<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number: 0-9788
RICHEY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0594451
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7441 Lincoln Way, Suite 100, Garden Grove, California 92642
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (714) 898-8288
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
------------------------------
(Title of class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of March 20, 1998 was $58,813,380
based on the last sales price on the Nasdaq Stock Market ("Nasdaq") on that
date.
As of March 20, 1998, 9,124,113 shares of the registrant's
common stock were outstanding.
- -------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Richey Electronics, Inc.'s (the "Company" or "Richey
Electronics") proxy statement for its annual meeting of stockholders to be
held on May 5, 1998, which is being filed with the Securities and Exchange
Commission (the "Commission") concurrently herewith, are incorporated by
reference into Part III of this Form 10-K (Items 10 through 13).
<PAGE>
PART I.
ITEM 1. BUSINESS
GENERAL
Richey Electronics is a leading specialty distributor of interconnect,
electromechanical and passive electronic components and a provider of
related value-added assembly services to more than 20,000 customers in North
America. Richey Electronics has been built through a series of transactions
beginning in December 1990 with the acquisition of the operations of
Richey/Impact Electronics Inc. and continuing with the merger with Brajdas
Corporation in 1993 and the acquisition of the operations of In-Stock in
1994, IEI and Deanco in 1995, MS Electronics and Summit Distributors in 1996
and Simmonds Technologies Inc. in 1997. Since the initial acquisition, the
Company's growth has been directed by one of the most experienced management
teams in its industry. Through acquisitions and internal growth that improved
the Company's operating leverage, Richey Electronics' sales and earnings have
increased from approximately $33.0 million and $700,000, respectively, in
1991 to approximately $250.2 million and $7.0 million, respectively, in 1997.
The Company distributes a broad line of connectors, switches, wire,
cable and heat shrinkable tubing and other interconnect, electromechanical
and passive electronic components used in the assembly and manufacturing of
electronic equipment. Richey Electronics currently distributes electronic
components for more than 100 component manufacturers, of which more than 80
have franchised the Company for North America by agreeing to supply its
distribution activities in all of its present and future locations.
Management believes that the Company represents the broadest line of
connector manufacturers in its industry, with nine of the ten leading North
American manufacturers supplying the Company. The Company is nationally
franchised by eight of these leading manufacturers. Richey Electronics also
provides a wide variety of value-added assembly services, which typically
generate higher gross margins than traditional component distribution. The
Company's customers are primarily small- and medium-sized original equipment
manufacturers ("OEMs") that produce electronic equipment used in a wide
variety of industries, including the telecommunications, computer, medical,
transportation and aerospace industries.
In 1997, the Company continued to make strategic acquisitions. 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 is 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. In events related to the STI
Acquisition, the Company also issued to Simmonds a warrant to purchase
197,044 shares of common stock of the Company at an exercise price of $10.15
per share.
The Company's principal executive offices are located at 7441 Lincoln
Way, Garden Grove, California 92642, and its telephone number is (714)
898-8288.
INDUSTRY OVERVIEW
Over the last 30 years, the electronics industry has grown significantly
as a result of increased demand for products incorporating sophisticated
electronic components, such as telecommunications and computer equipment.
This industry growth has been matched by an increase in the number of
products, component manufacturers and OEMs.
The electronics distribution industry has become an increasingly
important sales channel for the electronics industry because distributors can
market component manufacturers' products to a broader range of OEMs than
suppliers could economically serve with their direct sales forces.
Historically, manufacturers of electronic components have sold directly to
larger OEMs and relied upon distributors to serve smaller customers. Today,
distributors have become more of an extension of component manufacturers'
product delivery channel by providing value-added assembly services and
technical support to customers, stocking sufficient local inventory to
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ensure timely delivery of components and managing customer credit.
Distributors also work with OEMs to ensure that component manufacturers'
products are designed into new products. This is particularly important
because product innovations in the electronics industry often come from
smaller, entrepreneurial companies.
As component manufacturers have increasingly focused their direct sales
efforts on the largest OEMs, and less on smaller customers, the distribution
segment has increased its share of the total United States connector market
from an estimated 22% in 1980 to an estimated 35% in 1996, according to the
July 21, 1997 edition of ELECTRONIC BUYERS' NEWS. The Company estimates that
approximately one-half of all electronic components are purchased by the top
100 customers who purchase many of their components directly from component
manufacturers. Approximately 100,000 other OEMs purchase products from both
distributors and manufacturers, with smaller customers purchasing a greater
proportion of their products from distributors.
MARKET SIZE. According to the December 1, 1997 edition of ELECTRONIC
NEWS, the electronics distribution industry recorded approximately $22
billion in sales in 1997. Of these sales, the September 22, 1997 issue of
ELECTRONIC BUYERS' NEWS estimates that approximately $15 billion consisted of
sales of semiconductors and computer related peripherals, which management
believes are generally characterized by lower margins and are not sold by the
Company. The remaining $7 billion consisted of sales of interconnect
(connectors, sockets), electromechanical (relays, switches) and passive
(resistors, capacitors) components, which are marketed by the Company. The
Company does not intend to directly compete in the semiconductor or computer
peripheral markets of the electronics distribution industry.
TRENDS. Consolidation is one of the most significant trends affecting
the electronic component distribution industry. Of the 25 largest electronics
distributors in 1985, only nine remain independent today. The factors driving
consolidation among electronic component distributors include the desire of
manufacturers to sell through fewer distributors, the need for distributors
to increase operating leverage and the desire of OEMs to satisfy component
requirements with fewer vendors. Mergers and acquisitions over the last ten
years have created a number of very large distribution companies that have
increasingly focused on their larger customers and on expanding international
operations. As a result of this large customer focus, regional and specialty
distributors such as the Company have gained market share among small-and
medium-sized OEMs. These smaller customers often require value-added assembly
services, detailed technical information about available products, assistance
in coordinating product design and engineering with materials resource
planning, fast response to inventory availability inquiries, dependable
on-time deliveries and other services.
In addition to the consolidation of distributors, manufacturers are
limiting the number of distributors through which they market their products
in an effort to improve operating efficiency. Regional distributors must
therefore demonstrate strong local market positions and client relationships
when competing to obtain or retain top manufacturer franchises. Many of these
distributors have made substantial efforts to expand local market share by
emphasizing customer services, such as value-added assembly, just-in-time
inventory management, automatic replenishment and in-plant stores.
Another key trend is the outsourcing of assembly services, which allows
OEMs to enhance profitability by concentrating resources on product design,
marketing and other core aspects of their business. By serving a number of
customers, distributors can often produce subassemblies more efficiently than
many small- and medium-sized OEMs. The August 1997 edition of ELECTRONIC
BUSINESS TODAY estimates that contract manufacturing is now a $76 billion
industry growing to an estimated $130 billion in the year 2000.
DISTRIBUTION AND SERVICES
The Company distributes interconnect, electromechanical and passive
electronic components used in the assembly and manufacturing of electronic
equipment. It also provides a wide variety of value-added assembly services,
which typically generate higher gross margins than traditional component
distribution. These value-added assembly services consist of (i) component
assembly, which is the assembly of components to manufacturer specifications
and (ii) contract assembly, which is the assembly of cable assemblies,
battery packs and mechanical assemblies to customer specifications. The
Company's value- added assembly services respond to an industry trend toward
outsourcing in which purchasing, manufacturing and distribution functions are
allocated
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to the most efficient provider. The Company believes that outsourcing
represents a significant opportunity to expand sales, margins and operating
profits.
COMPONENT DISTRIBUTION. The distribution of interconnect,
electromechanical and passive electronic components accounted for
approximately 68.6% of the Company's net sales in 1997 compared with
approximately 76.5% of net sales in 1994, 71.0% of net sales in 1995, and
70.4% of net sales in 1996. These products include connectors, wire, cable,
relays, switches, motors, batteries, power supplies, resistors, capacitors,
transformers, heat shrinkable tubing and potentiometers. The Company sources
its products from such leading suppliers as 3M, AMP "ACES", Bentley-Harris,
Berg Electronics, C&K, Dale/Vishay, Delta, Deutsch, Eaton, Framatome, KEMET,
Kings, Microswitch/Honeywell, Molex, Panasonic, Panduit, Raychem Electronics,
Raychem PolySwitch, Samtec and Wieland.
VALUE-ADDED ASSEMBLY SERVICES. The electronics industry's trend toward
the use of outside vendors to provide value-added assembly services
represents a growth opportunity for the Company. Outsourcing offers OEMs the
opportunity to invest financial resources in areas with higher returns, such
as engineering and marketing. Additionally, the capital investment required
to stay current in manufacturing technologies is beyond the financial
capability of many smaller OEMs. By servicing a large number of such
customers, the Company spreads such costs over a larger business base.
Moreover, by integrating assembly services with extensive inventories, the
Company is able to eliminate a large amount of shipping, handling and
receiving costs from the process. For many OEMs, the Company is able to offer
assembly services at a lower cost to the customer while producing higher
margins for itself. The Company currently builds a variety of component
assemblies to customer or manufacturer specifications, including cable,
battery pack, switch and mechanical assemblies, wire harnesses, fan and motor
assemblies, and provides engraving and molding services. With the acquisition
of Deanco, Richey obtained the capability to encase its cable and harness
assemblies in heat shrinkable tubing, which was a significant portion of
Deanco's value-added assembly business. The Company has increased its
emphasis on higher-margin, value-added assembly services, which grew from
$21.2 million, or 23.5% of sales, in 1994 to $33.0 million, or 29.0% of
sales, in 1995, to $66.9 million, or 29.6% of sales, in 1996, and to $78.7
million, or 31.4% of sales, in 1997.
The Company currently provides value-added assembly services primarily
from its Los Angeles, California, Boston, Massachusetts and Portland, Oregon
facilities, having an aggregate of approximately 125,000 square feet dedicated
to value-added assembly services. In addition, the Company also provides
value-added assembly services from its San Diego and Santa Clara, California
facilities, its Dallas, Texas facility and its Gaithersburg, Maryland
facility.
SALES AND MARKETING
The Company provides its customers with a wide range of products from a
large number of electronic component manufacturers. The Company believes
that it has developed valuable long-term customer relationships and an
in-depth understanding of its customers' needs and purchasing patterns.
Richey Electronics serves a broad range of customers in a wide variety of
industries, including the telecommunications, computer, medical,
transportation and aerospace industries. In 1997, Richey Electronics
distributed electronic components to more than 20,000 customers, none of
which represented more than 2% of net sales of the Company.
The Company's sales representatives are trained to identify their
customers' electronic component requirements and to actively market the
Company's entire product line to satisfy these needs. During the design
process, sales representatives meet with the customers' engineers and
designers to discuss their component needs and any design or procurement
problems. The sales representatives suggest components that meet performance
criteria, are cost effective and focus on specific problems. Through this
approach, components carried by the Company are often incorporated into final
product specifications.
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The Company had over 300 sales representatives as of December 31, 1997.
Sales representatives are compensated primarily by commission based on the
gross profits obtained on their sales. The Company now has sales offices in
28 locations throughout North America.
The Company's local sales efforts are supported by central marketing
groups, located in Garden Grove, California, in Boston, Massachusetts and in
Toronto, Ontario, which are responsible for identifying new suppliers and
developing supplier relations, coordinating national advertising, negotiating
supplier agreements and promoting new and existing product lines within the
Company.
OPERATIONS
DISTRIBUTION. The principal focus of the Company's distribution
business is to provide OEM customers with rapid and reliable deliveries of
electronic components and a wide variety of related value-added assembly
services. The Company utilizes a computerized system of inventory control to
assist in marketing its products and to coordinate purchases from
manufacturers. Each United States sales office and warehouse, as well as
management, are linked through the Company's computer system, providing
detailed on-line information regarding the price and availability of the
Company's entire stock of inventory, as well as on-line access to the
inventories of several of the Company's major suppliers. The Company also
offers its customers a number of operational services, including just-in-time
delivery and electronic data interchange programs.
After product price and availability are established, the Company's
system automatically places an order for shipment, or allocates inventory to
the assembly operations, if so required. The system then instructs warehouse
personnel to pull products for shipment and, via its locator system, informs
them as to the location of the inventory. In order to optimize use of
available warehouse space, the Company uses a random-access, multi-bin system
whereby inventory is stored in the first available space.
If the order is scheduled for delivery over an extended period of time
or requires inventory purchases to fulfill all or part of the customer's
requirements, the system will inform the product management team, via a buy
action report, that action must be taken. The product manager makes the
appropriate buying decision which is forwarded, in most cases, by electronic
purchase order to component manufacturers.
The Company anticipates that the computer system of STI will be
converted to the Company's main system during the second quarter of 1998 and
allow better coordination of United States and Canadian marketing, inventory
and sales efforts.
At year end, approximately 51% of the Company's inventory was located in
Los Angeles, 16% in Boston, 17% in Santa Clara, California and 5% in Toronto,
Ontario. The Company constantly reviews inventories in an effort to maximize
inventory turnover and customer service. The Company believes its turnover
ratio (4.2x for 1997) compares favorably with those achieved by competitors
for similar interconnect, electromechanical and passive component
inventories.
