-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WKt3Innn6pi8yJSsa9SV0dJJlkR1JFI0PUjJ6Ivcvhz/pbMaBZfACYTRGyh6ONL3 A+XS7JJkBXNUxbWumkzBug== 0000094136-97-000045.txt : 19971114 0000094136-97-000045.hdr.sgml : 19971114 ACCESSION NUMBER: 0000094136-97-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STERLING ELECTRONICS CORP CENTRAL INDEX KEY: 0000094136 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 741261194 STATE OF INCORPORATION: NV FISCAL YEAR END: 0330 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05522 FILM NUMBER: 97713670 BUSINESS ADDRESS: STREET 1: 4201 SOUTHWEST FWY CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138814200 MAIL ADDRESS: STREET 1: 4201 SOUTHWEST FREEWAY CITY: HOUSTON STATE: TX ZIP: 77027 FORMER COMPANY: FORMER CONFORMED NAME: STERLING ELECTRONICS INC DATE OF NAME CHANGE: 19680718 10-Q 1 QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 27, 1997 Commission File No.: 1-5522 STERLING ELECTRONICS CORPORATION (Exact name of registrant as specified in its charter) NEVADA 74-1261194 (Sate or other jurisdiction of IRS Employer Identification No. incorporation or organization 4201 Southwest Freeway, Houston, Texas 77027 (Address of principal executive office) (Zip Code) Registrant's area code and telephone number: (713) 627-9800 Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange act of 1934 during the preceding twelve 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period by this report. Class Outstanding at November 7,1997 Common Stock, $.50 par value 7,256,205 INDEX STERLING ELECTRONICS CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed consolidated statements of financial position September 27 1997 and March 29, 1997 Condensed consolidated statements of income - thirteen and twenty-six weeks ended September 27, 1997 and September 28, 1996 Condensed consolidated statements of cash flows - twenty-six weeks ended September 27, 1997 and September 28, 1996 Notes to condensed consolidated financial statements - September 27, 1997 Item 2. Management's Discussion and Analysis of the Results of Operations STERLING ELECTRONICS CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 27, March 29, 1997 1997 ------------------ ------------------ ASSETS Current Assets Cash $ 714,542 $ 3,817,570 Receivables-net of reserve for doubtful accounts 58,804,845 55,722,058 Inventory 79,110,249 67,531,193 Other current assets 1,630,211 1,472,205 ------------------ ------------------ 140,259,847 128,543,026 Property and equipment - net of depreciation 9,741,404 9,708,564 Goodwill, net of amortization 9,012,609 9,205,174 Other assets 4,804,608 4,072,845 ------------------ ------------------ $ 163,818,468 $ 151,529,609 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Trade accounts payable and accrued expenses $ 43,127,635 $ 48,991,420 Current portion - long term obligations 242,201 238,907 Income taxes 2,520,950 1,479,371 ------------------ ------------------ 45,890,786 50,709,698 Long-term obligations - net of amounts due within one year 51,788,478 39,300,820 Postemployment benefits and other non-current liabilities 5,038,136 5,035,258 Shareholders' Equity Common stock, $.50 par value 3,695,613 3,695,613 Additional paid-in capital 26,655,472 26,794,705 Retained earnings 33,071,627 29,970,978 ------------------ ------------------ 63,422,712 60,461,296 Treasury stock, at cost (2,222,801) (3,905,829) Foreign currency translation adjustment (98,843) (71,634) ------------------ ------------------ 65,546,670 64,295,491 ------------------ ------------------ $ 168,264,070 $ 159,341,267 ================== ==================
STERLING ELECTRONICS CORPORATION CONSOLIDATED STATEMENT OF INCOME THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 1997 1996 ----------------- ---------------- Net sales $100,547,836 $77,276,952 Cost of sales 80,203,848 59,691,551 ----------------- ---------------- Gross Profit 20,343,988 17,585,401 Selling, administrative and other operating expenses 16,850,183 13,318,044 ----------------- ---------------- Income from operations 3,493,805 4,267,357 Interest expense 853,059 400,037 ----------------- ---------------- Income before income taxes 2,640,746 3,867,320 Income taxes 1,030,000 1,527,000 ----------------- ---------------- Net Income $ 1,610,746 $ 2,340,320 ================= ================ Income per common share and common share equivalents: Primary $ 0.22 $ 0.32 Fully diluted $ 0.21 $ 0.32 Number of common shares and common share equivalents used in computing per share amounts Primary 7,435,147 7,226,688 Fully diluted 7,662,700 7,226,688
