<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MAY 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5441
----------------------------------------------------------------
FORM 10-K
MARSHALL INDUSTRIES
(Exact name of registrant as specified in its charter)
----------------------------------------------------------------
<TABLE>
<S> <C>
CALIFORNIA 95-2048764
(State or other jurisdiction of
incorporation or (I.R.S. Employer Identification No.)
organization)
9320 TELSTAR AVENUE (Registrant's telephone number,
EL MONTE, CALIFORNIA 91731-2895 including area code) (626) 307-6000
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE
(Title of each class) (Name of each exchange on which registered)
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:
$380,256,319 (computed on the basis of $23.375 per share, which
was the last sale price on the New York Stock Exchange on July
31, 1998).
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.
(Class of Stock) Number of Outstanding Shares as of July 31, 1998
COMMON STOCK, PAR VALUE $1.00 PER SHARE 16,616,364
</TABLE>
Proxy Statement for Annual Meeting of Shareholders to be held
October 20, 1998: PART III
DOCUMENTS
INCORPORATED
BY REFERENCE
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11
<PAGE>
MARSHALL INDUSTRIES
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FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- -------------------------------------------------------------------------------
GENERAL PART I
ITEM 1. BUSINESS
Marshall Industries, with its subsidiaries ("Marshall" or the
"Company"), is among the largest distributors of industrial
electronic components and production supplies in North America.
The Company also provides its customers with a variety of value-
added services, such as inventory management, kitting, assembly,
programming of programmable logic devices, and testing services.
In addition, the Company has a 16% equity interest in the
electronics distribution companies of Sonepar Electronique
International ("SEI"), one of the largest electronic components
distributors in Europe. The Company also has an investment of
approximately 9% of the common stock of Serial System Ltd.
("Serial"), a Singapore based electronic components distributor
with operations in Southeast Asia. The shares of Serial are traded
on the Stock Exchange of Singapore.
The Company has also entered into joint marketing and sales
alliances with SEI and Serial. These investments and alliances
were made to enhance the Company's capabilities to service
customers and suppliers globally.
In January 1998, the Company completed the acquisition of
Sterling Electronics Corporation ("Sterling"), a large, publicly-
traded distributor of electronic components. The Company acquired
all of the outstanding capital stock of Sterling for $169 million
in cash plus the assumption of Sterling's outstanding debt of
$55.5 million.
Since its acquisition, the Company has been operating Sterling
as a separate sales and marketing subsidiary but has integrated
Sterling's computer, financial and administrative functions with
those of the Company. The acquisition of Sterling has been
accounted for under the purchase method of accounting and all
Company financial information for fiscal 1998 included herein
includes Sterling's results of operations from its acquisition
date of January 16, 1998 to May 31, 1998.
The Company distributes approximately 200,000 different products
manufactured by over 60 major suppliers to more than 40,000
customers, including a wide range of original equipment
manufacturers, contract manufacturers, and value-added resellers.
The Company emphasizes responsive customer service through its
network of sales and distribution facilities and corporate support
and distribution centers in the United States and Canada. This
local customer service is supported by advanced on-line management
information systems, 24-hour sales and technical support service
and an automated distribution facility.
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% and 95% of
total Company sales in fiscal 1997 and 1998, respectively. The
distribution of industrial production supplies accounted for the
balance 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.
Distributors have become an increasingly important marketing
channel for electronics products, permitting manufacturers to
market their products economically to a broad range of
- ------
12
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GENERAL
(CONTINUED) end-users. Most manufacturers are unable to serve their entire
customer base directly and rely on distributors, such as the
Company, to extend their marketing operations. Distributors not
only provide product, but also provide technical service support
to customers. In addition, distributors relieve manufacturers from
a portion of the costs associated with selling their products,
including large investments in inventories, accounts receivable
and personnel. At the same time, distributors offer customers the
convenience of diverse inventory, rapid deliveries, credit and a
wide range of value-added services.
Marshall is a customer-oriented company which uses automation
and information technology to enhance customer service and
intimacy. The Company has invested substantial resources to
improve its inventory management and information systems, thereby
assisting its customers in controlling costs, reducing cycle times
and keeping pace with changes in technology. These investments
have also increased the Company's efficiency and improved its cost
competitiveness. Marshall's extensive line-card provides customers
with the opportunity to purchase their electronic component
requirements from a single source, thus improving their materials
resource planning and facilitating their inventory procurement
needs. The Company provides additional support to its customers
through field application engineers, electronic data interchange
and other value-added services. Marshall also utilizes the
Internet to allow customers to access a variety of services,
including obtaining product availability information, prices and
technical specifications. In 1997, the Company introduced
OrderAgent, which is an on-line ordering system available via the
Internet. Live and archived interactive training programs are also
broadcast over the Internet.
- -------------------------------------------------------------------------------
PRODUCTS AND
SUPPLIERS The distribution of semiconductor products accounted for
approximately 72% and 64%, respectively, of total Company sales in
fiscal 1997 and 1998. Passive components, connectors and
interconnect products accounted for approximately 11% and 14% of
total Company sales for fiscal 1997 and 1998, respectively. Sales
of computer systems and peripheral products accounted for
approximately 11% and 17%, respectively, of total Company sales in
fiscal 1997 and 1998. Distribution of industrial production
supplies accounted for approximately 6% and 5% of total Company
sales for fiscal 1997 and 1998, respectively.
SEMICONDUCTOR PRODUCTS
Texas Instruments ("TI") is the Company's largest supplier of
products. TI's semiconductor products accounted for 14% and 10% of
total Company sales in fiscal 1997 and 1998, respectively. The
Company carries the full range of semiconductor products
manufactured by TI and distributes the products of a number of
other leading American semiconductor manufacturers. The Company is
also the major distributor in sales volume of Japanese
semiconductor products in North America. Sales of these products
accounted for approximately 17% of total Company sales in fiscal
1997 and 1998. Additionally, the Company distributes components
manufactured by European suppliers, such as Siemens Components,
Inc. ("Siemens") and Philips Semiconductors, a North American
Philips Company ("Philips").
Semiconductor products include memory, logic and programmable
logic devices, microprocessors and microperipheral components.
The Company's principal suppliers are Advanced Micro Devices,
Inc. ("AMD"), Atmel Corporation, Cypress Semiconductor
Corporation, Fujitsu, Hitachi, Lattice Semiconductor Corporation,
Linear Technology, Mitel Semiconductors, Inc., NEC Electronics,
Inc., Philips, Rockwell International Corp., Siemens, Sony
Electronics, Inc., Sharp Electronics Corporation, TI, Toshiba
America, Inc., and Xilinx, Inc.
------
13
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- -------------------------------------------------------------------------------
PRODUCTS AND
SUPPLIERS
(CONTINUED) Subsequent to May 31, 1998, TI entered into an agreement to sell
its memory products business to Micron Technology, Inc.
("Micron"). The Company has been awarded a franchise agreement by
Micron to distribute all of its products.
PASSIVE COMPONENTS, CONNECTORS AND INTERCONNECT PRODUCTS
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 and Bourns, Inc.
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, Molex, Inc. and
T&B/Ansley Corporation, which rank among the leading suppliers of
these products.
COMPUTER SYSTEMS AND PERIPHERALS
The Company's product offerings include liquid crystal displays,
optical, hard and floppy disk drives, power supplies, monitors,
motherboards for personal computers, and other systems components.
Artesyn Technologies (formerly Computer Products Inc.), Fujitsu,
IBM Systems Storage Division, NEC Electronics, Inc., Quantum
Corporation, Sharp Electronics Corporation, Sony Components
Products, and Toshiba America Information Systems, Inc. are the
major suppliers of these products to the Company.
INDUSTRIAL PRODUCTION SUPPLIES
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 and equipment
and work stations. Leading suppliers include Cooper Tools, a
division of Cooper Industries, Kester Solder, a division of Litton
Industries, Fluke Corporation, Tektronix, Inc., Loctite
Corporation and 3M. Although the distribution of industrial
production supplies may be distinct from distribution of
electronic components, the Company believes that there are certain
synergies and strategic benefits from being the leading
distributor of industrial production supplies.
VALUE-ADDED SERVICES
In addition to the distribution of products, the Company
provides a variety of value-added services to its customers. The
Company provides component testing and assembly, just-in-time
("JIT") inventory management and delivery systems, programmable
logic array and PROM and EPROM programming and certain types of
testing services. In recent years, the Company has introduced a
number of sophisticated automated inventory procurement and
management services for its customers through its electronic data
interchange ("EDI") and auto-replenishment programs. The Company
also packages electronic components in production-ready kits to
customers' specifications ("kitting"). Completed kits are
typically shipped directly to the customer's production line on a
JIT basis. Turnkey manufacturing solutions are offered to meet
customer requirements or through arrangements with independent
contract manufacturers as an extension of the Company's
JIT/kitting business. Under such arrangements, the Company
supplies components directly to contract manufacturers who
- ------
14
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRODUCTS AND
SUPPLIERS perform assembly and testing to produce a completed product to
(CONTINUED) customer specifications. The Company offers 24-hour sales and
technical support services for its customers.
In August, 1996 Marshall and Wyle Electronics ("Wyle") formed a
value-added services joint venture called Accord Contract Services
LLC ("Accord"). Wyle was subsequently acquired by Raab Karcher AG,
an indirect wholly owned subsidiary of VEBA AG. The Company
elected to terminate the joint venture in the fall of 1997.