VALUE-ADDED ASSEMBLY SERVICES. The Company offers a wide variety of
value-added assembly services, including component assemblies, cable and
harness assemblies, battery packs, heat shrinkable tubing and mechanical
assemblies. After a customer's assembly order is taken, the inventory
requirements are automatically routed, via the computer system, to the
warehouse and assembly facilities. The system tracks the order through the
entire assembly process, including final inspection and shipment to the
customer. The Company conducts stringent quality control tests in-line
during assembly, and also conducts physical, mechanical and electrical tests
at the conclusion of the assembly process. A Company-wide emphasis on
quality is evidenced by the certification of all major United States
facilities to the ISO 9002 standard.
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COMPONENT MANUFACTURERS
Management believes that the Company has one of the strongest product
offerings, or line cards, in the markets it serves. The Company has
non-exclusive franchise (distribution) agreements with more than 100
component manufacturers, of which more than 80 have franchised the Company in
North America by agreeing to supply its distribution activities in all of its
present and future locations. The Company now represents nine of the ten
leading North American connector manufacturers and has national franchises
from eight of these manufacturers. The Company is the largest electronic
components distributor for many major national manufacturers, including
Deutsch, Raychem and Samtec.
For the year ended December 31, 1997, the Company's top five suppliers
accounted for approximately 38% of net sales. The Company's largest supplier
is Raychem, which accounted for approximately 14% of the Company's net
sales in 1997.
The Company generally purchases products from manufacturers pursuant to
franchise agreements. Being an authorized distributor is a valuable
marketing tool for the Company because customers receive warranty benefits
and support from the component manufacturer when they purchase products from
Richey Electronics. As an authorized distributor, the Company provides
customers a benefit from the marketing and engineering support available from
the Company's manufacturers, who assist the Company in closing sales and
attracting new customers.
Most of the Company's franchise agreements are cancelable by either
party, typically upon 30 to 60 days' notice. These agreements generally
provide for price protection, stock rotation privileges and the right to
return certain inventory if the agreement is canceled. Price protection is
usually in the form of a credit to the distributor at the time of sale by the
distributor for inventory for which the manufacturer has reduced its prices.
Stock rotation privileges typically allow the Company to exchange inventory
in an amount up to 5% of a prior period's purchases. Upon termination of a
franchise agreement, the right of return generally requires the manufacturer
to repurchase the Company's inventory at the Company's adjusted purchase
price. If the Company terminates the franchise agreement, there is usually a
10% to 15% restocking charge. The Company believes that the provisions of
these franchise agreements should generally reduce the Company's exposure to
significant inventory losses, although there can be no assurance that the
Company will not experience significant inventory losses as a result of such
potential terminations or otherwise.
COMPETITION
The electronics distribution industry is highly competitive, primarily
with respect to price and product availability. The Company believes that
breadth of product line, level of technical expertise and quality of service
are also particularly important to small- and medium-sized OEMs. The Company
competes with large national distributors, as well as regional and specialty
distributors, many of whom distribute the same or competitive products. Many
of the Company's competitors have significantly greater assets, greater
financial and personnel resources and larger investments in technology and
infrastructure than the Company.
In 1997, total North American sales in the electronic components
distribution industry (including semiconductors and computer related
peripherals) were approximately $22 billion, of which the top 25 distributors
had sales of approximately $19 billion. The Company ranked in 1997 as the
sixteenth largest distributor of electronic components in the United States,
based on information presented in the December 1, 1997 edition of ELECTRONIC
NEWS. According to information presented in the April 17, 1997 edition of
PURCHASING MAGAZINE the Company in its market niche of interconnect,
electromechanical and passive components ranked in 1996 as the third largest
distributor of interconnect devices in the United States and as the eleventh
largest distributor of electromechanical/passive components in the United
States.
CANADIAN OPERATIONS
On June 13, 1997, the Company acquired all of the issued and outstanding
common stock of STI, a Canadian distributor of interconnect,
electromechanical and passive electronic components. The Company
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subsequently changed STI's name to Richey Electronics Limited. As a result
of the acquisition, the Company had foreign sales in Canada of $12,771,000
subsequent to June 13, 1997, as compared with full year United States sales
of $237,465,000. The Canadian sales represented 5.1% of total sales for the
year. The Canadian operations resulted in an operating loss for such period
of $221,000, compared with full year United States operating income of
$15,676,000. Identifiable assets attributable to the Canadian operations and
United States operations at December 31, 1997 were $17.2 million and $133.7
million, respectively. The Company did not have significant foreign sales
prior to the STI Acquisition.
EMPLOYEES
The Company had approximately 1,300 employees as of December 31, 1997 of
which approximately 125 were employed in Canada. Approximately 125 of the
Company's employees are corporate personnel involved in product management,
finance, quality control or senior management. Another approximately 120
employees work in the Company's Los Angeles, Boston, Santa Clara, Toronto and
branch warehouses; approximately 385 persons are employed in branch sales and
marketing efforts and approximately 670 persons are employed on a full-time
or on-call basis in value-added assembly services. There are no collective
bargaining contracts covering any of the Company's employees. The Company
believes its relationship with its employees is good.
BACKLOG
The Company believes that order backlog (confirmed orders from customers
for shipment within the next 12 months) generally averages two to three
months' sales in the electronics distribution industry. Order backlog at
December 31, 1997 was $70.6 million, up from $53.8 million at December 31,
1996. The backlog at December 31, 1997 included $7.6 million from Canadian
operations acquired in the STI Acquisition in 1997. Order backlog is not
necessarily indicative of future sales for any particular period. Orders
constituting the Company's backlog are subject to delivery rescheduling,
price negotiations and cancellation at the option of the buyer without
significant penalty.
ENVIRONMENTAL PROTECTION
The nature of the Company's operations do not present any significant
risks to the environment. Therefore, no material capital expenditures were
or are expected to be required for environmental protection.
ITEM 2. PROPERTIES
The Company leases all facilities used in its business. The following
table summarizes the principal properties occupied by the Company:
<TABLE>
<CAPTION>
EXPIRATION DATE
LOCATION SQUARE FOOTAGE OF LEASE
-------- -------------- ---------------
<S> <C> <C>
ADMINISTRATIVE AND SALES OFFICE:
Garden Grove, California............... 42,500 2001
WAREHOUSING, ASSEMBLY AND SALES:
Boston, Massachusetts................. 60,000 2004
Dallas, Texas......................... 15,300 2001
Gaithersburg, Maryland................ 13,000 1999-2001
Los Angeles, California............... 55,000 2000
Los Angeles, California............... 20,000 2000
Portland, Oregon...................... 30,000 2001
Santa Clara, California............... 42,200 2002
Toronto, Ontario...................... 67,100 2010
</TABLE>
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The Company also leases United States sales offices in Arizona,
California, Colorado, Connecticut, Florida, Georgia, Illinois, Kansas,
Maryland, Minnesota, Missouri, New Jersey, New York and Washington, and
Canadian sales offices in Alberta, British Columbia, Manitoba, Saskatchewan,
Ontario and Quebec, which range in size from 600 to 8,000 square feet.
The Company believes its facilities are suitable for their uses and are,
in general, adequate for the Company's current needs. The Company believes
that lease extensions or replacement space may be obtained for all of its
leased facilities upon the expiration of the current lease terms, in most
cases at rates which are not materially higher than those currently in
effect.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and litigation arising in
the ordinary course of business. In the opinion of management, the results of
these legal proceedings will not have a material adverse effect on the
Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is being traded on Nasdaq under the symbol
"RCHY."
The following table sets forth, for the periods indicated, the high and
low sales prices of the Company's Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
STOCK PRICE
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HIGH LOW
------------------
<S> <C> <C>
CALENDAR YEAR 1996:
First quarter............................... $13 1/4 $ 9 1/2
Second quarter.............................. 16 10 3/8
Third quarter............................... 13 1/4 7 1/4
Fourth quarter.............................. 12 8 1/4
CALENDAR YEAR 1997:
First quarter............................... $14 1/8 $10 3/8
Second quarter.............................. 11 3/8 5 3/4
Third quarter............................... 11 1/8 6 3/4
Fourth quarter.............................. 10 3/8 8
CALENDAR YEAR 1998:
First quarter (through March 20, 1998)...... $10 1/2 $ 8
</TABLE>
On March 20, 1998, there were approximately 1,392 holders of record
of the Company's Common Stock.
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DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company intends to retain earnings for working capital to support
growth, to reduce outstanding indebtedness and for general corporate
purposes. In addition, the Company's revolving line of credit contains
provisions that prohibit the Company from paying cash dividends on its Common
Stock. Accordingly, the Company does not expect to pay any dividends on its
Common Stock in the foreseeable future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 4 of
Notes to Consolidated Financial Statements.
CONVERTIBLE SUBORDINATED NOTES
On February 26, 1996 and March 22, 1996, the Company sold to Jefferies &
Company, Inc. and Cruttenden Roth Incorporated (the "Initial Purchasers")
$55,755,000 aggregate principal amount of 7% Convertible Subordinated Notes
due 2006. The Notes were sold to the Initial Purchasers in a private
placement pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended (the "Act"). In connection
with the purchase of the Notes, each of the Initial Purchasers represented to
the Company that it is an accredited investor as defined in Regulation D
under the Act and agreed to comply with other applicable requirements
necessary to make such exemption available. The Notes were sold to the
Initial Purchasers for cash at a purchase price of 96.5% of the principal
amount thereof. The Notes are convertible into shares of the Company's
Common Stock at a conversion price of $14.125 per share (subject to
adjustment in certain events). The Company maintains an effective shelf
registration statement with the Commission to register resales of the Notes
and the Common Stock issuable upon conversion.
ISSUANCE OF WARRANT
On June 13, 1997, in events related to the STI Acquisition, the Company
issued to STI a warrant to purchase 197,044 shares of common stock of the
Company at an exercise price of $10.15 per share (subject to adjustment in
certain events) and STI transferred this warrant to Simmonds. The expiration
date of this warrant is March 31, 2002. This warrant was issued in a private
placement pursuant to the exemption from registration provided by Section
4(2) of the Act. In connection with the issuance of this warrant, STI
represented to the Company that it is an accredited investor as defined in
Regulation D under the Act and agreed to comply with other applicable
requirements necessary to make such exemption available.
SHARE REPURCHASE PROGRAM
The Company's Board of Directors has authorized the repurchase of up to
500,000 shares of the Company's common stock. The purchases, if any, would
take place from time to time in the open market, depending on general
economic and market conditions. No shares of common stock have yet been
repurchased.
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SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data of the
Company and should be read in conjunction with and is qualified by
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements, Notes to
Consolidated Financial Statements and other financial information included
herein. All of the financial information is derived from consolidated
financial statements that have been audited by McGladrey & Pullen, LLP,
independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED (1)
-------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales................................... $64,995 $90,266 $117,057 $226,215 $250,236
Cost of goods sold.......................... 48,741 68,176 89,080 168,664 189,647
------ ------ ------ ------- --------
Gross profit................................ 16,254 22,090 27,977 57,551 60,589
Selling, warehouse
general and administrative
and amortization.......................... 13,889 17,318 20,874 41,070 45,134
Acquisition-related
restructuring costs (2).................... - - 1,450 - -
------- ------- -------- ------- --------
Operating income............................ 2,365 4,772 5,653 16,481 15,455
Interest expense............................ 1,198 1,606 867 5,569 6,041
Income tax expense (3)...................... 460 1,273 1,918 4,376 2,462
Net income.................................... $ 707 $1,893 $ 2,868 $ 6,536 $ 6,952
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
Earnings per common share (4)
Basic......................................... $ 0.14 $ 0.32 $ 0.36 $ 0.72 $0.77
-------- ------ -------- -------- --------
-------- ------ -------- -------- --------
Diluted....................................... 0.14 0.32 0.36 0.70 0.73
-------- ------ -------- -------- --------
-------- ------ -------- -------- --------
Weighted average number of shares
outstanding (4)
Basic......................................... 5,085 5,889 8,036 9,060 9,065
Diluted....................................... 5,085 5,889 8,036 12,376 13,012
OTHER FINANCIAL DATA:
EBITDA (5).................................... $ 3,362 $ 5,537 $ 6,565(6) $ 19,581 $ 18,962
EBITDA margin (5)............................. 5.2% 6.1% 5.6%(6) 8.7% 7.6%
Depreciation and amortization................. 997 765 912 3,100 3,507
Inventory turnover ratio (7).................. 4.4x 4.9x 5.0x 4.4x 4.2x
Days sales outstanding in accounts
receivable (7).............................. 43 42 42 44 45
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Working capital.............................. $ 6,888 $ 5,317 $ 34,076 $ 43,033 $ 45,565
Total assets................................. 30,918 35,013 118,941 124,761 150,870
Short-term debt.............................. 6,995 10,443 835 4,012 14,278
Long-term debt............................... 8,151 3,594 61,652 65,205 67,854
Stockholders' equity......................... 6,898 8,785 27,392 33,953 41,439
</TABLE>
9
<PAGE>
Footnotes to Selected Financial Data
(1) In the period from 1993 through 1997, the following transactions were
completed. On April 6, 1993, RicheyImpact Electronics, Inc.
