<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 October 2, 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 No.)
incorporation or organization)
7441 Lincoln Way, Garden Grove, California 92841
-------------------------------------------------------
(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 11, 1998, 9,148,613 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>
OCTOBER 2, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 23,000 $ 31,000
Trade receivables 28,504,000 32,702,000
Inventories 51,940,000 49,828,000
Deferred income taxes 3,435,000 3,662,000
Other current assets 1,208,000 919,000
------------- -------------
Total current assets $ 85,110,000 $ 87,142,000
------------- -------------
LEASEHOLD IMPROVEMENTS, EQUIPMENT
FURNITURE AND FIXTURES, net $ 6,344,000 $ 5,715,000
------------- -------------
OTHER ASSETS AND INTANGIBLES
Deferred income taxes $ 2,667,000 $ 4,200,000
Deferred debt costs 1,988,000 2,237,000
Other 252,000 340,000
Goodwill 51,310,000 51,236,000
------------- -------------
$ 56,217,000 $ 58,013,000
------------- -------------
$ 147,671,000 $ 150,870,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 12,139,000 $ 14,278,000
Accounts payable 20,534,000 22,525,000
Accrued expenses 2,980,000 4,028,000
Accrued restructuring costs 73,000 746,000
------------- -------------
Total current liabilities $ 35,726,000 $ 41,577,000
------------- -------------
LONG-TERM DEBT
Subordinated notes payable $ 140,000 $ 1,000,000
Convertible subordinated notes payable 55,755,000 55,755,000
Other long-term debt 10,772,000 11,099,000
------------- -------------
$ 66,667,000 $ 67,854,000
------------- -------------
STOCKHOLDERS' EQUITY
Preferred Stock -- --
Common Stock $ 9,000 $ 9,000
Additional paid-in-capital 22,291,000 21,954,000
Retained earnings 23,977,000 19,895,000
Accumulated other comprehensive income (999,000) (219,000)
------------- -------------
Total stockholders' equity $ 45,278,000 $ 41,439,000
------------- -------------
$ 147,671,000 $ 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 NINE MONTHS ENDED
--------------------------------- -----------------------------------
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales: $ 56,853,000 $ 65,091,000 $189,964,000 $181,231,000
Cost of Goods Sold: 43,302,000 48,963,000 143,326,000 135,912,000
------------ ------------ ------------ ------------
Gross Profit: $ 13,551,000 $ 16,128,000 $ 46,638,000 $ 45,319,000
------------ ------------ ------------ ------------
Operating expenses:
Selling, warehouse, general, and
administrative $ 9,555,000 $ 11,401,000 $ 32,586,000 $ 31,476,000
Amortization of intangibles 442,000 429,000 1,326,000 1,178,000
Restructuring costs -- -- 1,000,000 --
------------ ------------ ------------ ------------
$ 9,997,000 $ 11,830,000 $ 34,912,000 $ 32,654,000
------------ ------------ ------------ ------------
Operating income $ 3,554,000 $ 4,298,000 $ 11,726,000 $ 12,665,000
Interest Expense 1,546,000 1,578,000 4,773,000 4,294,000
------------ ------------ ------------ ------------
Income before income taxes $ 2,008,000 $ 2,720,000 $ 6,953,000 $ 8,371,000
Federal and state income taxes 833,000 1,094,000 2,871,000 3,364,000
------------ ------------ ------------ ------------
Net Income $ 1,175,000 $ 1,626,000 $ 4,082,000 $ 5,007,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per Share
Basic $ 0.13 $0.18 $ 0.45 $ 0.55
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted $ 0.13 $ 0.17 $ 0.45 $ 0.53
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted Average number of
shares outstanding
Basic 9,146,000 9,064,000 9,132,000 9,064,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted 13,129,000 13,011,000 13,171,000 13,011,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
OCTOBER 2, SEPTEMBER, 26
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,082,000 $ 5,007,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,983,000 2,534,000
Deferred income taxes 1,541,000 1,067,000
Changes in operating assets and liabilities:
(Increase) decrease in trade receivables 3,945,000 (3,622,000)
(Increase) in inventories (2,419,000) (8,794,000)
(Increase) decrease in other assets (304,000) 392,000
Increase (decrease) in accounts (2,934,000) 2,060,000
payable and accrued expenses
Increase in accrued restructuring costs 73,000 --
------------ ------------
Net cash provided by (used in) operating activities $ 6,967,000 ($ 1,356,000)
------------ ------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of leasehold improvements and equipment ($ 2,130,000) ($ 1,243,000)
Payment of acquisition and restructuring costs (2,036,000) (7,348,000)
------------ ------------
Net cash (used in) investing activities ($ 4,166,000) ($ 8,591,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net advances (repayments) on long-term revolving line of ($ 2,191,000) $ 10,013,000
credit
Borrowing (payments) on long-term debt (1,086,000) --
Transaction costs associated with refinancing activities -- (38,000)
Proceeds from issuance of common stock 505,000 8,000
------------ ------------
Net cash provided by (used in) financing activities ($ 2,772,000) $ 9,983,000
------------ ------------
Net effect of translation on cash ($ 37,000) ($ 37,000)
------------ ------------
(Decrease) in cash ($ 8,000) ($ 1,000)
CASH
Beginning $ 31,000 $ 30,000
------------ ------------
Ending $ 23,000 $ 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>
NINE MONTHS ENDED
--------------------------------
OCTOBER 2, SEPTEMBER 26,
1998 1997
------------ ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash Payments For:
Interest $ 5,580,000 $ 5,114,000
------------ ------------
------------ ------------
Income taxes $ 1,332,000 $ 1,640,000
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of Simmonds Technology:
$ 1,163,000
Working capital acquired
Fair market value of equipment acquired 1,384,000
Deferred income taxes 2,920,000
Goodwill 6,534,000
Restructuring and transaction costs (2,422,000)
Other liabilities assumed (1,047,000)
Common stock warrants issued (730,000)
------------
Purchase price and related transaction costs $ 7,802,000
------------
------------
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
RICHEY ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED OCTOBER 2, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------
SHARES ADDITIONAL ACCUMULATED
PREFERRED SHARES PAID-IN RETAINED COMPREHENSIVE
STOCK OUTSTANDING PAR VALUE CAPITAL EARNINGS INCOME TOTAL
--------- ----------- --------- ----------- ----------- ------------- -----------
<S> <C> <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 -- 78,000 -- 537,000 -- -- 537,000
Foreign currency -- -- -- -- -- (780,000) (780,000)
translation adjustment
Net income -- -- -- -- 4,082,000 -- 4,082,000
--------- ----------- --------- ----------- ----------- ------------- -----------
Balance, October 2, 1998 -- 9,146,000 $ 9,000 $22,291,000 $23,977,000 ($ 999,000) $45,278,000
--------- ----------- --------- ----------- ----------- ------------- -----------
</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, 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 October 2, 1998
and September 26,1997 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, 1999. The Company
7
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
does not expect SOP 98-1 to have a significant impact on its Consolidated
Financial Statements and related disclosures.
