<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 April 3, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number: 0-9788
RICHEY ELECTRONICS, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0594451
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
7441 LINCOLN WAY, GARDEN GROVE, CALIFORNIA 92642
-------------------------------------------------
(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 13, 1998, 9,146,113 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 CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 3, DECEMBER 31,
1998 1997
---------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 31,000 $ 31,000
Trade receivables 34,079,000 32,702,000
Inventories 54,625,000 49,828,000
Deferred income taxes 3,662,000 3,662,000
Other current assets 1,047,000 919,000
---------------- -----------------
Total current assets $ 93,444,000 $ 87,142,000
---------------- -----------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 5,946,000 $ 5,715,000
---------------- -----------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 3,757,000 $ 4,200,000
Deferred debt costs 2,154,000 2,237,000
Other 303,000 340,000
Goodwill 50,874,000 51,236,000
---------------- -----------------
$ 57,088,000 $ 58,013,000
---------------- -----------------
$156,478,000 $150,870,000
---------------- -----------------
---------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 14,819,000 $ 14,278,000
Accounts payable 25,068,000 22,525,000
Accrued expenses 4,651,000 4,028,000
Accrued restructuring costs 248,000 746,000
---------------- -----------------
Total current liabilities $ 44,786,000 $ 41,577,000
---------------- -----------------
LONG-TERM DEBT
Subordinated notes payable $ 1,000,000 $ 1,000,000
Convertible subordinated notes payable 55,755,000 55,755,000
Other long-term debt 10,949,000 11,099,000
---------------- -----------------
$ 67,704,000 $ 67,854,000
---------------- -----------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock $ 9,000 $ 9,000
Additional paid-in-capital 22,146,000 21,754,000
Retained earnings 22,021,000 19,895,000
Accumulated other comprehensive income (188,000) (219,000)
---------------- -----------------
Total stockholders' equity $ 43,988,000 $ 41,439,000
---------------- -----------------
$156,478,000 $150,870,000
---------------- -----------------
---------------- -----------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------
APRIL 3, MARCH 28,
1998 1997
------------- ------------
<S> <C> <C>
Net Sales: $70,783,000 $56,794,000
Cost of Goods Sold: 53,164,000 42,265,000
------------- ------------
Gross Profit: $17,619,000 $14,529,000
------------- ------------
Operating expenses:
Selling, warehouse, general, and
administrative $11,951,000 $10,054,000
Amortization of intangibles 432,000 369,000
------------- ------------
$12,383,000 $10,423,000
------------- ------------
Operating income $ 5,236,000 $ 4,106,000
Interest Expense 1,617,000 1,261,000
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Income before income taxes $ 3,619,000 $ 2,845,000
Federal and state income taxes 1,493,000 1,142,000
------------- ------------
Net income $ 2,126,000 $ 1,703,000
------------- ------------
------------- ------------
Earnings per Share
Basic $ 0.23 $ 0.19
------------- ------------
------------- ------------
Diluted $ 0.21 $ 0.18
------------- ------------
------------- ------------
Weighted Average number of
shares outstanding
Basic 9,112,000 9,063,000
------------- ------------
------------- ------------
Diluted 13,188,000 13,010,000
------------- ------------
------------- ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------
APRIL 3, MARCH 28,
1998 1997
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,126,000 $1,703,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 954,000 762,000
Deferred income taxes 469,000 376,000
Changes in operating assets and liabilities:
(Increase) in trade receivables (1,347,000) (2,256,000)
(Increase) in inventories (4,760,000) (4,234,000)
(Increase) decrease in other assets (128,000) 485,000
Increase in accounts
payable and accrued expenses 3,140,000 4,199,000
------------ ------------
Net cash provided by operating activities $ 454,000 $1,035,000
------------ ------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment ($691,000) ($291,000)
Payment of acquisition and restructuring costs (509,000) (286,000)
------------ ------------
Net cash (used in) investing activities ($1,200,000) ($577,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on revolving line of credit $465,000 ($450,000)
(Payments) on long-term debt (81,000) (9,000)
Proceeds from issuance of common stock 360,000 --
------------ ------------
Net cash provided by (used in) financing activities $ 744,000 ($459,000)
------------ ------------
Net effect of translation on cash $ 2,000 $--
------------ ------------
Increase (decrease) in cash $ 0 ($1,000)
CASH
Beginning $31,000 $30,000
------------ ------------
Ending $31,000 $29,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------
APRIL 3, MARCH 28,
1998 1997