("RicheyImpact") merged with Brajdas Corporation, a California
corporation ("Brajdas"), with Brajdas as the surviving legal entity (the
"Richey-Brajdas Merger"). Brajdas subsequently changed its name to
Richey Electronics, Inc. and reincorporated in Delaware. The
Richey-Brajdas Merger was recorded as a reverse purchase acquisition
with RicheyImpact as the accounting acquirer. Thereafter, Richey
Electronics acquired the businesses of the following companies on the
following dates: the In-Stock products division of Anchor Group, Inc.
("In-Stock") on April 4, 1994, Inland Empire Interconnects ("IEI") on
August 16, 1995, Deanco, Inc. ("Deanco") on December 20, 1995, MS
Electronics on March 19, 1996, Summit Distributors on December 5, 1996
and Simmonds Technologies Inc. ("STI") on June 13, 1997. See Note 2 of
Notes to Consolidated Financial Statements for pro forma information with
respect to acquisitions. Unless otherwise indicated, the information in
the above table of Selected Financial Data excludes the results of
operations of Brajdas prior to the Richey-Brajdas Merger and excludes the
results of operations of each such business acquired in the period from
1994 through 1997 prior to the date on which it was acquired.
(2) Consists of restructuring costs associated with the consolidation of the
operations of Deanco into the Company, including the Company's closure
of certain of its facilities and other costs associated with the
consolidation.
(3) The Company has net operating loss carryforwards which reduce its cash
tax payments. See Note 8 of Notes to Consolidated Financial Statements.
(4) The Richey-Brajdas Merger was accounted for as a reverse purchase
acquisition with RicheyImpact being the accounting acquirer. Per share
data for all periods from January 1, 1993 through April 6, 1993, the
date of the Richey-Brajdas Merger, are based upon the weighted average
number of shares of Brajdas indirectly acquired by the former
stockholders of RicheyImpact.
(5) EBITDA consists of earnings before interest, income taxes, depreciation
and amortization. The Company has included EBITDA data (which is not a
measure of financial performance under generally accepted accounting
principles) because it understands such data is used by certain
investors. EBITDA margin represents EBITDA as a percentage of net sales.
Because of the significant amortization of intangible assets and
non-cash income tax expense incurred as a result of the Company's NOLs,
the Company believes that EBITDA may be a meaningful measure of its
financial performance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Deferred Tax Assets."
(6) Excluding the restructuring reserve of approximately $1.4 million, which
is an operating expense, EBITDA would have been approximately $8.0
million and EBITDA margin would have been 6.8% for the year ended
December 31, 1995.
(7) Inventory turnover ratio and days sales outstanding in accounts
receivable calculations are based upon Richey Electronics' annualized
sales and cost of sales for the fourth quarter and accounts receivable
and inventory balances at year-end. The calculation for the year ended
December 31, 1995 excludes the effect of the acquisition of Deanco.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Richey Electronics is a leading specialty distributor of interconnect,
electromechanical and passive electronic components and a provider of
related value-added assembly services to more than 20,000 customers in North
America. The Company distributes a broad line of connectors, switches, wire,
cable and heat shrinkable tubing and other interconnect, electromechanical
and passive electronic components used in the assembly and manufacturing of
electronic equipment. Richey Electronics also provides a wide variety of
value-added assembly services, which typically generate higher gross margins
than traditional component distribution. These value-added assembly services
consist of (i) component assembly, which is the assembly of components to
manufacturer specifications and (ii) contract assembly, which is the assembly
of cable assemblies, battery packs and mechanical assemblies to customer
specifications. The Company's customers are primarily small- and medium-sized
OEMs. The Company intends to capitalize on a trend toward outsourcing by
increasing sales of value-added assembly services. These sales increased from
$21.2 million, or 23.5% of sales, in 1994 to $33.0 million, or 29.0% of
sales, in 1995, to $66.9 million, or 29.6% of sales, in 1996 and to $78.7
million, or 31.4% of sales, in 1997.
In the period from 1994 through 1997, the Company continued to grow
through strategic acquisitions of businesses with operations similar to those
of the Company. On April 4, 1994, the Company completed the acquisition of
the assets and business of In-Stock for $1.9 million in cash, funded by its
revolving line of credit. On August 16, 1995, the Company completed the
acquisition of the assets and business of IEI for $1.2 million in cash,
funded by its revolving line of credit. On December 20, 1995, the Company
acquired Deanco, through the acquisition of the stock of Deanco's parent,
Electrical Distribution Acquisition Company ("EDAC"), for consideration
comprised of an aggregate stock purchase price of approximately $34.1 million
in cash, the redemption of EDAC stockholder notes of approximately $6.6
million and the assumption of Deanco debt of approximately $19.3 million.
The Company funded the purchase consideration for the acquisition of Deanco
by its revolving line of credit and a term loan from its senior lender. On
March 16, 1996, the Company acquired certain assets and the business of MS
Electronics for the purchase price of approximately $2.5 million in cash,
funded by its revolving line of credit, and the assumption of MS Electronics'
debt of approximately $500,000. On December 5, 1996, the Company acquired
the inventory, accounts receivable and fixed and intangible assets of Summit
Distributors, including the right to use its name, in a private sale from its
commercial lender in Buffalo, New York. The Company did not assume any
liabilities of Summit Distributors in the transaction. The purchase price
and related transaction costs for the Summit Distributors acquisition were
$1.1 million and were paid in cash, funded by the Company's revolving line of
credit. On June 13, 1997, the Company acquired the stock of STI for a
purchase price of $1. In events related to the STI Acquisition, the Company
also issued to Simmonds a warrant to purchase 197,044 shares of common stock
of the Company at an exercise price of $10.15 per share. In addition,
through STI, the Company contributed approximately $1.1 million toward the
future settlement of certain of STI's long-term capital lease obligations and
facility leases to be retained by Simmonds. The Company also agreed to
transfer to Simmonds $3.4 million of STI non-core inventories which the
Company believes it will not be able to use in its operations. Simmonds also
received a right to a future payment due March 31, 2002 from STI based upon a
percentage of STI's operating earnings as defined by agreement between the
parities. Under the terms of the transaction, the Company refinanced STI's
bank indebtedness of approximately $5.7 million. The Company funded the STI
bank debt refinancing and the contribution toward settlement of the long-term
obligations by drawing upon the Company's revolving line of credit. All of
the acquisitions in the period from 1994 through 1997 were accounted for as
purchase business combinations with the operations of the acquired business
included subsequent to the acquisition date. See Note 2 of Notes to
Consolidated Financial Statements for pro forma information with respect to
acquisitions.
The Company will seek to make additional strategic acquisitions in
connection with the ongoing consolidation occurring in the electronics
distribution industry.
11
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth certain items in the statements of
operations as a percentage of net sales for the periods shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0%
Cost of goods sold............................ 76.1 74.6 75.8
----- ----- -----
Gross profit.................................. 23.9 25.4 24.2
Selling, warehouse, general and
administrative.............................. 17.4 17.5 17.4
Amortization of intangibles................... 0.4 0.6 0.6
Acquisition-related restructuring costs....... 1.2 - -
---- ---- ----
Operating income.............................. 4.9 7.3 6.2
Interest expense.............................. 0.7 2.5 2.4
---- ---- ----
Income before income taxes.................... 4.1 4.8 3.8
Income tax expense............................ 1.6 1.9 1.0
---- ---- ----
Net income.................................... 2.5% 2.9% 2.8%
---- ---- ----
---- ---- ----
</TABLE>
YEAR ENDED DECEMBER 31, 1997 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Net sales rose to $250.2 million in 1997 from $226.2 in 1996, an
increase of $24.0 million, or 10.6%. Net sales for 1997 included $12.8
million of post-acquisition 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. Net sales of electronic
components rose to $171.5 million in 1997 from $159.3 million in 1996, an
increase of 7.7%. 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 rose to $78.7 million in 1997 from
$66.9 million in 1996, an increase of 17.6%. This increase for value-added
services is primarily the result of the continuing trend by OEM's to
outsource assembly operations. Pro forma for the acquisition of STI, net
sales for 1996 would have been $256.9 million, compared with net sales of
$261.5 million for 1997. See Note 2 of Notes to Consolidated Financial
Statements.
Gross profit was $60.6 million in 1997 compared with gross profit of
$57.6 million in 1996. The 1997 gross profit included approximately $3.1
million of gross profit from STI operations after acquisition by the Company.
Gross profit as a percentage of net sales was 24.2% for 1997 as compared to
25.4% for 1996. Of this 1.2% decrease in gross profit percentage,
approximately one-half was due to customer orders returning to more normal
patterns compared to the high turns, high margin business experienced in 1996
and approximately one-half was due to management's decision to take
additional reserves for inventory obsolescence.
Operating expenses in 1997 were $45.1 million compared to $41.1 million
in 1996, an increase of 9.7%. Operating expenses as a percentage of net
sales were 18.0% for 1997 compared with 18.1% for 1996. Without the mid-1997
acquisition of STI, which had historically higher operating expenses to sales
ratios, the Company would have had operating expenses (including
amortization) of $41.8 million which would have represented 17.6% of United
States net sales compared to 18.1% for 1996. This decline in operating
expenses percentage was generated by operating leverage on increased sales in
1997.
Interest expense was $6.0 million for 1997 compared with $5.6 million
for 1996. The increase in interest expense was primarily due to increased
borrowings to finance acquisitions.
12
<PAGE>
The Company's provision for federal and state income tax expense
decreased to $2.5 million for 1997 compared with $4.4 million for 1996. This
decrease was due primarily to the Company's elimination of the remaining
valuation allowance that the Company had reserved against its acquired United
States net operating losses. As a result of the elimination of this
valuation allowance, the Company expects its effective income tax rate will
increase to 41% in 1998. As of December 31, 1997, the Company had
approximately $8.8 million in United States federal net operating loss
carryforwards available to reduce future cash tax payments. For the period
ended December 31, 1997, cash tax payments were reduced approximately $1.7
million for the utilization of these United States NOLs. See "Deferred Tax
Assets" and Note 8 of Notes to Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net sales rose to $226.2 million in 1996, an increase of $109.1 million,
or 93.2%, over 1995 net sales of $117.1 million which included approximately
$3.5 million of post-acquisition Deanco sales. Net sales of electronic
components rose to $159.3 million in 1996 from $80.6 million in 1995
(excluding Deanco sales), an increase of 97.6%. This increase in component
sales is primarily the result of the acquisition of Deanco. Net sales of
value-added assembly services rose to $66.9 million in 1996 from $33.0
million in 1995 (excluding Deanco sales), an increase of 102.7%. This
increase for value-added services is primarily the result of the Deanco
acquisition and increased demand for these services. Pro forma for the
acquisition of Deanco, net sales for 1995 would have been $217.0 million,
compared with net sales of $226.2 million for 1996.
Gross profit was $57.6 million in 1996 compared with gross profit of
$28.0 million in 1995 (including approximately $800,000 of gross profit from
Deanco's operations after it was acquired by the Company). Gross profit as a
percentage of net sales was 25.4% for 1996 as compared to 23.9% for 1995.
This 1.5% increase in gross profit percentage was due to (i) improved
value-added gross profit margins, (ii) growth in value-added assembly
services as a percentage of total sales to approximately 30% in 1996 from
approximately 29% in 1995, (iii) an increased percentage of component orders
to be shipped in under 30 days which typically have higher margins than
orders with longer shipping schedules and (iv) improved electronic component
margins attributed to certain higher margin product lines acquired with
Deanco.
Operating expenses in 1996 were $41.1 million compared to $22.3 million
in 1995 (including a $1.45 million restructuring charge in the fourth quarter
of 1995 associated with the acquisition of Deanco), an increase of 84.3%.
Exclusive of such restructuring charge, operating expenses increased 97% from
1995 to 1996 primarily due to acquisitions. Operating expenses as a
percentage of net sales were 18.1% for 1996 compared with 19.0% for 1995
after giving effect to such restructuring charge and 17.8% exclusive of such
restructuring charge. Exclusive of such restructuring charge, operating
expenses as a percentage of net sales increased 0.3% from 1995 to 1996, of
which approximately 0.2% is attributable to the amortization of intangibles
associated with the acquisition of Deanco. The 1996 increase in expenses as
a percentage of sales is also due to the fact that Deanco's expenses as a
percentage of sales were historically significantly higher than those of the
Company and during the first part of 1996 the Company realized only a portion
of the expected cost savings from the integration of Deanco into the Company.
The operational integration of Deanco and MS Electronics was completed in
the third quarter of 1996 and contributed to an approximately $2.4 million
reduction in operating expenses for the third and fourth quarters of 1996
from the first and second quarters of 1996.
