<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 March 29, 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 No.)
of incorporation or organization)
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 May 8, 1996, 9,057,827 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)
<TABLE>
<CAPTION>
March 29, December 31,
1996 1995
------------ --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 26,000 $ 572,000
Trade receivables 29,322,000 25,622,000
Inventories 33,721,000 31,450,000
Deferred income taxes 3,948,000 3,948,000
Other current assets 1,230,000 1,481,000
------------ ------------
Total current assets $ 68,247,000 $ 63,073,000
------------ ------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 3,612,000 $ 3,469,000
------------ ------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 4,794,000 $ 4,979,000
Deferred debt costs 2,844,000 500,000
Other 624,000 661,000
Goodwill 47,978,000 46,259,000
------------ ------------
$ 56,240,000 $ 52,399,000
------------ ------------
$128,099,000 $118,941,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term
debt $ 136,000 $ 835,000
Accounts payable 20,453,000 18,250,000
Accrued expenses 4,629,000 6,088,000
Accrued restructuring costs 3,312,000 3,824,000
------------ ------------
Total current liabilities $ 28,530,000 $ 28,997,000
------------ ------------
ACCRUED RESTRUCTURING COSTS $ 900,000 $ 900,000
------------ ------------
LONG-TERM DEBT
Subordinated notes payable $ 2,982,000 $ 2,982,000
Convertible subordinated notes
payable 55,755,000 -
Other long-term debt 11,377,000 58,670,000
------------ ------------
$ 70,114,000 $ 61,652,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - -
Common stock 9,000 9,000
Additional paid-in-capital 20,997,000 20,976,000
Retained earnings 7,549,000 6,407,000
------------ ------------
Total stockholders' equity $ 28,555,000 $ 27,392,000
------------ ------------
$ 128,099,000 $118,941,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
March 29, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Net Sales: $58,384,000 $26,596,000
Cost of Goods Sold: 44,071,000 20,083,000
----------- -----------
Gross Profit: $14,313,000 $6,513,000
----------- -----------
Operating expenses:
Selling, warehouse,
general, and administrative $10,780,000 $4,842,000
Amortization of intangibles 337,000 113,000
----------- -----------
$11,117,000 $4,955,000
----------- -----------
Operating income $3,196,000 $1,558,000
Interest Expense 1,292,000 422,000
----------- -----------
Income before income taxes $1,904,000 $1,136,000
Federal and state income taxes 762,000 456,000
----------- -----------
Net income $1,142,000 $680,000
----------- -----------
----------- -----------
Earnings per Share
Primary $0.13 $0.12
----------- -----------
----------- -----------
Fully Diluted $0.13 $0.12
----------- -----------
----------- -----------
Weighted Average number of
shares outstanding:
Primary 9,057,000 5,889,000
----------- -----------
----------- -----------
Fully diluted 10,406,000 5,889,000
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
March 29, March 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,142,000 $680,000
Adjustments to reconcile net
income to net cash
(used in) operating activities:
Depreciation and amortization 673,000 200,000
Deferred income taxes 185,000 456,000
Changes in operating assets and liabilities:
(Increase) in trade receivables (2,305,000) (2,091,000)
(Increase) in inventories (1,493,000) (1,304,000)
(Increase) decrease in other assets 250,000 (44,000)
(Decrease) in accounts payable
and accrued expenses (544,000) (1,005,000)
----------- -----------
Net cash (used in) operating activities ($2,092,000) ($3,108,000)
----------- -----------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment ($368,000) ($202,000)
Payment of acquisition and restructuring costs (3,470,000) (23,000)
----------- -----------
Net cash (used in) investing activities ($3,838,000) ($225,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances on short-term revolving line of credit - $5,021,000
Payments on long-term revolving line of credit ($7,181,000) -
Payments on long-term debt (40,811,000) (1,600,000)
Proceeds from issuance of convertible debt 55,755,000 -
Transaction costs associated with refinancing activities (2,400,000) (88,000)
Proceeds from stock issued for options 21,000 -
----------- -----------
Net cash provided by financing activities $5,384,000 $3,333,000
----------- -----------
Decrease in cash ($546,000) $0
CASH
Beginning $572,000 $9,000
----------- -----------
Ending $26,000 $9,000
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------
March 29, March 31,
1996 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash payments for:
Interest $1,116,000 $539,000
----------- -----------
----------- -----------
Income taxes $10,000 $57,000
----------- -----------
----------- -----------
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 2,073,000
-----------
Purchase price and related transaction costs $2,961,000
-----------
-----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
QUARTER ENDED MARCH 29, 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 -- 4,000 -- 21,000 -- 21,000
Net income -- -- -- -- 1,142,000 1,142,000
--------- --------- ------ ----------- ---------- -----------
Balance, March 29, 1996 -- 9,058,000 $9,000 $20,997,000 $7,549,000 $28,555,000
--------- --------- ------ ----------- ---------- -----------
--------- --------- ------ ----------- ---------- -----------
</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 multi-regional, specialty distributor of
electronic components and a provider of 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 March 29, 1996 and
March 31, 1995 are not necessarily indicative of the results which will be
reported for the entire year.