--------------- ---------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash Payments For:
Interest $2,532,000 $2,162,000
--------------- ---------------
--------------- ---------------
Income taxes $ 23,000 $ 46,000
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
QUARTER ENDED APRIL 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
ADDITIONAL ACCUMULATED
PREFERRED SHARES PAID-IN RETAINED COMPREHENSIVE
STOCK OUTSTANDING PAR VALUE CAPITAL EARNINGS INCOME TOTAL
--------- ----------- --------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 -- 9,068,000 $9,000 $21,754,000 $19,895,000 ($219,000) $41,439,000
Stock Issued for
Options and other -- 56,000 -- 392,000 -- -- 392,000
Foreign currency
translation adjustment -- -- -- -- -- 31,000 31,000
Net income -- -- -- -- 2,126,000 -- 2,126,000
--------- ----------- --------- ----------- ----------- ------------- -----------
Balance, April 3, 1998 -- 9,124,000 $9,000 $22,146,000 $22,021,000 ($188,000) $43,988,000
--------- ----------- --------- ----------- ----------- ------------- -----------
--------- ----------- --------- ----------- ----------- ------------- -----------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Richey Electronics, Inc. (the Company or Richey Electronics) 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, wires, cables and heat shrinkable tubing, and other interconnect,
electromechanical and passive electronic components used in assembly and
manufacturing of electronic equipment. Richey Electronics also provides a wide
variety of value-added assembly services. The 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 April 3, 1998 and
March 28,1997 are not necessarily indicative of the results which will be
reported for the entire year. For further information, refer to the audited
financial statements of the Company and notes thereto for the year ended
December 31, 1997, included in the Company's Annual Report on Form 10-K.
RECENT PRONOUNCEMENTS
In June 1997, the FASB adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, which establishes reporting requirements
related to a business' operating segments, products and services, geographic
areas of operations and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997, and does not apply to interim financial
statements in the year of adoption. The Company does not expect SFAS No. 131 to
have a significant impact on its Consolidated Financial Statements and related
disclosures.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, INTERNAL USE SOFTWARE, which
provides guidelines for accounting for costs of computer software developed or
obtained for internal uses. This SOP is effective for financial statements for
years beginning after December 15, 1998. Management has not yet completed its
analysis of the impact of this new SOP.
7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(UNAUDITED)
In April 1998, the AICPA issued SOP 98-5, REPORTING ON COSTS OF START-UP
ACTIVITIES, which provides guidance on accounting for start-up costs. The
Company will be required to adopt this SOP for its year ending December 31,
1999. Management does not believe the adoption of this SOP will have a
material impact on any financial results.
EARNINGS PER SHARE
The Company adopted SFAS No. 128, EARNINGS PER SHARE, and restated all
prior period earnings per share data. Adoption of this standard did not result
in any changes to previously reported earnings per share. Statement No. 128
requires disclosure of basic earnings per share, instead of primary earnings per
share, on the face of the income statement. In addition, for those entities
with complex capital structures, it requires disclosure of both basic and
diluted earnings per share on the face of the income statement and requires a
reconciliation of the numerator and denominator of the computation of basic and
diluted earnings per share to be disclosed.
The following is information about the computation of earnings per share
data for the quarters ended April 3, 1998 and March 28, 1997:
<TABLE>
<CAPTION>
April 3, 1998 March 28,1997
----------------------------------------- --------------------------------------
Shares Net Shares Net
Income (Denomi- Income Income (Denomi- Income
(Numerator) nator) Per Share (Numerator) nator) Per Share
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $2,126,000 9,112,000 $0.23 $1,703,000 9,063,000 $0.19
Effect of dilutive securities:
Convertible, 7% subordinated
notes payable 612,000 3,947,000 596,000 3,947,000
Common stock options - 129,000 - -
------------------------- -------------------------
Diluted earnings per share $2,738,000 13,188,000 $0.21 $2,299,000 13,010,000 $0.18
------------------------- -------------------------
------------------------- -------------------------
</TABLE>
Options to purchase 173,000 shares of common stock and a warrant to
purchase 197,044 shares of common stock were outstanding at April 3, 1998 and
were not included in the calculation of diluted earnings per share because
the option and warrant exercise price were greater than the average market
price of the common stock and, therefore, are antidilutive.
