<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1995
/ / 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)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CALIFORNIA 95-2048764
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9320 TELSTAR AVENUE 91731-2895
EL MONTE, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(818) 307-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE NEW YORK STOCK EXCHANGE
$1.00 PER SHARE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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/
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
$527,896,384 (COMPUTED ON THE BASIS OF $32.00 PER SHARE, WHICH WAS THE LAST
SALE PRICE ON THE NEW YORK STOCK EXCHANGE ON JULY 31, 1995).
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
NUMBER OF OUTSTANDING SHARES
CLASS OF STOCK AS OF JULY 31, 1995
- ------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $1.00 PER SHARE 17,278,864
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD OCTOBER 24,
1995 PART III
<PAGE>
Marshall Industries
FORM 10-K
Year Ended May 31, 1995
PART I
ITEM 1. BUSINESS
GENERAL
Electronics distributors form an integral part of the electronics industry.
Most domestic and foreign manufacturers of electronic components rely on
independent authorized distributors, such as Marshall Industries ("the
Company"), to augment their product marketing operations and provide stocking
and service capabilities. These manufacturers are relying to an increasing
extent on distributors to market their products.
The Company is the fourth largest domestic distributor in sales volume of
industrial electronic components and production supplies. Through its network of
37 sales and distribution facilities and 3 corporate support and distribution
centers in the United States and Canada, the Company supplies and services a
broad range of products, including semiconductors, passive components,
connectors and interconnect products, and computer systems and peripheral
products, as well as production supplies. The distribution of electronic
components accounted for approximately 94% of total Company sales in fiscal 1994
and 1995. The distribution of industrial production supplies accounted for the
balance, or 6%, of total Company sales in each of such periods. The Company
believes it is the largest domestic distributor in sales volume of industrial
production supplies to customers in the electronics industry.
ELECTRONIC COMPONENTS DISTRIBUTION
The distribution of semiconductor products accounted for approximately 70%
and 73%, respectively, of total Company sales in fiscal 1994 and 1995. Passive
components, connectors and interconnect products accounted for approximately 13%
and 11%, respectively, of total Company sales for those periods. Sales of
computer systems and peripheral products accounted for approximately 11% and
10%, respectively, of total Company sales in fiscal 1994 and 1995.
Texas Instruments ("TI") is the Company's largest supplier of semiconductor
products. TI's semiconductor products accounted for approximately 15% and 14% of
total Company sales in fiscal 1994 and 1995, respectively. The Company carries
the full range of semiconductor products manufactured by TI and distributes the
products of a number of other leading American manufacturers. The Company is
also the major distributor in sales volume of Japanese semiconductor products in
the United States. Sales of these products accounted for approximately 19% and
22% of total Company sales in fiscal 1994 and 1995, respectively. Additionally,
the Company distributes components manufactured by European suppliers, such as
Siemens Components, Inc. ("Siemens"), Philips Semiconductors, a North American
Philips Company ("Philips"), formerly "Signetics," and SGS-Thomson
Microelectronics Inc. ("SGS-Thomson").
The Company purchases electronic components from over 50 major suppliers in
the following general categories:
SEMICONDUCTOR PRODUCTS: Semiconductor products include memory, logic and
programmable logic devices, microprocessors and microperipheral components. The
Company's principal suppliers are Atmel Corporation, Cypress Semiconductor
Corporation, Fujitsu, Hitachi, IBM Technology Products, a unit of IBM, Lattice
Semiconductor Corporation, Linear Technology, Philips, NEC Electronics, Inc.,
Siemens, SGS-Thomson, Sony Electronics, Inc., Sharp Electronics Corporation, TI,
Toshiba America, Inc., and Xilinx, Inc.
2
<PAGE>
PASSIVE COMPONENTS: The Company distributes passive components, including
multilayer ceramic, tantalum and foil capacitors as well as resistor networks.
These products are manufactured by such leading suppliers as AVX Corporation, a
subsidiary of Kyocera Corporation, and Bourns, Inc.
CONNECTORS AND INTERCONNECT PRODUCTS: Connectors and interconnect products
include surface mount sockets and fiber optic systems, along with printed
circuit board level connectors. The Company's principal suppliers of connectors
and interconnect products are AMP Incorporated and T&B/Ansley Corporation, which
rank among the leading suppliers of these products.
COMPUTER SYSTEMS AND PERIPHERALS: The Company's product offerings include
printers, keyboards, optical, hard and floppy disk drives, monitors,
motherboards for personal computers, power supplies, and other systems
components. Computer Products Inc., Fujitsu, IBM Personal Computer Company, NEC
Electronics, Inc., Sharp Electronics Corporation, Sony Components Products, and
Toshiba America Information Systems, Inc. are the major suppliers of these
products to the Company.
VALUE ADDED SERVICES: In addition to the distribution of component parts,
the Company provides a variety of value added services to its customers. The
Company provides programmable logic array and PROM and EPROM programming, along
with certain types of testing services. The Company also packages electronic
component kits to customers' specifications ("kitting") and provides cable
assembling services. Through the use of third party contractors, the Company
provides contract manufacturing capabilities.
PRODUCTION SUPPLIES DISTRIBUTION
The Company believes that it is the largest domestic distributor in sales
volume of industrial production supplies to customers in the electronics
industry. Such supplies include hand tools, static control products, test
equipment, soldering supplies, soldering equipment and work stations. Leading
suppliers include CooperTools, a division of Cooper Industries, Kester Solder, a
division of Litton Industries, Fluke Corporation, Tektronix, Inc., Loctite
Corporation and 3M.
MARKETS
The Company currently has a national distribution network in the United
States and Canada consisting of 37 sales and distribution centers and 3
corporate support and distribution centers. The Company believes that it has
sales facilities in all of the major electronic products markets in the United
States, including the Los Angeles/Orange County, San Francisco/Silicon Valley,
Boston, Chicago, Denver, Philadelphia, Portland, Seattle, Connecticut, Florida,
New Jersey, Georgia, Maryland, Minnesota, Ohio and Texas areas. In Canada, the
Company has sales facilities in Toronto, Montreal and Vancouver. As a result of
the Company's marketing strategy and expansion programs, the Company is
currently distributing products manufactured by over 50 major electronic
component suppliers to approximately 30,000 customers.
As described in Note 6 to the financial statements, the Company has made an
investment in Sonepar Electronique International, the third largest electronic
component distributor in Europe.
At May 31, 1995, the Company had approximately 1,370 employees,
substantially all of whom were employed full-time.