- --------------------------------------------------------------------------------
RELATIONSHIP
WITH The majority of the products sold by the Company are purchased
SUPPLIERS 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
locations all or a portion of the products produced by that
manufacturer. These agreements may be canceled 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 58% and 51% of total
Company sales in fiscal 1997 and 1998, respectively. Except for
TI, which accounted for 14% and 10% of total Company sales for
fiscal 1997 and 1998, respectively, no other supplier accounted
for more than 10% of total Company sales in such periods.
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 satisfactory relationships with its suppliers. 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 policy or its 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 their 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. In
the event of a termination of a distributor agreement, the
manufacturer is generally required to purchase from the
distributor the products of such manufacturer carried in the
distributor's inventory. In some cases, the repurchase of the
inventory requires a restocking charge. Such agreements provide
important but not complete protection from inventory losses. No
assurance can be given, however, that such price adjustment and
return policies will continue.
To service its kitting and turnkey contract manufacturing
customers, 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 provisions applicable to these
purchases, there are significantly greater inventory risks
associated with kitting and turnkey contract manufacturing orders
than with the purchase and stocking of inventory pursuant to its
normal distributor agreements.
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15
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- --------------------------------------------------------------------------------
SALES 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 40,000
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 have outsourced their purchasing and
manufacturing functions to them. No single customer accounted for
more than 6% 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. Approximately 46% of the
Company's employees were involved in sales at May 31, 1998.
Most of the Company's branches are also staffed by field
application engineers who provide technical assistance to
customers in their design of new products. Through this process,
Marshall has the opportunity to develop a preferred or exclusive
supply relationship with respect to components incorporated into
the resulting products. The Company believes that field
application engineers play an important role in its marketing
efforts.
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 in its
computerized information systems which management believes 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 EDI capabilities with its
suppliers and customers. In addition, the Company has an
electronic telecommunications service that allows customers to
design, engineer and purchase products via the Internet. To
increase their customer service and productivity capabilities, the
outside field sales staff has been equipped with laptop computers.
Due to the high volume of transactions and the cost
competitiveness of the electronic components distribution
industry, the Company believes that the expansion and upgrading of
its information technology capabilities will be an ongoing
requirement.
The Company currently has a national distribution network in the
United States and Canada consisting of sales and distribution
centers and 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, Nevada
and Texas areas. In Canada the Company has sales facilities in
Ottawa, Toronto, Montreal, Quebec City, Calgary, and Vancouver.
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16
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SALES AND
MARKETING
(CONTINUED) As described in Note 7 to the accompanying consolidated
financial statements, the Company has made a 16% investment in
SEI, one of the largest electronic component distributors in
Europe. In addition, as described in Note 8 to the accompanying
consolidated financial statements, the Company has an investment
of approximately 9% of the common stock of Serial System Ltd., an
electronic components distributor based in Singapore.
At May 31, 1998, the Company had approximately 2,300 employees,
substantially all of whom were employed full-time.
- --------------------------------------------------------------------------------
BACKLOG
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 for standard products with future delivery dates without
penalties.
- --------------------------------------------------------------------------------
CERTAIN
CONSIDERATIONS
CYCLICAL NATURE OF ELECTRONICS INDUSTRY; FLUCTUATIONS IN
QUARTERLY OPERATING RESULTS
The Company's business is affected by the cyclical nature of the
electronics industry and overall trends in the general economy.
The electronics distribution industry is very sensitive to
fluctuating market conditions, primarily caused by changes in the
supply and demand for electronic products, which impact product
availability and prices. As a result, the Company's financial
results may reflect significant variations from period to period.
Other factors which affect operating results include but are not
limited to availability of products from suppliers, the product
mix sold by the Company, price competition for products sold by
the Company, price decreases or obsolescence on inventory that is
not price protected or returnable to suppliers, and the ability of
the Company's customers to pay their obligations.
NATURE OF DISTRIBUTOR AGREEMENTS
The Company's distributor agreements with its suppliers are non-
exclusive. Consequently, the Company competes with numerous other
distributors who sell the same or similar products, as well as
with its suppliers, which tend to sell directly to their larger
customers. The distributors' customers are generally smaller and
less credit worthy than the principal customers of the suppliers.
The Company's distributor agreements are also terminable on short
notice. Suppliers have from time to time terminated such
agreements with the Company and there can be no assurance that
such terminations will not occur in the future. The Company's ten
largest suppliers accounted for approximately 58% and 51% of the
Company's total sales in fiscal 1997 and 1998, respectively. The
loss of a key supplier could have a material adverse effect upon
the Company and its future results of operations.
PRODUCT SUPPLIES AND PRICING
From time to time, the industry has experienced product
shortages and excess supplies. The prices and margins on the
Company's products are often materially impacted by these product
shortages and excess supplies. There is currently an excess supply
of a number of electronic component products, particularly memory
devices. As a result, the industry has experienced significant
pricing and margin pressures on products. It is uncertain when
there will be a change in these unfavorable market conditions.
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17
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- -------------------------------------------------------------------------------
CERTAIN
CONSIDERATIONS
(CONTINUED) COMPETITION
Supplying and servicing the electronics industry is a highly
competitive business. The Company competes with other large
national distributors, numerous local and regional distributors,
as well as some of the Company's suppliers. The Company believes
that competition is based primarily on customer service, product
lines, product availability, competitive pricing and technical
information, as well as value-added services.
From time to time, the Company has experienced competition from
"unauthorized" U.S. distributors and brokers of electronic
components who purchase these products from various sources,
including sources outside the United States, 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.
Motorola, Inc., one of the largest American semiconductor
manufacturers, recently changed its policy whereby its
authorized distributors in the United States can carry its line
plus one Asian semiconductor line. The Company is a leading
distributor of Asian semiconductor products. This policy change
is expected to increase competition in the distribution of Asian
semiconductor products. The overall impact of this change in
policy on the Company is uncertain at this time.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a significant extent upon the
continued contributions of its management and key employees. The
loss of these key employees could adversely impact the Company.
The Company's future success will also depend in part upon its
ability to attract and retain highly qualified personnel.
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES
The Company presently has 77 sales and distribution facilities
and 6 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; Milwaukee,
Wisconsin; San Diego, California; and Wallingford, Connecticut
of approximately 8,000 to 40,000 square feet each.
The Company leases its remaining sales and distribution
facilities. The largest leased facility is the support center in
Grapevine, Texas which has approximately 180,000 square feet of
space with a lease expiration date in fiscal year 2007. The
remaining leased facilities are located in cities throughout the
United States and Canada, vary in size depending on sales volume
and are
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MARSHALL INDUSTRIES
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- -------------------------------------------------------------------------------
subject to leases whose initial terms expire at various dates
through fiscal year 2004. Substantially all of those leases
include renewal provisions.
The Company plans to sell its current facility in Milpitas,
California and acquire a larger facility to meet the growth of its
business. The Northern California market is the largest in North
America for the industry and the Company. In connection therewith,
the Company has entered into an agreement subsequent to May 31,
1998 for the purchase of a 10-acre property in Milpitas,
California for the construction of a sales, marketing and
distribution facility.
Except for the expansion in Northern California as described
herein, the Company believes that 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 or any of its subsidiaries is a party or which any of
their properties are the subject.
- --------------------------------------------------------------------------------
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, 1998.
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 1997
First Quarter $30 7/8 $26 1/4
Second Quarter 32 1/8 27 3/4
Third Quarter 33 1/8 28 3/4
Fourth Quarter 36 3/8 30 1/2
-----------------------------------------------------------------
FISCAL YEAR 1998
First Quarter $42 3/4 $35 7/8
Second Quarter 42 34 1/2
Third Quarter 35 15/16 28 3/8
Fourth Quarter 34 5/8 28 7/8
-----------------------------------------------------------------
</TABLE>
The Company had approximately 5,000 shareholders at July 31,
1998. It has never paid a cash dividend. Earnings have been
retained to provide for the growth and expansion of the Company's
business. The Board of Directors periodically considers whether or
not to pay dividends. At this time, the Company does not plan to
pay dividends.
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19
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MARSHALL INDUSTRIES
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FORM 10-K
Marshall Industries
Year Ended May 31, 1998
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Company should be
read in conjunction with the historical consolidated financial
statements and notes thereto. The following table sets forth
selected financial data with respect to the consolidated
statements of income of the Company for the five fiscal years
ended May 31, 1998, and the consolidated balance sheets of the
Company at year end for each of those years. The selected
financial data is derived from consolidated financial statements
for such years and at such dates as audited by Arthur Andersen
LLP, independent public accountants, including the consolidated
statements of income for the three years ended May 31, 1998, and
the consolidated balance sheets at May 31, 1997 and 1998 included
elsewhere herein.