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.
Income tax expense in these interim financial statements is recorded based
upon the Company's expected annual effective income tax rate.
7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 is consolidating
facilities and eliminating redundant administrative costs. As part of the
consolidation, the Company will close certain of its own facilities and incur
other integration costs. During the fourth quarter of 1995, the Company
recognized a restructuring charge of $1,450,000. During the quarter ended March
29, 1996, $577,000 of these restructuring costs were paid ($240,000 for the
computer conversion, $10,000 for severance costs and $327,000 for other items).
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. 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 is
expected to be finalized within the next nine months once the integration plan
is completed. No adjustments were made to the original estimates of these
restructuring costs. At March 29, 1996, only a nominal amount of these costs
have been
8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
paid. The Company expects the remaining costs to be paid out over the
next 9 months as the integration is completed, except for those related to
longer term facility leases of $600,000.
The Company merged EDAC into the Company in January 1996 and has made
applications with the applicable state authorities to merge Deanco into the
Company as soon as practical.
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 $2,961,000 and were paid in cash. The preliminary 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 $2,018,000 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.
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1995
--------------
<S> <C>
Net sales $53,290,000
Net income $ 994,000
Earnings per share $ 0.17
Weighted average number
of shares outstanding 5,889,000
</TABLE>
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 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 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.
The net proceeds from the Note Offering were approximately $53,800,000 and were
used to repay the Company's $30,000,000 term loan and to pay down its revolving
line of credit.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1995, the Company had net operating loss carryforwards
("NOLs") with the following expiration dates:
<TABLE>
<CAPTION>
Expiration Date Federal California
- --------------- ---------- ----------
<S> <C> <C>
1997. . . . . . . . . . . . . . . . . . . $ -- $ 76,000
1998. . . . . . . . . . . . . . . . . . . 953,000
1999. . . . . . . . . . . . . . . . . . . 2,242,000 290,000
2000. . . . . . . . . . . . . . . . . . . 490,000 --
2005. . . . . . . . . . . . . . . . . . . 2,000,000 --
2006. . . . . . . . . . . . . . . . . . . 2,053,000 --
2007. . . . . . . . . . . . . . . . . . . 9,700,000 --
2008. . . . . . . . . . . . . . . . . . . 2,500,000 --
2009. . . . . . . . . . . . . . . . . . . 580,000 --
---------- ----------
$19,565,000 $1,319,000
----------- ----------
----------- ----------
</TABLE>
11
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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 (the
"Richey-Brajdas Merger"), constitutes a more than 50% ownership change. As a
result, the usage of the NOLs are restricted to approximately $3,000,000 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
-------------------------
March 29, March 31,
1996 1995
--------- ---------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
- ------------------------------
Net Sales . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of Goods Sold. . . . . . . . . . . . . . . . . . . 75.5 75.5
--------- ---------
Gross Profit . . . . . . . . . . . . . . . . . . . . 24.5 24.5
--------- ---------
Selling, warehouse, general & administrative. . . . . . 18.5 18.2
Amortization of intangibles . . . . . . . . . . . . . . 0.6 0.4
--------- ---------
Operating Income . . . . . . . . . . . . . . . . . . 5.5 5.9
Interest Expense. . . . . . . . . . . . . . . . . . . . 2.2 1.6
--------- ---------
Income before income taxes . . . . . . . . . . . . . 3.3 4.3
Federal and state income taxes. . . . . . . . . . . . . 1.3 1.7
--------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . . . . 2.0% 2.6%
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
March 29, Dec. 31, Sept. 29, June 30, Mar. 31,
1996 1995 1995 1995 1995
--------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
- -------------------
Total assets (000) . . . . . . . . . . . . . . . . . . $128,099 $118,941 $42,332 $40,810 $38,083
Working capital (000). . . . . . . . . . . . . . . . . $39,717 $34,076 $19,996 $19,828 $6,471