INCOME TAXES
Income tax expense in these interim financial statements is recorded based
upon the Company's expected annual effective income tax rate.
COMPREHENSIVE INCOME
In June 1997, the FASB adopted SFAS No. 130, REPORTING ON COMPREHENSIVE
INCOME, which establishes standards for reporting and disclosure of
comprehensive income and its
8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(UNAUDITED)
components. Effective January 1, 1998, the Company adopted SFAS No. 130. For
the quarters ended April 3, 1998 and March 28, 1997, comprehensive income was
$2,146,000 and $1,703,000, respectively. The Company's accumulated other
comprehensive income consists, at this time, solely of cumulative foreign
currency translation adjustments related to the Company's Canadian subsidiary
which was acquired on June 13, 1997.
NOTE 2. BUSINESS COMBINATIONS
STI ACQUISITION
DESCRIPTION OF ACQUISITION
On June 13, 1997, the Company completed the purchase (the STI
Acquisition) of all of the issued and outstanding common stock of Simmonds
Technologies Inc. (STI), an indirect wholly owned subsidiary of Simmonds
Capital Limited (Simmonds). STI was a distributor of interconnect,
electromechanical and passive electronic components, headquartered in
Toronto, Ontario, with additional branch locations in the Montreal, Ottawa,
Winnipeg, Saskatoon, Calgary, Edmonton and Vancouver regions.
The STI Acquisition was accounted for as a purchase business combination
with the operations of STI included subsequent to the date of acquisition.
The final allocation of the purchase price is expected to be completed upon
resolution of certain material lease obligations which Simmonds is required
to settle and obtain releases for.
In July 1997, the Company changed the name of STI to Richey Electronics
Limited.
PRO FORMA FINANCIAL INFORMATION
The following pro forma results of continuing operations assume that the
STI Acquisition (which occurred on June 13, 1997) had occurred on January 1,
1997, after giving effect to certain adjustments including amortization of
acquired goodwill, interest expense and related tax effects. The pro forma
results do not reflect any cost savings directly attributable to the
acquisition.
<TABLE>
<CAPTION>
Quarter Ended
March 28, 1997
--------------
<S> <C>
Net sales (000) $ 63,252,000
Net income (000) $ 468,000
Earnings per share
Basic $ .05
Diluted $ .05
</TABLE>
This pro forma financial information does not purport to be indicative of
the results of operations that would have occurred had the STI Acquisition
actually taken place at January 1, 1997.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SUMMARY OF SELECTED DATA
(UNAUDITED)
The following tables set 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
APRIL 3, MARCH 28,
1998 1997
---------- ---------
Statements of Operations Data:
-----------------------------
<S> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Cost of Goods Sold . . . . . . . . . . . . . . . . . . 75.1 74.4
---------- ---------
Gross Profit. . . . . . . . . . . . . . . . . . . 24.9 25.6
---------- ---------
Selling, warehouse, general & administrative . . . . . 16.9 17.7
Amortization of intangibles. . . . . . . . . . . . . . 0.6 0.7
---------- ---------
Operating Income. . . . . . . . . . . . . . . . . 7.4 7.2
Interest Expense . . . . . . . . . . . . . . . . . . . 2.3 2.2
---------- ---------
Income before income taxes. . . . . . . . . . . . 5.1 5.0
Federal and state income taxes . . . . . . . . . . . . 2.1 2.0
---------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . 3.0% 3.0%
---------- ---------
---------- ---------
</TABLE>
<TABLE>
<CAPTION>
APRIL 3, DEC. 31, SEPT. 26, JUNE 27, MARCH 28,
1998 1997 1997 1997 1997
----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet and Other Data:
- - ------------------------------
Total assets (000) $156,478 $150,870 $148,602 $144,699 $129,946
Working capital (000) $ 48,658 $ 45,565 $ 53,605 $ 51,418 $ 45,555
Ratio of current assets to current liabilities 2.1 2.1 2.6 2.7 2.6
Short-term debt (000) $ 14,819 $ 14,278 $ 4,459 $ 3,201 $ 3,553
Subordinated long-term notes payable (000) $ 1,000 $ 1,000 $ 2,000 $ 2,000 $ 2,000
Convertible subordinated notes payable (000) $ 55,755 $ 55,755 $ 55,755 $ 55,755 $ 55,755
Other long-term debt (000) $ 10,949 $ 11,099 $ 18,049 $ 18,157 $ 7,450
Inventory turnover 3.9x 4.2x 4.0x 4.0x 4.2x
Days sales outstanding in accounts receivable 43.8 44.5 47.5 44.3 45.0
Customer order backlog (U.S. only) (000) $ 63,600 $ 63,000 $ 58,600 $ 57,200 $ 57,900
Stockholders' equity (000) $ 43,988 $ 41,439 $ 39,553 $ 37,983 $ 35,656
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
Net income for the first quarter of 1998 was $2,126,000 ($0.21 per
share, diluted) compared with net income of $1,703,000 ($0.18 per share,
diluted) for the first quarter of 1997. This increase of $423,000
represented a 24.8% increase in net income.