- -------------------------------------------------------------------------------
CONSOLIDATED
STATEMENTS OF
INCOME
<TABLE>
<CAPTION>
Years Ended May 31, 1994 1995 1996 1997 1998(/4/)
--------------------------------------------------------------------------------
(In thousands except for per share data)
<S> <C> <C> <C> <C> <C>
Net sales $822,548 $1,009,315 $1,164,812 $1,184,604 $1,461,363
Cost of sales 652,121 820,571 955,331 988,371 1,232,026
--------------------------------------------------------------------------------
Gross profit 170,427 188,744 209,481 196,233 229,337
Selling, general and
administrative expenses 112,220 117,287 123,188 128,927 163,556
--------------------------------------------------------------------------------
Income from operations 58,207 71,457 86,293 67,306 65,781
Interest expense
(income) and other
net(/1/) 1,931 1,916 989 (1,197) 7,480
--------------------------------------------------------------------------------
Income before income
taxes and extraordinary
gain 56,276 69,541 85,304 68,503 58,301
Provision for income
taxes 23,105 29,130 35,250 28,850 24,958
--------------------------------------------------------------------------------
Income before
extraordinary gain 33,171 40,411 50,054 39,653 33,343
Extraordinary gain from
termination of joint
venture (Net of income
taxes of $10,535) -- -- -- -- 14,615
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net income $ 33,171 $ 40,411 $ 50,054 $ 39,653 $ 47,958
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Earnings per share
(basic):(/2/)
Income per share before
extraordinary gain $ 1.93 $ 2.34 $ 2.90 $ 2.35 $ 2.01
Extraordinary gain per
share -- -- -- -- 0.88
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net income per share $ 1.93 $ 2.34 $ 2.90 $ 2.35 $ 2.89
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Earnings per share
(diluted):(/2/)
Income per share before
extraordinary gain $ 1.92 $ 2.33 $ 2.87 $ 2.33 $ 1.99
Extraordinary gain per
share -- -- -- -- $ 0.87
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net income per share $ 1.92 $ 2.33 $ 2.87 $ 2.33 $ 2.86
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cash dividends per
share(/3/) -- -- -- -- --
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
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20
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MARSHALL INDUSTRIES
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CONSOLIDATED
STATEMENTS OF
INCOME
(CONTINUED)
<TABLE>
<CAPTION>
Years Ended May 31, 1994 1995 1996 1997 1998
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weighted average number of
shares outstanding, basic 17,160 17,256 17,278 16,861 16,616
Weighted average number of
shares outstanding, diluted 17,282 17,372 17,414 16,997 16,772
</TABLE>
- -------------------------------------------------------------------------------
CONSOLIDATED
BALANCE SHEETS --
SUMMARY
<TABLE>
<CAPTION>
May 31, 1994 1995 1996 1997 1998
-----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Working capital $229,019 $254,394 $284,508 $330,962 $435,596
Total assets 363,659 423,307 472,611 539,673 853,824
Long-term debt, net of current
portion 34,742 45,205 25,000 50,000 245,500
Shareholders' investment 238,716 279,752 329,994 348,942 400,439
</TABLE>
- -------------------------------------------------------------------------------
(1) Amounts are net of interest income of $1.2 million, $1.7 million, $2.6
million and $0.4 million in 1995, 1996, 1997 and 1998, respectively.
Interest income was not material in fiscal 1994.
(2) Basic and diluted net income per share are 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 on February 28, 1994, and reflect the adoption of SFAS No. 128.
(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.
(4) The 1998 amounts include Sterling Electronics which was acquired on
January 16, 1998.
- -------------------------------------------------------------------------------
------
21
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- -------------------------------------------------------------------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED
RESULTS OF
OPERATIONS The following table sets forth items in the consolidated
statements of income as a percent of net sales for periods shown:
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Years Ended May 31, 1996 1997 1998
-----------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.0 83.4 84.3
-----------------------------------------------------------------------
Gross profit 18.0 16.6 15.7
Selling, general and administrative expenses 10.6 10.9 11.2
-----------------------------------------------------------------------
Income from operations 7.4 5.7 4.5
Interest expense (income) and other -- net .1 (.1) .5
-----------------------------------------------------------------------
Income before provision for income taxes
and extraordinary gain 7.3 5.8 4.0
Provision for income taxes 3.0 2.4 1.7
-----------------------------------------------------------------------
Income before extraordinary gain 4.3 3.4 2.3
-----------------------------------------------------------------------
Extraordinary gain (net of income taxes) -- -- 1.0
-----------------------------------------------------------------------
Net income 4.3% 3.4% 3.3%
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</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 1996, 1997 and 1998 (in
thousands except for per share data):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $275,870 $295,532 $288,008 $305,402 $1,164,812
Gross profit 50,945 53,692 52,220 52,624 209,481
Net income 12,199 13,639 12,250 11,966 50,054
Net income per share,
basic(/2/) .71 .79 .71 .69 2.90
Net income per share,
diluted(/2/) .70 .78 .70 .69 2.87
1997
---------------------------------------------------------------------------
Net sales $269,290 $286,346 $304,007 $324,961 $1,184,604
Gross profit 46,862 47,820 48,274 53,277 196,233
Net income 8,783 9,350 9,799 11,721 39,653
Net income per share,
basic(/2/) .51 .55 .59 .71 2.35
Net income per share,
diluted(/2/) .51 .55 .58 .70 2.33
1998
---------------------------------------------------------------------------
NET SALES $324,423 $351,212 $368,112 $417,616 $1,461,363
GROSS PROFIT 50,721 51,845 58,681 68,090 229,337
NET INCOME 9,260 24,034(/1/) 8,007 6,657 47,958(/1/)
NET INCOME PER SHARE,
BASIC(/2/) .56 1.45(/1/) .48 .40 2.89(/1/)
NET INCOME PER SHARE,
DILUTED(/2/) .55 1.42(/1/) .48 .40 2.86(/1/)
---------------------------------------------------------------------------
</TABLE>
(1) Includes extraordinary gain of $14,615, net of income taxes
and basic and diluted EPS of $0.88 and $0.87, respectively.
(2) Amounts have been restated to reflect adoption of SFAS No.
128.
As described in Note 2 to the accompanying consolidated
financial statements, the Company acquired Sterling Electronics on
January 16, 1998. Sterling's net sales of $46.7 million and $94.0
million were included in the company's third and fourth quarters
of fiscal 1998 results, respectively.
- ------
22
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FISCAL 1998
COMPARED TO
FISCAL 1997 The Company's fiscal 1998 net sales increased by $276.8 million
to $1.461 billion from fiscal year 1997. The Company's results
included those of Sterling, which was acquired on January 16,
1998. Sterling's net sales from its acquisition date of January
16, 1998 to May 31, 1998 accounted for $140.7 million of this
increase in net sales. The Company's fiscal 1998 net sales,
excluding the sales of Sterling, increased by $136.1 million or
11.5%, compared to fiscal 1997. In recent months, particularly in
the fourth quarter of fiscal 1998, the industry and the Company
have experienced a moderation in customer demand. This, along with
the increased availability of many products, has contributed to
increased pressures on unit pricing and margins of many of the
products that the Company sells.
Excluding the net sales of Sterling, the increase in the
Company's net sales of $136.1 million for fiscal 1998, as compared
to fiscal 1997, was due primarily to an increase in the sales
volume of most of the Company's major products, particularly mass
storage products. These products accounted for $66.5 million of
this increase. The addition of new suppliers during the last
several years was the primary reason for the substantial growth of
the Company's mass storage products. The increase in sales was,
however, partially offset by a decrease in the sales of memory
products, particularly "DRAMs". Sales of DRAMs decreased by $52.2
million in fiscal 1998, from fiscal 1997, primarily due to the
continuing declines in the unit pricing of such products.
For fiscal year 1998 the net margins of the Company decreased to
15.7%, from 16.6% for fiscal 1997. This decline in margins was
primarily attributable to mass storage products being a higher
percentage of the Company's sales, which are lower margin products
when compared to the Company's other major products, and the
continuing market pressures experienced by many electronic
component products. These declines were partially offset by the
decrease in the sales of DRAMs, which are relatively lower margin
products, and the inclusion of Sterling's sales, which have
relatively higher margins due to differences in product and
customer mix.
Selling, general and administrative ("SG&A") expenses for fiscal
1998 increased by $34.6 million to $163.6 million from fiscal
1997. Excluding Sterling's SG&A expenses of $22.1 million from its
acquisition date of January 16, 1998 to the end of the fiscal
year, the Company's SG&A expenses increased by $12.5 million, as
compared to fiscal 1997. Salary adjustments and additions to
staffing in the areas of Information Technology and the
warehousing functions resulted in higher salary costs of $5.0
million, as compared to last year. In addition, $1.3 million in
increased expenses for outside consultants and contractors were
incurred during fiscal 1998, as compared to the prior year, to
enhance and expand the Company's information technology
capabilities. Also, approximately $1.2 million of goodwill
amortization expense was incurred related to the Sterling
acquisition. The Company also incurred higher than normal levels
of expenses in operating Sterling's warehousing functions. This
higher level of expenses is expected to continue until the
consolidation of these functions into Sterling's automated
warehouse in Grapevine, Texas, which is expected to be completed
in early fiscal 1999. For fiscal year 1998 such expenses were $0.7
million. The remaining increase in the SG&A expenses of the
Company for fiscal 1998, compared to the prior year, was primarily
to service the higher sales volumes and costs of integrating
Sterling's operations.
The increase in net interest expense to $7.5 million in fiscal
1998 from interest income of $1.2 million in fiscal 1997 was
primarily due to bank borrowings incurred for the acquisition of
Sterling and higher levels of borrowings to support increases in
inventories and receivables from
------
23
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- --------------------------------------------------------------------------------
FISCAL 1998
COMPARED TO
FISCAL 1997
(CONTINUED) the increased sales volume. Additionally, there was a decrease in
interest income as a result of the conversion of the note
receivable from SEI, as described in Note 7 to the accompanying
consolidated financial statements.
During the second quarter of fiscal 1998, the Company received a
fee of $25.1 million, $14.6 million net of income taxes, from the
termination of a joint venture, as described in Note 10 to the
accompanying consolidated financial statements.