STERLING ELECTRONICS CORPORATION CONSOLIDATED STATEMENT OF INCOME TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 1997 1996 ----------------- ------------------- Net sales $195,390,134 $ 159,399,782 Cost of sales 155,536,079 123,656,877 ----------------- ------------------- Gross Profit 39,854,055 35,742,905 Selling, administrative and other operating expenses 33,234,159 26,958,739 ----------------- ------------------- Income from operations 6,619,896 8,784,166 Interest expense 1,537,269 918,030 ----------------- ------------------- Income before income taxes 5,082,627 7,866,136 Income taxes 1,982,000 3,135,000 ----------------- ------------------- Net Income $ 3,100,627 $ 4,731,136 ================= =================== Income per common share and common share equivalents: Primary $ 0.43 $ 0.65 Fully diluted $ 0.41 $ 0.65 Number of common shares and common share equivalents used in computing per share amounts Primary 7,280,406 7,313,590 Fully diluted 7,619,224 7,313,590
STERLING ELECTRONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS TWENTY-SIX WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996 1997 1996 ---------------- ---------------- OPERATING ACTIVITIES Net income $ 3,100,627 $ 4,731,134 Adjustments needed to reconcile net income to net cash provided by operating acitivities: Depreciation and amortization 1,561,871 917,249 Provision for losses on accounts receivable 768,670 695,439 Changes in operating assets and liabilities (Increase) decrease in accounts receivable (3,851,457) 8,834,680 (Increase) decrease in inventories (11,579,056) 3,436,648 Increase in prepaid and other current assets (158,006) (250,175) Decrease in accounts payable and accrued expenses (4,949,883) (2,607,110) Increase (decrease) in accrued income taxes 1,041,579 (246,503) Increase in postemployment benefits and other non-current liabilities 72,170 97,743 ---------------- ---------------- Net cash (used) provided by operating activities (13,993,485) 15,609,105 INVESTING ACTIVITIES Purchase of property and equipment (1,383,744) (1,706,690) Increase in other assets (750,165) (494,795) ---------------- ---------------- Net cash (used) provided in investing activities (2,133,909) (2,201,485) FINANCING ACTIVITIES Proceeds from borrowings under revolver 54,332,460 11,615,700 Repayments of borrwoings under revolver (41,715,332) (39,287,249) ---------------- ---------------- Net increase (decrease) in revolving line of credit 12,617,128 (27,671,549) Proceeds from long term borrowings - 15,000,000 Principal payments on other long term debt (126,176) (151,993) Stock issued under employee plans 680,653 168,225 Purchases of treasury stock (142,065) (3,184,515) ---------------- ---------------- Net cash provided (used) by financing activities 13,029,540 (15,839,832) Effect of exchange rate changes on cash (5,174) - ---------------- ---------------- 13,024,366 (15,839,832) DECREASE IN CASH AND CASH EQUIVALENTS (3,103,028) (2,432,212) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,817,570 4,376,818 ---------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 714,542 $ 1,944,606 ================ ================
STERLING ELECTRONICS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 27, 1997 Note A - Accounting Policies The accompanying unaudited condensed consolidated financial statements include the accounts of Sterling Electronics Corporation (the "Company") and its majority-owned subsidiaries after elimination of all significant intercompany accounts and transactions. In the opinion of the Company, the unaudited condensed consolidated financial statements contain all the adjustments (consisting of only normal accruals) necessary to present fairly the financial position as of September 27, 1997 and the results of operations for the thirteen and twenty-six weeks then ended. The results of operations for the thirteen and twenty-six weeks ended September 27, 1997 are not necessarily indicative of the results to be expected for the full year. Note B - Long-term Debt Long-term debt as of September 27, 1997 and the amounts due within one year are as follows: AMOUNTS DUE LONG TERM MATURING IN DESCRIPTION WITHIN ONE YEAR PORTION FISCAL YEAR Revolving credit line $ 0 $ 36,617,128 1999 Senior note 0 15,000,000 2007 Capitalized lease obligation 63,824 67,466 2000 Equipment loans 178,377 103,884 1999-2001 ---------- ---------- $ 242,201 $ 51,788,478 On October 7, 1997 the Company borrowed $5 million under a 120 day note from one of the banks in the Company's revolving credit line. Note C - Merger On September 19, 1997 Sterling announced the signing of a definitive agreement to be acquired by Marshall Industries, an El Monte, California based electronics distributor. A merger proxy statement has been filed with the Securities and Exchange Commission and is currently under review. The acquisition is subject to the approval of Sterling's shareholders and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act ("HSR"). The Company has been informed that the waiting period under the HSR has been terminated. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS Thirteen Weeks ended September 27, 1997 compared to thirteen weeks ended September 28, 1996 Net Sales - Consolidated net sales for the current thirteen week period were 30% ahead of sales for the thirteen week period a year ago. If the sales of Marsh Electronics, Inc. ("Marsh"), acquired in November, 1996, were excluded, sales would have increased 17%. Such increase would be the result of increased passive and electromechanical, connector and semiconductor revenues. Gross Margin - Sterling's consolidated gross margin for the thirteen weeks declined to 20.2% from 22.8% for the thirteen weeks a year ago. The gross margin percentage declined in all major product categories as a result of competitive pricing pressures. Selling and Administrative Costs - Consolidated operating expenses decreased to 16.8% of sales compared to 17.2% of sales for the thirteen weeks a year ago. Operating expenses decreased as a percentage of sales as a result of economies of scale from sales growth. However, operating expense dollars increased 26%. The majority of the dollar increase is due to the cost of operating the four Marsh sales offices and the Marsh service center during the current period. In addition to the four Marsh locations the Company operated two more sales locations (Mission, Texas and Rochester, New York) during the current period than a year ago. Warehouse expenses, management information system costs and the cost of the recently established team of field application engineers increased significantly for the current thirteen week period compared to the thirteen week period a year ago. Interest Expense - The 113% increase in interest expense is primarily the result of the $25 million increase from the comparable period in average indebtedness. Twenty-six weeks ended September 27, 1997 compared to twenty-six weeks ended September 28, 1996 Net Sales - Consolidated net sales for the current twenty-six week period were 23% ahead of sales for the twenty-six week period a year ago. If the sales of Marsh Electronics, Inc. ("Marsh"), acquired in November, 1996, were excluded, sales would have increased 9%. Such increase would be the result of increased passive and electromechanical, connector and semiconductor revenues. Gross Margin - Sterling's consolidated gross margin for the twenty-six weeks declined to 20.4% from 22.4% for the twenty-six weeks a year ago. The gross margin percentage declined in all major product categories as a result of competitive pricing pressures. Selling and Administrative Costs - Consolidated operating expenses increased to 17.0% of sales compared to 16.9% of sales for the twenty-six weeks a year ago. Operating expense dollars increased 23%. The majority of the dollar increase is due to the cost of operating the four Marsh sales offices and the Marsh service center during the current period. In addition to the four Marsh locations the Company operated two more sales locations (Mission, Texas and Rochester, New York) during the current period than a year ago. Warehouse expenses, management information system costs and the cost of the recently established team of field application engineers increased significantly for the current twenty-six week period compared to the twenty-six week period a year ago. Interest Expense - The 67% increase in interest expense is primarily the result of the $18 million increase from the comparable period in average indebtedness. Liquidity and Capital Resources - Since the beginning of the current fiscal year, Sterling has increased inventory by approximately $11.6 million and has reduced accounts payable and accrued expenses by approximately $ 5.9 million. In connection with the increase in inventory and reduction in current liabilities, the Company increased its borrowings by approximately $12.5 million. Additional use of funds has been capital expenditures of