The results of operations for the first quarter of 1998 give effect to
the Company's completion of the purchase (the "STI Acquisition") of all of
the issued and outstanding common stock of Simmonds Technologies Inc.
("STI"), an indirect wholly owned subsidiary of Simmonds Capital Limited, on
June 13, 1997.
Net sales for the first quarter of 1998 rose to $70,783,000 from
$56,794,000 for the same period in 1997, an increase of 24.6%. Net sales for
the first quarter of 1998 included $5,833,000 of STI sales. The balance of
the increase in net sales was due primarily to internal growth as a result of
the continuing recovery in the electronics distribution industry. United
States sales for the first quarter of 1998 increased by 14.4% over the first
quarter of 1997 and increased by 3.2% over the fourth quarter of 1997.
However, Canadian sales declined by 3.8% from the fourth quarter of 1997.
Net sales of electronic components increased to $46,798,000 in the first
quarter of 1998 from $39,028,000 in the first quarter of 1997, an increase of
20%. This increase in component sales is primarily the result of the
acquisition of STI which sells mostly electronic components. Net sales of
value-added assembly services increased to $23,985,000 for the first quarter
of 1998 from $17,766,000 for the same period of 1997, an increase of 35%.
This increase for value-added assembly services is primarily the result of
the continuing trend by OEM's to outsource assembly operations. Value-added
sales were 33.9% of the Company's net sales for the first quarter of 1998,
compared with 31.3% of net sales for the first quarter of 1997 and 32.3% of
net sales for the fourth quarter of 1997.
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. The Company's order
backlog at April 3, 1998 was $71,900,000, up from $70,600,000 at December 31,
1997. United States backlog rose to $63,600,000 from 57,900,000 at the end
of the first quarter of 1997, an increase of 9.8%. Canadian backlog was
$8,300,000 at the end of the first quarter of 1998, up $700,000 from December
31, 1997.
Gross profit was $17,619,000 for the first quarter of 1998 compared to
$14,529,000 for the first quarter of 1997, an increase of 21.3%. Gross
profit margin for the first three months of 1998 was 24.9% compared to gross
profit margin of 25.6% for the first quarter of 1997. The decrease in
margins to more normal levels for the first quarter of 1998 was primarily
because of customer orders returning to more normal patterns compared to the
high turns, high margin business experienced in the first quarter of 1997.
The more normal ordering patterns are the result of ongoing recovery in the
electronics distribution industry.
Operating expenses for the first quarter of 1998 were $12,383,000 (17.5% of
net sales) compared to $10,423,000 (18.4% of net sales) for the first quarter of
1997. As a percentage of net sales, operating expenses decreased 0.9%. This
was the result of improved operating
11
<PAGE>
leverage despite the addition of the Canadian operation which historically
had higher expenses as a percentage of sales compared to the United States
operation.
Interest expense for the first quarter of 1998 was $1,617,000 as
compared with $1,261,000 for the first quarter of 1997. The increase in
interest expense was primarily due to an increase in borrowings as a result
of the STI Acquisition.
