SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 28, 1994
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to ___________
Commission file number 1-5441
MARSHALL INDUSTRIES
(Exact name of registrant as specified in its charter)
California 95-2048764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9320 Telstar Avenue, El Monte, California 91731-2895
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(818) 307-6000
Common Stock outstanding by class as of February 28, 1994:
Common Stock 17,222,864 shares
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 Total Number of Pages: 13
<PAGE>
MARSHALL INDUSTRIES
CONDENSED BALANCE SHEETS
(000's Omitted)
ASSETS
February 28, May 31,
1994 1993
Current Assets:
Cash $ 2,772 $ 1,583
Receivables 110,261 101,120
Inventories 175,701 163,280
Deferred income tax benefits 7,681 7,681
Prepaid expenses 810 888
Total Current Assets 297,225 274,552
Property, Plant and Equipment, net
of accumulated depreciation and
amortization of $38,880 at 44,006 47,631
February 28, 1994 and $34,234 at
May 31, 1993
Other Assets 7,283 8,661
Total Assets $348,514 $330,844
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 1,728 $ 1,763
Accounts payable and accrued expenses 75,901 63,469
Income taxes payable 2,516 2,350
Total Current Liabilities 80,145 67,582
Long-Term Debt, net of current portion:
Bank lines of credit 29,000 48,000
Mortgages and other debt 5,142 6,468
Total Long-Term Debt 34,142 54,468
Deferred Income Tax Liabilities 6,003 6,003
Shareholders' Investment 228,224 202,791
Total Liabilities and
Shareholders' Investment $348,514 $330,844
The accompanying notes are an integral part of these condensed
balance sheets.
-2-
<PAGE>
<TABLE>
MARSHALL INDUSTRIES
CONDENSED INCOME STATEMENTS
(000's omitted except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $197,628 $156,259 $598,029 $462,806
Cost of sales 156,861 121,247 471,622 354,740
Gross profit 40,767 35,012 126,407 108,066
Selling, general and
administrative
expenses (Note 3) 27,090 26,794 84,309 78,901
Income from operations 13,677 8,218 42,098 29,165
Interest expense 353 497 1,454 1,438
Income before income taxes 13,324 7,721 40,644 27,727
Provision for income
taxes (Note 4) 5,505 3,054 16,695 11,000
Net income $ 7,819 $ 4,667 $ 23,949 $ 16,727
Net income per share $ .45 $ .27 $ 1.38 $ .97
Average number of shares
outstanding (Note 7) 17,429 17,286 17,333 17,274
The accompanying notes are an integral part of these condensed income statements.
</TABLE>
-3-
<PAGE>
MARSHALL INDUSTRIES
CONDENSED STATEMENTS OF CASH FLOWS
(000's omitted)
NINE MONTHS ENDED
FEBRUARY 28,
1994 1993
Cash flows from operating activities:
Net income $23,949 $16,727
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 6,133 5,296
Net increase in current
assets and liabilities (8,886) (24,532)
(Increase) decrease in other assets (11) 40
Other operating activities 81 162
Net cash provided by (used for)
operating activities 21,264 (2,307)
Cash flows from investing activities:
Capital expenditures (1,119) (2,319)
Deferred software costs -0- (2,416)
Net cash used for investing activities (1,119) (4,735)
Cash flows from financing activities:
Net borrowings (repayments) under bank
lines of credit (19,000) 10,000
Net repayments of other long-term debt (1,361) (1,671)
Exercise of options 1,403 108
Net cash (used for) provided by
financing activities (18,956) 8,437
Net increase in cash 1,189 1,395
Cash at the beginning of the period 1,583 1,809
Cash at the end of the period $ 2,772 $ 3,204
Cash payments during the period
for the following:
Interest $ 1,552 $ 1,596
Income taxes $16,529 $13,106
The accompanying notes are an integral part of these condensed
statements.
-4-
<PAGE>
MARSHALL INDUSTRIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: GENERAL
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto in
the Company's annual report on Form 10-K for the year ended May 31,
1993.
In the opinion of the Company, the unaudited condensed financial
statements reflect all adjustments (consisting of normal recurring
accruals) considered necessary to present fairly the Company's
financial position as of February 28, 1994 and the results of its
operations for the three month and nine month periods and its cash
flows for the nine month periods ended February 28, 1994 and 1993.
-5-
<PAGE>
NOTE 2: ACCOUNTING POLICIES
Reference is made to Note 1 of Notes to Financial Statements in the
Company's annual report on Form 10-K for the summary of significant
accounting policies.
NOTE 3: RESTRUCTURING CHARGE
As a result of a reorganization of the Company's field and
corporate support functions, the Company eliminated approximately
120 positions effective August 31, 1993. To provide for the costs
of this reorganization, a pre-tax charge of $890,000 was recorded
in the first quarter of fiscal 1994.
NOTE 4: INCOME TAXES
In August, 1993 the Omnibus Budget Reconciliation Act of 1993 was
enacted. As a result of the Act, a retroactive Federal tax
adjustment of $163,000, or $.02 per share, was charged to income
tax expense in the first quarter of fiscal 1994 for the period of
January to May 1993. The tax rate increase did not have a material
impact on the Company's deferred tax assets and liabilities.
NOTE 5: TERM LOAN
In March, 1994, the Company obtained a commitment from First Union
National Bank of North Carolina for an unsecured term loan in the
amount of $25,000,000, with principal repayment due in 42 months.