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 and nine month periods ended October 2, 1998 and September
26, 1997:
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------------------
October 2, 1998 September 26, 1997
---------------------------------------------- ---------------------------------------------
Net Net
Income Shares Income Income Shares Income
(Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $ 1,175,000 9,146,000 $ 0.13 $ 1,626,000 9,064,000 $ 0.18
Effect of dilutive securities:
Convertible, 7%
subordinated notes
payable 612,000 3,947,000 622,000 3,947,000
Common stock options - 36,000 - -
----------- ------------- ----------- -------------
Diluted earnings per share $ 1,787,000 13,129,000 $ 0.13* $ 2,248,000 13,011,000 $ 0.17
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
- --------------------
* The effect of dilutive securities was not included for the quarter
ended October 2, 1998, because the impact would have been
anti-dilutive.
8
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------------------------------------------------------
October 2, 1998 September 26, 1997
---------------------------------------------- ---------------------------------------------
Net Net
Income Shares Income Income Shares Income
(Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $ 4,082,000 9,132,000 $ 0.45 $ 5,007,000 9,064,000 $ 0.55
Effect of dilutive securities:
Convertible, 7%
subordinated notes
payable 1,836,000 3,947,000 1,840,000 3,947,000
Common stock options - 92,000 - -
----------- ------------- ----------- -------------
Diluted earnings per share $ 5,918,000 13,171,000 $ 0.45 $ 6,847,000 13,011,000 $ 0.53
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
Options to purchase 373,200 shares of common stock and a warrant to
purchase 197,044 shares of common stock were outstanding at October 2, 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 components. Effective January 1, 1998, the Company
adopted SFAS No. 130. For the quarters ended October 2, 1998 and September 26,
1997, comprehensive income was $567,000 and $1,566,000, respectively, and for
the nine month periods ended October 2, 1998 and September 26, 1997,
comprehensive income was $3,302,000 and $4,871,000, 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,
9
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
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. In July 1997, the Company
changed the name of STI to Richey Electronics Limited.
Prior to the end of the third quarter of 1998, the Company reached an
agreement with Simmonds that closed all pending obligations that remained from
the June 1997 acquisition. These obligations consisted primarily of Simmonds'
duty to negotiate and settle certain facility and computer leases and Richey
Electronics Limited's obligation to make a payment on March 31, 2002 based upon
future levels of operating income. The settlement required the Company to make
a payment of $800,000 to Simmonds. For purchase accounting purposes, this
payment was accounted for as contingent consideration and therefore recorded as
additional purchase price. The settlement did not effect the outstanding stock
purchase warrant that permits Simmonds to purchase 197,044 shares of common
stock of the Company for $10.15 per share.
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>
Nine Months Ended
September 26, 1997
------------------
<S> <C>
Net sales (000) $ 192,447
Net income (000) $ 2,621
Earnings per share
Basic $ 0.29
Diluted $ 0.29
</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.
10
<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 NINE MONTHS ENDED
OCT. 2, SEPT. 26, OCT. 2, SEPT. 26,
1998 1997 1998 1997
------- --------- ------- ---------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . 76.2 75.2 75.4 75.0
------- --------- ------- ---------
Gross Profit. . . . . . . . . . . . . . . . . . . . . . 23.8 24.8 24.6 25.0
------- --------- ------- ---------
Selling, warehouse, general & administrative . . . . . . . . 16.8 17.5 17.2 17.4
Amortization of intangibles. . . . . . . . . . . . . . . . . 0.7 0.7 0.7 0.6
Restructuring costs. . . . . . . . . . . . . . . . . . . . . - - 0.5 -
------- --------- ------- ---------
Operating Income. . . . . . . . . . . . . . . . . . . . 6.3 6.6 6.2 7.0
Interest Expense . . . . . . . . . . . . . . . . . . . . . . 2.8 2.4 2.5 2.4
------- --------- ------- ---------
Income before income taxes. . . . . . . . . . . . . . . 3.5 4.2 3.7 4.6
Federal and state income taxes . . . . . . . . . . . . . . . 1.4 1.7 1.6 1.8
------- --------- ------- ---------
Net Income. . . . . . . . . . . . . . . . . . . . . . . 2.1% 2.5% 2.1% 2.8%
------- --------- ------- ---------
------- --------- ------- ---------
<CAPTION>
OCT. 2, JULY 3, APRIL 3, DEC. 31, SEPT. 26,
1998 1998 1998 1997 1997
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET AND OTHER DATA:
Total assets (000) $147,671 $151,488 $156,478 $150,870 $148,602
Working capital (000) $ 49,384 $ 49,934 $ 48,658 $ 45,565 $ 53,605
Ratio of current assets to current liabilities 2.4 2.3 2.1 2.1 2.6
Short-term debt (000) $ 12,139 $ 14,208 $ 14,819 $ 14,278 $ 4,459
Subordinated long-term notes payable (000) $ 140 $ 1,000 $ 1,000 $ 1,000 $ 2,000
Convertible subordinated notes payable (000) $ 55,755 $ 55,755 $ 55,755 $ 55,755 $ 55,755
Other long-term debt (000) $ 10,772 $ 10,868 $ 10,949 $ 11,099 $ 18,049
Inventory turnover 3.3x 3.4x 3.9x 4.2x 4.0x
Days sales outstanding in accounts receivable 45.6 43.4 43.8 44.5 47.5
Customer order backlog (U.S. only) (000) $ 54,200 $ 57,000 $ 63,600 $ 63,000 $ 58,600
Stockholders' equity (000) $ 45,278 $ 44,711 $ 43,988 $ 41,439 $ 39,553
</TABLE>
11
<PAGE>
RESULTS OF OPERATIONS
Net income for the third quarter of 1998 was $1,175,000 ($0.13 per share,
diluted) compared with net income of $1,626,000 ($0.17 per share, diluted) for
the third quarter of 1997. Net income for the nine months ended October 2,
1998, was $4,082,000 ($0.45 per share, diluted) compared with $5,007,000 ($0.53
per share, diluted) for the same period in 1997, a decrease of 18.5%.
