<PAGE> 1
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, 1999
[ ] 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
----------------------------------------------------------------
<TABLE>
<S> <C> <C>
FORM 10-K MARSHALL INDUSTRIES
(Exact name of registrant as specified in its charter)
---------------------------------------------------------------------------------------------------------
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)
</TABLE>
<TABLE>
<S> <C>
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:
$606,295,900 (computed on the basis of $37.25 per share,
which was the last sale price on the New York Stock Exchange
on July 31, 1999).
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.
</TABLE>
<TABLE>
<S> <C> <C>
(Class of Stock) Number of Outstanding Shares as of July 31, 1999
COMMON STOCK, PAR VALUE $1.00 PER SHARE 16,617,614
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 2
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
PART I
ITEM 1. BUSINESS
GENERAL 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.
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, Canada and
Mexico. 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 and peripheral products,
as well as production supplies. The distribution of
electronic components accounted for approximately 95% and
96% of total Company sales in fiscal 1998 and 1999,
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.
Marshall is a customer-oriented company which uses
automation and information technology to enhance customer
service and intimacy. The Company has made substantial
investments in its inventory management and information
systems. These investments have increased and improved the
Company's service capabilities, 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 has been recognized as a leader in the areas of
electronic commerce and information technology, including
the development of technology interfaces for its Internet
and Extranet websites, database management systems, Lotus
Notes and mainframe applications.
Marshall uses the Internet to provide its customers a
variety of services. These services include the delivery of
information on product availability and pricing, on-line
order processing and tracking, part number search and cross
reference data, and technical specifications and
documentation.
In 1999, Marshall developed a new web site, SpotMarket.com,
which includes an on-line auction connection that allows
customers to negotiate for products, a discount center for
the sale of aggressively priced surplus products, and a
buyer-specified part and/or price locator capability.
Marshall's primary website (www.marshall.com) was named the
number one Business-to-Business website by NetMarketing for
two consecutive years (1997 and 1998).
</TABLE>
Q 2
<PAGE> 3
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
GENERAL Marshall's wholly owned subsidiary, ENEN Corp. (The
(CONTINUED) Education News & Entertainment Network), is a leading
provider of Internet broadcasting services for the
electronics industry. ENEN's award-winning site incorporates
real-time video, audio and interactive chat technologies to
deliver live, interactive training sessions, product
announcements and other events over the Internet.
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 $169.0 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 and fiscal 1999 included herein
includes Sterling's results of operations from its
acquisition date of January 16, 1998 to May 31, 1999.
In addition, the Company has a 16% equity interest in
Eurotronics B.V. ("Eurotronics"), the holding company for
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% as of May 31,
1999 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.
On June 25, 1999, Marshall entered into a definitive
agreement to merge with Avnet, Inc. ("Avnet"), one of the
world's largest industrial distributors of electronic
components and computer products, with net sales in the
fiscal year ended July 2, 1999 of $6.3 billion and
distribution operations in the Americas, Europe, South
Africa and the Asia/Pacific region. Under the terms of the
agreement, in connection with the merger, each outstanding
share of Marshall common stock will be converted into the
right to receive either $39.00 in cash or .81569 shares of
the common stock of Avnet, subject to adjustment, or a
combination thereof, in exchange for each Marshall share.
This proposed acquisition of the Company by Avnet is subject
to various regulatory approvals and approval by the
shareholders of both companies.
- -------------------------------------------------------------------------------------
PRODUCTS AND Marshall's distribution of semiconductor products accounted
SUPPLIERS for approximately 64% and 62% of total Company sales in
fiscal 1998 and 1999, respectively. Passive components,
connectors and interconnect products accounted for
approximately 14% and 17% of total Company sales for fiscal
1998 and 1999, respectively. Sales of computer and
peripheral products accounted for approximately 17% of total
Company sales in fiscal 1998 and 1999. Distribution of
industrial production supplies accounted for approximately
5% and 4% of total Company sales for fiscal 1998 and 1999,
respectively.
</TABLE>
Q 3
<PAGE> 4
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
PRODUCTS AND SUPPLIERS SEMICONDUCTOR PRODUCTS
(CONTINUED)
Advanced Micro Devices ("AMD") is the Company's largest
supplier of products. AMD's semiconductor products accounted
for 6% and 10% of total Company sales in fiscal 1998 and
1999, respectively. Until fiscal 1999, when it sold its
memory products business to Micron Technology, Inc.
