 Restated Certificate of Incorporation of Richey Electronics,
Inc. (Incorporated by reference from the Registration
Statement on Form S-1, filed January 7, 1994, Registration
No. 33-73916 as exhibit 3.1 thereof).
3.2 Bylaws of Richey Electronics, Inc. (Incorporated by
reference from the Registration Statement on Form S-1, filed
January 7, 1994, Registration No. 33-73916 as exhibit 3.2
thereof).
4.1 Indenture between Richey Electronics, Inc. and First Trust
of California, National Association, dated as of February
15, 1996 (Incorporated by reference from the Annual Report
on Form 10-K for Richey Electronics, Inc. filed March 26,
1996 as exhibit 4.1 thereof).
11.1 Statement regarding computation of per share earnings
27.1 Financial Data Schedule
21
<PAGE>
EXHIBIT 11.1
RICHEY ELECTRONICS, INC.
COMPUTATION OF EARNINGS PER SHARE
($ AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
--------------------- ---------------------
Sept. 27, Sept. 29, Sept. 27, Sept. 29,
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income used to compute primary
earnings per share $1,754 $1,070 $4,631 $2,659
========= ======== ======== ========
Weighted average number of shares used to
compute primary earnings per share 9,063 9,054 9,059 7,688
========= ======== ======== ========
Primary earnings per share $ 0.19 $ 0.12 $ 0.51 $ 0.35
========= ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:
Net income $1,754 $1,070 $4,631 $2,659
Add: Interest on convertible subordinated
notes payable, net of taxes 617 - 1,451 -
--------- -------- -------- --------
Net income used to compute fully diluted
earnings per share $2,371 $1,070 $6,082 $2,659
========= ======== ======== ========
Weighted average number of shares
outstanding 9,063 9,054 9,059 7,688
Add: Weighted average shares of
convertible subordinated notes payable
assuming conversion 3,947 - 3,094 -
--------- -------- -------- --------
Weighted average number of shares used to
compute fully diluted earnings per share 13,010 9,054 12,153 7,688
========= ======== ======== ========
Fully diluted earnings per share $0.18 $0.12 $0.50 $0.35
========= ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 27,232
<ALLOWANCES> 0
<INVENTORY> 37,817
<CURRENT-ASSETS> 70,036
<PP&E> 3,673
<DEPRECIATION> 0
<TOTAL-ASSETS> 128,420
<CURRENT-LIABILITIES> 26,725
<BONDS> 68,747
0
0
<COMMON> 9,000
<OTHER-SE> 32,039
<TOTAL-LIABILITY-AND-EQUITY> 128,420
<SALES> 170,309
<TOTAL-REVENUES> 0
<CGS> 127,074
<TOTAL-COSTS> 157,358
<OTHER-EXPENSES> 1,072
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,150
<INCOME-PRETAX> 7,729
<INCOME-TAX> 3,098
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,631
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
</TABLE>