Ratio of current assets to current liabilities . . . . 2.4 2.2 2.3 2.3 1.3
Short-term debt (000). . . . . . . . . . . . . . . . . $136 $835 $3,131 $3,212 $13,864
Subordinated notes payable (000) . . . . . . . . . . . $2,982 $2,982 $0 $0 $3,594
Convertible subordinated notes payable (000) . . . . . $55,755 $0 $0 $0 $0
Other long-term debt (000) . . . . . . . . . . . . . . $11,377 $58,670 $0 $0 $0
Inventory turnover . . . . . . . . . . . . . . . . . . 5.2 5.0 5.0 5.2 5.0
Days sales outstanding in accounts receivable. . . . . 45.7 41.8 45.0 42.1 45.4
Stockholders' equity . . . . . . . . . . . . . . . . . $28,555 $27,392 $27,183 $26,122 $9,465
</TABLE>
13
<PAGE>
RESULTS OF OPERATIONS
Net income for the first quarter of 1996 was $1,142,000 compared with net
income of $680,000 for the first quarter of 1995, an increase of $462,000 or
68%. For the first quarter of 1996, earnings per share increased to $0.13 based
on fully diluted weighted average number of shares outstanding of 10,406,000, up
from $0.12 per share, for the first quarter of 1995, based on weighted average
number of shares outstanding of 5,889,000.
Net sales for the quarter ended March 29, 1996 rose to $58,384,000 from
$26,596,000 for the quarter ended March 31, 1995, an increase of 120%.
Management estimates that approximately 82% of this increase was due to the
Deanco Acquisition and the balance was due to internal growth. Net sales of
electronic components increased to $42,650,000 in the first quarter of 1996 from
$19,193,000 in the first quarter of 1995, an increase of 122%. Net sales of
value-added assembly services increased to $15,734,000 for the quarter ended
March 29, 1996 from $7,403,000 for the corresponding period of 1995, an increase
of 112%. Component and value-added sales increased as a result of (i)
acquisitions, (ii) the general strength in the electronic component marketplace,
as exhibited by an increased demand for all types of component products and
(iii) an increase in product offerings due to new franchises and expanded
geographic coverage of existing franchises. Pro forma for the Deanco
Acquisition, net sales for the first quarter of 1995 would have been $53,290,000
compared with net sales of $58,384,000 for the first quarter of 1996, an
increase of $5,094,000 or 10%.
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 electronics distribution industry. Order backlog at March 29, 1996
was $53,300,000, up from $25,750,000 at March 31, 1995 and from $53,000,000 at
December 31, 1995.
Gross profit margin for the first quarter of 1996 rose 0.9% from margins
achieved in the fourth quarter of 1995 as the Company completed the operational
integration of IEI. Gross profit margin was 24.5% for the first quarter of
1996, identical to the first quarter of 1995. Gross margins for the first
quarter of 1996 improved for both component distribution and value-added
services over the fourth quarter of 1995 and, in combination with the net effect
of the Deanco Acquisition, were similar to those achieved for the first quarter
of 1995.
Operating expenses for the quarter ended March 29, 1996 increased to
$11,117,000 from $4,955,000 for the corresponding period in 1995 due primarily
to acquisitions. As a percentage of net sales, operating expenses increased
0.5% for the quarter ended March 29, 1996 compared to the same 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 higher than
those of the Company and during the first quarter of 1996 the Company realized
only a small amount of the anticipated costs savings from the ongoing
integration of Deanco into the Company.
14
<PAGE>
Interest expense for the first quarter of 1996 was $1,292,000 as compared
with $422,000 for the first quarter of 1995. The increase in interest expense
for the first quarter of 1996 was primarily due to the Company's financing
activities relating to acquisitions.
Federal and state income tax expense increased to $762,000 (40% effective
rate) for the quarter ended March 29, 1996 from $456,000 (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.
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
$53,800,000 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 First Interstate Bank of
California ("FICAL") a $45 million revolving line of credit. As of March 29,
1996, the Company had outstanding borrowings under the FICAL revolving line of
credit of $11,180,000 and additional borrowing capacity of $29,700,000.
Working capital increased to $39,717,000 on March 31, 1996 from $34,076,000
on December 31, 1995, an increase of $5,641,000. During the first quarter of
1996, the Company generated $3,869,000 of earnings before interest, income
taxes, depreciation and amortization ("EBITDA") as compared to EBITDA of
$1,758,000 for the first quarter of 1995, an increase of 120%.