("Micron"), Texas Instruments Incorporated ("TI") had been
the Company's largest supplier. Sales of TI products
accounted for 10% and 5% of total Company sales in fiscal
1998 and 1999, respectively. The Company was awarded a
franchise agreement by Micron to distribute all of its
products. The Company carries the full range of
semiconductor products manufactured by AMD and 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% and 19% of total
Company sales in fiscal 1998 and 1999, respectively.
Additionally, the Company distributes components
manufactured by European suppliers, such as Infineon
Technologies Corporation ("Infineon"), formerly Siemens
Microelectronics and Philips Components, 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 AMD, Atmel Corporation, Conexant Systems, Inc.
(formerly Rockwell Semiconductor Systems, Inc.), Cypress
Semiconductor, Inc., Fujitsu Microelectronics, Inc., Hitachi
Semiconductor (America) Inc., Infineon, Lattice
Semiconductor Corporation, Linear Technology Corporation,
Mitel Semiconductors, Inc., NEC Electronics, Inc., Philips,
Sony Electronics, Inc., Sharp Microelectronics of the
Americas, TI and Toshiba America Electronic Components, Inc.
Effective December 31, 1998, one of the Company's major
suppliers, Xilinx, Inc., terminated its distribution
agreement with the Company. Xilinx supplied mostly field
programmable logic products and represented 5% and 3% of
total Company sales in fiscal 1998 and 1999, respectively.
The Company believes that additional sales from new
suppliers, such as FCI Berg Electronics, Inc., Lucent
Technologies, Inc., which is considered a leading supplier
of field programmable logic products, Maxim Integrated
Products, Micron and Vishay Intertechnology, Inc., will
offset most of the sales lost by the Xilinx termination,
once the lines are fully launched.
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 Thomas & Betts Corporation, which rank among
the leading suppliers of these products.
COMPUTER AND PERIPHERAL PRODUCTS
The Company's product offerings include liquid crystal
displays, optical and hard disk drives, power supplies,
monitors, motherboards for personal computers, and other
systems components. Artesyn Technologies (formerly Computer
Products Inc.), Fujitsu, IBM Corp. - Storage Systems
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.
</TABLE>
Q 4
<PAGE> 5
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
PRODUCTS AND SUPPLIERS INDUSTRIAL PRODUCTION SUPPLIES
(CONTINUED)
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 perform assembly and testing to produce a
completed product to customer specifications. The Company
offers 24-hour sales and technical support services for its
customers.
- -------------------------------------------------------------------------------------
RELATIONSHIP WITH The majority of the products sold by the Company are
SUPPLIERS purchased pursuant to distributor agreements. These
agreements are typically for terms of one year, renewable
annually, non-exclusive, and authorize the Company to sell
through its sales and distribution 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 51% and 47% of total
Company sales in fiscal 1998 and 1999, respectively. Except
for AMD, which accounted for 6% and 10% of total Company
sales for fiscal 1998 and 1999, respectively, and TI, which
accounted for 10% and 5% of total Company sales for fiscal
1998 and 1999, 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
</TABLE>
Q 5
<PAGE> 6
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
RELATIONSHIP WITH sold to customers as well as credits on unsold inventory
SUPPLIERS when the manufacturers reduce prices on their price lists.
(CONTINUED) 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 the Company's
kitting and turnkey contract manufacturing orders than with
the purchase and stocking of inventory pursuant to its
normal distributor agreements.
- -------------------------------------------------------------------------------------
SALES AND Distributors have become an increasingly important marketing
MARKETING channel for electronics products, permitting manufacturers
to market their products economically to a broad range of
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.
The Company's electronics distribution business services
approximately 40,000 customers, the majority of which are
medium and small sized 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 40% of the Company's employees were involved
in sales at May 31, 1999.
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.
</TABLE>
Q 6
<PAGE> 7
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
SALES AND Each sales and distribution center is electronically linked
MARKETING to the Company's central computer system, which provides
(CONTINUED) 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 national distribution networks 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, Canada and Mexico.
At May 31, 1999, the Company had approximately 2,000
employees, substantially all of whom were employed
full-time.