The Company's net income figures for the nine months ended October 2, 1998
reflect a $1,000,000 pretax restructuring charge incurred in the second quarter
of 1998 relating to a major reduction of the Company's selling, general,
administrative and value-added functions. The Company's second quarter
restructuring charge of $1,000,000 consisted of $550,000 for employee severance
and separation costs, $350,000 for lease termination costs as a result of
facility consolidation and $100,000 of other costs. During the third quarter,
all of the $550,000 of employee separation costs and the other costs were
settled with cash payments that approximated the original accrual. However, the
facility consolidation plans changed due to the pending merger of the Company
discussed below and the $350,000 accrued for facility consolidation was reduced
to $75,000. The difference of $275,000 was recorded as a reduction in general
and administrative expenses in the third quarter.
The Company undertook this reduction in response to extensive weakness
in the broad electronics market served by the Company's customers, including
the increasingly negative impact of the global slowdown in electronics
markets. As a result of its cost reduction program, the Company has reduced
operating costs at an annual rate of approximately $10,000,000 from the first
quarter of 1998. The Company anticipates that additional savings will be
realized in future periods. Without giving effect to the second quarter
restructuring charge, net income for the nine months ended October 2, 1998
would have been $4,682,000 ($0.49 per share, diluted), a decline of 6.5% from
the same period in 1997.
Net sales for the third quarter of 1998 declined to $56,853,000 from
$65,091,000 for the same period in 1997, a decrease of 12.7%. Net sales for the
first nine months of 1998 were $189,964,000 compared to net sales of
$181,231,000 for the same period in 1997, an increase of 4.8%. Net sales for
the third quarter of 1998 and the nine months ended October 2, 1998, included
$4,856,000 and $15,768,000, respectively, of Canadian sales compared to
$5,812,000 of third quarter Canadian sales in 1997 and $6,706,000 of
post-acquisition Canadian sales in the second and third quarters of 1997.
United States sales for the third quarter of 1998 decreased by 12.3% from the
third quarter of 1997. Additionally, total sales for the third quarter of 1998
decreased by 8.8% from those for the second quarter of 1998. The principal
causes of the decline in net sales were the rescheduling of customer orders in
the Company's value-added contract assembly business and the effects of the
global slowdown in the electronics industry.
Net sales of electronic components declined to $38,651,000 in the third
quarter of 1998 from $45,239,000 in the third quarter of 1997, a decrease of
14.6%. Net sales of electronic components for the first nine months of 1998
increased to $125,598,000 from $124,783,000 for the same period in 1997. This
modest increase in component sales for the nine month period is primarily the
result of the acquisition of STI, which sells mostly electronic components,
offsetting the decline in component sales due to the global slowdown in
electronics markets.
12
<PAGE>
Net sales of value-added assembly services decreased to $18,202,000 for the
third quarter of 1998 from $19,852,000 for the same period of 1997, a decrease
of 8.3%. Net sales of value-added assembly services for the first nine months
of 1998 increased to $64,366,000 from $56,448,000 for the same period in 1997,
an increase of 14.0%. Value-added sales were 32% of the Company's net sales for
the third quarter of 1998, compared with 30.5% of net sales for the third
quarter of 1997 and 35.6% of net sales for the second quarter of 1998.
Value-added sales were 33.9% of the Company's net sales for the first nine
months of 1998, compared with 31.1% of net sales for the same period of 1997.
The decrease in value-added sales for the third quarter reflects the
rescheduling of almost $3,000,000 of contract assembly orders. The Company
anticipates that approximately one half of the rescheduled orders will be
recouped in the fourth quarter of 1998 and the balance in the first quarter of
1999.
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
October 2, 1998 was $61,100,000 as compared with $63,600,000 at July 3, 1998,
$71,900,000 at April 3, 1998 and $70,600,000 at December 31, 1997. United
States backlog decreased to $54,200,000 from $57,000,000 at the end of the
second quarter of 1998, $63,600,000 at the end of the first quarter and
$63,000,000 at December 31, 1997. Canadian backlog at the end of the third
quarter of 1998 was $6,900,000 as compared to $6,600,000 at July 3 1998,
$8,300,000 at April 3, 1998 and $7,600,000 at December 31, 1997.
Gross profit was $13,551,000 for the third quarter of 1998 compared to
$16,128,000 for the third quarter of 1997, an decrease of 16.0%, and was
$46,638,000 for the first nine months of 1998 compared to $45,319,000 for the
same period of 1997, an increase of 2.9%. Gross profit margin for the third
quarter of 1998 was 23.8% compared to gross profit margin of 24.8% for the third
quarter of 1997 and was 24.6% for the nine months ending October 2, 1998
compared to 25.0% for the same period in the prior year. Gross profit margin
for the third quarter of 1998 declined to 23.8% from 24.8% for the second
quarter of 1998. The declines in the gross profit margins for the third quarter
and first nine months of 1998 versus the similar periods of 1997 were primarily
due to the weakness in the broad electronics market served by the Company's
customers which caused gross profit margins to decline moderately for both
component sales and value-added assembly services. The overall decrease in the
Company's third quarter gross profit margin from the second quarter of 1998 also
reflects the rescheduling of higher margin contract assembly orders into the
fourth quarter of 1998 and later by a broad spectrum of the Company's
value-added customers.
The Company's selling, warehouse, general and administrative expenses for
the third quarter of 1998 were $9,555,000 compared to $11,401,000 for the third
quarter of 1997, a decrease of 16.2% on a sales decrease of 12.7%. These
expenses decreased by $1,525,000 (or 13.8%) from the $11,080,000 of such costs
in the second quarter of 1998. For the first nine months of 1998, selling,
warehouse, general and administrative expenses were $32,586,000, a 3.5% increase
over the $31,476,000 of such expenses in the first nine months of 1997. Sales
revenues for the same period were up 4.8%. The quarter to quarter reductions in
selling, warehouse, general and administrative expenses are primarily due to the
implementation of the Company's operating cost reduction program commenced late
in the second quarter of 1998 which reduced operating expenses at an annual rate
of approximately $10,000,000 versus the first quarter of 1998. The Company
expects to see further benefits of this cost reduction program
13
<PAGE>
in the fourth quarter of 1998 and future periods. Year-to-date expenses are
slightly above 1997 levels for the nine month period due to the STI Acquisition
on June 13, 1997 and the higher levels of Company sales in the first two
quarters of 1998 from the same period of 1997.
Interest expense and amortization for the third quarter of 1998 were
$1,546,000 and $442,000, respectively, as compared with $1,578,000 and $429,000
for the third quarter of 1997.
Federal and state income tax expense decreased to $833,000 (41% effective
rate) for the quarter ended October 2, 1998 from $1,094,000 (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 October 2, 1998, the Company had outstanding borrowings under the
Revolving Line of Credit of approximately $21.4 million and additional borrowing
capacity of approximately $23.6 million. Outstanding borrowings at September
26, 1997 and December 31, 1997 were $20.6 million and $23.6 million,
respectively.