- --------------------------------------------------------------------------------
FISCAL 1997
COMPARED TO
FISCAL 1996 The increase in net sales for fiscal 1997, as compared to fiscal
1996, was due primarily to an increase in the sales volume of mass
storage, microprocessor and liquid crystal display ("LCD")
products. Sales of these products increased by $80.7 million in
fiscal 1997, as compared to fiscal 1996. The addition of new
suppliers during the fiscal 1996 and 1997 contributed to most of
the increase in the sales of such products. This increase was
partially offset by a decrease in the sales of memory products,
DRAM's and SRAM's. Sales of these products decreased $77.8 million
in fiscal 1997, as compared to fiscal 1996. While there was an
increase in the unit volume sold of memory products in fiscal 1997
from fiscal 1996, the substantial market decline in unit pricing
during the period reported accounted for the significant decrease
in sales dollars of such products. The sales volume of the
Company's other major products increased modestly from the prior
year.
The decrease in gross profit as a percent of sales for fiscal
1997, from fiscal 1996, was primarily due to a shift in the mix of
products sold with an increase in the sales of mass storage
products and microprocessors, which are lower margin products. The
decline in the margins on some of the Company's products,
particularly DRAM's, also contributed to the decrease in margins
in fiscal 1997, as compared to fiscal 1996.
The increase in SG&A for fiscal 1997 from fiscal 1996 was
largely from higher salary and related expenses. The increase of
$4.5 million in these expenses was due to salary adjustments and
higher staffing levels during the year. The increase in expenses
to enhance and expand the Company's sales automation and other
information technology capabilities in fiscal 1997 from fiscal
1996, was partially offset by a decrease in bad debt expense.
Interest expense-net decreased in fiscal 1997 from fiscal 1996
mainly from the lower levels of borrowings during the year and an
increase in interest income recorded on its note receivable due
from SEI, as described in Note 7 to the consolidated financial
statements.
- --------------------------------------------------------------------------------
LIQUIDITY AND
CAPITAL
RESOURCES The Company's sources of liquidity at May 31, 1998 consisted
principally of working capital of $435.6 million and a bank credit
facility of $325 million, of which $253 million was outstanding at
May 31, 1998. The Company believes that its working capital,
borrowing capabilities and additional funds generated from
operations should be sufficient to finance its anticipated
operating requirements for at least the next twelve months.
Mainly due to the Company's borrowings to finance the Sterling
acquisition, the Company's long term debt increased to $245.5
million at May 31, 1998 from $50 million at May 31, 1997. Under
the terms of the bank facility agreement, there are quarterly
reductions in the facility beginning in 1999, which would result
in a reduction of the facility availability by $100 million, in
the aggregate, by the year 2002.
- ------
24
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIQUIDITY AND
CAPITAL
RESOURCES
(CONTINUED) At May 31, 1998, the Company's working capital increased by
$104.6 million to $435.6 million, from the prior year. This
increase was primarily attributable to the Sterling acquisition
which resulted in the addition of $112.3 million of working
capital. The increase in other current assets primarily relates to
investments and current tax benefits from the Sterling
acquisition. The increase in the Company's inventory levels
required to support the increased sales volume, was offset by an
increase in accounts payable.
Net cash used in fiscal 1998 in investing activities related
mainly to the cash paid for the acquisition of Sterling of $174.5
million, the investment in Serial System Ltd. of $7.2 million and
capital expenditures of $12.2 million. Capital expenditures for
fiscal 1998 related primarily to the purchase of warehousing
equipment for the Grapevine, Texas support center and investment
in information technology equipment to enhance customer service
capabilities. Also included in fiscal year 1998 results was a
$25.1 million ($14.6 million net of income taxes) fee received
from the termination of the Accord joint venture as described in
Note 10 to the accompanying consolidated financial statements.
The borrowings to fund the acquisition of Sterling, as described
above and in Notes 2 and 3 to the accompanying consolidated
financial statements, primarily contributed to the net cash
provided by financing activities in fiscal 1998.
Working capital increased by $46.5 million and $30.1 million for
fiscal 1997 and 1996, respectively, as compared to the prior
years.
Net cash used by operating activities was $2.0 million for
fiscal 1997 which was primarily the result of increased accounts
receivables and inventories, which were needed to support the
increased sales volume for fourth quarter of fiscal 1997 and
certain customer requirements. This increase in inventories and
accounts receivable was partially offset by an increase in
accounts payable. Net cash provided by operating activities was
$24.5 million for fiscal 1996.
The Company incurred capital expenditures of $2.7 million and
$5.3 million for fiscal 1997 and 1996, respectively.
The purchase of 725,000 shares of the Company's common stock for
$21.8 million, offset by net bank credit line borrowings of $25.0
million, accounted for substantially all of the financing
activities for fiscal 1997. During fiscal 1996 the Company repaid
$20.6 million in bank credit line borrowings.
The Company plans to sell its current facility in Milpitas,
California and acquire a larger facility to meet the growth of its
business. In connection therewith, the Company has entered into an
agreement subsequent to May 31, 1998 for the purchase of a 10-acre
property for $16.1 million in Milpitas, California for the
construction of a sales, marketing and distribution facility. The
Company estimates the construction cost of this new facility will
be approximately $10 million. In addition to the intended sale of
the current Milpitas facility, the Company plans to sell its
Dallas, Texas facility, which is currently leased to a third party
tenant, and its Irvine, California facility where a significant
portion of the facility is leased to a third party tenant. It is
anticipated that some, if not all, of the building sales will
qualify as tax-free property exchanges under the Internal Revenue
Service Code.
The Company believes that the sales of these facilities may
generate approximately half of the funds required for the
acquisition and construction of the new Milpitas facility. Working
capital from the Company's operations and the bank credit facility
will be used to fund the balance.
------
25
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- -------------------------------------------------------------------------------
YEAR 2000
COMPLIANCE The Company has initiated a program to ensure all its
business systems are Year 2000 compliant and anticipates
achieving this objective over the next fiscal year by
converting certain of its business systems to upgraded software
platforms that comply with the Year 2000 requirements. Although
the Company believes that it is taking appropriate measures
against any disruption of its systems due to the Year 2000
issue, there can be no assurance that the Company will identify
all significant Year 2000 problems in advance of their
occurrence, or that the Company will be able to successfully
remedy all such problems that are discovered. The estimated
cost of the Year 2000 project has not been and is not expected
to be material to the Company's financial position or results
of operations.
- --------------------------------------------------------------------------------
NEW ACCOUNTING
STANDARDS In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The new standard, which will be effective
for the second quarter of fiscal year 2000, requires all
derivatives to be recognized on the balance sheet at fair
value. The Company does not expect the implementation of this
new standard to be material to the Company's financial position
or results of operations.
- --------------------------------------------------------------------------------
INFORMATION
RELATING TO
FORWARD-LOOKING
STATEMENTS This Annual Report contains forward-looking statements within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in
particular to the description of the Company's plans and
objectives for future operations, assumptions underlying such
plans and objectives and other forward-looking statements
included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other portions of this
Annual Report. Such statements may be identified by the use of
forward-looking terminology such as "may," "will," "expect,"
"believe," "estimate," "anticipate," "continue," or similar
terms, variations of such terms or the negative of such terms.
Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which
would cause actual results to differ materially from those
described in the forward-looking statements. Factors which
could cause such results to differ materially from those
described in the forward-looking statements include changes in
industry conditions, the addition or loss of suppliers or major
customers, fluctuation in quarterly results, foreign currency
translations, the matters discussed in "Business--Certain
Considerations," and other risks and uncertainties that are
detailed in the reports filed by the Company with the
Securities and Exchange Commission.