As described in Note 4 to the accompanying consolidated
financial statements, the Company has made a 16% investment
in Eurotronics, the holding company of the electronics
distribution companies of SEI, one of the largest electronic
component distributors in Europe. As reported by Avnet, it
has entered into an agreement with the shareholders of SEI
to purchase the 84% of Eurotronics not owned by the Company.
In addition, as described in Note 5 to the accompanying
consolidated financial statements, the Company has, as of
May 31, 1999, an investment of approximately 9% of the
common stock of Serial System Ltd., an electronic components
distributor based in Singapore.
- -------------------------------------------------------------------------------------
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 THE CYCLICAL NATURE OF THE ELECTRONICS INDUSTRY MAY CAUSE
CONSIDERATIONS FLUCTUATIONS IN THE QUARTERLY OPERATING RESULTS OF MARSHALL.
Marshall's financial results may vary significantly from
period to period because Marshall's business is affected by
the cyclical nature of the electronics industry and overall
trends in the general economy. In general, the electronics
distribution industry is very sensitive to fluctuating
market conditions. These fluctuations are primarily caused
by changes in the supply and demand
</TABLE>
Q 7
<PAGE> 8
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
CERTAIN for electronic products, which impact product availability,
CONSIDERATIONS prices and margins. Other factors which affect operating
(CONTINUED) results include:
- availability of products from suppliers
- the product mix sold by Marshall
- price competition for products sold by Marshall
- price decreases or obsolescence on inventory that is not
price protected or returnable to suppliers
- the ability of Marshall's customers to pay their
obligations.
THE LOSS OF A KEY SUPPLIER COULD HAVE A MATERIAL ADVERSE
EFFECT UPON MARSHALL'S SALES.
Marshall's distributor agreements with its suppliers are
non-exclusive and can be terminated for convenience and on
short notice. Marshall's ten largest suppliers accounted for
approximately 51% and 47% of Marshall's total sales in
fiscal 1998 and 1999, respectively. Suppliers have from time
to time terminated distributor agreements with Marshall, and
it is possible such terminations may occur in the future.
The loss of a key supplier could have a material adverse
effect upon Marshall's sales.
MARSHALL'S PRODUCTS ARE SUBJECT TO SHARP CHANGES IN DEMAND,
WHICH CAN RESULT IN PRODUCT SHORTAGES OR IN EXCESS SUPPLIES.
From time to time, the electronics industry has experienced
product shortages and excess supplies. The prices and
margins on Marshall's products are often materially impacted
by these product shortages and excess supplies. While the
industry has experienced some improvements in recent months,
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 market conditions.
MARSHALL OPERATES IN AN INCREASINGLY COMPETITIVE MARKET.
Supplying and servicing the electronics industry is a highly
competitive business. Marshall competes with other large
national distributors, numerous local and regional
distributors, as well as some of its own suppliers that sell
directly to their larger customers. Marshall believes that
competition is based primarily on the following factors:
- service capabilities
- product offerings
- product availability
- competitive pricing
- financial resources
- relationships
</TABLE>
Q 8
<PAGE> 9
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
CERTAIN From time to time, Marshall has experienced competition from
CONSIDERATIONS "unauthorized" U.S. distributors and brokers of electronic
(CONTINUED) components who purchase these products from various sources,
including sources outside the United States, at prices below
those which Marshall may purchase such products directly
from its suppliers. In addition, a limited number of
Marshall's customers have moved their manufacturing
operations out of the United States in recent years. Such
changes have not had a material impact on Marshall's
business.
Marshall is a leading distributor of Asian semiconductor
products. During fiscal 1998, Motorola, Inc., one of the
largest American semiconductor manufacturers, changed its
policy which formerly prohibited its authorized distributors
in the United States from carrying Asian semiconductor
lines. This policy change has increased competition in the
distribution of Asian semiconductor products.
RECENT CHANGES IN THE INDUSTRIAL ELECTRONIC COMPONENTS
BUSINESS HAVE INCREASED COMPETITION.
In recent years, the distribution of industrial electronic
components has undergone significant changes. These changes
include the following:
- the growth of new competitive forces affecting the
industry
- pressures imposed on distributors by suppliers and
customers who want their distributors to provide more
services, capabilities and products
- the trend of major suppliers and many customers to reduce
the number of distributors with which they do business and
to favor those distributors that can provide a full line
of products and that have global reach
- the increasing role of contract manufacturers in
manufacturing and materials procurements
- the trend toward increasing globalization.