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 $49,384,000 on October 2, 1998 as compared to
$45,565,000 on December 31, 1997, and $53,605,000 on September 26, 1997. During
the first nine months of 1998 and after giving effect to the $1,000,000
restructuring charge, the Company generated $14,709,000 of earnings before
interest, income taxes, depreciation and amortization ("EBITDA") as compared to
EBITDA of $15,199,000 for the corresponding period of 1997, a decrease of 3.2%.
Operating activities for the first nine months of 1998 provided net cash of
$6,967,000 as compared to net cash of $1,356,000 used in operating activities
for the same period of 1997. During the first nine months of 1998, the Company
used $4,166,000 in investing activities, including $2,130,000 for capital
expenditures relating to normal investments in leasehold improvements, software,
furniture, fixtures and equipment, and $2,036,000 for payment of restructuring
costs and settlement of the earn-out payment in connection with the STI
Acquisition. This use of cash was primarily financed by operating activities.
For the quarter ended October 2, 1998, inventory turnover was 3.3x compared
to 4.0x for the quarter ended September 26, 1997, 4.2x for the quarter ended
December 31, 1997 and 3.4x
14
<PAGE>
for the quarter ended July 3, 1998. The decrease in the inventory turnover
ratio for the third quarter of 1998 from the second quarter of 1998 is primarily
due to the continuing deterioration of the electronics markets discussed above.
While inventory investment declined by $2,350,000 in the third quarter of 1998
compared to the second quarter, such decline was not sufficient to offset the
effects of such deterioration in sales. The decrease in inventory turnover for
the third quarter of 1998 as compared to the same period of 1997 also 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 1998 which normally requires investment in
inventory with lower turnover than other connector lines.
Days sales outstanding in accounts receivable were 45.6 days at October 2,
1998 compared to 47.5 days at September 26, 1997 and 44.5 days at December 31,
1997. The Company believes that it has the lowest days sales outstanding ratio
among its publicly owned peers.
YEAR 2000
The "Year 2000 Issue" relates to the fact that many existing computer
programs use only the last two digits to refer to a year. Such programs, if
not corrected, may not property recognize dates in the year 2000 and later
years, resulting in incorrect computations or system failures. The Year 2000
Issue may also affect equipment and machinery with embedded technology such as
microcontrollers.
A failure of the Company's critical information technology and
operating systems to accurately process dates beginning in 2000 could
adversely effect the Company's ability to manage its inventory, fill customer
orders and bill and collect amounts owed to the Company. Depending on their
severity, problems of such a nature, if they were to occur, could have a
material adverse effect on the Company's results of operations, liquidity and
financial condition. Consequently, commencing in mid-1997, the Company
began to review and test its information technology and other operating
systems to determine their Year 2000 compliance. The testing to date has
included the use of simulated dates after December 31, 1999. The Company has
also made inquiries of the primary vendors of its computer operating systems
and software likely to be affected by the Year 2000 Issue to receive
verification of Year 2000 compliance.
Based upon such review and testing to date and assurances received from
its vendors, the Company believes that only minor modifications to existing
software will be required to make the Company's information technology and
other material operating systems Year 2000 compliant. It is anticipated that
such modifications will not involve significant costs or disruption to
operations and will be completed prior to June 30, 1999. The Company intends
to continue its review and testing with a goal of completion by June 30, 1999.
However, based upon the results and assurances received to date, the Company
does not expect to identify any material problems relating to the Year 2000
Issue.
In addition to the impact of the Year 2000 Issue on its own information
technology and operating systems, the Company is exposed to the risk that its
customers and suppliers will be adversely impacted by the failure to
adequately anticipate or address the impact of the Year 2000 Issue on their
operations. Failure to be Year 2000 compliant could lead to a reduction or
15
<PAGE>
postponement of purchases by the Company's customers, delays in receiving
payments for goods sold or the inability of the Company's suppliers to timely
and correctly fill orders placed by the Company. The Company is unaware of
known adverse effects of the Year 2000 Issue on any of its material suppliers
or customers which are likely to result in a material adverse effect on the
Company's results of operations, liquidity of financial condition. However,
significant problems encountered by one or more of the Company's material
suppliers or customers could have a material adverse effect on the Company's
results of operations, liquidity or financial condition. The Company is in
the process of polling its major suppliers and customers to determine their
state of Year 2000 compliance and will develop its Year 2000 contingency
plans based upon the final results of the study.
AGREEMENT AND PLAN OF MERGER
On September 30, 1998, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement), among the Company, Arrow Electronics, Inc., a New
York corporation (Arrow) and Lear Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Arrow (Acquisition Corp.). The Merger Agreement
provides for the merger of Acquisition Corp. with and into the Company and for
the Company to become a wholly owned subsidiary of Arrow after the merger. The
Merger Agreement also provides for the stockholders of the Company to receive
$10.50 in cash for each share of Company common stock.
Consummation of the transactions contemplated by the Merger Agreement is
subject to approval by the stockholders of the Company and satisfaction of
customary closing conditions. The Company has set a record date of November 10,
1998 for the determination of stockholders entitled to receive notice of and
vote at the special meeting of stockholders to be held to approve and adopt the
Merger Agreement. It is anticipated that such special meeting will be held in
late December or early January and that, if approved by the stockholders, the
merger will close promptly thereafter.
In matters related to the Merger Agreement, the Company gave notices
dated October 1, 1998 to William Cacciatore, the Company's Chairman of the
Board, President and Chief Executive Officer, Richard N. Berger, the
Company's Chief Financial Officer, Treasurer and Secretary, Norbert W. St.
John, the Company's Executive Vice President - Marketing, and Charles Mann,
the Company's Vice President - Value Added Services, that their respective
employment agreements will not be extended for additional two year terms upon
expiration of their current terms in April 1999. On July 21, 1998, in
contemplation of a possible transaction involving the sale of the Company
during 1998 and the need for incentives to senior management, in addition to
their contractual rights under employment agreements, to assist in
negotiating and closing such a transaction and to manage the Company through
a smooth transition to new ownership, the Company's Compensation Committee
had approved the payment of "stay" bonuses, or change in control payments, to
Mr. Cacciatore, Mr. Berger and Mr. St. John, in the amounts of $1,000,000,
$450,000 and $250,000, respectively, in the event such a transaction was
agreed to prior to the automatic two-year renewal of their employment
agreements. Such amounts would be payable upon the closing of the merger.