- ------
26
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE
SHAREHOLDERS AND
BOARD OF DIRECTORS
OF MARSHALL
INDUSTRIES: We have audited the accompanying consolidated balance sheets of
Marshall Industries (a California corporation) and subsidiaries as
of May 31, 1997 and 1998, and the related consolidated statements
of income, shareholders' investment and cash flows for each of the
three years in the period ended May 31, 1998. 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 and subsidiaries as of May 31, 1997 and
1998, and the results of their operations and their cash flows for
each of the three years in the period ended May 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 20, 1998
------
27
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Marshall Industries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 31, 1997 1998
ASSETS -----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,687 $ 4,796
Receivables, less reserves of $8,003 in 1997 and
$10,632 in 1998 167,769 212,956
Inventories 284,419 387,655
Prepaid expenses and other current assets 904 13,464
Deferred income tax benefits (Note 4) 14,272 22,872
-----------------------------------------------------------------------
Total current assets 469,051 641,743
-----------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 1):
Land 8,863 9,068
Buildings and improvements 35,304 39,052
Equipment, furniture, fixtures and other 23,204 32,285
Computer equipment 13,849 22,550
-----------------------------------------------------------------------
81,220 102,955
Accumulated depreciation and amortization (44,988) (57,099)
-----------------------------------------------------------------------
36,232 45,856
NOTE RECEIVABLE (Note 7) 33,110 --
INVESTMENTS (Notes 7 and 8) -- 43,486
GOODWILL, NET (Notes 1 and 2) -- 120,744
OTHER ASSETS -- NET (Note 1) 1,280 1,995
-----------------------------------------------------------------------
$539,673 $853,824
-----------------------------------------------------------------------
-----------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
LIABILITIES AND
SHAREHOLDERS'
INVESTMENT
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 3) $ -- $ 7,500
Accounts payable 120,149 168,008
Other accrued liabilities including salaries and wages 16,500 30,639
Income taxes payable 1,440 --
------------------------------------------------------------------------------
Total current liabilities 138,089 206,147
------------------------------------------------------------------------------
LONG-TERM DEBT (Note 3) 50,000 245,500
DEFERRED INCOME TAX LIABILITIES (Note 4) 2,642 1,738
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' INVESTMENT (Notes 1 and 6):
Common stock, $1.00 par value
Shares authorized -- 40,000,000
Shares issued and outstanding -- 16,616,364 in 1997 and
in 1998 16,616 16,616
Additional paid-in capital 33,611 41,019
Unrealized loss on securities available for trade -- (3,641)
Foreign currency translation adjustment -- (228)
Retained earnings 298,715 346,673
------------------------------------------------------------------------------
348,942 400,439
------------------------------------------------------------------------------
$539,673 $853,824
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- ------
28
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Marshall Industries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended May 31, 1996 1997 1998
----------------------------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C>
Net sales $1,164,812 $1,184,604 $1,461,363
Cost of sales 955,331 988,371 1,232,026
----------------------------------------------------------------------------
Gross profit 209,481 196,233 229,337
Selling, general and administrative
expenses 123,188 128,927 163,556
----------------------------------------------------------------------------
Income from operations 86,293 67,306 65,781
Interest expense (income) and other, net
(Note 1) 989 (1,197) 7,480
----------------------------------------------------------------------------
Income before income taxes and
extraordinary gain 85,304 68,503 58,301
Provision for income taxes (Notes 1 and 4) 35,250 28,850 24,958
----------------------------------------------------------------------------
Income before extraordinary gain 50,054 39,653 33,343
Extraordinary gain from termination of
joint venture (Net of income taxes of
$10,535) -- -- 14,615
----------------------------------------------------------------------------
NET INCOME $ 50,054 $ 39,653 $ 47,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC):
Income per share before extraordinary
gain $2.90 $2.35 $2.01
Extraordinary gain per share -- -- 0.88
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET INCOME PER SHARE (Note 11) $2.90 $2.35 $2.89
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EARNINGS PER SHARE (DILUTED):
Income per share before extraordinary gain $2.87 $2.33 $1.99
Extraordinary gain per share -- -- 0.87
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET INCOME PER SHARE (Note 11) $2.87 $2.33 $2.86
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
------
29
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Marshall Industries
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings and
------------------- Paid-in Other
Shares Amount Capital Equity items
------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
BALANCE, MAY 31, 1995 17,268,864 $17,269 $53,475 $209,008
Compensation expense related
to nonqualified stock options
(Note 6) -- -- 30 --
Exercise of stock options 10,000 10 79 --
Tax benefit from stock options
exercised -- -- 69 --
Net income -- -- -- 50,054
------------------------------------------------------------------------------
BALANCE, MAY 31, 1996 17,278,864 17,279 53,653 259,062
Purchase of company stock
(Note 5) (725,000) (725) (21,094) --
Exercise of stock options 62,500 62 531 --
Tax benefit from stock options
exercised -- -- 521 --
Net income -- -- -- 39,653
------------------------------------------------------------------------------
BALANCE, MAY 31, 1997 16,616,364 16,616 33,611 298,715
Stock options issued (Note 7) -- -- 7,408 --
Foreign currency translation
adjustment -- -- -- (228)
Unrealized loss on securities
available for trade -- -- -- (3,641)
Net Income -- -- -- 47,958
------------------------------------------------------------------------------
BALANCE, MAY 31, 1998 16,616,364 $16,616 $41,019 $342,804
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- ------
30
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Marshall Industries
- --------------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1996 1997 1998
-------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net income $50,054 $39,653 $ 47,958
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Extraordinary gain from termination of joint
venture, net of income taxes -- -- (14,615)
Depreciation and amortization 7,877 8,756 9,195
Provision for bad debts 2,964 2,370 2,540
Interest on note receivable (1,639) (2,421) (172)
Change in current assets and liabilities net of
business acquired:
Decrease (increase) in receivables (5,857) (29,354) 9,733
Increase in inventories (44,785) (43,537) (24,119)
Increase in prepaid expenses -- -- (1,114)
Increase in accounts payable 18,631 21,463 16,679
Increase (decrease) in other accrued
liabilities, including salaries and wages 3,610 2,329 (533)
Increase (decrease) in income taxes payable (1,686) 326 (7,346)
Deferred income tax benefit, net (4,507) (1,431) (2,541)
Other (184) (140) 260
-------------------------------------------------------------------------------
Total adjustments (25,576) (41,639) (12,033)
-------------------------------------------------------------------------------
Net cash provided by (used for) operating
activities 24,478 (1,986) 35,925
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM Cash consideration paid for acquired business -- -- (174,460)
INVESTING Net proceeds from termination of joint venture -- -- 14,615
ACTIVITIES: Investment in Serial System Ltd. -- -- (7,229)
Capital expenditures, net (5,269) (2,706) (12,216)
Deferred software costs (52) (124) --
Other -- -- 312
-------------------------------------------------------------------------------
Net cash used in investing activities (5,321) (2,830) (178,978)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net borrowings (repayments) under bank credit
FINANCING lines (20,000) 50,000 67,787
ACTIVITIES: Repayments of long-term debt (615) -- --
Net term loan borrowings (repayments) -- (25,000) 79,761
Purchase of common stock -- (21,819) --
Exercise of stock options 158 1,114 --
Capitalized financing costs -- -- (1,384)
Other -- -- (2)
-------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (20,457) 4,295 146,162
-------------------------------------------------------------------------------
Net increase (decrease) in cash (1,300) (521) 3,109
Cash at beginning of year 3,508 2,208 1,687
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Cash at end of year $ 2,208 $ 1,687 $ 4,796
- -------------------------------------------------------------------------------------------------
SUPPLEMENTAL Cash paid during the year for the following:
DISCLOSURES OF Interest $ 2,399 $ 1,237 $ 7,323
CASH FLOW -------------------------------------------------------------------------------
INFORMATION: -------------------------------------------------------------------------------
Income taxes $41,253 $29,558 $ 43,911
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
------
31
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1998
- -------------------------------------------------------------------------------
NOTE 1.
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES NATURE OF OPERATIONS:
Through a network of sales and distribution facilities and
corporate support and distribution centers in the United States
and Canada, the Company supplies and services a broad range of
products, including semiconductor, passive component, connector
and interconnect products, and computer systems and peripheral
products, as well as production supplies.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
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.
EXCESS OF COST OVER FAIR VALUE:
Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. The goodwill related to the
purchase of Sterling and the SEI investment is being amortized on
a straight-line basis over 40 and 30 years, respectively. On an
ongoing basis, the Company will evaluate the carrying value and
the remaining economic useful life of all goodwill, and will
adjust the carrying value and the related amortization period if
and when appropriate.
INTEREST EXPENSE:
Interest income of $1.7 million, $2.6 million and $0.4 million
is netted against interest expense in fiscal 1996, 1997 and 1998,
respectively.
INCOME TAXES:
The Company accounts for income taxes in accordance with
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 arrangements provide for the daily
replenishment of its bank accounts for check clearing
requirements. Accordingly, outstanding checks of $22.9 million and
$33.5 million that had not yet been paid by the Company's banks at
May 31, 1997 and 1998, respectively, are reflected in cash and
accounts payable in the accompanying consolidated financial
statements.
- ------
32
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1.
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
(CONTINUED) INVENTORIES:
The Company values its inventories at the lower of weighted
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, 1997 or
1998.
CAPITALIZED DEFERRED SOFTWARE COSTS:
Deferred software costs are included in other assets in fiscal
1997 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
$10.3 million, were amortized over a five year period. At May 31,
1997 the unamortized balance of such costs was $0.7 million which
was fully amortized as of December 1997.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Management believes that these estimates and assumptions provide a
reasonable basis for the fair presentation of the consolidated
financial statements.
CONCENTRATION OF CREDIT RISK:
The Company places its cash in what it believes to be credit-
worthy financial institutions. However, cash balances exceed FDIC
insured levels at various institutions. In addition, the Company
has significant receivable balances from certain customers.
WHOLLY OWNED SUBSIDIARIES:
During fiscal 1997, the Company established the following wholly
owned subsidiaries: Marshall Industries Technology Products to
conduct U.S. sales activities, GS Marshall-Canada Inc. to conduct
Canadian sales activities, and At Once, Inc. to conduct certain
catalogue and telemarketing sales activities. The Company is
engaged in one business, the sales and distribution of electronic
components, computer products and production supplies.
During the third quarter of fiscal 1998, the Company acquired
all of the capital stock of Sterling Electronics Corporation as
described in Note 2 to the accompanying consolidated financial
statements.
- -------------------------------------------------------------------------------
NOTE 2.
ACQUISITION OF
STERLING
ELECTRONICS
CORPORATION On January 16, 1998, the Company acquired all of the outstanding
capital stock of Sterling Electronics Corporation ("Sterling"), a
distributor of electronic components, for $21 per share or $169.0
million in cash plus the assumption of Sterling's outstanding debt
of $55.5 million and other acquisition costs of $5.5 million. This
acquisition was accounted for using the purchase method of
accounting. The excess of cost over fair market value of the net
assets acquired at the date of acquisition was estimated at $120.7
million, which is being amortized over 40 years. The goodwill
allocation is subject to final resolution of carrying values and
acquisition liabilities.
------
33
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1998
- -------------------------------------------------------------------------------
NOTE 2.
ACQUISITION OF
STERLING
ELECTRONICS
CORPORATION
(CONTINUED) Accumulated amortization relating to this goodwill at May 31,
1998 was $1.2 million. The operating results of Sterling are
included with those of the Company from the date of acquisition.
Sterling's net sales of $140.7 million were included in the
Company's fiscal 1998 results.