Interest expense was $5.6 million for 1996 compared with $867,000 for
1995. The increase in interest expense was primarily due to increased
borrowings to finance acquisitions.
The Company's provision for federal and state income tax expense
increased to $4.4 million for 1996 compared with $1.9 million for 1995. This
increase was proportional to the increase in pre-tax earnings. As of December
31, 1996, the Company had approximately $13.5 million in federal net
operating loss carryforwards available to reduce future cash tax payments.
For the period ended December 31, 1996, cash tax payments were reduced
approximately $1.7 million for the utilization of these NOLs.
13
<PAGE>
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 Company
used the Revolving Line of Credit to fund the purchase of STI in June, 1997.
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 December 31, 1997, the Company had outstanding borrowings under
the Revolving Line of Credit of approximately $23.6 million and additional
borrowing capacity of approximately $21.4 million. 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.
Net cash used in operating activities was $719,000 for 1997 as compared
with net cash provided by operating activities $4.2 million for 1996 and
$236,000 for 1995. The increased use of cash by operating activities in 1997
over 1996 is primarily the result of increases in trade receivables,
inventories and deferred taxes which were partially offset by increases in
net income, accounts payable and accrued expenses. 1997 earnings before
interest, income taxes, depreciation and amortization (EBITDA) were
approximately $19.0 million compared with approximately $19.6 million for
1996.
Net cash used in investing activities increased to $11.1 million in 1997
from $9.0 million in 1996 and $3.3 million in 1995. All of the investing
activities were funded by borrowings under revolving line of credit
facilities. In 1997, the Company invested $2.3 million in improvements and
equipment, primarily for capital expenditures relating to normal investments
in leasehold improvements, software, furniture, fixtures and equipment.
Additionally, the Company used $8,866,000 for payment of acquisition and
restructuring costs consisting of $664,000 for payment of costs occurred in
connection with acquisitions and $8,202,000 relating to the acquisition of
STI. In 1996, the Company invested $1.3 million in improvements and
equipment, primarily for leasehold improvements and value-added machinery and
equipment. An additional $7.7 million was used to pay for acquisition and
restructuring costs primarily associated with the Deanco, MS Electronics and
Summit Distributors acquisitions. In 1995, the Company invested $1.3 million
in improvements and equipment, primarily for leasehold improvements at its
principal value-added assembly facility in Los Angeles and its corporate
headquarters in Garden Grove. An additional $1.2 million was used for the
IEI acquisition. The Company anticipates incurring capital expenditures of
approximately $3.0 million in 1998, all of which will be financed with net
cash from operating activities and borrowings under its revolving line of
credit. The Company's actual capital expenditures may vary significantly from
its current expectations, based on a number of factors, including, but not
limited to, additional acquisitions, if any.
Inventory turnover for the year ended December 31, 1997, was 4.2x
compared to 4.4x for 1996. Inventory investments were made 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
which normally requires investment in inventory with lower turnover than
other connector lines.
Days sales outstanding in accounts receivable increased to 45 days for
1997 from 44 days for 1996. This increase is the result of the acquisition
of STI which historically had higher days sales outstanding than those of the
Company.
DEFERRED TAX ASSETS
As of December 31, 1997, the Company had approximately $8.8 million in
United States net operating loss carryforwards, which expire between 2006 and
2008. The United States NOLs resulted from Brajdas losses prior to the
Richey-Brajdas Merger. As of the same date, the Company had approximately
$7.9 million in
14
<PAGE>
Canadian net operating loss carryforwards, which will expire in 2003 and
2004. The Canadian NOLs primarily resulted from STI losses prior to the STI
Acquisition.
Section 382 of the Internal Revenue Code of 1986, as amended, and
related regulations impose certain limitations on a corporation's ability to
use United States NOLs if more than a 50% change in ownership occurs. The
Company's issuance of additional Common Stock in 1995, together with an
earlier acquisition, constituted more than a 50% change in ownership. As a
result, the usage of NOLs is restricted to approximately $4.9 million on an
annual basis.
During 1997 the Company eliminated the remaining United States deferred
tax asset valuation allowance by $1,757,000 as the Company has been
consistently profitable and generated United States taxable income before
NOLs of approximately $10.3 million in 1997. Based on its current level of
profitability, management believes that the Company will be able to fully
utilize the United States NOLs prior to their expiration and realize its
other United States deferred tax assets. The amount of deferred tax assets
considered realizable, however, would be reduced if estimates of future
taxable income during the carryforward period are reduced.
In the preliminary allocation of the purchase price for the STI
Acquisition, the Company recorded a deferred tax asset of $2,920,000, which
is net of a valuation allowance of approximately $839,000. This deferred tax
asset represents the tax benefits of STI's net operating loss carryforwards.
Realization of this deferred tax asset is dependent upon the Company
generating Canadian taxable income of approximately $5,300,000 before the
expiration of these loss carryforwards which expire between 2003 and 2004.
Due to the uncertainty inherent in forecasts of future results, management
has established the valuation allowance to reduce the net deferred tax asset
to the tax benefit expected to be realized over the next three to five years.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. SFAS No. 130 requires that an enterprise report, by
major components and as a single total, the change in its net assets during
the period from nonowner sources; and SFAS No. 131 establishes annual and
interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas and major
customers. Adoption of these Statements will not impact the Company's
financial position, results of operations or cash flows and any effect will
be limited to the form and content of its disclosures. Both Statements are
effective for the Company's year ending December 31, 1998.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required by this Item 8 are listed in Item
14(a) and are submitted at the end of this Form 10-K.
15
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
The following table sets forth certain statements of operations data for
the periods indicated. The quarterly financial information provided excludes
the financial results of IEI, Deanco, MS Electronics, Summit Distributors and
STI prior to the date of the respective acquisition. This information has
been derived from unaudited consolidated financial statements which, in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information.
These operating results are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Net sales..................... $56,794,00 $59,346,00 $65,091,000 69,005,000
Gross profit.................. 14,529,000 14,662,000 16,128,000 15,270,000
Net income.................... 1,703,000 1,678,000 1,626,000 1,945,000
Earnings per common share
Basic................. 0.19 0.19 0.18 0.21
Diluted............... 0.18 0.18 0.17 0.20
Shipping Days................. 62 64 63 64
1996
Net sales..................... $58,384,00 $58,212,00 $53,713,000 $55,906,000
Gross profit.................. 14,313,000 14,806,000 14,116,000 14,316,000
Net income.................... 1,142,000 1,735,000 1,754,000 1,905,000
Earnings per common share
Basic................. 0.13 0.19 0.19 0.21
Diluted............... 0.13 0.18 0.18 0.20
Shipping Days................. 64 64 62 64
1995
Net sales..................... $26,596,00 $28,305,00 $28,803,000 $33,353,000
Gross profit.................. 6,513,000 6,660,000 6,931,000 7,873,000
Net income.................... 680,000 909,000 1,070,000 209,000
Earnings per common share
Basic................. 0.12 0.11 0.12 0.02
Diluted............... 0.12 0.11 0.12 0.02
Shipping Days................. 64 64 62 62
</TABLE>
The unaudited quarterly results of operations indicate that net sales
per shipping day were $887,000, $927,000, $1,050,000 and $1,113,000 in the
four consecutive quarters of 1997, respectively, versus $912,000, $910,000,
$866,000 and $874,000 per shipping day in the four consecutive quarters of
1996, respectively. The calendar for 1998 contains 65, 63, 64 and 61
shipping days for the first through fourth quarters, respectively. Quarterly
operating results may fluctuate significantly from quarter to quarter in the
future.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors and executive
officers of the Company is set forth in the Company's definitive Proxy
Statement (the "1998 Proxy Statement") to be filed with the Commission
relating to its annual meeting of stockholders to be held on May 5, 1998,
under the headings "Nominees for Election as Directors," "Other Executive
Officers of the Company" and "Section 16(a) Beneficial Ownership Reporting
Compliance," and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item regarding compensation of the
Company's directors and executive officers set forth in the 1998 Proxy
Statement under the headings "Board Meetings and Director Compensation" and
"Executive Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item regarding beneficial ownership of
the Common Stock by certain beneficial owners and by management of the
Company set forth in the 1998 Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item regarding certain relationships
and related transactions with management of the Company set forth in the 1998
Proxy Statement under the headings "Compensation Committee Interlocks and
Insider Participation" and "Certain Relationships and Related Transactions"
is incorporated herein by reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Consolidated Financial Statements
Independent Auditor's Report
Consolidated Balance Sheets at December 31,
1996 and 1997
Consolidated Statements of Income for the
years ended December 31, 1995, 1996 and 1997
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1996 and
1997
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Not Applicable.
17
<PAGE>
<TABLE>
<CAPTION>
3. Exhibits
<S> <C>
2.1 Stock Purchase Agreement, dated November 15, 1995, among
Richey Electronics, Inc., Deanco, Inc., Electrical
Distribution Acquisition Company and all of the
stockholders of Electrical Distribution Acquisition
Company. *4* (2.1)
2.2 First Amendment to Stock Purchase Agreement and Instrument
of Joinder dated December 20, 1995 among Richey
Electronics, Inc., Deanco, Inc., Electrical Distribution
Acquisition Company and all of the stockholders of
Electrical Distribution Acquisition Company. *4* (2.2)
2.3 Sales Tax Indemnification Agreement dated December 20, 1995
among Richey Electronics, Inc. and the stockholders of
Electrical Distribution Acquisition Company identified
therein. *4* (2.3)
2.4 Share Purchase Agreement dated June 13, 1997, among Richey
Electronics, Inc., SCL Electronics Ltd., Simmonds
Technologies Inc. and Simmonds Capital Limited. *13* (2.1)
2.5 Intercompany Debt Repayment Agreement dated June 13, 1997
among Simmonds Capital Limited, SCL Electronics Ltd. and
Simmonds Technologies Inc. *13* (2.2)
3.1 Restated Certificate of Incorporation of Richey
Electronics, Inc. *5* (3.1)
3.2 Bylaws of Richey Electronics, Inc. *5* (3.2)
4.1 Indenture between Richey Electronics, Inc. and First Trust
of California, National Association, dated as of February
15, 1996. *10* (4.1)
4.2 Registration Rights Agreement among Richey Electronics,
Inc., Jefferies & Company, Inc. and Cruttenden Roth
Incorporated, dated as of February 26, 1996. *12* (4.2)
4.3 Warrant dated June 13, 1997, to purchase common stock of
Richey Electronics, Inc., expiring March 31, 2002. *13*
(4.1)
10.1 Indemnification Agreement among Barclay and Company, Inc.,
Brajdas Corporation, Donald I. Zimmerman and certain former
shareholders of RicheyImpact Electronics, Inc. identified
therein dated as of April 5, 1993. *2* (E)
10.2 Letter re Amendment to Indemnification Agreement by Barclay
and Company, Inc. and Donald I. Zimmerman, and agreed to by
BRJS Investment Holding Corp., Brajdas Corporation and the
other persons and entities identified therein dated April
23, 1993. *1* (10.3)
10.3 Registration Rights Agreement between Brajdas Corporation
and BRJS Investment Holding Corp. dated April 2, 1993. *2*
(10.4)
10.4 Employment Agreement between William C. Cacciatore and
Brajdas Corporation dated as of April 1, 1993. *1* (10.18)
10.5 Addendum to Employment Agreement (William C. Cacciatore)
dated as of February 21, 1995. *8* (10.37)
10.6 Second Addendum to Employment Agreement (William C.
Cacciatore) dated as of May 17, 1995. *10* (10.31)
18
<PAGE>
10.7 Employment Agreement between Richard N. Berger and Brajdas
Corporation dated as of April 1, 1993. *1* (10.20)
10.8 Addendum to Employment Agreement (Richard N. Berger) dated
as of February 21, 1995. *8* (10.39)
10.9 Employment Agreement between Norbert W. St. John and
Brajdas Corporation dated as of April 1, 1993. *1* (10.19)
10.10 Addendum to Employment Agreement (Norbert W. St. John)
dated as of February 21, 1995. *8* (10.40)
10.11 Second Addendum to Employment Agreement (Norbert W. St.
John)dated as of May 17, 1995. *10* (10.33)
10.12 Employment Agreement between Charles W. Mann and Richey
Electronics, Inc. dated as of April 1, 1995. *12* (10.35)
10.13 Service and Management Agreement dated December 18, 1990
by and among RicheyImpact Electronics, Inc., Palisades
Associates, Inc. and Saunders Capital Group, Inc. *3*
(10.2)
10.14 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,
1993. *3* (10.3)
10.15 Modification Agreement among the Company, Palisades
Associates, Inc. and Saunders Capital Group, Inc. dated as
of January 2, 1995. *8* (10.26)
10.16 Modification Agreement by and between Richey Electronics,
Inc. and Palisades Associates, Inc. dated as of February
21, 1995. *8* (10.41)
10.17 1993 Stock Appreciation Rights Plan. *6* (A)
10.18 Amended and Restated 1992 Stock Option Plan. *14* (A)
10.19 Form of Incentive Stock Option Agreement. *8* (10.36)
10.20 Lease between Principal Mutual Life Insurance Company and
Richey Electronics, Inc. for lease of premises at 7441
Lincoln Way, Garden Grove, California. *8* (10.32)
10.21 Amendment to Lease dated September 2, 1997, amending the
Lease Agreement dated December 2, 1994, between Richey
Electronics, Inc., and Principal Mutual Life Insurance
Company for leasing premises at 7441 Lincoln Way, Garden
Grove, California. *15* (10.1)
10.22 Standard Sublease dated September 3, 1997, between Richey
Electronics, Inc., and Corning OCA Corporation for sublease
of premises at 7441 Lincoln Way, Garden Grove, California.