The Company's Board of Directors also on September 29, 1998 approved the
termination of the existing service and management agreement with Palisades
Associates, Inc., effective upon the closing of Merger Agreement, and the
acceleration of all remaining payments thereunder. The agreement provides
16
<PAGE>
for a fee of $175,000 per year and its current term would have expired on
December 31, 1999. Palisades Associates, Inc. is an affiliate of Board of
Directors member Greg A. Rosenbaum.
FORWARD-LOOKING STATEMENTS
The discussions above under the headings "Results of Operations",
"Liquidity and Capital Resources", "Year 2000" and "Agreement and Plan of
Merger" contain "forward-looking statements" within the contemplation of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such forward-looking statements include, without limitation,
statements regarding the impact upon the Company of the weakness in the broad
electronics market served by the Company's customers, the expense reductions
anticipated to be realized from the Company's cost reduction program, the
anticipated recovery of rescheduled customer orders, the adequacy of available
borrowings and cash from operations to meet funding commitments, the impact of
the "Year 2000" issue and the anticipated closing of the transactions
contemplated by the Merger Agreement. These forward-looking statements involve
risks and uncertainties which could cause actual results to differ materially
from those discussed above including, but not limited to, risks relating to
economic and market conditions, the demand for and pricing of the Company's
products, competitors' and suppliers' actions, the ability of the Company to
complete and realize the effect of its cost cutting actions, the level and
volatility of interest rates, the impact of current or pending legislation and
regulation, and fluctuations in quarterly results, as well as the risks
described from time to time in the Company's reports to the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K.
17
<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 AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Rule 14a-8 adopted by the Securities and Exchange Commission under the
Securities Exchange Act of 1934 governs the submission of stockholder
proposals for inclusion in the Company's proxy statement and form of
proxy for the Company's annual meetings of stockholders. The
Securities and Exchange Commission has recently amended Rule 14a-4
under the Securities Exchange Act of 1934 to provide that notice of a
stockholder proposal submitted outside the processes of Rule 14a-8
will be considered untimely unless received by the Company at least 45
days before the date on which the Company first mailed its proxy
material for the prior year's annual meeting of stockholders. If
timely notice of such a proposal is not given to the Company,
management proxy holders will be allowed to exercise their
discretionary voting authority when the proposal is raised at the
annual meeting, without any discussion of the matter in the Company's
proxy statement. Notice of any such proposal will be considered
untimely with respect to the Company's 1999 annual meeting unless
received by the Company on or before February 15, 1999.
If the Merger Agreement is approved and adopted by the Company's
stockholders and Acquisition Corp. is merged with and into the
Company, the Company will become a wholly owned subsidiary of Arrow.
In such case, there will be no 1999 annual meeting of the Company's
stockholders and any stockholder proposal submitted in accordance with
the foregoing procedures will not be acted upon.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K.
2.1 Agreement and Plan of Merger, dated as of September 30, 1998,
by and among Arrow Electronics, Inc., Lear Acquisition Corp.
and Richey Electronics, Inc. (Incorporated by reference from
the Current Report on Form 8-K for Richey Electronics, Inc.,
filed October 14, 1998 as exhibit 2.1 thereof). (Such exhibit
omits the schedules to the Agreement and Plan of Merger which
consist of exceptions to the representations and warranties of
Richey Electronics, Inc., contained in the agreement and
information concerning the jurisdiction of incorporation and
capitalization of the subsidiaries of Richey Electronics, Inc.
Richey Electronics, Inc., agrees to furnish supplementally a
copy of any omitted schedule to the Commission upon request.)
2.2 Amendment to Agreement and Plan of Merger, dated as of October
21, 1998, by and among Arrow Electronics, Inc., Lear
Acquisition Corp. and Richey Electronics, Inc.
3.1 Restated Certificate of Incorporation of Richey Electronics,
Inc. (Incorporated by reference from the Registration
Statement on Form S-1 for Richey Electronics, Inc., 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 for Richey
Electronics, Inc., filed January 7, 1994, Registration No.
33-73916 as exhibit 3.2 thereof).
10.1 Approval of key executive termination arrangement adopted by
the Company's Compensation Committee on July 21, 1998.
10.2 Approval of termination of agreement between Richey
Electronics, Inc., and Palisades Associates, Inc., adopted by
the Company's Board of Directors on September 29, 1998, with
respect to the Service and Management Agreement dated December
18, 1990 by and among RicheyImpact Electronics, Inc.,
Palisades Associates, Inc. and Saunders Capital Group, Inc.,
as assumed and amended pursuant to the Agreement to Assume and
Amend the Service and Management Agreement among Brajdas
Corporation, Palisades Associates, Inc. and Saunders Capital
Group, Inc. dated as of April 6, and as modified pursuant to
the Modification Agreement among the Richey Electronics, Inc,
Palisades Associates, Inc. and Saunders Capital Group, Inc.
dated as of January 2, 1995, and the Modification Agreement by
and between Richey Electronics, Inc. and Palisades Associates,
Inc. dated as of February 21, 1995.
19
<PAGE>
10.3 Letter agreement dated October 6, 1998, among Richey
Electronics, Inc., Richey Electronics Limited, SCL Electronics
Ltd., and Simmonds Capital Limited confirming agreement
reached during the third quarter of 1998.
10.4 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between William C. Cacciatore and
Brajdas Corporation dated as of April 1, 1993, as amended by
the Addendum to Employment Agreement (William C. Cacciatore)
dated as of February 21, 1995, and the Second Addendum to
Employment Agreement (William C. Cacciatore) dated as of
May 17, 1995.
10.5 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between Richard N. Berger and
Brajdas Corporation dated as of April 1, 1993, as amended by
the Addendum to Employment Agreement (Richard N. Berger) dated
as of February 21, 1995.
10.6 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between Norbert W. St. John and
Brajdas Corporation dated as of April 1, 1993, as amended by;
the Addendum to Employment Agreement (Norbert W. St. John)
dated as of February 21, 1995, and the Second Addendum to
Employment Agreement (Norbert W. St. John) dated as of May 17,
1995.
10.7 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between Charles W. Mann and Richey
Electronics, Inc. dated as of April 1, 1995.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated September 30, 1998 and filed
on October 14, 1998 reporting on the Agreement and Plan of
Merger, dated as of September 30, 1998, by and among Arrow
Electronics, Inc., Lear Acquisition Corp. and Richey
Electronics, Inc., and including a copy of such agreement and
the related press release.