MARSHALL MUST ATTRACT AND RETAIN A SUFFICIENT NUMBER OF
MANAGERIAL PERSONNEL AND KEY EMPLOYEES TO COMPETE
SUCCESSFULLY.
Marshall'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
Marshall. Marshall'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 76 sales and distribution
facilities and 4 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, the Company also
owns facilities in Austin, Texas; Endicott, New York; San
Diego, California; Boston, Massachusetts; and Wallingford,
Connecticut of approximately 8,000 to 58,000 square feet
each.
</TABLE>
Q 9
<PAGE> 10
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
During fiscal 1999, the Company sold its Dallas, Texas;
Irvine, California; and Milpitas, California facilities.
Prior to its sale, the Dallas facility had been leased to
another company and the Irvine and Milpitas facilities have
been leased back by the Company from the buyers of such
facilities for one and five year periods, respectively, as
described in Note 6 to the accompanying consolidated
financial statements.
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 subject to leases whose
initial terms expire at various dates through fiscal year
2004. Substantially all of those leases include renewal
provisions.
The Company believes that the current facilities are
adequate for the Company's operating requirements.
- -------------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
DiPirro v. Marshall Industries and Does 1 through 1,000,
Case No. H205535-2, was filed on February 1, 1999, in the
Superior Court of California, Alameda County. Plaintiff
brought this suit under the private citizen enforcement
provisions of the California Safe Drinking Water and Toxic
Enforcement Act of 1986 or "Proposition 65," Cal. Health &
Safety Code Sections 25249.5-25249.13, and under the
California Unfair Competition Act, Cal. Bus. & Prof. Code
Section 17200. The Plaintiff's complaint alleges that the
Company sells or distributes soldering tools and equipment
(e.g., soldering irons, pots and tips) and chemicals (e.g.,
cleaners, adhesives, fluxes) that expose users to lead and
other chemicals known to the State of California to cause
cancer and reproductive toxicity, without first providing
users with a "clear and reasonable warning" as required by
Proposition 65. The complaint seeks civil penalties of up to
$2,500 per day for each violation of Proposition 65's
warning requirement, restitution of the purchase price of
goods sold without warnings, injunctive relief and
attorneys' fees and costs. While the Company is the only
named defendant, manufacturers, other distributors,
retailers and employers who use or sell the products at
issue are sued as unnamed "Doe" defendants in this lawsuit.
Separate lawsuits against individual manufacturers were also
filed by the Plaintiff. This lawsuit was settled in May
1999. The results of the settlement were not material to the
Company's financial position or results of operations.
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, 1999.
</TABLE>
Q 10
<PAGE> 11
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
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>
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------------------
High Low
---------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------
FISCAL YEAR 1999
First Quarter $30 15/16 $23 3/8
Second Quarter 32 1/4 21 15/16
Third Quarter 28 1/8 14 1/4
Fourth Quarter 18 3/16 12 11/16
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
The Company had approximately 5,000 shareholders at July 31,
1999. It has never paid a cash dividend. Earnings have been
retained to provide for the growth and expansion of the
Company's business. In addition, under the terms of a Credit
Agreement among the Company, Sterling and First Union
National Bank, the Company may not pay cash dividends in an
amount in excess of 5% of the consolidated net income of the
Company and its subsidiaries, and may only pay dividends if
it is in compliance with the financial covenants contained
in the Credit Agreement. The Board of Directors periodically
considers whether or not to pay dividends. At this time, the
Company does not plan to pay dividends.