3
<PAGE>
CUSTOMERS AND MARKETING
Distributors offer electronics customers the convenience of immediate price
and delivery information, backlog status, diverse off-the-shelf inventories in
small and large quantities, rapid deliveries and the financing of their
purchases. The Company's electronics distribution business services
approximately 30,000 customers, the majority of which are small and medium size
companies in the following industries: computers, communications, capital and
office equipment, industrial control and medical equipment and systems
integration. In recent years, contract manufacturers have also become major
customers for electronic component distributors, including the Company, as many
original equipment manufacturers ("OEM's") have outsourced their purchasing and
manufacturing functions to them. No single customer accounted for more than 4%
of the Company's sales during any of the last five fiscal years.
The Company's products are sold by both field and inside sales people. Sales
personnel work directly with customers providing price, delivery, backlog and
technical information regarding the products which the Company distributes. Each
sales and distribution center is electronically linked to the Company's central
computer system, which provides fully integrated on-line, real-time data with
respect to the Company's nationwide inventory levels. The Company's computer
system facilitates the control of purchasing and payables, shipping and
receiving, and billing and collections. A salesperson may order shipment of a
product from any distribution center within a matter of minutes. The Company has
made significant investments, particularly during the last several years, to
increase the capabilities of its computerized information systems. In December,
1992, the Company implemented new software for its operating and financial
systems. The Company invested approximately $9 million in the design, purchase,
and implementation of these systems. In the opinion of the Company, these
systems, which were written in a contemporary language and architecture, have
the capabilities to support future changes and enhancements required to meet
market needs and growth. These systems have also allowed the Company to increase
its electronic data interchange ("EDI") capabilities with its suppliers and
customers. Due to the high volume of transactions and the cost competitiveness
of the electronics components distribution industry, the Company believes that
the expansion and upgrading of its information systems will be an ongoing
requirement. In July, 1994, the Company introduced an electronic
telecommunications service that allows customers to design, engineer and
purchase products via the "Internet". In late fiscal 1995, the outside sales
staff at certain sales locations were equipped with laptop computers to increase
and enhance their productivity and customer service capabilities. The Company
plans to complete this field sales automation program in fiscal 1996.
The Company has focused on obtaining franchises with suppliers which are
among the leading manufacturers of the product categories that the Company
distributes. The Company offers a broad line of products to meet its customers'
needs. The Company has also concentrated its inventory and marketing efforts on
the following product categories that it believes are the greatest growth areas
of the distribution business: (1) high performance memory and programmable logic
devices; (2) data conversion products; (3) microprocessors; (4) computer systems
and peripherals; (5) printed circuit board level connectors; (6) passive
components; and (7) industrial production supplies and instrumentation.
Additionally, the Company is focusing on having its sales force sell a balanced
mix of all types of products along with expanding its customer base.
RELATIONSHIP WITH SUPPLIERS
The majority of the products sold by the Company are purchased pursuant to
distributor agreements. These agreements are typically for terms of one year,
renewable annually, non-exclusive, and authorize the Company to sell through its
sales and distribution centers all or a portion of the products produced by that
manufacturer. These agreements may be cancelled by either party on short notice
and generally provide for a return of the manufacturer's inventory upon
cancellation. The Company's ten largest suppliers accounted for approximately
54% and 60%, respectively, of total Company sales in fiscal 1994 and 1995.
Except for TI, which accounted for 15% and 14% of total Company sales for fiscal
1994 and 1995, no other supplier accounted for
4
<PAGE>
more than 10%. Cancellation of an agreement with, or trade restrictions
affecting purchases from, a major supplier could have a material adverse effect
upon the Company's business. The Company believes that it has a satisfactory
relationship with each of its suppliers. The Company considers its relationships
with its Japanese suppliers to be sound. Nonetheless, because of uncertainties
relating to U.S. trade issues, the possibility exists that continued access to
Japanese products could be affected. In addition, the Company cannot determine
the direction of U.S. trade issues or their ultimate effect on the competitive
environment and the Company's results.
Most manufacturers of electronic components, including foreign
manufacturers, protect authorized distributors, such as the Company, against
potential inventory losses from declining prices and obsolescence. To protect
its distributors from declining market prices, most electronic component
manufacturers allow their distributors pricing adjustments as products are sold
to customers as well as credits on unsold inventory when the manufacturers
reduce prices on their price lists. In addition, under the terms of many such
agreements, the distributor has the right to return to the manufacturer, for
credit, any product classified as obsolete by the manufacturer and a specified
portion of other inventory items purchased within a designated period of time. A
manufacturer who elects to terminate a distribution agreement without cause is
generally required to purchase from the distributor the products of such
manufacturer carried in the distributor's inventory. While such agreements do
not protect the Company totally from inventory losses, such agreements do, in
management's opinion, provide substantial protection from such losses. No
assurance can be given, however, that such price adjustment and return policies
will continue.
To service its kitting and contract manufacturing customers, as described on
page 3, the Company must buy a certain amount of products from third parties on
a non-franchised basis. Since there are typically no return or price protection
privileges on these purchases, there are significantly greater inventory risks
associated with kitting and contract manufacturing orders than with the purchase
and stocking of inventory pursuant to its franchise agreements.
NATURE OF BUSINESS AND COMPETITION
Although the Company's business is not seasonal to any material extent, its
business is affected by the cyclical nature of the electronics industry and
overall trends in the general economy. In addition, the Company has experienced
industry-wide product shortages and excess supplies from time to time. During
the last several months, there has been a tightening of product availability and
long lead times for some products, such as certain memory and surface mount
devices.
Supplying and servicing the electronics industry is a highly competitive
business. The competition is from other large national distributors, numerous
local and regional distributors, as well as some of the Company's suppliers.
Providing service to customers is the major competitive factor of the industry.
In addition to providing basic distribution services such as technical
information, product availability and competitive pricing, prompt delivery and
credit, the Company offers many sophisticated value added services. These
additional services include component testing and assembly; just in time ("JIT")
inventory management and delivery systems; kitting and contract assembly. In
recent years, the Company has introduced a number of sophisticated automated
inventory procurement and management services for its customers through its EDI
and auto replenishment programs. The Company considers its emphasis on
high-quality customer service, monitored by statistical process control ("SPC")
methods, to be one of its strengths.
From time to time, the Company has experienced competition from
"unauthorized" U.S. distributors of Japanese semiconductors who purchase these
products in foreign countries at prices below those which the Company may
purchase such products directly from its suppliers. In addition, a limited
number of the Company's customers have moved their manufacturing operations out
of the United States in recent years. Such changes have not had a material
impact on the Company's business.