Federal and state income tax expense increased to $1,493,000 (41%
effective rate) for the quarter ended April 3, 1998 from $1,142,000 (40%
effective rate) for the corresponding period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a $45 million revolving line of credit facility
(the "Revolving Line of Credit") with Wells Fargo Bank, N.A. The loan
agreement governing the Revolving Line of Credit (the "Loan Agreement")
limits the Company's ability to create or incur liens on assets, to make
distributions or investments, to enter into any mergers or make additional
acquisitions or dispositions of assets and to enter into transactions with
affiliates. In addition, the Company must comply with various financial and
other covenants established by the bank. The Loan Agreement also provides
the bank with the right to terminate the commitment on 30 days' notice if
there is a change in control of the Company (generally, the acquisition of
more than 50% of the Company's capital stock).
As of April 3, 1998, the Company had outstanding borrowings under the
Revolving Line of Credit of approximately $24.0 million and additional
borrowing capacity of approximately $21.0 million. Outstanding borrowings at
March 28, 1997 and December 31, 1997 were $10.0 million and $23.6 million,
respectively. The increase in outstanding borrowings at the end of the first
quarter of 1998 over the end of the first quarter of 1997 was due primarily
to the Company's use of the line of credit to fund the purchase of STI on
June 13, 1997.
The Company believes that available borrowings under the Revolving Line
of Credit and cash generated by operations will be adequate to meet its
anticipated funding commitments for the remainder of 1998.
Working capital was $48,658,000 on April 3, 1998 as compared to
$45,565,000 on December 31, 1997, and $45,555,000 on March 28, 1997. During
the first quarter of 1998, the Company generated $6,190,000 of earnings
before interest, income taxes, depreciation and amortization ("EBITDA") as
compared to EBITDA of $4,868,000 for the corresponding period of 1997, an
increase of 27.2%.
Operating activities for the first quarter of 1998 provided net cash of
$454,000 as compared to net cash of $1,035,000 provided by operating
activities for the same period of 1997. During the first quarter of 1998,
the Company used $1,200,000 in investing activities, including $691,000 for
capital expenditures relating to normal investments in leasehold
improvements, software, furniture, fixtures and equipment, and $509,000 for
payment of restructuring costs accrued in connection with the acquisition of
STI. This use of cash was primarily financed by borrowings under the
Company's Revolving Line of Credit.
12
<PAGE>
For the quarter ended April 3,1998, inventory turnover was 3.9x compared
to 4.2x for the quarter ended March 28, 1997 and 4.2x for the quarter ended
December 31, 1997. The decrease in the inventory turnover for the first
quarter of 1998 as compared to the same period of 1997 reflected inventory
investments in certain strategic product lines as a result of opportunities
presented to the Company by national franchising from major suppliers. In
addition, the Company experienced significant growth in its military
connector business in 1997 and the first quarter of 1998 which normally
requires investment in inventory with lower turnover than other connector
lines.
Days sales outstanding in accounts receivable were 43.8 days at April 3,
1998 compared to 45.0 days at March 28, 1997 and 44.5 days at December 31,
1997. The decrease at April 3, 1998 over March 28, 1997 is the result of
improved collection effort.
YEAR 2000
The Company is in the process of conducting a comprehensive review of its
computer and other operating systems to identify the systems that could be
affected by the "Year 2000" issue and is conducting detailed testing. These
reviews and testing are expected to be completed by the second quarter of 1998.
The Company presently believes that, with minor modifications to existing
software, the "Year 2000" issue will not pose significant operational problems
for the Company's computer systems as so modified and corrected.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and litigation arising
in the ordinary course of business. In the opinion of management, the result
of these legal proceedings will not have a material adverse effect on the
Company's financial statements.
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.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
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).
10.1 Second Amendment to Loan Agreement by and among Richey
Electronics, Inc. and Wells Fargo Bank, National Association,
successor-by-merger to First Interstate Bank of California, as
agent and as a bank, amending the Loan Agreement dated as of
December 20, 1995, among Richey Electronics, Inc., the banks
named therein and First Interstate Bank of California, as
agent.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
15
<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 14, 1998
16
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- - -------------- ----------
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).
10.1 Second Amendment to Loan Agreement by and among Richey
Electronics, Inc. and Wells Fargo Bank, National Association,
successor-by-merger to First Interstate Bank of California, as
agent and as a bank, amending the Loan Agreement dated as of
December 20, 1995, among Richey Electronics, Inc., the banks
named therein and First Interstate Bank of California, as agent.