</TABLE>
Q 11
<PAGE> 12
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
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, 1999, 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, 1999, and the consolidated balance sheets at May
31, 1998 and 1999 included elsewhere herein.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED Years Ended May 31, 1995 1996 1997 1998(1) 1999(1)(2)
---------------------------------------------------------------------------------------------
STATEMENTS OF (In thousands except for per share data)
INCOME Net sales $1,009,315 $1,164,812 $1,184,604 $1,461,363 $1,722,646
Cost of sales 820,571 955,331 988,371 1,232,026 1,457,256
---------------------------------------------------------------------------------------------
Gross profit 188,744 209,481 196,233 229,337 265,390
Selling, general and
administrative expenses 117,287 123,188 128,927 163,556 204,879
---------------------------------------------------------------------------------------------
Income from operations 71,457 86,293 67,306 65,781 60,511
Write-down of equity
investment -- -- -- -- 19,500
Interest expense (income) and
other net(3) 1,916 989 (1,197) 7,480 18,812
---------------------------------------------------------------------------------------------
Income before income taxes
and extraordinary gain 69,541 85,304 68,503 58,301 22,199
Provision for income taxes 29,130 35,250 28,850 24,958 19,899
---------------------------------------------------------------------------------------------
Income before extraordinary
gain 40,411 50,054 39,653 33,343 2,300
Extraordinary gain from
termination of joint
venture (net of income
taxes of $10,535) -- -- -- 14,615 --
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net income $ 40,411 $ 50,054 $ 39,653 $ 47,958 $ 2,300
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Earnings per share
(basic):(4)
Income per share before
extraordinary gain $ 2.34 $ 2.90 $ 2.35 $ 2.01 $ 0.14
Extraordinary gain per share -- -- -- 0.88 --
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net income per share $ 2.34 $ 2.90 $ 2.35 $ 2.89 $ 0.14
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Earnings per share
(diluted):(4)
Income per share before
extraordinary gain $ 2.33 $ 2.87 $ 2.33 $ 1.99 $ 0.14
Extraordinary gain per share -- -- -- 0.87 --
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net income per share $ 2.33 $ 2.87 $ 2.33 $ 2.86 $ 0.14
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Cash dividends per share(5) -- -- -- -- --
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
Q 12
<PAGE> 13
MARSHALL INDUSTRIES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED Years Ended May 31, 1995 1996 1997 1998 1999
STATEMENTS OF ----------------------------------------------------------------------------------------
INCOME Weighted average number of
(CONTINUED) shares outstanding, basic 17,256 17,278 16,861 16,616 16,616
Weighted average number of shares
outstanding, diluted 17,372 17,414 16,997 16,772 16,660
- -----------------------------------------------------------------------------------------------------------------
CONSOLIDATED May 31, 1995 1996 1997 1998 1999
BALANCE SHEETS -- ----------------------------------------------------------------------------------------
SUMMARY (In thousands)
Working capital $254,394 $284,508 $330,962 $435,596 $371,570
Total assets 423,307 472,611 539,673 853,824 772,528
Long-term debt, net of current portion 45,205 25,000 50,000 245,500 144,000
Shareholders' investment 279,752 329,994 348,942 400,439 410,191
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
(1) The 1998 and 1999 amounts include Sterling Electronics which was acquired on January
16, 1998.
(2) The 1999 amounts include a write-down of $19.5 million, or basic and diluted EPS of
$1.17, on the Company's investment in Eurotronics in the fourth quarter of fiscal
1999.
(3) Amounts are net of interest income of $1.2 million, $1.7 million, $2.6 million, $0.4
million and $0.3 million in 1995, 1996, 1997, 1998 and 1999, respectively. In
addition, amounts for 1998 and 1999 include the amortization of goodwill related to
the Company's equity investment in Eurotronics and the Company's portion of
Eurotronic's net losses of $0.3 million and $4.0 million, respectively.
(4) 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 adoption of SFAS No. 128.
(5) The Company has never paid a cash dividend. Earnings have been retained to provide
for the growth and expansion of the Company's business.
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Q 13
<PAGE> 14
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C> <C> <C> <C>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CONSOLIDATED The following table sets forth items in the consolidated statements of income as a
RESULTS OF percent of net sales for periods shown:
-----------------------------------------------------------------------------------------
OPERATIONS Years Ended May 31, 1997 1998 1999
-----------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 83.4 84.3 84.6
-----------------------------------------------------------------------------------------
Gross profit 16.6 15.7 15.4
Selling, general and administrative expenses 10.9 11.2 11.9
-----------------------------------------------------------------------------------------
Income from operations 5.7 4.5 3.5
Write-down of equity investment -- -- 1.1
Interest expense (income) and other -- net (.1) .5 1.1
-----------------------------------------------------------------------------------------
Income before provision for income taxes and
extraordinary gain 5.8 4.0 1.3
Provision for income taxes 2.4 1.7 1.2
-----------------------------------------------------------------------------------------
Income before extraordinary gain 3.4 2.3 0.1
-----------------------------------------------------------------------------------------
Extraordinary gain (net of income taxes) -- 1.0 --
-----------------------------------------------------------------------------------------
Net income 3.4% 3.3% 0.1%
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
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 1997, 1998 and 1999
(in thousands except for per share data):
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------------------------------------
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(1) .51 .55 .59 .71 2.35
Net income per share, diluted(1) .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(2) 8,007 6,657 47,958(2)
Net income per share, basic(1) .56 1.45(2) .48 .40 2.89(2)
Net income per share, diluted(1) .55 1.42(2) .48 .40 2.86(2)
1999
---------------------------------------------------------------------------------------------
NET SALES $460,879 $435,470 $393,164 $433,133 $1,722,646
GROSS PROFIT 72,856 67,403 60,141 64,990 265,390
NET INCOME (LOSS) 7,870 5,401 2,705 (13,676)(3) 2,300(3)
NET INCOME (LOSS) PER SHARE, BASIC .47 .32 .16 (.82)(3) 0.14(3)
NET INCOME (LOSS) PER SHARE, DILUTED .47 .32 .16 (.82)(3) 0.14(3)
---------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts have been restated to reflect adoption of SFAS No.