*15* (10.2)
10.23 Lease between Wychrest Estates Inc. and Simmonds
Technologies Inc. (as assignee of Simmonds Communications
Ltd.) for lease of premises at 580 Granite Court,
Pickering, Ontario. *16* (10.2)
19
<PAGE>
10.24 Lease Contract No. 002506 dated September 12, 1996, between
CIBC Equipment Finance Limited and Simmonds Technologies
Inc. *16* (10.3)
10.25 Lease between M&M Enterprises, a California General
Partnership and Richey Electronics, Inc. for lease of
premises at 10871 La Tuna Canyon Road, Sun Valley,
California. *8* (10.33)
10.26 Lease between Hownat Trust and Deanco, Inc. for lease of
premises at 87 Concord Street, North Reading,
Massachusetts, Boston Massachusetts. *10* (10.21)
10.27 Lease between Murray Center Venture and Deanco ACA
Manufacturing, Inc. for lease of premises at Building 1,
Murray Business Center, 3601 SW Murray Blvd., Beaverton,
Oregon 97201. *10* (10.25)
10.28 Lease Agreement between Fujita California Partners III and
Deanco, Inc., Acacia Division, for premises at 3230 Scott
Boulevard, Santa Clara, California. *17* (10.28)
10.29 Loan Agreement dated as of December 20, 1995 among Richey
Electronics, Inc., the banks named therein and First
Interstate Bank of California, as Agent. *4* (10.1)
10.30 First Amendment to the Loan Agreement dated as of February
26, 1996 among Richey Electronics, Inc., the banks named
therein and First Interstate Bank of California, as Agent.
*10* (10.30)
21.1 Subsidiaries of Richey Electronics, Inc.
23.1 Consent of McGladrey & Pullen, LLP
23.2 Consent of McGladrey & Pullen, LLP
27.1 Financial Data Schedule
- ----------------
*1* Incorporated by reference to the designated exhibit of the
Annual Report on Form 10-K for Brajdas Corporation for the
fiscal year ended February 28, 1993, filed May 28, 1993.
*2* Incorporated by reference to the designated exhibit of the
Statement on Schedule 13D filed on behalf of BRJS
Investment Holding Corp., C. Don Alverson, William C.
Cacciatore, Greg A. Rosenbaum and Norbert W. St. John with
the Commission on April 20, 1993.
*3* Incorporated by reference to the designated exhibit of the
Transition Report on Form 10-Q for Brajdas Corporation for
the period from January 1, 1993 through July 2, 1993, filed
August 4, 1993.
*4* Incorporated by reference to the designated exhibit of Form
8-K for Richey Electronics, Inc. dated December 20, 1995,
filed January 3, 1996.
*5* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-1, filed January 7, 1994,
Registration No. 33-73916.
*6* Incorporated by reference to the designated exhibit of the
definitive proxy statement for the 1993 Annual Meeting of
Stockholders, filed July 13, 1993.
20
<PAGE>
*7* Incorporated by reference to the designated exhibit of the
Form 8-K for Brajdas Corporation dated July 7, 1993, filed
July 13, 1993.
*8* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-2, filed February 23,
1995, Registration Statement No. 33-89690.
*9* Incorporated by reference to the designated exhibit of the
Quarterly report on Form 10-Q for Richey Electronics, Inc.
for the period ending March 31, 1995, filed May 15, 1995.
*10* Incorporated by reference to the designated exhibit of the
Annual Report on Form 10-K for the Company for the fiscal
year ended December 31, 1995, filed April 1, 1996.
*11* Incorporated by reference to the designated exhibit of the
Quarterly Report on Form 10-Q for Richey Electronics, Inc.
for the period ending June 28, 1996, filed August 12, 1996.
*12* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-2, filed April 26, 1996,
Registration No. 333-02983.
*13* Incorporated by reference to the designated exhibit of the
Current Report on Form 8-K for Richey Electronics, Inc.
filed June 26, 1997.
*14* Incorporated by reference to the designated exhibit of the
definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders filed March 21, 1997.
*15* Incorporated by reference to the designated exhibit of the
Quarterly Report on Form 10-Q for Richey Electronics, Inc.
for the period ending September 26, 1997, filed November 7,
1997.
*16* Incorporated by reference to the designated exhibit of the
Quarterly Report on Form 10-Q for Richey Electronics, Inc.
for the period ending June 27, 1997, filed August 8, 1997.
*17* Incorporated by reference to the designated exhibit of the
Annual Report on Form 10-K for the Company for the fiscal
year ended December 31, 1996, filed March 21, 1997.
</TABLE>
Exhibits 10.4 - 10.19 are management contracts or compensatory
plans or arrangements required to be filed as exhibits pursuant to Item 14(c)
of Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of
1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Garden Grove, State of California, on March 25, 1998.
RICHEY ELECTRONICS, INC.
By /s/ Richard N. Berger
-----------------------------------
Richard N. Berger
Vice President, Chief Financial
Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William C. Cacciatore Chairman of the Board, President, Chief March 25, 1998
- -------------------------- Executive Officer (Principal Executive Officer)
William C. Cacciatore
/s/ Richard N. Berger Vice President, Chief Financial Officer and March 25, 1998
- -------------------------- Secretary (Principal Financial and Accounting
Richard N. Berger Officer)
/s/ Greg A. Rosenbaum Director March 25, 1998
- --------------------------
Greg A. Rosenbaum
/s/ Norbert W. St. John Director March 25, 1998
- --------------------------
Robert W. St. John
/s/ Donald I. Zimmerman Director March 25, 1998
- --------------------------
Donald I. Zimmerman
</TABLE>
22
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Richey Electronics, Inc.
Garden Grove, California
We have audited the accompanying consolidated balance sheets of Richey
Electronics, Inc. and subsidiary as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Richey
Electronics, Inc. and subsidiary as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
McGladrey & Pullen, LLP
Pasadena, California
February 10, 1998
23
<PAGE>
RICHEY ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
ASSETS 1996 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 30,000 $ 31,000
Trade receivables 27,111,000 32,702,000
Inventories 37,631,000 49,828,000
Deferred taxes 2,629,000 3,662,000
Other 1,235,000 919,000
-------------------------------------
TOTAL CURRENT ASSETS 68,636,000 87,142,000
-------------------------------------
Improvements and Equipment, net 3,668,000 5,715,000
-------------------------------------
Other Assets and Intangibles
Goodwill, net of accumulated
amortization of 1996 $1,360,000;
1997 $2,822,000 47,233,000 51,236,000
Deferred taxes 2,218,000 4,200,000
Deferred debt costs, net of accumulated
amortization of 1996 $288,000;
1997 $622,000 2,533,000 2,237,000
Other 473,000 340,000
-------------------------------------
52,457,000 58,013,000
-------------------------------------
$ 124,761,000 $ 150,870,000
-------------------------------------
-------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt $ 4,012,000 $ 14,278,000
Accounts payable 16,551,000 22,525,000
Accrued expenses 4,502,000 4,028,000
Accrued restructuring costs 538,000 746,000
-------------------------------------
TOTAL CURRENT LIABILITIES 25,603,000 41,577,000
-------------------------------------
Long-term Debt
Subordinated notes payable 2,000,000 1,000,000
Other 7,450,000 11,099,000
Convertible subordinated notes payable 55,755,000 55,755,000
-------------------------------------
65,205,000 67,854,000
-------------------------------------
Stockholders' Equity
Preferred stock, $.001 par value, authorized 10,000 shares, issued none - -
Common stock, $.001 par value, authorized 30,000,000 shares 9,000 9,000
Additional paid-in capital 21,001,000 21,754,000
Retained earnings 12,943,000 19,895,000
Cumulative translation adjustment - (219,000)
-------------------------------------
33,953,000 41,439,000
-------------------------------------
$ 124,761,000 $ 150,870,000
-------------------------------------
-------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
RICHEY ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 117,057,000 $ 226,215,000 $ 250,236,000
Cost of goods sold 89,080,000 168,664,000 189,647,000
---------------- ---------------- -----------------
GROSS PROFIT 27,977,000 57,551,000 60,589,000
---------------- ---------------- -----------------
Operating expenses:
Selling, warehouse, general and administrative 20,415,000 39,622,000 43,522,000
Amortization of intangibles 459,000 1,448,000 1,612,000
Restructuring costs 1,450,000 - -
---------------- ---------------- -----------------
22,324,000 41,070,000 45,134,000
---------------- ---------------- -----------------
OPERATING INCOME 5,653,000 16,481,000 15,455,000
Interest expense 867,000 5,569,000 6,041,000
---------------- ---------------- -----------------
Income before income taxes 4,786,000 10,912,000 9,414,000
Federal and state income taxes 1,918,000 4,376,000 2,462,000
---------------- ---------------- -----------------
NET INCOME $ 2,868,000 $ 6,536,000 $ 6,952,000
---------------- ---------------- -----------------
---------------- ---------------- -----------------
Earnings per common share:
Basic $ 0.36 $ 0.72 $ 0.77
---------------- ---------------- -----------------
---------------- ---------------- -----------------
Diluted $ 0.36 $ 0.70 $ 0.73
---------------- ---------------- -----------------
---------------- ---------------- -----------------
Weighted average number of shares outstanding:
Basic 8,036,000 9,060,000 9,065,000
---------------- ---------------- -----------------
Diluted 8,036,000 12,376,000 13,012,000
---------------- ---------------- -----------------
---------------- ---------------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE>
RICHEY ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------
Additional Cumulative
Shares Par Paid-in Retained Translation
Outstanding Value Capital Earnings Adjustment Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994 5,889,000 $ 6,000 $ 5,240,000 $ 3,539,000 $ - $ 8,785,000
Issuance of common
stock in public
offering, net of
offering expenses 3,165,000 3,000 15,736,000 - - 15,739,000
Net income - - - 2,868,000 - 2,868,000
-------------------------------------------------------------------------------------------------------
Balance, December 31,
1995 9,054,000 9,000 20,976,000 6,407,000 - 27,392,000
Stock options exercised
and other 6,000 - 25,000 - - 25,000
Net income - - - 6,536,000 - 6,536,000
-------------------------------------------------------------------------------------------------------
Balance, December 31,
1996 9,060,000 9,000 21,001,000 12,943,000 - 33,953,000
Common stock warrants
issued in conjunction
with STI Acquisition
and stock options
exercised 8,000 - 753,000 - - 753,000
Net income - - - 6,952,000 - 6,952,000
Foreign currency
translation - - - - (219,000) (219,000)
-------------------------------------------------------------------------------------------------------
Balance, December 31,
1997 9,068,000 $ 9,000 $ 21,754,000 $ 19,895,000 $ (219,000) $ 41,439,000
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
RICHEY ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,868,000 $ 6,536,000 $ 6,952,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 912,000 3,100,000 3,507,000
Deferred taxes 1,065,000 4,080,000 (226,000)
Change in operating assets and liabilities, net of
effect of business combinations:
(Increase) decrease in:
Trade receivables (2,448,000) 592,000 (2,488,000)
Inventories (2,727,000) (4,329,000) (9,455,000)
Other current assets (260,000) 284,000 221,000
Increase (decrease) in:
Accounts payable and accrued expenses (624,000) (4,573,000) 770,000
Accrued restructuring costs 1,450,000 (1,450,000) -
------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 236,000 4,240,000 (719,000)
------------------------------------------------------
Cash Flows from Investing Activities
Purchase of improvements and equipment (1,316,000) (1,310,000) (2,286,000)
Payment of acquisition and restructuring costs (2,025,000) (7,706,000) (8,866,000)
------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (3,341,000) (9,016,000) (11,152,000)
------------------------------------------------------
Cash Flows from Financing Activities
Net advances (repayments) on revolving line of credit (8,843,000) - 13,123,000
Borrowings (repayments) under long-term revolving
line-of-credit arrangement 1,974,000 (7,911,000) -
Term loan borrowings - 30,000,000 -
Payments on long-term debt (5,202,000) (71,114,000) (1,214,000)
Proceeds from issuance of common stock, net 15,739,000 25,000 54,000
Proceeds from issuance of convertible subordinated
debt - 55,755,000 -
Transaction costs associated with refinancing activities - (2,521,000) (38,000)
------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,668,000 4,234,000 11,925,000
------------------------------------------------------
NET EFFECT OF TRANSLATION ON CASH - - (53,000)
------------------------------------------------------
INCREASE (DECREASE) IN CASH 563,000 (542,000) 1,000
Cash
Beginning 9,000 572,000 30,000
------------------------------------------------------
Ending $ 572,000 $ 30,000 $ 31,000
------------------------------------------------------
------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
RICHEY ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
THREE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,230,000 $ 3,961,000 $ 5,711,000
-----------------------------------------------------
Income taxes $ 1,249,000 $ 437,000 $ 2,285,000
-----------------------------------------------------
Assets acquired, liabilities assumed and
securities issued in business combinations:
Working capital $ 15,362,000 $ 1,980,000 $ 1,163,000
Leasehold improvements and equipment 1,646,000 101,000 1,384,000
Other assets 861,000 - -
Goodwill 47,287,000 2,272,000 5,337,000
Restructuring and transaction costs (3,427,000) - (2,212,000)
Subordinated notes payable (2,982,000) - -
Other liabilities assumed (23,434,000) - (1,047,000)
Stock payment notes (34,106,000) - -
Deferred taxes - - 2,920,000
Common stock warrants issued - - (730,000)
-----------------------------------------------------
Net cash paid $ 1,207,000 $ 4,353,000 $ 6,815,000
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Richey Electronics, Inc. (the Company) is a specialty distributor of
electronic components and a provider of value-added assembly services. The
Company distributes a broad line of connectors, switches, wire, cable and
heat-shrinkable tubing, and other interconnect, electromechanical and passive
electronic components used in assembly and manufacture of electronic
equipment. Richey has distribution rights from major worldwide suppliers,
none of which individually accounted for sales greater than 15% in 1997.