27.1 Financial Data Schedule.
17
<PAGE>
EXHIBIT 10.1
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "First Amendment") is
entered into as a September 30, 1997 by and among RICHEY ELECTRONICS, INC., a
Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION,
successor-by-merger to First Interstate Bank of California, as Agent and as a
Bank.
RECITALS
--------
A. Borrower and First Interstate Bank of California, the successor-by-
merger of which is Wells Fargo Bank, National Association, as Agent and as a
Bank, have previously entered into that certain Loan Agreement dated as of
December 20, 1995 (the "Agreement").
B. Borrower, the Agent and Bank wish to amend the Agreement to reduce
the Applicable Alternate Base Rate Margin and the Applicable Eurordollar Rate
Margin.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Section 1.1 of the Agreement is hereby amended to add thereto the
following new definition, to read as follows:
SECOND AMENDMENT: means that certain Second
Amendment to Loan Agreement dated as of September 30,
1997 executed by Borrower, the Agent and the Banks.
2. The definition of "Applicable Alternate Base Rate Margin" in Section
1.1 of the Agreement is hereby amended and restated in its entirety to read as
follows:
"APPLICABLE ALTERNATE BASE RATE MARGIN" means, for
each Pricing Period, the interest rate margin set forth
below (expressed in basis points) opposite the
Applicable Pricing Level for that Pricing Period:
1
<PAGE>
<TABLE>
<CAPTION>
Applicable
Pricing Level Margin
------------- --------
<S> <C>
I 75.00
II 50.00
III 25.00
IV 00.00
</TABLE>
3. The definition of "Applicable Eurodollar Rate Margin" in Section 1.1
of the Agreement is hereby amended and restated in its entirety to read as
follows:
"APPLICABLE EURODOLLAR RATE MARGIN" means, for each
Pricing Period, the interest rate margin set forth below
(expressed in basis points) opposite the Applicable
Pricing Level for that Pricing Period:
<TABLE>
<CAPTION>
Applicable
Pricing Level Margin
------------- --------
<S> <C>
I 200.00
II 175.00
III 125.00
IV 75.00
</TABLE>
4. The amendment and restatement of the Applicable Alternative Base Rate
Margin and the Applicable Eurodollar Rate Margin set forth above shall be
effective with respect to Pricing Periods commencing on or after the date of
this Second Amendment.
5. The address for Wells Fargo Bank, National Association, as Agent and
as a Bank, is hereby amended to read as follows:
Wells Fargo Bank, National Association
Los Angeles Regional Commercial Banking
Office
333 South Grand Avenue, Third Floor
Los Angeles, California 90071
Attention: Mr. Charles C. Warner
Telecopier: (213) 617-7622
Telecopier: (213) 253-3658
2
<PAGE>
6. Except as specifically provided herein, all terms and provisions of
the Agreement shall continue in full force and effect, without waiver or
modification. All Terms defined in the Agreement shall have the same meaning
when used in this Second Amendment. This Second Amendment and the Agreement
shall be read together, as one document.
7. Borrower hereby remakes all representations and warranties contained
in the Agreement and reaffirms all covenants set forth therein. Borrower
further certificates that as of the date of this Second Amendment there exists
no Event of Default as defined in the Agreement, nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be executed as of the day and year first written above.
RICHEY ELECTRONICS, INC., WELLS FARGO BANK, NATIONAL
a Delaware corporation ASSOCIATION, as Agent
and as a Bank
By: /s/ Richard N. Berger By: /s/ Charles C. Warner
--------------------- ---------------------
Title: V. P. Finance Charles C. Warner
Vice President
By:
-----------------------------
Title:
-----------------------------
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-03-1998
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 34,079
<ALLOWANCES> 0
<INVENTORY> 54,625
<CURRENT-ASSETS> 93,444
<PP&E> 11,447
<DEPRECIATION> 5,501
<TOTAL-ASSETS> 156,478
<CURRENT-LIABILITIES> 44,786
<BONDS> 67,704
0
0
<COMMON> 9
<OTHER-SE> 43,979
<TOTAL-LIABILITY-AND-EQUITY> 156,478
<SALES> 70,783
<TOTAL-REVENUES> 70,783
<CGS> 53,164
<TOTAL-COSTS> 65,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,617
<INCOME-PRETAX> 3,619
<INCOME-TAX> 1,493
<INCOME-CONTINUING> 2,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,126
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.21
</TABLE>