5
<PAGE>
Information concerning backlog is not material to an understanding of the
Company's business, as the Company's objective is to ship orders on the same day
they are received unless the customer has requested a specific future delivery
date on an order. Additionally, it is common industry practice for customers, in
most cases, to be able to re-schedule or cancel orders with future delivery
dates without penalties. In the electronics industry, the book-to-bill ratio,
which is the ratio of sales orders received to shipments made, is commonly used
as an indicator of business trends. Since late calendar 1991, the book-to-bill
ratios for both the industry and the Company have been generally positive.
ITEM 2. PROPERTIES
The Company presently has 37 sales and distribution facilities and 3
corporate support and distribution centers. The Company's executive offices and
corporate support and distribution center are located in El Monte, California.
This facility is Company owned, has 258,000 square feet of space and utilizes an
automated inventory handling system. The Company owns an additional 65,500
square foot warehouse and office facility in El Monte.
In addition to the El Monte facilities, a majority of the sales and
distribution facilities located in Marshall's major markets are Company owned.
The three largest facilities range from approximately 58,000 to approximately
65,000 square feet in size and are located in Milpitas, California; Irvine,
California; and Boston, Massachusetts. The Company also owns facilities in
Austin, Texas; Endicott, New York; San Diego, California; and Wallingford,
Connecticut of approximately 8,000 to 15,000 square feet each.
The Company leases its remaining sales and distribution facilities. They are
located in cities throughout the United States and Canada, vary in size
depending on sales volume and are subject to leases whose initial terms expire
at various dates through fiscal 2000. Substantially all of those leases include
renewal provisions.
In the opinion of the Company, the current facilities are adequate for the
Company's operating requirements.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter
ended May 31, 1995.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol MI. The following table shows, for the periods indicated, the
published closing sale prices per share for the Company's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1994
First Quarter................................... $23 $21
Second Quarter.................................. 25 22 1/4
Third Quarter................................... 28 22 3/8
Fourth Quarter.................................. 29 3/8 23 7/8
FISCAL YEAR 1995
First Quarter................................... $25 3/8 $20 1/4
Second Quarter.................................. 26 1/2 23 3/8
Third Quarter................................... 26 3/4 22 3/4
Fourth Quarter.................................. 28 1/2 25 1/4
</TABLE>
The above share prices have been adjusted to reflect the two for one stock
split paid on February 28, 1994.
The Company had approximately 6,000 shareholders at May 31, 1995. It has
never paid a cash dividend. Earnings have been retained to provide for the
growth and expansion of the Company's business.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to the
statements of income of the Company for the five fiscal years ended May 31,
1995, and the balance sheets of the Company at year end for each of those years.
The selected financial data is derived from financial statements for such years
and at such dates as audited by Arthur Andersen LLP, independent public
accountants, including the statements of income for the three years ended May
31, 1995, and the balance sheets at May 31, 1994 and 1995 included elsewhere
herein.
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
YEARS ENDED MAY 31,
------------------------------------------------------
1991 1992 1993 1994 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $ 582,717 $ 575,223 $ 652,899 $ 822,548 $1,009,315
Cost of sales.................................... 449,739 441,709 502,955 652,121 820,571
--------- --------- --------- --------- ----------
Gross profit................................... 132,978 133,514 149,944 170,427 188,744
Selling, general and administrative expenses..... 99,868 98,917 108,394 112,220 117,287
--------- --------- --------- --------- ----------
Income from operations......................... 33,110 34,597 41,550 58,207 71,457
Interest expense and other -- net (1)............ 4,391 2,689 2,016 1,931 1,916
--------- --------- --------- --------- ----------
Income before provision for income taxes....... 28,719 31,908 39,534 56,276 69,541
Provision for income taxes....................... 11,450 12,615 15,640 23,105 29,130
--------- --------- --------- --------- ----------
Net income....................................... $ 17,269 $ 19,293 $ 23,894 $ 33,171 $ 40,411
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net income per share (2)......................... $ 1.01 $ 1.13 $ 1.38 $ 1.91 $ 2.32
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Cash dividends per share (3)..................... -- -- -- -- --
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Weighted average number of shares outstanding.... 17,040 17,114 17,278 17,357 17,439
BALANCE SHEETS -- SUMMARY
(IN THOUSANDS)
<CAPTION>
MAY 31,
------------------------------------------------------
1991 1992 1993 1994 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ 150,726 $ 162,080 $ 206,970 $ 229,019 $ 254,394
Total assets..................................... 254,132 273,429 330,844 363,659 423,307
Long-term debt, net of current portion........... 46,988 36,216 54,468 34,742 45,205
Shareholders' investment......................... 158,345 178,464 202,791 238,716 279,752
<FN>
- ------------------------
(1) Amounts are net of a gain of $.4 million from the sale of a facility and a
receipt of $.5 million from the sale of intangible assets in 1991 and
interest income of $1.1 million in 1995.
(2) Net income per share is computed on the basis of the weighted average
common and common equivalent shares outstanding during each year. All
amounts have been restated to reflect the two for one stock split paid on
February 28, 1994.
(3) The Company has never paid a cash dividend. Earnings have been retained to
provide for the growth and expansion of the Company's business.
</TABLE>
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth items in the statements of income as a
percent of net sales for periods shown:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------
1993 1994 1995
-------------------------------
<S> <C> <C> <C>
Net sales....................................................................................... 100.0% 100.0% 100.0%
Cost of sales................................................................................... 77.0 79.3 81.3
--------- --------- ---------
Gross profit.................................................................................. 23.0 20.7 18.7
Selling, general and administrative expenses.................................................... 16.6 13.7 11.6
--------- --------- ---------
Income from operations........................................................................ 6.4 7.0 7.1
Interest expense and other--net................................................................. .3 .2 .2
--------- --------- ---------
Income before provision for income taxes...................................................... 6.1 6.8 6.9
Provision for income taxes...................................................................... 2.4 2.8 2.9
--------- --------- ---------
Net income...................................................................................... 3.7% 4.0% 4.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
As an aid to understanding the results of operations, the following is a
summary of the Company's unaudited quarterly results of operations for fiscal
years 1993, 1994 and 1995 (in thousands except for per share data):
<TABLE>
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------------------------------------------- ----------- ----------- ----------- ----------- -------------
Net sales.................................................... $ 151,867 $ 154,680 $ 156,259 $ 190,093 $ 652,899
Gross profit................................................. 36,314 36,740 35,012 41,878 149,944
Net income................................................... 6,012 6,048 4,667 7,167 23,894
Net income per share......................................... .35 .35 .27 .41 1.38
1994
- -------------------------------------------------------------
Net sales.................................................... $ 199,807 $ 200,594 $ 197,628 $ 224,519 $ 822,548
Gross profit................................................. 42,900 42,740 40,767 44,020 170,427
Net income................................................... 7,487 8,643 7,819 9,222 33,171
Net income per share......................................... .43 .50 .45 .53 1.91
1995
- -------------------------------------------------------------
NET SALES.................................................... $ 223,101 $ 243,827 $ 261,623 $ 280,764 $ 1,009,315
GROSS PROFIT................................................. 44,112 46,265 47,019 51,348 188,744
NET INCOME................................................... 8,736 9,389 10,092 12,194 40,411
NET INCOME PER SHARE......................................... .50 .54 .58 .70 2.32
</TABLE>
All per share amounts have been restated to reflect the two for one stock
split paid on February 28, 1994.