Richey's corporate headquarters are based in California and it markets
throughout the United States and Canada.
A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:
YEAR END
The Company reports its annual operating results based upon a calendar year end
(December 31) and its quarterly results using the Friday nearest the end of each
quarter.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements consolidate the accounts of Richey
Electronics, Inc. and its wholly owned Canadian subsidiary which was acquired on
June 13, 1997. All material intercompany transactions have been eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue and expenses during
the reporting period. Actual results could differ from those estimates and
could materially affect the reported amount of assets and liabilities and future
operating results.
CONCENTRATION OF CREDIT RISK
The Company distributes electronic components to small and medium-sized
manufacturers in a wide variety of industries including telecommunications,
computer, medical, transportation and aerospace. Credit is extended based on an
evaluation of the customer's financial condition and collateral is typically not
required. Credit losses are provided for in the financial statements through a
charge to operations. For the year ended December 31, 1997, no individual
customer represented more than 2% of net sales. Credit losses have been
consistently within management's expectations and were not material in any year
presented. A valuation allowance for known and anticipated credit losses is
maintained and was not material. Provision for bad debts and accounts
receivable write-offs have not been significant.
29
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVENTORIES
Inventories consist of electronic components held for sale and work-in-process
and finished goods related to the Company's value-added assembly services.
Inventory is valued at the lower of cost (first-in, first-out method) or market.
The labor and overhead portion of work-in-process and finished goods are not
material. The Company periodically reviews the age and turnover of its
inventory to determine whether any inventory has become obsolete or has declined
in value and incurs a charge to operations for known and anticipated inventory
obsolescence.
IMPROVEMENTS AND EQUIPMENT
Improvements and equipment are stated at cost, less accumulated depreciation and
amortization. Equipment is depreciated using the straight-line method over
estimated service lives ranging from three to seven years. Improvements are
amortized over the life of the lease or the economic life of the asset,
whichever is shorter.
GOODWILL
The Company is amortizing goodwill on a straight-line method over lives ranging
from 15 to 40 years, principally 40 years.
The Company periodically reviews the value of its goodwill not related to
specific long-lived assets to determine if an impairment has occurred. The
Company does not believe that an impairment of its goodwill has occurred based
on an evaluation of operating income, cash flows and business prospects.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax
liabilities are recognized for taxable temporary differences and deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred
tax assets are reduced by a valuation allowance when it cannot be demonstrated
that the deferred tax assets are more likely than not to be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's Canadian subsidiary are translated
into U.S. dollars in accordance with Statement of Financial Accounting Standards
(SFAS) No. 52, FOREIGN CURRENCY TRANSLATION, using the Canadian dollar as the
functional currency. The Company translates the balance sheet accounts at the
exchange rate on the balance sheet date and the income statement at the average
exchange rate for the period. Translation gains and losses are recorded in
stockholders' equity, and transaction gains and losses are reflected in income.
30
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EARNINGS PER SHARE
The Company adopted Financial Accounting Standards Board (FASB) 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 both the computation of basic and diluted earnings per share to
be disclosed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable and payable, and debt instruments. The carrying value of
financial instruments, other than the debt instruments, is representative of
their fair value due to short-term maturity. The carrying value of the
Company's revolving line of credit and subordinated debt is considered to
approximate their fair value because the interest rates of these instruments
are consistent with current rates offered to the Company. The estimated fair
value at December 31, 1997 and 1996 of the convertible subordinated notes
payable (the notes) was $54,082,000 and $58,933,000, respectively, based upon
quoted market prices.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company follows APB Opinion No. 25 to measure stock-based compensation
and discloses the pro forma effects on net income as if compensation were
measured in accordance with SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME,
and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the
period from nonowner sources; and SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of these Statements will not impact the Company's
financial position, results of operations or cash flows and any effect will
be limited to the form and content of its disclosures. Both Statements are
effective for the Company's year ending December 31, 1998.
NOTE 2. BUSINESS COMBINATIONS
In the period from 1994 to 1997, the Company completed several business
combinations. All of these acquisitions were accounted for as purchase
business combinations with the operations of the acquired businesses included
subsequent to the acquisition date. Each of the acquired businesses had
operations similar to the Company's. These acquisitions are described as
follows:
31
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATIONS, CONTINUED
IN-STOCK PRODUCTS ACQUISITION
On April 4, 1994, the Company completed the purchase of the assets and business
of the In-Stock Products division of Anchor Group, Inc. (In-Stock), located in
Boston, Massachusetts.
INLAND EMPIRE INTERCONNECTS ACQUISITION
On August 16, 1995, the Company completed the purchase of the assets and
business of Inland Empire Interconnects, an Ontario, California, molded cable
assembly company.
EDAC AND SUBSIDIARY (DEANCO ACQUISITION)
On December 20, 1995, the Company completed the purchase of all the issued and
outstanding capital stock of Electrical Distribution Acquisition Company (EDAC).
EDAC, a holding company, and its wholly owned subsidiary, Deanco, Inc. (Deanco),
were acquired for $34,106,000 of stock payment notes, the assumption of
$5,962,000 of existing EDAC stockholder notes and the assumption of all other
debt of Deanco. These notes were paid on January 2, 1996. The Company merged
EDAC into the Company in January 1996 and merged Deanco into the Company in
October 1996.
In connection with the Deanco Acquisition, the Company closed certain of its own
facilities and incurred other costs associated with the consolidation of the
operations of Deanco into the Company. During 1995 the Company recognized a
restructuring charge of $1,450,000. All of these costs were paid by
December 31, 1996. No adjustments were made to the original estimates of this
restructuring accrual.
Also in conjunction with the Deanco Acquisition, the Company accrued
restructuring costs of $3,100,000 at December 31, 1995 relating to the
consolidation of Deanco's operations into the Company. Those costs related to
the operations of Deanco were recorded as a purchase accounting adjustment,
resulting in an increase in goodwill. At December 31, 1996, the remaining
accrued restructuring costs were $538,000 and all of these costs were paid
during 1997 without any significant adjustments to the original estimates.
MS ELECTRONICS, INC.
On March 19, 1996, the Company completed the acquisition of the assets and
business of MS Electronics, Inc. (MS Electronics). The purchase price and
related transaction costs, including the assumption of MS Electronics' debt of
$525,000, were approximately $3,111,000 and were paid in cash. The allocation
of the purchase price is as follows: $2,231,000 to estimated fair value of
tangible assets acquired, $1,288,000 to liabilities assumed and $2,168,000 to
goodwill.
SUMMIT DISTRIBUTORS, INC.
On December 5, 1996, the Company completed the acquisition of the assets and
business of Summit Distributors, Inc. The purchase price and related
transaction costs were $1,138,000 and were paid in cash. The allocation of the
purchase price was $1,095,000 to current assets and $43,000 to fixed assets.
32
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATIONS, CONTINUED
SIMMONDS TECHNOLOGIES, INC. (STI ACQUISITION)
On June 13, 1997, the Company completed the purchase of all of the issued and
outstanding common stock of Simmonds Technologies, Inc. (STI), an indirect
wholly owned subsidiary of Simmonds Capital Limited (Simmonds), for $1. STI
is 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. Foreign sales and operating loss in Canada were
$12,771,000 and $221,000, respectively, during 1997 and identifiable assets
were $17,197,000 at December 31, 1997. Foreign operations were not
significant prior to 1997. In July 1997, the Company changed the name of
STI to Richey Electronics Limited.
In events related to the STI Acquisition, the Company also issued to Simmonds
a warrant to purchase 197,044 shares of common stock of the Company at an
exercise price of $10.15 per share established based on 125% of the common
stock price. The warrant is exercisable at any time up to March 31, 2002.
For purchase accounting purposes, the value of this warrant was estimated to
be $730,000. In addition, through STI, the Company contributed approximately
$1.1 million toward the future settlement of certain of STI's long-term
capital lease obligations and facility leases to be retained by Simmonds.
Simmonds agreed to be responsible for negotiating such settlements and
obtaining releases of STI's obligations under such leases. The Company also
agreed to transfer to Simmonds $3.4 million of STI non-core inventories which
the Company believes it will not be able to use in its operations. Simmonds
also received a right to a future payment due March 31, 2002 from STI based
upon a percentage of STI's operating earnings as defined by agreement between
the parties. For purchase accounting purposes, this future payment will be
accounted for as contingent consideration and will be recorded as additional
purchase price when the amount is determinable.
Under the terms of the transaction, the Company refinanced STI's bank
indebtedness of approximately $5.7 million. The Company funded the STI bank
debt refinancing and the contribution toward settlement of certain long-term
obligations referred to above by drawing upon the Company's revolving line of
credit.
33
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATIONS, CONTINUED
The following preliminary allocation of the purchase price after adjusting to
fair value the assets and liabilities of STI is based upon estimates that are
currently available and is contingent upon completion of management's assessment
of the fair value of net assets acquired and resolution of certain material
lease obligations which Simmonds is required to settle and obtain releases for.
<TABLE>
<S> <C>
Consideration and liabilities assumed:
Bank debt assumed and then refinanced $ 5,720,000
Accounts payable, accrued expenses and other debt obligations assumed 5,962,000
Cash contribution toward settlement of lease obligations 1,095,000
Transaction and restructuring costs 2,212,000
Common stock warrants 730,000
Contingent payment obligation -
-----------------
$ 15,719,000
-----------------
-----------------
Allocated to:
Current assets $ 6,078,000
Deferred tax assets 2,920,000
Leasehold improvements, fixtures and assets acquired under capital leases 1,384,000
Goodwill 5,337,000
-----------------
$ 15,719,000
-----------------
-----------------
</TABLE>
In conjunction with the STI Acquisition, the Company accrued restructuring
and transaction costs of $2,212,000 consisting of legal, accounting and other
costs directly attributable to the acquisition and other costs, principally
unfavorable lease rights related to the consolidation of STI consistent with
the Company's plans for the acquired business. These costs were recorded as a
purchase accounting adjustment resulting in an increase in goodwill. At
December 31, 1997, the remaining accrued restructuring costs of $746,000
primarily represent costs related to unfavorable lease rights related to
computer leases.
PRO FORMA RESULTS (UNAUDITED)
The following pro forma results of continuing operations assume the STI
Acquisition (which occurred on June 13, 1997) had occurred on January 1, 1996.
The Summit Distributors, Inc. and MS Electronics acquisitions would not have
materially changed pro forma net sales or net income. The unaudited pro forma
results have been prepared using the historical financial statements of the
Company and STI. The unaudited pro forma results give effect to certain
adjustments, including amortization of goodwill, interest expense and related
tax effects. This pro forma information does not reflect any cost savings
directly attributable to the acquisition. The Company anticipates significant
cost savings through reductions in excess facilities, redundant salaries and
benefits, eliminating management fees and duplicate corporate expenses.
34
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATIONS, CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1997
(Unaudited) (Unaudited)
--------------------------------------
<S> <C> <C>
Net sales $ 256,866,000 $ 261,452,000
Net income 549,000 4,835,000
Earnings per share:
Basic 0.06 0.53
Diluted 0.06 0.53
</TABLE>
This pro forma financial information does not purport to be indicative of the
results of operations had the STI Acquisition actually taken place at these
earlier dates.