20
<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 12, 1998
21
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2.1 Agreement and Plan of Merger, dated as of September 30, 1998,
by and among Arrow Electronics, Inc., Lear Acquisition Corp.
and Richey Electronics, Inc. (Incorporated by reference from
the Current Report on Form 8-K for Richey Electronics, Inc.,
filed October 14, 1998 as exhibit 2.1 thereof). (Such exhibit
omits the schedules to the Agreement and Plan of Merger which
consist of exceptions to the representations and warranties of
Richey Electronics, Inc., contained in the agreement and
information concerning the jurisdiction of incorporation and
capitalization of the subsidiaries of Richey Electronics, Inc.
Richey Electronics, Inc., agrees to furnish supplementally a
copy of any omitted schedule to the Commission upon request.)
2.2 Amendment to Agreement and Plan of Merger, dated as of October
21, 1998, by and among Arrow Electronics, Inc., Lear
Acquisition Corp. and Richey Electronics, Inc.
3.1 Restated Certificate of Incorporation of Richey Electronics,
Inc. (Incorporated by reference from the Registration
Statement on Form S-1 for Richey Electronics, Inc., 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 for Richey
Electronics, Inc., filed January 7, 1994, Registration No.
33-73916 as exhibit 3.2 thereof).
10.1 Approval of key executive termination arrangement adopted by
the Company's Compensation Committee on July 21, 1998.
10.2 Approval of termination of agreement between Richey
Electronics, Inc., and Palisades Associates, Inc., adopted by
the Company's Board of Directors on September 29, 1998, with
respect to the Service and Management Agreement dated December
18, 1990 by and among RicheyImpact Electronics, Inc.,
Palisades Associates, Inc. and Saunders Capital Group, Inc.,
as assumed and amended pursuant to the Agreement to Assume and
Amend the Service and Management Agreement among Brajdas
Corporation, Palisades Associates, Inc. and Saunders Capital
Group, Inc. dated as of April 6, and as modified pursuant to
the Modification Agreement among the Richey Electronics, Inc,
Palisades Associates, Inc. and Saunders Capital Group, Inc.
dated as of January 2, 1995, and the Modification Agreement by
and between Richey Electronics, Inc. and Palisades Associates,
Inc. dated as of February 21, 1995.
<PAGE>
10.3 Letter agreement dated October 6, 1998, among Richey
Electronics, Inc., Richey Electronics Limited, SCL Electronics
Ltd., and Simmonds Capital Limited confirming agreement
reached during the third quarter of 1998.
10.4 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between William C. Cacciatore and
Brajdas Corporation dated as of April 1, 1993, as amended by
the Addendum to Employment Agreement (William C. Cacciatore)
dated as of February 21, 1995, and the Second Addendum to
Employment Agreement (William C. Cacciatore) dated as of
May 17, 1995.
10.5 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between Richard N. Berger and
Brajdas Corporation dated as of April 1, 1993, as amended by
the Addendum to Employment Agreement (Richard N. Berger) dated
as of February 21, 1995.
10.6 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between Norbert W. St. John and
Brajdas Corporation dated as of April 1, 1993, as amended by;
the Addendum to Employment Agreement (Norbert W. St. John)
dated as of February 21, 1995, and the Second Addendum to
Employment Agreement (Norbert W. St. John) dated as of May 17,
1995.
10.7 Letter dated as of October 1, 1998 regarding the non-extension
of the Employment Agreement between Charles W. Mann and Richey
Electronics, Inc. dated as of April 1, 1995.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 2.2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of October 21,
1998 ("Amendment"), by and among Arrow Electronics, Inc., a New York
corporation ("Parent"), Lear Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Sub") and Richey Electronics, Inc., a
Delaware corporation (the "Company").
WHEREAS, Parent, Sub and the Company have entered into an Agreement
and Plan of Merger dated as of September 30, 1998 (the "Merger Agreement");
and
WHEREAS, Parent, Sub and the Company desire to amend certain
provisions of the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants, agreements and conditions
hereinafter set forth, and intending to be legally bound hereby, the parties
hereto agree that:
1. The first sentence of Section 5.15(a) shall be amended by deleting the
word "ten" and adding the word "five" in lieu thereof.
2. Section 8.1 shall be amended by adding the section number ",5.21" after
the section number "5.15" and before the word "and".
Except as specifically amended hereby, the Merger Agreement shall
remain in full force and effect in accordance with its terms.
This Amendment shall be governed and construed in accordance with
the laws of the State of New York applicable to a contract executed and
performed in such State, without giving effect to the conflicts of law
principles thereof.
This Amendment may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become
effective when two or more counterparts have been signed by each of the
parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
ARROW ELECTRONICS, INC.
By: /s/ Robert E. Klatell
----------------------------------
Name: Robert E. Klatell
Title: Executive Vice President
LEAR ACQUISITION CORP.
By: /s/ Robert E. Klatell
----------------------------------
Name: Robert E. Klatell
Title: President
RICHEY ELECTRONICS, INC.
BY: /s/ Richard N. Berger
----------------------------------
Name: Richard N. Berger
Title: CFO
2
<PAGE>
Exhibit 10.1
On July 21, 1998, the Compensation Committee of the Board of Directors of
Richey Electronics, Inc., approved, subject to certain conditions, certain
payments to William Cacciatore, the Company's Chairman of the Board, President
and Chief Executive Officer, Richard N. Berger, the Company's Chief Financial
Officer, Treasurer and Secretary, Norbert W. St. John, the Company's Executive
Vice President - Marketing.
This arrangement is not set forth in any formal document but is summarized
in the minutes of the July 21, 1998 meeting of the Compensation Committee, which
in relevant part provides:
Mr. Rosenbaum led a discussion of the status of employment
contracts. He noted that the contracts of Messrs.
Cacciatore, St. John, Berger and Mann run to April, 1999 and
will automatically extend another two years unless the
Company gives notice of termination at least 180 days prior
thereto. Mr. Rosenbaum noted that the contracts provide
termination benefits equal to the greater of one year's
compensation or the amount of time remaining until
termination. Given the potential for a transaction
involving the sale of the Company during 1998, the Committee
considered the need for incentives to senior managers
involved in the transaction process, in addition to their
contractual rights under employment agreements, to assist in
negotiating and closing a transaction and manage the Company
through a smooth transition to new ownership. As a result,
the Committee, on a motion duly made and seconded,
unanimously approved the payment of "stay" bonuses, or
change in control payments, to Mr. Cacciatore, Mr. Berger
and Mr. St. John, in the amounts of $1,000,000, $450,000 and
$250,000, respectively, in the event such a transaction was
agreed to prior to the automatic two-year renewal of their
employment agreements.