The Company, however, has the option of repaying the loan, or a
-6-
<PAGE>
portion thereof, prior to the maturity date. The funds from this
loan will be used to finance the Company's investment in Sonepar
Electronique International, as described in Note 6. The interest
rate on this loan will be based on 90 day LIBOR rates plus 1/2% and
the other major terms and conditions of the loan are comparable to
the bank credit line agreements as disclosed in the Notes to
Financial Statements in the Company's annual report on Form 10-K
for the year ended May 31, 1993.
NOTE 6: INVESTMENT IN SONEPAR ELECTRONIQUE INTERNATIONAL
In March, 1994, the Company entered into an agreement in principle
to invest $151 million French Francs (approximately $26 million in
U.S. dollars) in Sonepar Electronique International ("SEI"), one of
the four largest electronic component distributors in Europe. This
investment is in the form of an interest bearing, convertible note,
guaranteed in a manner acceptable to the Company as to default.
The interest to be charged on the note will be the same as the
Company's borrowing rates under its unsecured term loan, as
described in Note 5. The note plus accrued interest will be
converted in 1997 into a minority equity interest of up to 20% in
SEI if certain anticipated sales and pre-tax income goals are met.
If these goals are not met, Marshall will have the option to call
for the repayment in U.S. dollar equivalent of the original loan
(plus accrued interest) or to convert the loan into a 20% equity
interest in SEI. Following the conversion, SEI will be granted an
-7-
<PAGE>
option to purchase an equivalent amount in U.S. dollars of
Marshall's stock of up to 5% of Marshall's outstanding shares on a
fully diluted basis. The option price will be based on market
prices at that time. In addition, Marshall will have the option of
increasing its equity investment to 49% in SEI.
NOTE 7: TWO-FOR-ONE STOCK SPLIT
All per share amounts have been adjusted to reflect the two-for-one
stock split paid on February 28, 1994.
-8-
<PAGE>
MARSHALL INDUSTRIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONDENSED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
February 28, February 28,
1994 1993 1994 1993
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 79.4 77.6 78.9 76.7
Gross profit 20.6 22.4 21.1 23.3
Selling, general and
administrative
expenses 13.7 17.1 14.1 17.0
Income from operations 6.9 5.3 7.0 6.3
Interest .2 .3 .2 .3
Income before provision
for income taxes 6.7 5.0 6.8 6.0
Provision for income
taxes 2.8 2.0 2.8 2.4
Net income 3.9% 3.0% 4.0% 3.6%
Three and Nine Month Periods Ended February 28, 1994 and 1993
The increase in net sales for the third quarter and the first nine
months of fiscal 1994, as compared to fiscal 1993, was largely due
to an increase in the sales volume of semiconductor and computer
subsystems products. As compared to last year, sales of
semiconductor products increased by $41,832,000 and $138,031,000
for the three and nine month periods ended February 28, 1994,
respectively. The increase in the sales of semiconductor products
was the result of the strong market demand for these products and
the additional sales of products from new suppliers. The sales
volume of the Company's other major products was relatively
unchanged or decreased modestly from the prior year.
-9-
<PAGE>
The decrease in net margins for the third quarter and nine months
to date of fiscal 1994, as compared to fiscal 1993, was due to a
decline in the margins of most of the Company's major products.
This decline in margins was due to market pressures on the pricing
of some of the Company's products and an increase in the sales
volume of lower margin products, such as DRAMS. The Company's
acceptance of some large customer orders at lower than normal
margins also contributed to the decrease in margins.
The increase in selling, general and administrative ("SG & A")
expenses, in dollars, for the third quarter and nine months to date
of fiscal 1994, as compared to fiscal 1993, was primarily due to
higher operating costs to meet the requirements from the
significant increase in sales volume. In addition, the Company is
amortizing $463,000 per quarter of deferred computer software costs
associated with its new operating and financial systems that became
operational in December, 1992. Fiscal 1994 expenses also included
a charge of $890,000 that was recorded in the first quarter related
to the costs of the elimination of approximately 120 positions.
The elimination of these positions, which was effective August 31,
1993, was the result of a reorganization of the Company's field and
corporate support functions. The amounts incurred for the third
quarter and nine months to date of fiscal 1994 would have been
higher except for the savings from the elimination of approximately
120 positions as of August 31, 1993. This reorganization had the
-10-
<PAGE>
effect of reducing the Company's expenses by approximately
$1,000,000 per quarter for the second and third quarters of fiscal
1994. Primarily due to the savings from the August, 1993
restructuring and the higher sales volume, SG & A, as a percentage
of sales, declined significantly for the third quarter and nine
months to date of fiscal 1994. The SG & A amounts for the third
quarter of fiscal 1993 included some extraordinary levels of
expenses related to the Company's conversion to its new computer
software systems in December, 1992. As reported previously, the
Company estimated that it had incurred approximately $1.5 million
to $2.0 million in additional costs, affecting both cost of sales
and selling, general and administrative expenses in the third
quarter of fiscal 1993 associated with the computer software
conversion.
The decrease in interest expense for the third quarter of fiscal
1994, as compared to fiscal 1993, was due to lower borrowing levels
and the decline in interest rates from fiscal 1993. Interest
expense for the nine months to date of fiscal year 1994, as
compared to fiscal 1993, was unchanged.
The Company's sources of liquidity at February 28, 1994 consisted
principally of working capital of $217,080,000 and unsecured bank
lines of credit of $70,000,000, of which $29,000,000 was used. The
Company believes that its working capital, borrowing capabilities
and additional funds generated from operations should be sufficient
to finance its anticipated operations requirements.
-11-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
-12-
<PAGE>
SIGNATURE
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.
MARSHALL INDUSTRIES
April 6, 1994
Henry W. Chin
Vice President, Finance and
Chief Financial Officer
-13-