NOTE 3. IMPROVEMENTS AND EQUIPMENT
Improvements and equipment at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997
--------------------------
<S> <C> <C>
Improvements $ 1,738,000 $ 2,165,000
Furniture, fixtures and equipment 4,998,000 8,644,000
--------------------------
6,736,000 10,809,000
Less accumulated depreciation and amortization 3,068,000 5,094,000
--------------------------
$ 3,668,000 $ 5,715,000
--------------------------
--------------------------
</TABLE>
NOTE 4. BORROWING ARRANGEMENTS
REVOLVING LINE OF CREDIT
The Company has a bank revolving line of credit of $45,000,000, which expires
December 31, 1999. The revolving line of credit allows advances of up to 85%
of eligible receivables and 50% of eligible inventories, as defined. At
December 31, 1997, the revolving line of credit bears interest at a blended
rate comprised of the Eurodollar rate plus 2.00% and the bank's prime plus
.75%. The Company is required to pay the lender an unused line fee equal to
3/8% of the difference between the maximum commitments and the daily average
outstanding borrowings for the prior quarter. The credit agreement contains
various restrictive covenants which require the Company to meet certain
financial conditions, including maintaining a minimum level of stockholders'
equity, minimum profitability, fixed charge coverage and cash flow leverage
ratios.
35
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. BORROWING ARRANGEMENTS, CONTINUED
In addition, the Company is restricted from the payment of cash dividends and
requires preapproval for all acquisitions. At December 31, 1997, $23,573,000
was outstanding under the Company's revolving line of credit. The Company
intends to maintain borrowings of at least $10,573,000 during 1998; therefore,
$13,000,000 of the balance is classified as a current liability. The following
is a summary of borrowings under revolving line of credit:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate in effect at
year end 8.2 % 7.5 % 8.1 %
Available borrowings at year end $ 18,261,000 $ 28,195,000 $ 21,427,000
Maximum outstanding borrowings during
the year 18,361,000 31,106,000 23,573,000
Weighted average interest rate for the
borrowings outstanding during the year 9.3 % 7.7 % 8.6 %
</TABLE>
The Company's revolving line of credit provides that up to $3,000,000 of the
available line can be used for letters of credit. None were outstanding at year
end.
7% CONVERTIBLE SUBORDINATED NOTES OFFERING
In 1996 the Company issued $55,755,000 of 7% Convertible Subordinated Notes due
2006. The Notes are convertible into 3,947,000 shares of the Company's common
stock at a conversion price of $14.125 per share (subject to certain
adjustments) at the holder's option at any time after 60 days following the
issuance and prior to maturity. The payment of principal and interest on these
notes is subordinated to all senior debt consisting of secured debt of
$23,573,000 outstanding at December 31, 1997 under the Company's revolving line
of credit. The Company maintains an effective shelf registration statement with
the Securities and Exchange Commission to register resales of the Notes and the
common stock issuable upon conversion.
The Notes may not be redeemed by the Company prior to March 4, 1999.
Thereafter, the Notes may be redeemed at the option of the Company at a
redemption price of 103.5% of outstanding principal in 1999 decreasing by .5%
each year until March 1, 2006.
In addition, under certain circumstances, the holders of these Notes have the
option to require the Company to repurchase the Notes. These designated events
include a more than 50% change in control.
36
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. BORROWING ARRANGEMENTS, CONTINUED
LONG-TERM DEBT
Long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997
------------------------------
<S> <C> <C>
Revolving line of credit $ 10,450,000 $ 23,573,000
Convertible subordinated notes payable, interest at 7.0% due
March 1 and September 1 semiannually, principal due
September 1, 2006 55,755,000 55,755,000
Subordinated promissory notes payable to former stockholders
of Deanco, unsecured, due in annual installments of $1,000,000
with a final payment of $1,000,000 on September 30, 1999,
interest payable annually at 8% 2,953,000 2,000,000
Other 59,000 804,000
------------------------------
69,217,000 82,132,000
Less current maturities 4,012,000 14,278,000
------------------------------
$ 65,205,000 $ 67,854,000
------------------------------
------------------------------
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 14,278,000
1999 12,099,000
2007 55,755,000
--------------
$ 82,132,000
--------------
--------------
</TABLE>
NOTE 5. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------------------------
<S> <C> <C>
Compensation $ 2,790,000 $ 2,237,000
Interest 1,464,000 1,462,000
Other 248,000 329,000
---------------------------
$ 4,502,000 $ 4,028,000
---------------------------
---------------------------
</TABLE>
37
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office and warehouse space under operating lease agreements
with various terms and conditions with rent escalation typically based on the
Consumer Price Index.
Future minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1998 $ 2,766,000
1999 2,541,000
2000 1,791,000
2001 1,034,000
2002 770,000
Thereafter 3,757,000
------------------
$ 12,659,000
------------------
------------------
</TABLE>
In connection with the STI Acquisition, certain facility operating lease
obligations were assumed. The lease commitment schedule reflects the entire
operating lease obligation for STI's Pickering (Toronto) facility or
approximately $365,000 per year through December 2010. The Company has
entered an informal sublease agreement for 50% of this facility. The Company
expects to enter into a new lease for this reduced space. The above schedule
does not reflect the obligation under certain computer leases for which
Simmonds is responsible for obtaining settlements and releases as described
in Note 2.
Total rent expense under operating leases, including rent for facilities
leased on a month-to-month basis, was $903,000, $2,016,000 and $2,301,000 for
1995, 1996 and 1997, respectively.
NOTE 7. SERVICE AND MANAGEMENT AGREEMENT
The Company is party to a Service and Management Agreement dated December 18,
1990, as amended and modified, with a director. The Service and Management
Agreement terminates on December 31, 1999; however, the term can be
automatically extended by the director for an additional two-year consecutive
period unless earlier terminated. Management fees payable under this and
prior agreements were approximately $234,000 in 1995, $175,000 in 1996 and
$175,000 in 1997, including a $64,000 termination payment in 1995 to a former
party to this agreement.
38
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------------------------
<S> <C> <C> <C>
Currently paid or payable:
Federal $ 745,000 $ 697,000 $ 1,916,000
State 108,000 426,000 748,000
Deferred 1,065,000 3,253,000 (202,000)
--------------------------------------
$ 1,918,000 $ 4,376,000 $ 2,462,000
--------------------------------------
--------------------------------------
</TABLE>
The following table presents a reconciliation from the amount of income tax
determined by applying the statutory income tax rate to pretax income for those
adjustments representing more than 5% of pretax income:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------
<S> <C> <C> <C>
Computed "expected" statutory rate 35 % 35 % 35 %
Permanent difference for amortization of goodwill - - 5
Reduction in valuation allowance for net deferred
tax assets - - (19)
Increase in rate resulting from state income taxes,
net of federal tax benefit 5 5 5
------------------------
40 % 40 % 26 %
------------------------
------------------------
</TABLE>
Net deferred tax assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------------------------
<S> <C> <C>
Deferred tax liabilities, other $ 210,000 $ 520,000
-------------------------
Deferred tax assets:
Net operating loss carryforwards (NOLs) 4,720,000 6,845,000
Costs capitalized to inventories for tax purposes 716,000 840,000
Accrued expenses not deductible until paid 410,000 238,000
Other 968,000 1,298,000
-------------------------
6,814,000 9,221,000
Less valuation allowance 1,757,000 839,000
-------------------------
5,057,000 8,382,000
-------------------------
$ 4,847,000 $ 7,862,000
-------------------------
-------------------------
</TABLE>
39
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES, CONTINUED
Net deferred tax assets described above have been included in the accompanying
balance sheets as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------------
<S> <C> <C>
Current assets $ 2,629,000 $ 3,662,000
Noncurrent assets 2,218,000 4,200,000
--------------------------
$ 4,847,000 $ 7,862,000
--------------------------
--------------------------
</TABLE>
As of December 31, 1997, the Company had acquired NOLs which have the following
expiration dates:
<TABLE>
<CAPTION>
United States
Expiration Date Federal Canada
- --------------- -------------------------------
<S> <C> <C>
2003 $ - $ 7,679,000
2004 - 185,000
2005 - -
2006 5,439,000 -
2007 2,588,000 -
2008 771,000 -
--------------------------------
$ 8,798,000 $ 7,864,000
--------------------------------
--------------------------------
</TABLE>
Section 382 of the United States Internal Revenue Code of 1986 imposes
certain limitations on a corporation's ability to use United States NOLs if
more than a 50% ownership change occurs. The Company's issuance of
additional common stock in 1995, together with an earlier acquisition,
constituted a more than 50% ownership change. As a result, the usage of the
United States NOLs are restricted to approximately $4,900,000 on an annual
basis.
In the preliminary allocation of the purchase price for the STI Acquisition,
the Company recorded a deferred tax asset of $2,920,000, which is net of a
valuation allowance of approximately $839,000. This deferred tax asset
represents the tax benefit of STI's net operating loss carryforwards.
Realization of this deferred tax asset is dependent upon the Company
generating Canadian taxable income of approximately $5,300,000 before the
expiration of these loss carryforwards which expire in 2003 and 2004.
Due to the uncertainty inherent in forecasts of future results, management
has established the valuation allowance to reduce the net deferred tax asset
to the tax benefit expected to be realized over the next three to five years.
40
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES, CONTINUED
During 1997 the Company eliminated the remaining United States deferred tax
asset valuation allowance of $1,757,000 as the Company has been consistently
profitable and generated United States taxable income before NOLs of
approximately $10.3 million in 1997. Based on its current level of
profitability, management believes that the Company will be able to fully
utilize the United States NOLs prior to their expiration and realize its
other United States deferred tax assets.
The amount of deferred tax assets considered realizable, however, would be
reduced if estimates of future taxable income during the carryforward period are
reduced.
NOTE 9. EMPLOYEE BENEFIT PLANS
STOCK APPRECIATION RIGHTS PLAN
On July 7, 1993, the Company adopted a Stock Appreciation Rights Plan. Each
stock appreciation right (SAR) provides the recipient with the right to receive
a cash payment equal to the excess, if any, of the fair market value of a share
of the Company's common stock on the date the SAR is exercised over the fair
market value on the date the SAR was granted, or such other value as determined
by the Compensation Committee. The maximum number of rights that may be awarded
under the plan may not exceed approximately 589,000. To date, no rights have
been granted under this plan.
STOCK OPTION PLAN
The Company has a stock option plan adopted in 1992. The options granted
generally vest at a rate of 25% per year over a four-year period and expire ten
years from the date of grant. The exercise price of the options is equal to the
quoted market price at the date of grant.
41
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. EMPLOYEE BENEFIT PLANS, CONTINUED
The following tables summarize information about stock options outstanding:
<TABLE>
<CAPTION>
1995 1996 1997
-----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 226,737 $ 6.00 493,071 $ 6.34 612,648 $ 7.11
Granted 266,334 6.63 135,300 9.80 60,500 12.87
Terminated and canceled - - (7,363) 6.00 (21,350) 8.49
Exercised - - (8,360) 6.07 (5,750) 9.50
-------- -------- --------
Outstanding at end of year 493,071 6.34 612,648 7.11 646,048 7.58
-------- -------- --------
-------- -------- --------
Options exercisable, end
of year 45,642 6.00 186,591 6.67 342,398 6.70
Available for grant, end
of year 95,863 - 284,424 - 639,842 -
Weighted average fair value
of options granted during
the year $ 4.35 - $ 7.07 - $ 8.71 -
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------------
Remaining
Contractual
Number Life Exercise Options
Outstanding (in years) Price Exercisable
---------------------------------------------------------------
<S> <C> <C> <C>
212,014 6 $ 6.000 162,694
257,834 7 6.625 139,529
115,700 8 9.860 40,175
60,500 9 12.875 -
------------- -------------
646,048 7 342,398
------------- -------------
------------- -------------
</TABLE>
42
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. EMPLOYEE BENEFIT PLANS, CONTINUED
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant dates for awards under this plan consistent with the
method of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------------------
<S> <C> <C> <C>
Net income As reported $ 2,868,000 $ 6,536,000 $ 6,952,000
Pro forma 2,707,000 6,242,000 6,340,000
Basic earnings per share As reported 0.36 0.72 0.77
Pro forma 0.34 0.69 0.70
Diluted earnings per share As reported 0.36 0.70 0.73
Pro forma 0.34 0.67 0.68
</TABLE>
The pro forma compensation cost was recognized for the fair value of the
stock options granted, which was estimated using the Black-Scholes model with
the following assumptions: expected volatility of 48%, 53% and 49% in 1995,
1996 and 1997, respectively; risk-free interest rate of 6.8%, 6.5% and 5.8%
for 1995, 1996 and 1997, respectively; the options will be exercised at the
end of the exercise period and no dividends.
401(k) SAVINGS PLAN
The Company has a defined contribution 401(k) savings plan covering
substantially all its employees. The plan provides the Company with an option
to match participants' contributions; however, no such contributions were made
by the Company during 1995, 1996 or 1997.