9
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
The increase in net sales for fiscal 1995, as compared to fiscal 1994, was
due primarily to an increase in the sales volume of semiconductor products.
Sales of semiconductor products increased by $157,126,000 primarily as a result
of the strong market demand for such products. The sales volume of the Company's
other major products increased modestly from the prior year.
The decrease in net margins for fiscal 1995, as compared to fiscal 1994,
resulted from market pressures on the pricing of most of the Company's products,
including value added products, and an increase in the sales volume of lower
margin products, primarily memory products. The Company believes that these
conditions affecting margins may continue in the near term.
The increase in selling, general and administrative ("SG & A") expenses, in
dollars, for fiscal 1995, as compared to fiscal 1994, was primarily due to
higher operating costs to meet the requirements from the significant increase in
sales volume. SG & A expenses as a percentage of sales declined to 12% for
fiscal 1995 as compared to 14% for fiscal 1994. Of the $5,067,000 increase in SG
& A expenses for fiscal 1995, compared to fiscal 1994, approximately $2,200,000
was attributable to higher salaries, incentives and fringe benefits. There were
also increases in delivery costs and bad debt expense, mostly due to the higher
sales volume.
Interest expense, net of interest income, for fiscal 1995 remained at
relatively the same amount as fiscal 1994, as the lower borrowing levels were
offset by higher interest rates.
FISCAL 1994 COMPARED TO FISCAL 1993
The increase in net sales for fiscal 1994, as compared to fiscal 1993, was
due to an increase in the sales volume of semiconductor products. Sales of
semiconductor products increased by $178,237,000 as a result of the strong
market demand and 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.
The decrease in net margins for 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 resulted from market pressures on the pricing of many of the
Company's products, including some of the Company's value added products, and an
increase in the sales volume of lower margin products, such as DRAMS.
The increase in SG & A expenses, in dollars, for fiscal 1994, as compared to
fiscal 1993, was primarily due to higher operating costs to support the
significant increase in sales volume. In addition, the Company was 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. These positions were eliminated as of August 31, 1993 by a
reorganization of the Company's field and corporate support functions. The
amounts incurred for the last nine months of fiscal 1994 would have been higher
except for the savings from the elimination of these positions. This
reorganization reduced the Company's fiscal 1994 expenses by approximately
$1,000,000 per quarter beginning the second quarter. 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 fiscal 1994 as compared to
fiscal 1993. The SG & A amounts for fiscal 1993 also included some extraordinary
levels of expenses related to the Company's conversion to its new computer
software systems in December, 1992. The Company estimated that it had incurred
approximately $2.4 million to $2.9 million in additional costs, affecting both
cost of sales and SG & A expenses in fiscal 1993 associated with the computer
software conversion.
Interest expense for fiscal 1994 remained relatively unchanged from fiscal
1993, as lower borrowing levels were offset by higher interest rates beginning
in late fiscal 1994.
10
<PAGE>
In August, 1993 the Omnibus Budget Reconciliation Act of 1993 was enacted
which essentially increased the Company's Federal tax rate from 34% to 35%.
Additionally, as a result of the Act, a retroactive Federal tax adjustment of
$163,000, or $.01 per share, was charged to income tax expense in the first
quarter of fiscal 1994 for the period of January to May 1993.
INCOME TAXES
During the fourth quarter of fiscal year 1993, the Company implemented
Statement of Financial Accounting Standards No. 109 covering income tax
accounting. The adoption did not have a material impact on the financial
statements for fiscal year 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company has been able to fund its working capital requirements for the
past five years through cash flow from operations and bank borrowings.
For the five years ended May 31, 1995, the Company incurred approximately
$14 million in net aggregate capital expenditures. Costs incurred to upgrade and
expand the Company's computer system and the acquisition and construction of
several facilities accounted for a significant portion of the capital
expenditures for the last five years. Additionally, the Company incurred
approximately $9 million for the design, purchase and development of new
computer software for its operating and financial systems during fiscal years
1990 to 1993.