<PAGE>
Exhibit 10.2
On September 29, 1998, the Board of Directors of Richey Electronics, Inc.,
approved, subject to certain conditions, termination of the Service and
Management Agreement dated December 18, 1990 by and among RicheyImpact
Electronics, Inc., Palisades Associates, Inc. and Saunders Capital Group, Inc.,
as assumed and amended pursuant to the Agreement to Assume and Amend the Service
and Management Agreement among Brajdas Corporation, Palisades Associates, Inc.
and Saunders Capital Group, Inc. dated as of April 6, and as modified pursuant
to the Modification Agreement among the Richey Electronics, Inc, Palisades
Associates, Inc. and Saunders Capital Group, Inc. dated as of January 2, 1995,
and the Modification Agreement by and between Richey Electronics, Inc. and
Palisades Associates, Inc. dated as of February 21, 1995, and the acceleration
of all remaining payments thereunder to the date of termination.
This arrangement is not set forth in any formal document but is summarized
in the minutes of the September 29, 1998 meeting of the Board of Directors,
which in relevant part provides:
The Board then discussed the termination of the
Corporation's service contract with Palisades Associates,
Inc. Thereupon, after full discussion and upon motion made
by Mr. Blumenthal and seconded by Mr. Zimmerman, the
following resolution was unanimously adopted, Mr. Rosenbaum
abstaining, pursuant to a roll call taken by Mr. Berger:
RESOLVED, that the Board of Directors hereby approves,
subject to the execution and delivery of the Merger
Agreement and the Corporation's stockholders' approval of
the transactions contemplated thereby, the termination of
the Service and Management Agreement between Palisades
Associates, Inc., Saunders Capital Group, Inc. and RI
Acquisition Corp., dated as of December 18, 1990, as assumed
by the Corporation and amended, and the acceleration of all
remaining payments thereunder to the date of termination.
<PAGE>
Exhibit 10.3
SCL ELECTRONICS LTD.
October 6, 1998
Via Fax (714) 897-7887
Richey Electronics, Inc., and
Richey Electronics Limited
c/o 441 Lincoln Way
Garden Grove
California 92641
Attention: President
Dear Sirs:
Re: Richey Electronics Limited (formerly
Simmons Technologies Inc.) (the "Company")
The purpose of this letter is to confirm the following terms and conditions upon
which Richey Electronics, Inc. (the "Purchaser"), the Company and SCL
Electronics Ltd. (the "Seller") have agreed to finalize certain matters arising
out of:
(1) a share purchase agreement dated June 13, 1997 pursuant to which the
Purchaser acquired from the Seller all of the shares of the Company
(the "Agreement"); and
(1) the Debt Agreement (as defined below).
By way of background, as part of the transaction provided for in the Agreement
the Company, the Seller and Simmonds Capital Limited entered into an
Intercompany Debt Repayment Agreement dated June 13, 1997 (the "Debt
Agreement"). The Debt Agreement provides for the payment of certain amounts
including an obligation is Section 3.1 for the Company (now owned by the
Purchaser) to pay to Simmonds Capital Limited an amount calculated in the manner
provided for therein.
It has been agreed that, upon the payment by the Purchaser or the Company to
Simmonds Capital Limited of the sum of U.S. $800,000, (i) the obligations of the
Company under Section 3.1 of the Debt Agreement shall be satisfied in full and
the Company shall be released from any obligations under the Debt Agreement;
(ii) the sum of Can. $221,409.10 being amounts due to the Company from the
Seller in respect of the accounts described in Schedule "A" attached to this
letter shall be satisfied in full and the Seller shall be released from any
obligations under such accounts.
<PAGE>
2
It is expected that we will complete the foregoing by October 8, 1998 subject to
the lease issue described below. Upon payment of U.S. $800,000 as aforesaid and
Schedule "A" marked "Paid in Full", the Company, Simmonds Capital Limited and
the Seller will deliver an executed release releasing the Purchaser and the
Company from any further obligation under Section 3.1 of the Debt Agreement in
the form of the release attached as Schedule "B".
Completion of the foregoing is conditional upon severing the lease at 580
Granite Court, Pickering, Ontario. By way of background, the lease is between
Wychrest, Inc., as landlord, Simmonds Capital Limited, as tenant and Richey
Electronics, Inc. as indemnifier. The parties want to sever the lease so that
each of Simmonds Capital Limited and the Company is responsible for its own
portion of the premises. In that regard, the Purchaser or the Company has
agreed to provide a Can. $250,000 limited guarantee to the landlord in respect
of the construction costs which may be required to divide the building. The
Purchaser, the Company and Simmonds Capital Limited hereby agree to use their
respective reasonable commercial best efforts to negotiate, finalize, execute
and deliver a lease and in the case of the Purchaser or the Company the
guarantee referred to above, in each case, in form and substance satisfactory to
each party, acting reasonably.
If the foregoing accurately reflects the terms of our agreement them would you
please execute and deliver the copy of this letter provided for that purpose and
return a copy to the undersigned.
Yours truly,
SCL ELECTRONICS LTD.
Per:
/s/ David O'Kell
- ----------------------------
SIMMONDS CAPITAL LIMITED
Per:
/s/ David O'Kell
- ----------------------------
The foregoing is hereby accepted this 7th day of October, 1998.
RICHEY ELECTRONICS, INC. RICHEY ELECTRONICS LIMITED
Per: Per:
/s/ Richard N. Berger /s/ Richard N. Berger
- ---------------------------- ------------------------------
Authorized Signature Authorized Signature
<PAGE>
Richey Electronics Limited
October 7, 1998
SCL Receivable
<TABLE>
<CAPTION>
Pickering Rent & CAM:
<S> <C> <C> <C>
May 98 30,000.00
June 98 30,000.00
July 98 30,000.00
August 98 30,000.00
September 98 30,000.00
October 98 30,000.00
Subtotal
180,000.00
----------
Taxes:
1994 Payroll 2,937.97
1995 Payroll - Ontario 2,902.08
1997 Workmen's Comp 3,264.46 50% of $6,528.92
1996 Pension Assessment - Quebec 25,219.67
1997 Pension Assessment - Quebec 5,562.20 50% of $11,124.39
Subtotal 39,886.38
----------
Employee Dispute:
Campitelli settlement 6,500.00
Subtotal 6,500.00
----------
Accounts Receivable:
011546 SCL Technologies 5,427.00
065603 SCL Technologies (2,118.76)
065599 SCL Systems 291.60
010641 SCL Systems 6,325.16
010253 Simmonds Capital 5,097.72
Subtotal 15,022.72
----------
Due to SCL:
Rent AS400 May & June (20,000.00)
Subtotal (20,000.00)
----------
Total due to Richey 221,409.10
----------
----------
</TABLE>
<PAGE>
RELEASE
TO: Richey Electronics, Inc. ("Richey")
AND TO: Richey Electronics Limited (the "Company")
WHEREAS pursuant to a letter form of share purchase agreement dated June 13,
1997 (the "Agreement") Richey acquired all of the issued shares of the Company
(formerly Simmonds Technologies Inc.) from SCL Electronics Ltd. (the "Seller")
which is a wholly-owned subsidiary of Simmonds Capital Limited ("SCL");
AND WHEREAS as part of the transaction contemplated under the Agreement, the
Company, SCL and the Seller entered into an Intercompany Debt Repayment
Agreement dated June 13, 1997 (the "Debt Agreement");
AND WHEREAS the parties have agreed by letter agreement dated October 6, 1998 to
settle certain outstanding matters arising under the Agreement including the
settlement of the Company's obligations under Section 3.1 of the Debt Agreement;
AND WHEREAS pursuant to an assignment of lease dated April 30, 1996 the Company
is the tenant and assignee and SCL is the assignor under a lease dated June 2,
1995 (collectively with the assignment the "Lease Documents") with Wychrest
Inc., as landlord, for premises at 580 Granite Court, Pickering, Ontario;
NOW THEREFORE in consideration of the sum of $1 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned hereby remise, release and forever discharge Richey and the Company,
including their respective successors and assigns of and from all actions,
causes of action, suits, debts, dues, accounts, bonds, covenants, contracts,
claims, indemnities and demands whatsoever which the undersigned (or any of
them) ever had or now has or may hereafter have against Richey or the Company
for or by reason of, or in any way arising out of any cause, matter or thing
existing up to and including the date hereof, whether accrued or contingent,
relating to, or arising directly or indirectly by reason of Section 3.1 of the
Debt Agreement or of the Lease Documents.