NOTE 10. EARNINGS PER SHARE
The following is information about the computation of earnings per share data
for the years ended December 31, 1996 and 1997. For the year ended December
31, 1995, there was no difference between the basic and diluted net income or
weighted average shares outstanding.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 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 $ 6,536,000 9,060,000 $ 0.72 $ 6,952,000 9,065,000 $ 0.77
Effect of dilutive securities:
Convertible, 7% subordi-
nated notes payable 2,100,000 3,316,000 2,498,000 3,947,000
--------------------------- -----------------------------
Diluted earnings per share $ 8,636,000 12,376,000 $ 0.70 $ 9,450,000 13,012,000 $ 0.73
--------------------------- -----------------------------
--------------------------- -----------------------------
</TABLE>
43
<PAGE>
RICHEY ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. EARNINGS PER SHARE, CONTINUED
Options and warrants for common shares issuable upon exercise of employee stock
options and warrants issued in conjunction with the STI Acquisition have not
been included in the computation because their inclusion would not have
materially changed computed earnings per share.
NOTE 11. LITIGATION
The Company is subject to legal proceedings and litigation arising in the
ordinary course of business. In the opinion of management, the results of
these legal proceedings will not have a material adverse effect on the
Company's financial statements.
NOTE 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $ 56,794,000 $ 59,346,000 $ 65,091,000 $ 69,005,000
Gross profit 14,529,000 14,662,000 16,128,000 15,270,000
Net income 1,703,000 1,678,000 1,626,000 1,945,000
Basic earnings per
common share 0.19 0.19 0.18 0.21
Diluted earnings per
common share 0.18 0.18 0.17 0.20
1996
Net sales 58,384,000 58,212,000 53,713,000 55,906,000
Gross profit 14,313,000 14,806,000 14,116,000 14,316,000
Net income 1,142,000 1,735,000 1,754,000 1,905,000
Basic earnings per
common share 0.13 0.19 0.19 0.21
Diluted earnings per
common share 0.13 0.18 0.18 0.20
1995
Net sales 26,596,000 28,305,000 28,803,000 33,353,000
Gross profit 6,513,000 6,660,000 6,931,000 7,873,000
Net income 680,000 909,000 1,070,000 209,000
Basic earnings per
common share 0.12 0.11 0.12 0.02
Diluted earnings per
common share 0.12 0.11 0.12 0.02
</TABLE>
The earnings per share shown in the table above have all been computed using the
provisions of SFAS No. 128.
44
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
2.1 Stock Purchase Agreement, dated November 15, 1995, among
Richey Electronics, Inc., Deanco, Inc., Electrical
Distribution Acquisition Company and all of the
stockholders of Electrical Distribution Acquisition
Company. *4* (2.1)
2.2 First Amendment to Stock Purchase Agreement and Instrument
of Joinder dated December 20, 1995 among Richey
Electronics, Inc., Deanco, Inc., Electrical Distribution
Acquisition Company and all of the stockholders of
Electrical Distribution Acquisition Company. *4* (2.2)
2.3 Sales Tax Indemnification Agreement dated December 20, 1995
among Richey Electronics, Inc. and the stockholders of
Electrical Distribution Acquisition Company identified
therein. *4* (2.3)
2.4 Share Purchase Agreement dated June 13, 1997, among Richey
Electronics, Inc., SCL Electronics Ltd., Simmonds
Technologies Inc. and Simmonds Capital Limited. *13* (2.1)
2.5 Intercompany Debt Repayment Agreement dated June 13, 1997
among Simmonds Capital Limited, SCL Electronics Ltd. and
Simmonds Technologies Inc. *13* (2.2)
3.1 Restated Certificate of Incorporation of Richey
Electronics, Inc. *5* (3.1)
3.2 Bylaws of Richey Electronics, Inc. *5* (3.2)
4.1 Indenture between Richey Electronics, Inc. and First Trust
of California, National Association, dated as of February
15, 1996. *10* (4.1)
4.2 Registration Rights Agreement among Richey Electronics,
Inc., Jefferies & Company, Inc. and Cruttenden Roth
Incorporated, dated as of February 26, 1996. *12* (4.2)
4.3 Warrant dated June 13, 1997, to purchase common stock of
Richey Electronics, Inc., expiring March 31, 2002. *13*
(4.1)
10.1 Indemnification Agreement among Barclay and Company, Inc.,
Brajdas Corporation, Donald I. Zimmerman and certain former
shareholders of RicheyImpact Electronics, Inc. identified
therein dated as of April 5, 1993. *2* (E)
10.2 Letter re Amendment to Indemnification Agreement by Barclay
and Company, Inc. and Donald I. Zimmerman, and agreed to by
BRJS Investment Holding Corp., Brajdas Corporation and the
other persons and entities identified therein dated April
23, 1993. *1* (10.3)
10.3 Registration Rights Agreement between Brajdas Corporation
and BRJS Investment Holding Corp. dated April 2, 1993. *2*
(10.4)
10.4 Employment Agreement between William C. Cacciatore and
Brajdas Corporation dated as of April 1, 1993. *1* (10.18)
10.5 Addendum to Employment Agreement (William C. Cacciatore)
dated as of February 21, 1995. *8* (10.37)
<PAGE>
10.6 Second Addendum to Employment Agreement (William C.
Cacciatore) dated as of May 17, 1995. *10* (10.31)
10.7 Employment Agreement between Richard N. Berger and Brajdas
Corporation dated as of April 1, 1993. *1* (10.20)
10.8 Addendum to Employment Agreement (Richard N. Berger) dated
as of February 21, 1995. *8* (10.39)
10.9 Employment Agreement between Norbert W. St. John and
Brajdas Corporation dated as of April 1, 1993. *1* (10.19)
10.10 Addendum to Employment Agreement (Norbert W. St. John)
dated as of February 21, 1995. *8* (10.40)
10.11 Second Addendum to Employment Agreement (Norbert W. St.
John) dated as of May 17, 1995. *10* (10.33)
10.12 Employment Agreement between Charles W. Mann and Richey
Electronics, Inc. dated as of April 1, 1995. *12* (10.35)
10.13 Service and Management Agreement dated December 18, 1990 by
and among RicheyImpact Electronics, Inc., Palisades
Associates, Inc. and Saunders Capital Group, Inc. *3*
(10.2)
10.14 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,
1993. *3* (10.3)
10.15 Modification Agreement among the Company, Palisades
Associates, Inc. and Saunders Capital Group, Inc. dated as
of January 2, 1995. *8* (10.26)
10.16 Modification Agreement by and between Richey Electronics,
Inc. and Palisades Associates, Inc. dated as of February
21, 1995. *8* (10.41)
10.17 1993 Stock Appreciation Rights Plan. *6* (A)
10.18 Amended and Restated 1992 Stock Option Plan. *14* (A)
10.19 Form of Incentive Stock Option Agreement. *8* (10.36)
10.20 Lease between Principal Mutual Life Insurance Company and
Richey Electronics, Inc. for lease of premises at 7441
Lincoln Way, Garden Grove, California. *8* (10.32)
10.21 Amendment to Lease dated September 2, 1997, amending the
Lease Agreement dated December 2, 1994, between Richey
Electronics, Inc., and Principal Mutual Life Insurance
Company for leasing premises at 7441 Lincoln Way, Garden
Grove, California. *15* (10.1).
10.22 Standard Sublease dated September 3, 1997, between Richey
Electronics, Inc., and Corning OCA Corporation for sublease
of premises at 7441 Lincoln Way, Garden Grove, California.
*15* (10.2).
10.23 Lease between Wychrest Estates Inc. and Simmonds
Technologies Inc. (as assignee of Simmonds Communications
Ltd.) for lease of premises at 580 Granite Court,
Pickering, Ontario. *16* (10.2)
<PAGE>
10.24 Lease Contract No. 002506 dated September 12, 1996, between
CIBC Equipment Finance Limited and Simmonds Technologies
Inc. *16* (10.3)
10.25 Lease between M&M Enterprises, a California General
Partnership and Richey Electronics, Inc. for lease of
premises at 10871 La Tuna Canyon Road, Sun Valley,
California. *8* (10.33)
10.26 Lease between Hownat Trust and Deanco, Inc. for lease of
premises at 87 Concord Street, North Reading,
Massachusetts, Boston Massachusetts. *10* (10.21)
10.27 Lease between Murray Center Venture and Deanco ACA
Manufacturing, Inc. for lease of premises at Building 1,
Murray Business Center, 3601 SW Murray Blvd., Beaverton,
Oregon 97201. *10* (10.25)
10.28 Lease Agreement between Fujita California Partners III and
Deanco, Inc., Acacia Division, for premises at 3230 Scott
Boulevard, Santa Clara, California. *17* (10.28)
10.29 Loan Agreement dated as of December 20, 1995 among Richey
Electronics, Inc., the banks named therein and First
Interstate Bank of California, as Agent. *4* (10.1)
10.30 First Amendment to the Loan Agreement dated as of February
26, 1996 among Richey Electronics, Inc., the banks named
therein and First Interstate Bank of California, as Agent.
*10* (10.30)
21.1 Subsidiaries of Richey Electronics, Inc.
23.1 Consent of McGladrey & Pullen, LLP
23.2 Consent of McGladrey & Pullen, LLP
27.1 Financial Data Schedule
- --------------------------
*1* Incorporated by reference to the designated exhibit of the
Annual Report on Form 10-K for Brajdas Corporation for the
fiscal year ended February 28, 1993, filed May 28, 1993.
*2* Incorporated by reference to the designated exhibit of the
Statement on Schedule 13D filed on behalf of BRJS
Investment Holding Corp., C. Don Alverson, William C.
Cacciatore, Greg A. Rosenbaum and Norbert W. St. John with
the Commission on April 20, 1993.
*3* Incorporated by reference to the designated exhibit of the
Transition Report on Form 10-Q for Brajdas Corporation for
the period from January 1, 1993 through July 2, 1993, filed
August 4, 1993.
*4* Incorporated by reference to the designated exhibit of Form
8-K for Richey Electronics, Inc. dated December 20, 1995,
filed January 3, 1996.
*5* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-1, filed January 7, 1994,
Registration No. 33-73916.
*6* Incorporated by reference to the designated exhibit of the
definitive proxy statement for the 1993 Annual Meeting of
Stockholders, filed July 13, 1993.
*7* Incorporated by reference to the designated exhibit of the
Form 8-K for Brajdas Corporation dated July 7, 1993, filed
July 13, 1993.
<PAGE>
*8* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-2, filed February 23,
1995, Registration Statement No. 33-89690.
*9* Incorporated by reference to the designated exhibit of the
Quarterly report on Form 10-Q for Richey Electronics, Inc.
for the period ending March 31, 1995, filed May 15, 1995.
*10* Incorporated by reference to the designated exhibit of the
Annual Report on Form 10-K for the Company for the fiscal
year ended December 31, 1995, filed April 1, 1996.
*11* Incorporated by reference to the designated exhibit of the
Quarterly Report on Form 10-Q for Richey Electronics, Inc.
for the period ending June 28, 1996, filed August 12, 1996.
*12* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-2, filed April 26, 1996,
Registration No. 333-02983.
*13* Incorporated by reference to the designated exhibit of the
Current Report on Form 8-K for Richey Electronics, Inc.
filed June 26, 1997.
*14* Incorporated by reference to the designated exhibit of the
definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders filed March 21, 1997.
*15* Incorporated by reference to the designated exhibit of the
Quarterly Report on Form 10-Q for Richey Electronics, Inc.
for the period ending September 26, 1997, filed November 7,
1997.
*16* Incorporated by reference to the designated exhibit of the
Quarterly Report on Form 10-Q for Richey Electronics, Inc.
for the period ending June 27, 1997, filed August 8, 1997.
*17* Incorporated by reference to the designated exhibit of the
Annual Report on Form 10-K for the Company for the fiscal
year ended December 31, 1996, filed March 21, 1997.
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF RICHEY ELECTRONICS, INC.
RI Interconnect Systems, Inc., a Delaware corporation.
Richey Electronics, Inc. has not contributed capital to this wholly-owned
subsidiary and this subsidiary does not have any assets.
Richey Electronics Limited, a corporation organized under the laws of Ontario,
Canada.
Richey Electronics Limited was formerly named Simmonds Technologies Inc.
The corporation does business under the name Richey Electronics Limited.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the April 26, 1996
Registration Statement and related prospectus on Form S-2 of our report,
dated February 10, 1998, which appears on page 23 of the annual report on
Form 10-K, relating to the consolidated financial statements of Richey
Electronics, Inc. as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997. We also consent to the reference
to our Firm under the caption "Experts" appearing in the prospectus.
McGladrey & Pullen, LLP
Pasadena, California
March 25, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the January 12, 1996
Registration Statement on Form S-8 of our report, dated February 10, 1998, on
the consolidated financial statements of Richey Electronics, Inc. as of
December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997, which appears on page 23 of Form 10-K of Richey
Electronics, Inc. for the year ended December 31, 1997.
McGladrey & Pullen, LLP
Pasadena, California
March 25, 1998
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