The Company's sources of liquidity at May 31, 1995 consisted principally of
working capital of $254,394,000 and unsecured bank credit lines of $70,000,000,
of which $20,000,000 in borrowings were outstanding. The Company believes that
its working capital, borrowing capabilities, and the funds generated from
operations should be sufficient to finance its anticipated operational
requirements.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marshall Industries:
We have audited the accompanying balance sheets of Marshall Industries (a
California corporation) as of May 31, 1994 and 1995, and the related statements
of income, shareholders' investment and cash flows for each of the three years
in the period ended May 31, 1995. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Marshall Industries as of
May 31, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended May 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 21, 1995
12
<PAGE>
Marshall Industries
BALANCE SHEETS
May 31, 1994 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
-----------------------------
CURRENT ASSETS: 1994 1995
-----------------------------
<S> <C> <C>
Cash......................................... $ 3,694 $ 3,508
Receivables, less reserves of $5,860 in 1994
and
$6,775 in 1995.............................. 120,489 137,892
Inventories.................................. 180,753 196,097
Prepaid expenses............................. 510 507
Deferred income tax benefits (Note 3)........ 8,325 10,216
------------- -------------
Total current assets................... 313,771 348,220
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Notes 1
and 2):
Land......................................... 8,863 8,863
Buildings and improvements................... 34,038 34,282
Equipment, furniture, fixtures and other..... 21,925 22,291
Computer equipment........................... 18,716 20,929
------------- -------------
83,542 86,365
Accumulated depreciation and amortization.... (40,482) (45,704)
------------- -------------
43,060 40,661
NOTE RECEIVABLE (Note 6)....................... -- 29,050
OTHER ASSETS -- NET (Note 1)................... 6,828 5,376
------------- -------------
$ 363,659 $ 423,307
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current portion of long-term debt (Note 2)... $ 1,358 $ 410
Accounts payable............................. 70,839 80,055
Other accrued liabilities including salaries
and wages................................... 9,691 10,561
Income taxes payable......................... 2,864 2,800
------------- -------------
Total current liabilities.............. 84,752 93,826
------------- -------------
LONG-TERM DEBT (Note 2)........................ 34,742 45,205
DEFERRED INCOME TAX LIABILITIES (Note 3)....... 5,449 4,524
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' INVESTMENT (Notes 1 and 5):
Common stock, $1.00 par value
Shares authorized -- 40,000,000
Shares issued and outstanding -- 17,231,864
in 1994 and
17,268,864 in 1995....................... 17,232 17,269
Additional paid-in capital................... 52,887 53,475
Retained earnings............................ 168,597 209,008
------------- -------------
238,716 279,752
------------- -------------
$ 363,659 $ 423,307
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
13
<PAGE>
Marshall Industries
STATEMENTS OF INCOME
For the Years Ended May 31, 1993, 1994 and 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
---------------------------------------
1993 1994 1995
---------------------------------------
<S> <C> <C> <C>
Net sales......................................................................... $ 652,899 $ 822,548 $ 1,009,315
Cost of sales..................................................................... 502,955 652,121 820,571
----------- ----------- -------------
Gross profit.................................................................... 149,944 170,427 188,744
Selling, general and administrative expenses...................................... 108,394 112,220 117,287
----------- ----------- -------------
Income from operations.......................................................... 41,550 58,207 71,457
Interest expense, net (Note 1).................................................... 2,016 1,931 1,916
----------- ----------- -------------
Income before provision for income taxes........................................ 39,534 56,276 69,541
Provision for income taxes (Notes 1 and 3)........................................ 15,640 23,105 29,130
----------- ----------- -------------
NET INCOME........................................................................ $ 23,894 $ 33,171 $ 40,411
----------- ----------- -------------
----------- ----------- -------------
NET INCOME PER SHARE (Note 1)..................................................... $1.38 $1.91 $2.32
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
14
<PAGE>
Marshall Industries
STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended May 31, 1993, 1994 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS
--------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, MAY 31, 1992....................................................... 17,019,364 $ 17,019 $ 49,913 $ 111,532
Compensation expense related to nonqualified stock options (Note 5)....... -- -- 215 --
Exercise of stock options................................................. 18,500 19 121 --
Tax benefit from stock options exercised.................................. -- -- 78 --
Net income................................................................ -- -- -- 23,894
------------- --------- ----------- -----------
BALANCE, MAY 31, 1993....................................................... 17,037,864 17,038 50,327 135,426
Compensation expense related to nonqualified stock options (Note 5)....... -- -- 103 --
Exercise of stock options................................................. 194,000 194 1,276 --
Tax benefit from stock options exercised.................................. -- -- 1,181 --
Net income................................................................ -- -- -- 33,171
------------- --------- ----------- -----------
BALANCE, MAY 31, 1994....................................................... 17,231,864 17,232 52,887 168,597
COMPENSATION EXPENSE RELATED TO NONQUALIFIED STOCK OPTIONS (NOTE 5)....... -- -- 92 --
EXERCISE OF STOCK OPTIONS................................................. 37,000 37 252 --
TAX BENEFIT FROM STOCK OPTIONS EXERCISED.................................. -- -- 244 --
NET INCOME................................................................ -- -- -- 40,411
------------- --------- ----------- -----------
BALANCE, MAY 31, 1995....................................................... 17,268,864 $ 17,269 $ 53,475 $ 209,008
------------- --------- ----------- -----------
------------- --------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
15
<PAGE>
Marshall Industries
STATEMENTS OF CASH FLOWS
For the Years Ended May 31, 1993, 1994 and 1995
(In thousands)
<TABLE>
<CAPTION>
-------------------------------
1993 1994 1995
-------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................. $ 23,894 $ 33,171 $ 40,411
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization........................................................... 7,379 8,194 7,566
Provision for bad debts................................................................. 1,284 1,704 3,339
Interest on note receivable............................................................. -- -- (1,096)
Change in current assets and liabilities:
Increase in receivables............................................................... (20,892) (21,073) (20,742)
Increase in inventories............................................................... (39,188) (17,473) (15,344)
Increase in accounts payable.......................................................... 14,387 16,711 9,216
Increase in other accrued liabilities including salaries and wages.................... 1,953 350 870
Increase (decrease) in income taxes payable........................................... (1,942) 514 (64)
Deferred income tax benefit, net........................................................ (88) (1,198) (2,816)
Other................................................................................... 53 462 84
--------- --------- ---------
Total adjustments..................................................................... (37,054) (11,809) (18,987)
--------- --------- ---------
Net cash provided by (used in) operating activities................................... (13,160) 21,362 21,424
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................................................... (3,126) (1,771) (2,861)
Note receivable............................................................................. -- -- (27,954)
Deferred software costs..................................................................... (2,417) -- (829)
--------- --------- ---------
Net cash used in investing activities................................................. (5,543) (1,771) (31,644)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit lines......................................... 20,000 (18,000) (10,000)
Repayments of long-term debt................................................................ (1,741) (2,131) (5,485)
Term loan borrowings........................................................................ -- -- 25,000
Stock options............................................................................... 218 2,651 533
--------- --------- ---------
Net cash provided by (used in) financing activities................................... 18,477 (17,480) 10,048
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH............................................................... (226) 2,111 (186)
CASH AT BEGINNING OF YEAR..................................................................... 1,809 1,583 3,694
--------- --------- ---------
CASH AT END OF YEAR........................................................................... $ 1,583 $ 3,694 $ 3,508
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for the following:
Interest.................................................................................. $ 2,008 $ 2,052 $ 2,691
--------- --------- ---------
--------- --------- ---------
Income taxes.............................................................................. $ 16,439 $ 23,132 $ 31,435
--------- --------- ---------
--------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
16
<PAGE>
Marshall Industries
NOTES TO FINANCIAL STATEMENTS
May 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition: Sales are recognized at the time of product shipment.
Depreciation and Amortization: Depreciation on buildings is computed using
the straight-line method over useful lives of 25 years. Building and leasehold
improvements are amortized on the straight-line method over the shorter of the
lives of the buildings or the remaining terms of the leases or useful lives of
the assets. Depreciation on all other plant and equipment is computed on the
straight-line and declining balance methods over useful lives of two to ten
years. Maintenance and repairs and minor replacements of property are charged to
expense when incurred. Major expenditures for additions and improvements are
capitalized at cost. When assets are retired, or otherwise disposed of, the cost
and related reserves are removed from the accounts, and any resulting gain or
loss is included in income.