128.
(2) Includes extraordinary gain of $14.6 million, net of income
taxes, and basic and diluted EPS of $0.88 and $0.87,
respectively.
(3) The 1999 amounts include a write-down of $19.5 million, or
basic and diluted EPS of $1.17, on the Company's investment
in Eurotronics in the fourth quarter of fiscal 1999.
Q 14
<PAGE> 15
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
CONSOLIDATED As described in Note 3 to the accompanying consolidated
RESULTS OF financial statements, the Company acquired Sterling
OPERATIONS Electronics Corporation on January 16, 1998. Sterling's net
(CONTINUED) sales of $46.7 million and $94.0 million were included in
the Company's third and fourth quarter fiscal 1998 results,
respectively. Sterling's net sales of $91.7 million, $89.7
million, $78.8 million and $86.8 million were included in
the Company's first, second, third and fourth quarter fiscal
1999 results, respectively.
- -------------------------------------------------------------------------------------
FISCAL 1999 The Company's fiscal 1999 net sales increased by $261.3
COMPARED TO million to $1.723 billion from fiscal year 1998. The
FISCAL 1998 Company's results included those of Sterling, which was
acquired on January 16, 1998. Sterling's net sales were
$347.0 million in fiscal 1999, as compared to $140.7 million
in fiscal 1998, which included Sterling's net sales from
acquisition date to May 31, 1998. The Company's fiscal 1999
net sales, excluding Sterling, increased by $55.0 million or
4.2% compared to fiscal 1998. Beginning with the last
quarter of fiscal 1998 through current fiscal year, the
industry and the Company have experienced a moderation in
customer demand. This, along with the increased availability
of many products, has contributed to the increased pressures
on unit pricing and margins of many of the products that the
Company sells.
Excluding Sterling's net sales, the increase in the
Company's net sales of $55.0 million for fiscal 1999, as
compared to fiscal 1998, was due primarily to increased
microprocessor sales of $117.4 million, partially offset by
decreased sales of "DRAM's" of $55.8 million. The Company's
fiscal 1999 net sales were also affected by the termination
of the Xilinx product line effective December 31, 1998. The
termination of the line accounted for a reduction in sales
of approximately $23.0 million of the Company's net sales
for fiscal 1999, as compared to fiscal 1998. The sales of
Xilinx products represented 5% and 3% of total Company sales
in fiscal 1998 and 1999, respectively. The Company believes
that additional sales from new suppliers, such as FCI Berg
Electronics, Inc., Lucent Technologies Inc., Maxim
Integrated Products, Micron Technology Products and Vishay
Intertechnology, Inc. will offset most of the sales lost by
the Xilinx termination, once the lines are fully launched.
The exceptional sales of microprocessors were primarily due
to the strong demand and increased availability of such
products and special purchases of some end-of-production
products from one of the Company's major suppliers. There is
no assurance that such special purchases will be available
in future periods. Sales of microprocessors accounted for
approximately 7% and 13% of the Company's sales for fiscal
1998 and 1999, respectively. The decrease in DRAM sales was
primarily due to the continuing declines in the unit pricing
of such products. The Company's DRAM sales have also been
impacted by a reduction in the volume of products made
available to the distributor network by some major suppliers
due to pricing, profitability and supply considerations.
Sales of DRAM's accounted for approximately 9% and 5% of the
Company's sales for fiscal 1998 and 1999, respectively.