The following unaudited pro forma information presents a summary
of consolidated results of operations of the Company and Sterling
as if the acquisition had occurred on June 1, 1996 and June 1,
1997, respectively. The unaudited pro forma results include
estimates of goodwill amortization and increased interest expense
(in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended May 31,
1997 1998
---------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,535,348 $1,741,163
Income before extraordinary gain 38,770 32,554
Net income 38,770 47,169
Income per share before extraordinary gain, basic 2.30 1.96
Net income per share, basic 2.30 2.84
Income per share before extraordinary gain, diluted 2.28 1.94
Net income per share, diluted 2.28 2.81
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
This unaudited pro forma sales and earnings information is not
necessarily indicative of the combined results that would have
occurred had the acquisition been completed as of such date, nor
is it necessarily indicative of results that may occur in the
future.
- -------------------------------------------------------------------------------
NOTE 3.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
May 31,
1997 1998
---------------------------------------------------------------------------
<S> <C> <C>
Bank credit lines $50,000 $153,000
Term loan -- 100,000
---------------------------------------------------------------------------
50,000 253,000
Less current portion -- 7,500
---------------------------------------------------------------------------
$50,000 $245,500
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
Bank Credit Lines
Concurrent with the acquisition of Sterling, the Company entered
into an agreement for a $325 million unsecured credit facility
expiring in November 2002 with a group of banks (the "Agreement")
to finance the purchase of Sterling, retire all existing debt of
both companies and provide for ongoing working capital
requirements. The credit facility consists of a $100 million term
loan and a revolving facility of $225 million. The new facility,
which replaced the Company's previous bank line of credit,
provides for interest at either LIBOR plus a margin or at a prime
rate of interest. At May 31, 1998, the prime rate was 8.50%. The
facility is subject to a commitment fee on the unused line of
credit and has no compensating balance requirements. Both the
LIBOR margin on the borrowing and the fees on the unused line of
credit is based on the Company's ratio of total funded debt to
operating cash flow, as defined in the Agreement, calculated on a
rolling four quarter basis. Based on the Company's performance
under this calculation, the LIBOR margin on borrowings is expected
to range from .375% to .950%, and fees for the unused line of
credit will range from .125% to .375%.
- ------
34
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 3.
LONG-TERM DEBT
(CONTINUED) The Agreement requires the Company, among other things, to meet
certain interest coverage ratios and maintain certain minimum
tangible net worth levels and current ratios. In addition, the
Agreement prohibits the Company from making investments in other
companies (with certain exceptions) or paying dividends in excess
of certain amounts. Pursuant to the terms of the Agreement, there
is a first priority lien on 100% (65% for foreign) of the equity
or other ownership interests of all material subsidiaries of the
Company and all material subsidiaries of the Company have jointly
and severally guaranteed the Agreement. The Company's current
material subsidiaries, as defined in the Agreement, are Sterling
and Marshall Industries Technology Products.
Term Loan
Beginning in 1999, there will be quarterly reductions on the
$100 million term loan portion of the credit facility, increasing
in amounts from $15 million in the aggregate for 1999 to a total
reduction of $100 million over the term of the Agreement.
Interest Rate Swap Agreements
The Company has entered into separate interest rate swap
agreements with three banks for the notional amounts of $50
million, $50 million and $25 million to manage variable interest
rate exposures. The agreements expire in January 2003 and are
accounted for as hedge instruments. The Company agreed to
exchange, at quarterly intervals, the difference between the
Company's floating rate interest obligations with fixed pay rates
of 5.775%, 5.725% and 5.679% per annum, respectively. The notional
amounts of these agreements do not represent amounts exchanged by
the parties, and thus, are not a measure of the exposure to the
Company. While it is the Company's intention to hold these
contracts through expiration, any termination of these swap
agreements at May 31, 1998, based on the fair value of the swap
agreements as determined by reference to the current interest
rates and agreements with similar terms, would not have been
material to the Company's results of operations. Additional
interest expense resulting from these agreements was not material
to the Company's financial position or results of operations.
Maturities of long-term debt
The maturities of long-term debt are as follows:
<TABLE>
(In thousands)
---------------------------------------------------------------------------
Fiscal Year Ended May 31, Amount
---------------------------------------------------------------------------
<S> <C>
1999 $ 7,500
2000 17,500
2001 22,500
2002 32,500
2003 173,000
---------------------------------------------------------------------------
$ 253,000
---------------------------------------------------------------------------
</TABLE>
Fair Value
The Company's bank credit lines and term loan approximate fair
value as they bear floating interest rates.
------
35
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1998
- -------------------------------------------------------------------------------
NOTE 4.
INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes consists of the following (in thousands):
<S> <C> <C> <C>
Current: 1996 1997 1998
------------------------------------------------------------------------------
Federal $31,458 $23,386 $26,292
State 8,299 6,895 6,660
------------------------------------------------------------------------------
39,757 30,281 32,952
------------------------------------------------------------------------------
Deferred:
Federal (3,615) (1,144) 2,247
State (892) (287) 294
------------------------------------------------------------------------------
(4,507) (1,431) 2,541
------------------------------------------------------------------------------
Total $35,250 $28,850 $35,493
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</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>
1996 1997 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Computed Federal income taxes at the statutory rate $29,856 $23,976 $29,208
State income taxes, net of Federal income tax
benefit 4,814 4,295 5,207
Other, net 580 579 1,078
-----------------------------------------------------------------------------
Provision for income taxes $35,250 $28,850 $35,493
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
As of May 31, 1997 and 1998, deferred tax assets (liabilities)
were comprised of the following (in thousands):
----------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------
1997 1998
------------------------------------------------------------------
<S> <C> <C>
Operating reserves $ 8,657 $14,854
Tax depreciation in excess of book amounts (2,345) (3,255)
Capitalization of deferred software
costs for book purposes (310) --
Capitalization of inventory costs for income
tax purposes 633 1,253
State tax provision 1,223 1,921
Vacation expense accrued for book purposes 1,054 1,151
Other, net 2,718 5,210
------------------------------------------------------------------
Total net deferred tax asset $11,630 $21,134
------------------------------------------------------------------
------------------------------------------------------------------
</TABLE>
As of May 31, 1998, the Company had total deferred tax assets of
$22.9 million and total deferred tax liabilities of $1.7 million.
The Company did not record any valuation allowances against
deferred tax assets at May 31, 1998.
- --------------------------------------------------------------------------------
NOTE 5.
COMMITMENTS AND
CONTINGENCIES LEASE COMMITMENTS:
The Company leases certain facilities and equipment under
operating leases expiring at various dates through fiscal year
2007. The aggregate rent expense for all operating leases was
$2.3 million in 1996, $2.6 million in 1997 and $4.0 million in
1998.
- ------
36
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 5.
COMMITMENTS AND
CONTINGENCIES
(CONTINUED) The future minimum lease payments under all leases are shown
below (in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Operating Leases
-------------------------------------------------------------------------------
<S> <C>
Year Ending May 31,
1999 $ 3,810
2000 3,091
2001 2,507
2002 2,103
2003 1,304
Thereafter 3,127
-------------------------------------------------------------------------------
$15,942
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
Amounts shown above are net of sublease income of $587,000,
$414,000 and $218,000 for 1999, 2000 and 2001, respectively.
STOCK BUY-BACK:
During fiscal 1997, the Company purchased 725,000 shares of the
Company's common stock at an aggregate amount of $21.8 million
under the stock repurchase plan authorized by the Board of
Directors in May 1996.
FACILITY EXPANSION:
The Company plans to sell its current facility in Milpitas,
California and acquire a larger facility to meet the growth of its
business. The Northern California market is the largest in North
America for the industry and the Company. In connection therewith,
the Company has entered into an agreement subsequent to May 31,
1998 for the purchase of a 10-acre property for $16.1 million in
Milpitas, California for the construction of a sales, marketing
and distribution facility. The Company estimates that the
construction cost of the new facility will be approximately $10
million.
LITIGATION:
There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party.
INCOME TAXES:
During fiscal 1997, the Internal Revenue Service ("IRS")
completed its examination of the Company's Federal income tax
returns for taxable years 1991 through 1994 which resulted in the
issuance of deficiency notices seeking additional taxes. This
assessment was appealed by the Company at the administrative
appeals level. Subsequent to May 31, 1998, the IRS concluded its
review of this administrative appeal in favor of the Company on
all of the material issues and the final assessment does not have
a material impact on the Company's financial position or results
of operations.
- --------------------------------------------------------------------------------
NOTE 6.
STOCK OPTIONS The Company has two active stock option plans which provide for
the granting of incentive and nonqualified stock options covering
1,100,000 shares of common stock. There was one other plan, which
was inactive with respect to the granting of new options, 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, 35,000
and 250,000 options granted in fiscal 1996, 1997
------
37
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1998
- -------------------------------------------------------------------------------
NOTE 6. and 1998, respectively, at exercise prices ranging from $25.25 to
STOCK $35.875 per share. At May 31, 1998, 440,000 shares were available
OPTIONS for additional grants.
(CONTINUED)
As permitted by Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation,"
effective for fiscal 1998, the Company continues to account for
stock compensation costs in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Had compensation costs for the Company's
stock plans been determined in accordance with SFAS No. 123, the
Company's net income and earnings per share would have been
reduced to the following pro forma amounts (in thousands except
per share data):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1997 1998
----------------------------------------------------------------------------
<C> <S> <C> <C>
Net income As reported $39,653 $47,958
Pro forma $39,490 $47,564
Net income per share, basic As reported $ 2.35 $ 2.89
Pro forma $ 2.34 $ 2.86
Net income per share, diluted As reported $ 2.33 $ 2.86
Pro forma $ 2.32 $ 2.84
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to May 31, 1995, the resulting pro forma
compensation costs may not be representative of those to be
expected in future years.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for options granted in
fiscal 1997 and 1998: risk-free interest rate of approximately 7%
and 6%, respectively; expected dividend yields of 0%; expected
volatility of approximately 26%; and expected life of 7 years .