Interest Expense: Interest income of $1,180,000 is netted against interest
expense in fiscal 1995. Interest income was not material in fiscal 1994 and
1993.
Tax Deferred Profit Sharing Plan: Under the provisions of the Marshall
Industries Tax Deferred Profit Sharing Plan (the "Plan"), participating
employees may agree to defer from two to twelve percent, with certain
limitations, of their earnings each payroll period, and such amount is deposited
in a nonforfeitable, fully vested trust account for the employees' benefit. The
Company contributes quarterly an amount equal to 50 percent of the employees'
contributions, limited to 3% of such employee earnings for the quarter, reduced
by employee forfeitures of prior Company contributions. Company contributions
may be limited to the extent of net profits and must be invested in the
Company's common stock. The Plan, however, may not own more than 20 percent of
the Company's outstanding shares. At May 31, 1995, the Plan owned less than 2%
of the Company's outstanding shares. Company contributions and expenses related
to the Plan amounted to $952,000 in 1993, $1,125,000 in 1994 and $1,141,000 in
1995.
Income Taxes: As discussed in Note 3, during fiscal 1993, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are
computed based on the difference between the financial statement and income tax
bases of assets and liabilities using the enacted tax rates.
Cash and Accounts Payable: The Company's banking system provides for the
daily replenishment of its bank accounts for check clearing requirements.
Accordingly, outstanding checks of $11,015,000 and $11,169,000 that had not yet
been paid by the Company's banks at May 31, 1994 and 1995, respectively, are
reflected in cash and accounts payable in the accompanying financial statements.
Inventories: The Company values its inventories at the lower of average cost
or market.
Shareholders' Investment: The Company has authorized 200,000 shares of no
par value preferred stock, of which none was outstanding at May 31, 1994 or
1995.
Capitalized Deferred Software Costs: Deferred software costs are included in
other assets and represent payments to vendors for the design, purchase and
implementation of the computer software for the Company's operating and
financial systems. Such deferred costs, aggregating to $10,088,000, are
amortized over periods not to exceed five years. At May 31, 1994 and 1995, the
accumulated amortization of such costs were $2,778,000 and $5,084,000,
respectively.
Net Income Per Share: Per share amounts are computed on the basis of
weighted average common and common equivalent shares outstanding (17,278,000 in
1993, 17,357,000 in 1994, and 17,439,000 in 1995). Common equivalent shares
include the dilutive effect of outstanding stock options, if applicable. All
share and per share data included in these financial statements have been
restated to reflect the two for one stock split paid on February 28, 1994.
Reclassifications: Certain prior year amounts have been reclassified to
conform with the 1995 presentation.
17
<PAGE>
(2) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
--------------------
1994 1995
--------------------
<S> <C> <C>
Bank credit lines........................................................................... $ 30,000 $ 20,000
Term loan (Note 6).......................................................................... -- 25,000
Industrial revenue bonds:
75.8% of prime, due through 1996.......................................................... 1,025 615
Mortgages:
8 1/10%, due through 1998................................................................. 4,250 --
Variable rate, but limited to a maximum of prime rate, due through 1997................... 825 --
--------- ---------
36,100 45,615
Less current portion........................................................................ 1,358 410
--------- ---------
$ 34,742 $ 45,205
--------- ---------
--------- ---------
</TABLE>
Bank credit lines --
The Company has revolving credit line agreements with two major banks to
borrow up to $70,000,000 in the aggregate. These unsecured credit line
agreements, with borrowing limits of up to $40,000,000 and $30,000,000 each,
mature on December 31, 1995 and 1996, respectively. The interest rates under
these credit lines are determined at the time of borrowing based on a choice of
options as specified in the agreements. The options range from floating rates of
LIBOR, IBOR, certificate of deposit, or banker's acceptance plus 1/2%, up to
prime rate. At May 31, 1995, the prime rate was 9.0%. A commitment fee is
payable based on 1/4% per annum on the daily average unused amounts of the lines
of credit. In addition, both banks require a facility fee of 1/8% per annum on
the commitment balance. There are no compensating balance requirements.
The terms of these credit agreements require the Company, among other
things, to maintain a minimum net worth of $170,000,000 which is adjusted upward
quarterly by 70 percent of net income and 70 percent of net proceeds from any
sales of capital stock or subordinated debentures. At May 31, 1995, at least
$231,033,000 of shareholders' investment was required to meet this covenant. The
credit agreements also require the Company to meet certain specified working
capital and financial ratios and not to make capital expenditures or incur lease
liabilities in excess of certain specified amounts. The Company is in compliance
with all conditions and covenants of these agreements.
Subsequent to May 31, 1995, the Company agreed in principle to amend one of
its credit line agreements to extend its maturity date and replace the other
agreement with a new agreement with a major bank. The maturity date of the
amended and new agreements will be September 30, 1998. All of the major terms
and conditions of the amended and new agreements are similar to the Company's
current agreements. The amended and new agreements will provide the Company a
total borrowing capacity of $55,000,000. This reduction in the total credit
capacity was due to the Company's anticipated lower borrowing requirements.
Term loan --
In August 1994, the Company obtained an unsecured term loan in the amount of
$25,000,000 with principal repayment due on September 30, 1997. The Company has
the option of repaying the loan, or a portion thereof, prior to the maturity
date. The interest rate on the loan is based on the 90 day LIBOR rate plus 1/2%.
At May 31, 1995 the interest rate on the loan was 5.75%. The term loan agreement
requires the Company to maintain a minimum net worth ($225,502,000 at May 31,
1995) and to meet certain specified working capital and financial ratios. The
agreement prohibits capital expenditures in excess of specified amounts and
issuance of debt, guarantees, loans or advances beyond specified amounts. The
Company is in compliance with all conditions and covenants of the term loan
agreement.
18
<PAGE>
Industrial revenue bonds --
The industrial revenue bonds are secured by real property with a net book
value of $2,985,000 at
May 31, 1995.
Maturities of long-term debt --
Long-term debt at May 31, 1995 based on the amended terms is payable in
succeeding fiscal years as follows: 1996 $410,000; 1997 $205,000; 1998
$25,000,000; 1999 $20,000,000.
The Company's bank credit lines, term loan and industrial revenue bonds
approximate fair value as they bear floating interest rates.