The Company generated $2,250,000 in cash in the first quarter of 1996 from
net income, depreciation, amortization, deferred income taxes and decreases in
other assets. During the same period, the Company invested $2,305,000 in
accounts receivable and $1,493,000 in inventories and paid down $544,000 in
accounts payable and accrued expenses. Thus, the Company used net cash of
$2,092,000 to fund operating activities in the first quarter of 1996 compared to
$3,108,000 used to fund operating activities for the same period of 1995. The
Company used an additional $3,838,000 of cash for investing activities,
including $368,000 for capital expenditures and $3,470,000 for acquisition and
restructuring costs relating primarily to the MS Acquisition and 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 March 29, 1996, inventory turnover increased to
5.2x compared to 5.0x for the quarter ended December 31, 1995. This increase
was primarily due to the acquisition of the Deanco inventory which
historically had a higher turnover rate than that of
15
<PAGE>
the Company. Management expects inventory turnover to be at slightly slower
rates for the balance of 1996 as the Company rebalances the inventory mix of
the combined companies.
Days sales outstanding were 45.7 days at March 29, 1996 compared to 41.8
days at December 31, 1995. This increase in the number of days outstanding is
due to the fact that Deanco's days outstanding were historically higher than
those of the Company. Management expects to be able, over the long term, to
improve the number of days outstanding to those historically experienced by the
Company.
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.
16
<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
17
<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).
10.1 Employment Agreement between Charles W. Mann and Richey
Electronics, Inc. dated as of April 1, 1995 (Incorporated by
reference from the Registration Statement on Form S-2, filed
April 26, 1996, Registration No. 333-02983 as exhibit 10.35
thereof).
11.1 Statement regarding computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
Current Report on Form 8-K/A dated January 31, 1996 (containing
Audited Financial Statements of Deanco, Inc. and Consolidated
Audited Financial Statements of Electrical Distribution
Acquisition Company)
Current Report on Form 8-K dated February 27, 1996 (reporting on
the Note Offering).
Current Report on Form 8-K dated March 22, 1996 (reporting on
completion of the Note Offering).
18
<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
May 15, 1996
19
<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).
10.1 Employment Agreement between Charles W. Mann and Richey
Electronics, Inc. dated as of April 1, 1995 (Incorporated by
reference from the Registration Statement on Form S-2, filed
April 26, 1996, Registration No. 333-02983 as exhibit 10.35
thereof).
11.1 Statement regarding computation of per share earnings
20
<PAGE>
27 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
--------------------------
3/29/96 3/31/95
--------------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net income used to calculate primary
earnings per share $ 1,142 $ 680
--------------------------
--------------------------
Weighted average number of shares used to
compute primary net income per share 9,057 5,889
--------------------------
--------------------------
Primary earnings per share $ 0.13 $ 0.12
--------------------------
--------------------------
FULLY DILUTED EARNINGS PER SHARE
Net Income $ 1,142 $ 680
Add: Interest on convertible
subordinated notes payable,
net of taxes 195 -
--------------------------
--------------------------
Net income used to compute earnings
per share $ 1,337 $ 680
--------------------------
--------------------------
Weighted average number of shares
outstanding 9,057 5,889
Add: Weighted average shares of convertible
subordinated notes payable assuming conversion 1,349 -
--------------------------
Weighted average number of shares used to
compute fully diluted earnings per share 10,406 5,889
--------------------------
--------------------------
Fully diluted earnings per share $ 0.13 $ 0.12
--------------------------
--------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000320591
<NAME> RICHEY ELECTRONICS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-29-1996
<CASH> 26,000
<SECURITIES> 0
<RECEIVABLES> 29,322,000
<ALLOWANCES> 0
<INVENTORY> 33,721,000
<CURRENT-ASSETS> 68,247,000
<PP&E> 3,612,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 128,099,000
<CURRENT-LIABILITIES> 28,530,000
<BONDS> 70,114,000
0
0
<COMMON> 9,000
<OTHER-SE> 28,546,000
<TOTAL-LIABILITY-AND-EQUITY> 128,099,000
<SALES> 53,384,000
<TOTAL-REVENUES> 0
<CGS> 44,071,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,117,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,292,000
<INCOME-PRETAX> 1,904,000
<INCOME-TAX> 762,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,142,000
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