The following is a summary of changes in outstanding options for
the Company's stock option plans for the three years ended May 31,
1998:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Weighted-Average
Shares Exercise Price
---------------------------------------------------------------
<S> <C> <C>
OPTIONS OUTSTANDING AT MAY 31, 1995 443,500 $15.268
Options granted 50,000 35.875
Options exercised (10,000) 8.900
-------
OPTIONS OUTSTANDING AT MAY 31, 1996 483,500 17.531
Options granted 35,000 30.089
Options exercised (62,500) 9.494
Options expired or canceled (5,000) 30.000
-------
OPTIONS OUTSTANDING AT MAY 31, 1997 451,000 19.481
Options granted 250,000 32.684
-------
OPTIONS OUTSTANDING AT MAY 31, 1998 701,000 $24.190
---------------------------------------------------------------
---------------------------------------------------------------
Options exercisable at May 31, 1996 138,500 $13.904
Options exercisable at May 31, 1997 111,000 21.138
Options exercisable at May 31, 1998 153,500 23.363
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
- ------
38
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 6.
STOCK OPTIONS
(CONTINUED) The following table outlines the detail of options outstanding
at May 31, 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Weighted-Average Exercisable Weighted-Average
Number Weighted-Average Remaining at Exercise Price of
of Options Option Price Exercise Price Contractual Life May 31, 1998 Exercisable Shares
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
260,000 $14.00 $14.00 12.9 20,000 $14.00
420,000 24.00 - 35.875 31.26 8.5 112,500 27.73
21,000 8.675 - 8.90 8.89 2.7 21,000 8.89
------------------------------------------------------------------------------------------------------
701,000 $8.675 - $35.875 $24.19 9.9 153,500 $23.36
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</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
1996, $30,000 was charged against income and credited to
additional paid-in capital under these plans. No amounts were
charged in fiscal 1997 and 1998. Options granted vest over periods
from four to ten years and are exercisable over periods from 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.
- -------------------------------------------------------------------------------
NOTE 7.
INVESTMENT IN
SONEPAR
ELECTRONIQUE
INTERNATIONAL During the first quarter of fiscal 1998, the Company converted
the note receivable from Sonepar Electronique International (SEI)
plus accrued interest into a minority equity interest of 16% in
Eurotronics B.V. (Eurotronics), a new company comprised of SEI's
electronics distribution companies. In connection with this
conversion, the Company granted a stock option to SEI, with an
exercise period of two years, to purchase 874,545 shares of the
Company's stock at a price of $34.5685 per share, which was based
on the average trading price of the Company's stock for the 90
days preceding the conversion date. The Company has accounted for
this investment using the equity method. The Company believes that
it has significant influence on the operations of SEI through its
board membership and its veto rights on certain significant
aspects of the operations of the business. The Company's recording
of its initial investment was based on preliminary estimates of
the fair value of the net assets of the companies contributed. In
preparing the audited Eurotronics consolidated financial
statements as of the acquisition date, Eurotronics decided not to
record goodwill in its financial statements, as allowed by Dutch
GAAP. Due to this decision, the Company's investment, including
the value of the stock option at $7.4 million, exceeds the net
assets of Eurotronics by $30 million. The Company will amortize
this difference over a period of thirty years. This treatment will
result in the same accounting impact on the Company's financial
statements as if the difference or goodwill had been recorded by
Eurotronics in its financial statements. During fiscal 1998 the
Company recorded non-cash currency translation loss of $192,000 on
the equity investment with an offsetting charge against
shareholders' investments. The Company's pro-rata share of the
earnings from this equity investment was not material to the
Company's results of operations for fiscal 1998.
------
39
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1998
- -------------------------------------------------------------------------------
NOTE 8.
INVESTMENT IN
SERIAL
SYSTEMS, LTD. In April 1998, the Company purchased 17,814,138 shares
(comprising approximately 9%) of the common stock of Serial
System Ltd., an electronic components distributor based in
Singapore, the shares of which are traded on the Stock Exchange of
Singapore. The purchase price for the shares, which were newly
issued shares, was $7.2 million. In connection with this
transaction, Marshall and Serial entered into a joint marketing
agreement to increase each company's ability to service the global
marketplace. The investment in Serial System Ltd. was adjusted by
$3.6 million as of May 31, 1998 due to the market decline of
Serial's common stock and the decline of the Singapore dollar to
the U.S. dollar. The Company did not record a tax benefit as a
result of this adjustment. This adjustment is reflected in the
Company's shareholder's investment in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity
Securities. "
- --------------------------------------------------------------------------------
NOTE 9.
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.
- --------------------------------------------------------------------------------
NOTE 10.
ACCORD CONTRACT
SERVICES JOINT
VENTURE In August 1996, the Company formed a joint venture with Wyle
Electronics ("Wyle"), another distributor of semiconductors and
computer products. The venture, known as Accord Contract Services
LLC ("Accord"), was 50% owned by each of the Company and Wyle.
On or about August 6, 1997 Raab Karcher AG, an indirect wholly-
owned subsidiary of VEBA AG, consummated a tender offer for all or
substantially all of the common stock of Wyle. Under the terms of
the Agreement, such a change in the ownership of Wyle entitled the
Company, at its option, to initiate the dissolution of Accord. In
such event, the Agreement provided that the Company was entitled
to receive termination fees in the aggregate amount of
approximately $25 million from Wyle. The Company elected to
terminate the joint venture and received a termination fee of
$25.1 million on September 30, 1997, which was recorded in the
Company's second quarter fiscal 1998 results of operations as an
extraordinary item, net of the related income taxes.
- ------
40
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 11.
INCOME PER
SHARE In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings per Share" (EPS), which requires
dual presentation of basic EPS and diluted EPS, simplifies
existing computational guidelines, and increases the comparability
of earnings per share on an international basis. SFAS 128 was
effective for periods ending after December 15, 1997. All prior
periods have been restated.
Income, average weighted shares outstanding and earnings per
share data as restated for SFAS No. 128 are as follows (in
thousands, except per share data):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended May 31,
--------------------------------------------------------------------------
1996 1997 1998
----------------------- ----------------------- -------------------------
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS
Income before
extraordinary item $50,054 17,278 $2.90 $39,653 16,861 $2.35 $33,343 16,616 $2.01
Extraordinary gain -- -- -- -- -- -- 14,615 16,616 0.88
Net income 50,054 17,278 2.90 39,653 16,861 2.35 47,958 16,616 2.89
Options -- 136 -- 136 -- 156
-------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER
SHARE
Income before
extraordinary item $50,054 17,414 $2.87 $39,653 16,997 $2.33 $33,343 16,772 $1.99
Extraordinary gain -- -- -- -- -- -- 14,615 16,772 0.87
Net income 50,054 17,414 2.87 39,653 16,997 2.33 47,958 16,772 2.86
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
</TABLE>
The effect of this accounting change on previously reported
earnings per share (EPS) data was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
For the Years Ended
May 31,
--------------------
1996 1997
------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE AMOUNTS
Diluted EPS as reported $2.86 $2.32
Effect of SFAS No. 128 .01 .01
----- -----
Diluted EPS as restated $2.87 $2.33
------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 115,000 shares of common stock at $35.625
and $35.875 per share were outstanding as of May 31, 1998, but
were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price
of the common shares for the year ended May 31, 1998. The options
expire on October 24, 2005 and October 21, 2007.
------
41
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1998
- -------------------------------------------------------------------------------
NOTE 12.
EMPLOYEE
BENEFIT
PLANS TAX DEFERRED PROFIT SHARING PLAN:
Under the provisions of the Marshall Industries Tax Deferred
Profit Sharing Plan (the "Plan"), participating employees,
excluding Sterling employees, may 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. Forfeitures of matching contributions are used to
reduce the employer's matching 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, 1998 the Plan owned less than 2% of the Company's
outstanding shares. Company contributions to the Plan amounted to
$1.5 million in 1996, $1.2 million in 1997 and $1.4 million in
1998.
Under the provisions of the Sterling Electronics Corporation
401(k) Plan, participating employees may defer from one to fifteen
percent of their annual compensation, with certain limitations,
each payroll period. The employee contributions are deposited in a
nonforfeitable, fully vested trust account for the employees'
benefit. The Company makes qualified matching cash contributions
up to 50% of the amount contributed by each participant up to 5%
of each plan participant's compensation. Forfeitures of matching
contributions are used to reduce the employer's matching
contributions. Company contributions to the Plan, from Sterling
acquisition date of January 16, 1998 to May 31, 1998, were
$242,000.
EMPLOYEE COMPENSATION PLANS:
Sterling has supplemental compensation plans for certain key
employees. These plans provide certain defined benefits upon
retirement or termination. The expense related to these plans for
fiscal year 1998 is not material to the Company's results of
operations.
- ------
42
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. The
material under the following captions of the Proxy Statement for
the Annual Meeting of Shareholders to be held on October 20, 1998
is incorporated herein by this reference: Election of Directors,
Executive Officers, Executive Compensation, Principal
Shareholders, Certain Relationships and Related Transactions.
- --------------------------------------------------------------------------------
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS -- The following
consolidated financial statements of Marshall Industries are set
forth in Item 8 of this Annual Report on Form 10-K:
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<CAPTION>
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Report of Independent Public Accountants 27
Consolidated Financial Statements:
Balance Sheets -- May 31, 1997 and 1998 28
Statements for the years ended May 31, 1996, 1997 and 1998 --
Income 29
Shareholders' Investment 30
Cash Flows 31
Notes to Consolidated Financial Statements 32
</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 consolidated financial
statements or notes thereto.