(3) INCOME TAXES
The Company adopted the provisions of SFAS No. 109 effective in fiscal year
1993. The adoption of this Standard did not have a material effect on the
financial statements for fiscal year 1993.
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
-------------------------------
Current: 1993 1994 1995
-------------------------------
<S> <C> <C> <C>
Federal................................................. $ 12,369 $ 19,357 $ 25,675
State................................................... 3,359 4,946 6,271
--------- --------- ---------
15,728 24,303 31,946
--------- --------- ---------
Deferred:
Federal................................................. (32) (1,024) (2,435)
State................................................... (56) (174) (381)
--------- --------- ---------
(88) (1,198) (2,816)
--------- --------- ---------
Total............................................. $ 15,640 $ 23,105 $ 29,130
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the income tax provision at the Federal statutory
rate and the recorded income tax provision is reconciled as follows (in
thousands):
<TABLE>
<CAPTION>
-------------------------------
Computed Federal income taxes at 1993 1994 1995
-------------------------------
<S> <C> <C> <C>
the statutory rate...................................... $ 13,441 $ 19,697 $ 24,339
State income taxes, net of Federal income tax benefit..... 2,180 3,102 3,829
Other, net................................................ 19 306 962
--------- --------- ---------
Provision for income taxes................................ $ 15,640 $ 23,105 $ 29,130
--------- --------- ---------
--------- --------- ---------
</TABLE>
As of May 31, 1994 and 1995, deferred tax assets (liabilities) were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Operating reserves...................................................................... $ 4,446 $ 6,152
Tax depreciation in excess of book amounts.............................................. (3,084) (3,087)
Capitalization of deferred software costs for book purposes............................. (2,177) (1,540)
Capitalization of inventory costs for income tax purposes............................... 1,615 1,136
State tax provision..................................................................... 934 1,148
Vacation expense accrued for book purposes.............................................. 825 913
Other, net.............................................................................. 317 970
--------- ---------
Total net deferred tax asset.................................................... $ 2,876 $ 5,692
--------- ---------
--------- ---------
</TABLE>
19
<PAGE>
As of May 31, 1995, the Company had total deferred tax assets of $10,216,000
and total deferred tax liabilities of $4,524,000. The Company did not record any
valuation allowances against deferred tax assets at May 31, 1995.
(4) COMMITMENTS AND CONTINGENCIES
Lease Commitments: The Company leases certain facilities and equipment under
operating leases expiring at various dates through fiscal year 2001. The
aggregate rent expense for all operating leases was $2,618,000 in 1993,
$2,324,000 in 1994 and $2,665,000 in 1995.
The future minimum lease payments under all leases are shown below (in
thousands):
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
Year Ending May 31 --
1996.......................................................................... $ 986
1997.......................................................................... 691
1998.......................................................................... 490
1999.......................................................................... 191
2000.......................................................................... 76
Thereafter.................................................................... 8
-------
$ 2,442
-------
-------
</TABLE>
Litigation: There are no material pending legal proceedings to which the
Company is a party.
(5) STOCK OPTIONS
The Company has one active stock option plan which provides for the granting
of incentive and nonqualified stock options covering 2,040,000 shares of common
stock. There were three other plans, which are inactive, during the periods
reported. Nonqualified stock options may have an exercise price which is less
than market value at the date of grant; incentive stock options must have an
exercise price equal to market value at the date of grant. There were 50,000 and
40,000 options granted in fiscal 1994 and 1995, respectively, at exercise prices
ranging from $24.00 to $27.875 per share. No options were granted during fiscal
1993. At May 31, 1995, 280,500 shares were available for additional grants.
The following is a summary of changes in outstanding options for the
Company's stock option plans for the year ended May 31, 1995:
<TABLE>
<CAPTION>
UNDER
OPTION OPTION PRICE
---------- ----------------------
<S> <C> <C>
Options outstanding at May 31, 1994............................................. 444,500 $ 7.60 - $24.00
Options granted................................................................. 40,000 25.25 - 27.875
Options exercised............................................................... (37,000) 7.60 - 8.675
Options expired or canceled..................................................... (4,000) 7.60
----------
Options outstanding at May 31, 1995............................................. 443,500 8.675 - 27.875
---------- ----------------------
---------- ----------------------
Options exercisable............................................................. 108,500 $ 8.675 - $24.00
---------- ----------------------
---------- ----------------------
</TABLE>
The difference between the quoted market value of the shares at the date of
grant and the option price for grants made under the nonqualified plans is
charged to income as compensation expense over the vesting periods of the
related options. During fiscal 1993, 1994 and 1995, $215,000, $103,000 and
$92,000, respectively, were charged against income and credited to additional
paid-in capital under these plans. Options granted are exercisable over a period
of ten to twenty years. The income tax effect of any difference between the
market price at the grant date and the market price at the exercise date is
credited to additional paid-in capital as the options are exercised.
20
<PAGE>
(6) INVESTMENT IN SONEPAR ELECTRONIQUE INTERNATIONAL
In August, 1994, the Company invested 151 million French Francs ($27.9
million in U.S. dollars) in Sonepar Electronique International ("SEI"), one of
the three largest electronic component distributors in Europe. This investment
is in the form of an interest bearing, convertible note, guaranteed by a major
French bank as to default. The interest on the note is the same as the Company's
borrowing rates under its unsecured term loan, as described in Note 2. 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, the Company 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 have a 2 year option to purchase an equivalent amount
in U.S. dollars of the Company's stock of up to 5% of the Company's outstanding
shares on a fully diluted basis. The option price will be based on market prices
at the time of conversion. In addition, the Company will have the option of
increasing its equity investment to 49% in SEI. To finance its investment in
SEI, the Company obtained an unsecured term loan in the amount of $25,000,000
(Note 2).
(7) BUSINESS SEGMENT
The Company is engaged in the distribution of industrial electronic
components and production supplies through a nationwide network of sales and
distribution facilities. In the opinion of management, the Company's products
are identifiable to only one industry segment.
The Company's Canadian operations are currently not material to its results
of operations or financial position.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
Marshall will file with the Securities and Exchange Commission a definitive
Proxy Statement pursuant to Regulation 14A involving the election of directors.
The Proxy Statement for the Annual Meeting of Shareholders to be held on October
24, 1995 is incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS -- The following financial statements of
Marshall Industries are set forth in Item 8 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................................ 12
Financial Statements:
Balance Sheets -- May 31, 1994 and 1995........................................................... 13
Statements for the years ended May 31, 1993, 1994 and 1995 --
Income.......................................................................................... 14
Shareholders' Investment........................................................................ 15
Cash Flows...................................................................................... 16
Notes to Financial Statements..................................................................... 17
</TABLE>
(A) 2. FINANCIAL STATEMENT SCHEDULES -- All schedules are omitted since they
are not applicable, not required, or the required information is included in the
financial statements or notes thereto.