DATED: October , 1998
SCL ELECTRONICS LTD.
Per:
----------------------------
SIMMMONDS CAPITAL LIMITED
Per:
----------------------------
<PAGE>
Exhibit 10.4
RICHEY ELECTRONICS, INC.
October 1, 1998
Mr. William C. Cacciatore
7441 Lincoln Way
Garden Grove, CA 92642
Re: Employment Agreement
--------------------
Dear Bill:
Reference is made to the Employment Agreement dated as of April 1,
1993, between you and Brajdas Corporation, as amended by the Addendum to
Employment Agreement dated as of February 21, 1995 between you and Richey
Electronics, Inc. (the "Company"), and as further amended by the Second Addendum
to Employment Agreement dated as of May 17, 1995 between you and the Company (as
so amended, the "Employment Agreement").
The Company hereby notifies you pursuant to Section 2 of the
Employment Agreement that your employment under the Employment Agreement shall
terminate upon the expiration of the current Additional Two-Year Period (as
defined in the Employment Agreement) on April 6, 1999.
Very truly yours,
/s/ Donald I. Zimmerman
-----------------------
Donald I. Zimmerman
Chairman of the Compensation
Committee
Receipt Acknowledged
/s/ William C. Cacciatore
- -------------------------
William C. Cacciatore
<PAGE>
Exhibit 10.5
RICHEY ELECTRONICS, INC.
October 1, 1998
Mr. Richard N. Berger
7441 Lincoln Way
Garden Grove, CA 92642
Re: Employment Agreement
--------------------
Dear Richard:
Reference is made to the Employment Agreement dated as of April 1,
1993, between you and Brajdas Corporation, as amended by the Addendum to
Employment Agreement dated as of February 21, 1995 between you and Richey
Electronics, Inc. (the "Company") (as so amended, the "Employment Agreement").
The Company hereby notifies you pursuant to Section 2 of the
Employment Agreement that your employment under the Employment Agreement shall
terminate upon the expiration of the current Additional Two-Year Period (as
defined in the Employment Agreement) on April 6, 1999.
Very truly yours,
/s/ Donald I. Zimmerman
-----------------------
Donald I. Zimmerman
Chairman of the Compensation
Committee
Receipt Acknowledged
/s/ Richard N. Berger
- ---------------------
Richard N. Berger
<PAGE>
Exhibit 10.6
RICHEY ELECTRONICS, INC.
October 1, 1998
Mr. Norbert W. St. John
7441 Lincoln Way
Garden Grove, CA 92642
Re: Employment Agreement
--------------------
Dear Norb:
Reference is made to the Employment Agreement dated as of April 1,
1993, between you and Brajdas Corporation, as amended by the Addendum to
Employment Agreement dated as of February 21, 1995 between you and Richey
Electronics, Inc. (the "Company"), and as further amended by the Second Addendum
to Employment Agreement dated as of May 17, 1995 between you and the Company (as
so amended, the "Employment Agreement").
The Company hereby notifies you pursuant to Section 2 of the
Employment Agreement that your employment under the Employment Agreement shall
terminate upon the expiration of the current Additional Two-Year Period (as
defined in the Employment Agreement) on April 6, 1999.
Very truly yours,
/s/ Donald I. Zimmerman
-----------------------
Donald I. Zimmerman
Chairman of the Compensation
Committee
Receipt Acknowledged
/s/ Norbert W. St. John
- -----------------------
Norbert W. St. John
<PAGE>
Exhibit 10.7
RICHEY ELECTRONICS, INC.
October 1, 1998
Mr. Charles Mann
7441 Lincoln Way
Garden Grove, CA 92642
Re: Employment Agreement
--------------------
Dear Chuck:
Reference is made to the Employment Agreement dated as of April 1,
1995 (the "Employment Agreement"), between you and Richey Electronics, Inc. (the
"Company").
The Company hereby notifies you pursuant to Section 2 of the
Employment Agreement that your employment under the Employment Agreement shall
terminate upon the expiration of the current Additional Two-Year Period (as
defined in the Employment Agreement) on April 1, 1999.
Very truly yours,
/s/ Donald I. Zimmerman
-----------------------
Donald I. Zimmerman
Chairman of the Compensation
Committee
Receipt Acknowledged
/s/ Charles Mann
- ----------------
Charles Mann
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-02-1998
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 28,504
<ALLOWANCES> 0
<INVENTORY> 51,940
<CURRENT-ASSETS> 85,110
<PP&E> 12,707
<DEPRECIATION> 6,363
<TOTAL-ASSETS> 147,671
<CURRENT-LIABILITIES> 35,726
<BONDS> 66,667
0
0
<COMMON> 9
<OTHER-SE> 45,269
<TOTAL-LIABILITY-AND-EQUITY> 147,671
<SALES> 189,964
<TOTAL-REVENUES> 189,964
<CGS> 143,326
<TOTAL-COSTS> 178,238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,773
<INCOME-PRETAX> 6,953
<INCOME-TAX> 2,871
<INCOME-CONTINUING> 4,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,082
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
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