(a) 3. EXHIBITS -- The following exhibits are attached to this
Annual Report on Form 10-K:
Exhibit 2.1: Agreement and Plan of Merger dated as of September
18, 1997, by and among Marshall Industries, MI
Holdings Nevada, Inc. and Sterling Electronics
Corporation. (Incorporated herein by reference to
Exhibit 2.1 on Form 8-K event date September 18,
1997.)
Exhibit 3.1: Articles of Incorporation, as amended. (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, 1996.)
Exhibit 3.2: Amended and Restated By-Laws. (Incorporated herein
by reference to Exhibit 3.2 to the Company's Current
Report on Form 8-K event date April 28, 1998.)
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43
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
FORM 10-K
Marshall Industries
Year Ended May 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<C> <S>
Exhibit 10.1: Credit Agreement dated as of January 16, 1998 by and among
Marshall Industries and, subject to and in accordance with
Addendum A thereto, Sterling Electronics Corporation and
First Union National Bank, as Administrative Agent, together
with Addendum A thereto. (Incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1998.)
Exhibit 10.2: First Amendment to Credit Agreement dated February 26, 1998
by and among Marshall Industries, Sterling Electronics
Corporation the Lenders party to the Credit Agreement and
First Union National Bank, as Administrative Agent.
(Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1998.)
Exhibit 10.3: Pledge Agreement dated January 16, 1998 made by Marshall
Industries in favor of First Union National Bank as
Administrative Agent. (Incorporated herein by reference to
Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1998.)
Exhibit 10.4: Unconditional Guaranty Agreement dated as of January 16, 1998
made by each of the Subsidiary Guarantors in favor of First
Union National Bank as Administrative Agent. (Incorporated
herein by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended February
28, 1998.)
Exhibit 10.5*: 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 10.6*: 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 10.7*: Marshall Industries 1997 Stock Option Plan. (Incorporated
herein by reference to Exhibit A to the Company's Final Proxy
Statement dated August 29, 1997.)
Exhibit 10.8*: Change in Control Agreement dated February 6, 1996 between
Marshall Industries and Gordon S. Marshall. (Incorporated
herein by reference to Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended February
29, 1996.)
Exhibit 10.9*: Change in Control Agreement dated February 7, 1996 between
Marshall Industries and Robert Rodin. (Incorporated herein by
reference to Exhibit 99.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 29, 1996.)
Exhibit 10.10*: Change in Control Agreement dated January 10, 1997 between
Marshall Industries and Richard D. Bentley. (Incorporated
herein by reference to Exhibit 10.12 to the Company's
Quarterly report on Form 10-Q for the quarter ended November
30, 1996.)
Exhibit 10.11*: Form of Indemnification Agreement with certain officers and
directors. (Incorporated herein by reference to Exhibit 10.13
to the Company's Quarterly report on Form 10-Q for the
quarter ended November 30, 1996.)
</TABLE>
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44
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<C> <S>
Exhibit 10.12*: Schedule of Omitted Indemnification Agreements. (Incorporated
herein by reference to Exhibit 10.14 to the Company's
Quarterly report on Form 10-Q for the quarter ended November
30, 1996.)
Exhibit 10.13*: Employment Agreement dated as of September 18, 1997 by and
between Marshall Industries and Ronald S. Spolane.
(Incorporated herein by reference to Exhibit 10.1 on Form 8-K
event date September 18, 1997.)
Exhibit 10.14*: Employment Agreement dated as of September 18, 1997 by and
between Marshall Industries and David S. Spolane.
(Incorporated herein by reference to Exhibit 10.1 on Form 8-K
event date September 18, 1997.)
Exhibit 10.15: Shareholders Agreement with Sonepar Electronique
International. (Incorporated herein by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1997.)
Exhibit 10.16: Marshall Industries Non-qualified Stock Option Grant.
(Incorporated herein by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1997.)
Exhibit 10.17: Marshall Warrant Rescission Agreement dated February 28, 1997
between Marshall Industries and Wyle Electronics.
(Incorporated herein by reference to Exhibit 10.15 to the
Company's Quarterly report on Form 10-Q for the quarter ended
February 28, 1997.)
Exhibit 10.18: Amendment No. 3 to Limited Liability Company Agreement of
Accord Contract Services LLC, dated February 28, 1997 between
Marshall Industries and Wyle Electronics. (Incorporated
herein by reference to Exhibit 10.16 to the Company's
Quarterly report on Form 10-Q for the quarter ended
February 28, 1997.)
Exhibit 10.19*: Change in Control Agreement dated August 26, 1997 between
Marshall Industries and Henry W. Chin. (Incorporated herein
by reference to Exhibit 10.21 to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1997.)
Exhibit 10.20: Registration Rights Agreement dated as of September 15, 1994
by and between Marshall Industries and Sonepar Electronique
International. (Incorporated herein by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997.)
Exhibit 23: Consent of Independent Public Accountants.
Exhibit 27: Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K -- Form 8-K/A dated March 31, 1998 (Item
7) regarding pro forma financial statements of Marshall Industries
taking into account the acquisition of Sterling Electronics
Corporation.
* Management contract, compensatory plan or arrangement.
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45
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
By: HENRY W. CHIN August 26, 1998
---------------------------
Henry W. Chin
Vice President, Finance, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<S> <C>
GORDON S. MARSHALL August 26, 1998
_____________________________________________
Gordon S. Marshall
Chairman of the Board and Director
ROBERT RODIN August 26, 1998
_____________________________________________
Robert Rodin
President, Chief Executive Officer and
Director
(Principal Executive Officer)
HENRY W. CHIN August 26, 1998
_____________________________________________
Henry W. Chin
Vice President, Finance, Chief Financial
Officer and Secretary (Principal Financial
and Accounting Officer)
RICHARD D. BENTLEY August 26, 1998
---------------------------------------------
Richard D. Bentley
Director
RICHARD C. COLYEAR August 26, 1998
---------------------------------------------
Richard C. Colyear
Director
JEAN FRIBOURG August 26, 1998
---------------------------------------------
Jean Fribourg
Director
LATHROP HOFFMAN August 26, 1998
---------------------------------------------
Lathrop Hoffman
Director
JOSE MENENDEZ August 26, 1998
---------------------------------------------
Jose Menendez
Director
RAYMOND G. RINEHART August 26, 1998
---------------------------------------------
Raymond G. Rinehart
Director
HOWARD C. WHITE August 26, 1998
---------------------------------------------
Howard C. White
Director
</TABLE>
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46
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
Corporate Information
- -------------------------------------------------------------------------------
<TABLE>
<C> <C> <S>
CORPORATE OFFICERS Gordon S. Marshall Robert Rodin
Chairman of the Board President and
Chief Executive Officer
Richard D. Bentley
Executive Vice President Henry W. Chin
Vice President, Finance,
Chief Financial Officer
and Secretary
- -------------------------------------------------------------------------------------------------
BOARD OF DIRECTORS Gordon S. Marshall Robert Rodin
Chairman of the Board President and
Marshall Industries Chief Executive Officer
Marshall Industries
Richard D. Bentley
Executive Vice President Jose Menendez
Marshall Industries Chairman of the
Executive Boards
Richard C. Colyear of Sonepar Electronique
President, International
Colyear Development Corporation and Sonepar Distribution
El Monte, CA
Raymond G. Rinehart
Jean Fribourg Former Chairman of the
Chief Executive Officer, Board and President
Sonepar Electronique International Clow Corporation
Oak Brook, IL
Lathrop Hoffman
President, Howard C. White
Sierra Autocars, Inc. Retired Partner
Monrovia, CA Andersen Worldwide
Chicago, IL
- -------------------------------------------------------------------------------------------------
TRANSFER AGENT & REGISTRAR
CORPORATE INFORMATION CORPORATE HEADQUARTERS First Union National
Marshall Industries Bank of North Carolina
9320 Telstar Avenue Charlotte, NC
El Monte, CA 91731-2895
(626) 307-6000 AUDITORS
STOCK LISTING Arthur Andersen LLP
Los Angeles, CA
Common Stock traded on
the New York Stock
Exchange (Symbol MI)
- -------------------------------------------------------------------------------------------------
SUBSIDIARIES Marshall Industries Technology Products
G.S. Marshall-Canada Inc.
At Once, Inc.
Sterling Electronics Corporation
</TABLE>
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47
LOGO
<PAGE>
MARSHALL INDUSTRIES
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXHIBIT 23
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 26, 1998
<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> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 4,796
<SECURITIES> 0
<RECEIVABLES> 223,588
<ALLOWANCES> (10,632)
<INVENTORY> 387,655
<CURRENT-ASSETS> 641,743
<PP&E> 102,955
<DEPRECIATION> (57,099)
<TOTAL-ASSETS> 853,824
<CURRENT-LIABILITIES> 206,147
<BONDS> 0
0
0
<COMMON> 16,616
<OTHER-SE> 383,823
<TOTAL-LIABILITY-AND-EQUITY> 853,824
<SALES> 1,461,363
<TOTAL-REVENUES> 1,461,363
<CGS> 1,232,026
<TOTAL-COSTS> 1,232,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,540
<INTEREST-EXPENSE> 7,480
<INCOME-PRETAX> 58,301
<INCOME-TAX> 24,958
<INCOME-CONTINUING> 33,343
<DISCONTINUED> 0
<EXTRAORDINARY> 14,615
<CHANGES> 0
<NET-INCOME> 47,958
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 0
</TABLE>