21
<PAGE>
(A) 3. EXHIBITS -- The following exhibits are attached to this Annual Report
on Form 10-K:
<TABLE>
<S> <C>
Exhibit 3.1: Articles of Incorporation. Incorporated herein by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-1, Registration No. 2-85466.
Exhibit 3.2: Certificate of Amendment of Articles of Incorporation filed with the California Secretary
of State on June 23, 1986. Incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1986.
Exhibit 3.3: Certificate of Amendment of Articles of Incorporation filed with the California Secretary
of State on October 18, 1988. Incorporated herein by reference to Exhibit A to the
Company's Proxy Statement for the annual meeting of shareholders held on October 11, 1988.
Exhibit 3.4: Certificate of Amendment of Articles of Incorporation filed with the California Secretary
of State on February 14, 1994. Incorporated by reference to Exhibit 3.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31, 1994.
Exhibit 3.5: Amended and Restated By-Laws. Incorporated herein by reference to Exhibit (ii) to the
Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1987.
Exhibit 3.6: Certificate of Amendment to By-Laws of Marshall Industries. Incorporated herein by
reference to Exhibit C to the Company's Proxy Statement for the annual meeting of
shareholders held on October 11, 1988.
Exhibit 4.1: Credit Agreement dated March 1, 1993 between Marshall Industries and Citicorp USA, Inc.
Incorporated by reference to Exhibit (i) to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1993.
Exhibit 4.2: Credit Agreement dated March 1, 1993 between Marshall Industries and Bank of America
National Trust and Savings Association. Incorporated by reference to Exhibit (ii) to the
Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1993.
Exhibit 4.3: First Amendment to Credit Agreement dated May 3, 1993 between Marshall Industries and Bank
of America National Trust and Savings Association. Incorporated by reference to Exhibit
4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1993.
Exhibit 4.4: First Amendment to Credit Agreement dated June 1, 1993 between Marshall Industries and
Citicorp USA, Inc. Incorporated by reference to Exhibit 4.4 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1993.
Exhibit 10.6: Marshall Industries 1984 Stock Option Plan. Incorporated herein by reference to Exhibit A
to the Company's Final Proxy Statement dated September 17, 1984.
Exhibit 10.7: Marshall Industries 1992 Nonqualified Stock Option Plan. Incorporated herein by reference
to Exhibit A to the Company's Final Proxy Statement dated August 31, 1992.
Exhibit 24: Consent of Independent Public Accountants.
Exhibit 28: Undertakings.
</TABLE>
(B) REPORTS ON FORM 8-K -- Marshall has not filed any reports on Form 8-K during
the quarter ended May 31, 1995
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, Marshall has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
By: /s/ HENRY W. CHIN August 29, 1995
--------------------------------------------
Henry W. Chin
Vice President, Finance, Chief Financial
Officer and Secretary
</TABLE>
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>
<S> <C>
/s/ GORDON S. MARSHALL August 29, 1995
---------------------------------------------
Gordon S. Marshall
Chairman of the Board and Director
/s/ ROBERT RODIN August 29, 1995
---------------------------------------------
Robert Rodin
President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ HENRY W. CHIN August 29, 1995
---------------------------------------------
Henry W. Chin
Vice President, Finance, Chief Financial
Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ RICHARD D. BENTLEY August 29, 1995
---------------------------------------------
Richard D. Bentley
Director
/s/ RICHARD C. COLYEAR August 29, 1995
---------------------------------------------
Richard C. Colyear
Director
/s/ JEAN FRIBOURG August 29, 1995
---------------------------------------------
Jean Fribourg
Director
/s/ LATHROP HOFFMAN August 29, 1995
---------------------------------------------
Lathrop Hoffman
Director
/s/ JOSE MENENDEZ August 29, 1995
---------------------------------------------
Jose Menendez
Director
/s/ RAYMOND G. RINEHART August 29, 1995
---------------------------------------------
Raymond G. Rinehart
Director
/s/ HOWARD C. WHITE August 29, 1995
---------------------------------------------
Howard C. White
Director
</TABLE>
23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE NO.
- ----------- ---------
<C> <S> <C>
24 Consent of Independent Public Accountants................... 25
28 Undertakings................................................ 26
</TABLE>
24
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into Marshall Industries' previously
filed Registration Statements on Form S-8, File Numbers 33-1587 and 33-82510.
ARTHUR ANDERSEN LLP
Los Angeles, California
August 28, 1995
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARSHALL
INDUSTRIES ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 3,508
<SECURITIES> 0
<RECEIVABLES> 144,667
<ALLOWANCES> 6,775
<INVENTORY> 196,097
<CURRENT-ASSETS> 348,220
<PP&E> 86,365
<DEPRECIATION> 45,704
<TOTAL-ASSETS> 423,307
<CURRENT-LIABILITIES> 93,826
<BONDS> 45,205
<COMMON> 17,269
0
0
<OTHER-SE> 262,483
<TOTAL-LIABILITY-AND-EQUITY> 423,307
<SALES> 1,009,315
<TOTAL-REVENUES> 1,009,315
<CGS> 820,571
<TOTAL-COSTS> 113,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,339
<INTEREST-EXPENSE> 1,916
<INCOME-PRETAX> 69,541
<INCOME-TAX> 29,130
<INCOME-CONTINUING> 40,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,411
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 28
TO BE INCORPORATED BY REFERENCE INTO FORM S-8 REGISTRATION STATEMENTS
NUMBERS 33-1587 AND 33-82510.
UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in such prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in
this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(f) EMPLOYEE PLANS ON FORM S-8.
(1) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus is sent or
given a copy of the registrant's annual report to stockholders for its last
fiscal year, unless such employee otherwise has received a copy of such report,
in which case the Registrant shall state in the prospectus that it will promptly
furnish, without charge, a copy of such report on written request of the
employee. If the last fiscal year of the Registrant has ended with 120 days
prior to the use of the prospectus, the annual report of the Registrant for the
preceding fiscal year may be so delivered, but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.
(2) The undersigned Registrant hereby undertakes to transmit or cause to be
transmitted to all employees participating in the Plan who do not otherwise
receive such material as stockholders of the registrant, at the time and in the
manner such material is sent to its stockholders, copies of all reports, proxy
statements and other communications distributed to its stockholders generally.
(i) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
26