approximately $ 1,384,000, principally for new computer hardware and software. These capital expenditures were financed by cash flow from operations. Working capital was $ 94.4 million at September 27, 1997 compared to $77.8 million at March 39, 1997. The current ratio was 3.1 compared to 2.5 at the beginning of the year. Working capital increased as a result of increased inventory and decreased accounts payable and accrued expenses. Average annualized inventory turnover for the current period was 4.2, down slightly from 4.3 for fiscal 1997. At September 27, 1997 the Company had $ 3 million in available credit under the $40 million bank credit line which matures on February 16, 1999. On October 7, 1997, the Company borrowed $5 million under a 120 day note from one of the banks in the Company's bank credit line. Management believes that internal and external sources of cash will be sufficient to meet liquidity needs over the next year. On June 5, 1996, the Company agreed to lease a 181,000 square foot warehouse which was constructed during fiscal 1997 adjacent to the Dallas/Fort Worth International Airport. The lease term is ten years with monthly rental payments of approximately $82,000, plus the Company is responsible for all property taxes, insurance and maintenance. As of September 27, 1997, the Company also has leased material handling equipment, computer equipment and material management software for this warehouse and distribution center. The lease term on the equipment lease is five years with monthly rental payments of approximately $57,000, plus the Company is responsible for all property taxes, insurance and maintenance. Additionally, the Company has advanced approximately $3 million for additional equipment and software for which the Company has a lease commitment from a major leasing company to lease for five years. The Company intends to consolidate the distribution operations of its three existing regional distribution centers into this new state-of-the-art facility during the third and fourth quarters of fiscal 1998. Management believes that the capital resources described above should be adequate to fund the cost of this consolidation and the operation of the new distribution center. OTHER INFORMATION Item 1 through Item 5 The Company was not required to report on Items 1 through 5. Item 6 - Exhibits and Reports on Form 8-K (a) The following exhibit is included herein (11) Statement re: computation of earnings per share (b) Reports of Form 8-K - There were no reports on Form 8-K filed during the thirteen weeks ended September 27, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STERLING ELECTRONICS CORPORATION /s/ Mac McConnell -------------------------------------- Date: November 10, 1997 Mac McConnell, Vice-President Chief Financial Officer STERLING ELECTRONICS CORPORATION (11) - Statement Re: COMPUTATION OF PER SHARE EARNINGS Thirteen weeks ended Twenty-six weeks ended ------------------------------ ----------------------------- Sept. 27, Sept. 28, Sept. 27, Sept. 28, 1997 1996 1997 1996 PRIMARY Average shares outstanding 7,176,820 7,119,278 7,134,650 7,175,593 Net effect of dilutive stock options- based on the treasury stock method using average market price 258,327 107,410 145,756 137,997 ------------- -------------- -------------- ------------ Total 7,435,147 7,226,688 7,280,406 7,313,590 ============= ============== ============== ============ Net income applicable to common stock $ 1,610,746 $ 2,340,320 $ 3,100,627 $ 4,731,136 Per share amount $ 0.22 $ 0.32 $ 0.43 $ 0.65 FULLY DILUTED Average shares outstanding 7,176,820 7,119,278 7,135,651 7,175,593 Net effect of dilutive stock options- based on the treasury stock method using average market price 485,880 107,410 483,573 137,997 ------------- -------------- -------------- ------------ Total 7,662,700 7,226,688 7,619,224 7,313,590 ============= ============== ============== ============ Net income applicable to common stock $ 1,610,746 $ 2,340,320 $ 3,100,627 $ 4,731,136 Per share amount $ 0.21 $ 0.32 $ 0.41 $ 0.65
EX-27 2 FDS --
5 (Replace this text with the legend) 0000094136 Sterling Electronics Corporation 1 us 3-mos mar-28-1998 jun-29-1997 sep-27-1997 1.000 714,542 0 60,434,829 1,629,984 79,110,249 140,259,847 16,919,370 7,177,966 163,818,468 45,890,786 51,788,478 0 0 3,695,613 57,405,455 163,818,468 100,547,836 100,547,836 80,203,848 97,054,031 0 768,670 853,059 2,640,746 1,030,000 1,610,746 0 0 0 1,610,746 .22 .21
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