The operating results for the third and fourth quarters of
fiscal year 1998 and first quarter of fiscal 1999 benefited
from the shipments of some large value-added orders for a
major customer through its contract manufacturer. Partly due
to the timing of product introductions and some seasonal
characteristics of the finished end products, the order
levels for this customer were significantly lower in the
last three quarters of fiscal 1999.
</TABLE>
Q 15
<PAGE> 16
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
FISCAL 1999 COMPARED TO For fiscal 1999, net margins decreased to 15.4% from 15.7%
FISCAL 1998 for fiscal 1998. Net margins for the current year were
(CONTINUED) impacted by the continuing market pressures affecting many
of the products that the Company sells and the increase in
the sales volume of microprocessors, which are lower margin
products than other products sold by the Company, as
compared to last year. This decrease in net margins was
partially offset by the decline in the sales volume of
DRAM's, which are lower margin products, in fiscal 1999 as
compared to fiscal 1998, and the inclusion of Sterling's
sales. Due to differences in product and customer mix,
Sterling's margins on sales are higher than those of
Marshall.
Selling, general and administrative ("SG&A") expenses for
fiscal 1999 increased by $41.3 million to $204.9 million
from $163.6 million for fiscal 1998. Excluding Sterling's
SG&A expenses of $55.2 million in fiscal 1999 and $22.1
million in fiscal 1998 from acquisition date to May 31,
1998, the Company's SG&A expenses increased by $8.2 million,
as compared to fiscal 1998. Salary adjustments and staffing
increases in product management, field sales and information
technology resulted in higher salary costs of $4.9 million
in fiscal 1999 as compared to fiscal 1998. In addition,
approximately $3.0 million in goodwill amortization expense
relating to the Sterling acquisition was incurred in fiscal
1999 as compared to $1.2 million in fiscal 1998. The
Sterling expenses for fiscal 1999 included the costs of
consolidating its warehousing operations and the integration
of its automated warehousing equipment to the Company's
operating systems. This project was completed during the
second quarter of fiscal 1999 at a cost of $1.9 million.
Offsetting the increases in the Company's fiscal 1999 costs
of sales and SG&A expenses, as compared to fiscal 1998, were
reductions in staffing from the discontinuation of
Sterling's cable assembly operations and the Company's field
sales organization in the third and fourth quarters of
fiscal 1999.
The Company also recorded a write-down of $19.5 million on
its investment in Eurotronics in the fourth quarter of
fiscal 1999, as described in Note 4 to the accompanying
consolidated financial statements.
Interest expense increased by $7.6 million to $14.8 million
in fiscal 1999, as compared to $7.2 million in fiscal 1998,
primarily due to bank borrowings incurred for the
acquisition of Sterling and higher levels of borrowings
throughout fiscal 1999 to support increases in inventories
and receivables from the increased sales volume.
"Interest expense and other -- net" includes the
amortization of goodwill associated with the Company's
investment in the SEI companies, along with the Company's
share of SEI's net operating results. The amortization of
goodwill and the Company's share of SEI's net operating
results were $4.0 million and $0.3 million in net expenses
in fiscal 1999 and 1998, respectively. SEI's operating
results for fiscal 1999 were negatively impacted by the
difficult market conditions in Europe and the recording of
some restructuring charges by SEI.
As described elsewhere herein, the Company's net operating
results for fiscal 1999 included amortization of goodwill
from the Sterling acquisition and Eurotronics investment and
the Company's share of SEI's net income or loss. The higher
than statutory Federal and state income tax rates used to
record the Company's tax expense in fiscal 1999 and 1998 is
the result of the non-deductibility of these charges and
credits.
</TABLE>
Q 16
<PAGE> 17
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
FISCAL 1998 The Company's fiscal 1998 net sales increased by $276.8
COMPARED TO million to $1.461 billion from fiscal year 1997. The
FISCAL 1997 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 the fourth quarter of fiscal 1998, the
industry and the Company had experienced a moderation in
customer demand. This, along with the increased availability
of many products, had 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.
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 fiscal 1998, 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 the prior 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
continued until the consolidation of these functions into
Sterling's automated warehouse in Grapevine, Texas, which
was completed in the second quarter of 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 fiscal 1997, 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 the
increased sales volume. Additionally, there was a decrease
in interest income as a result of the
</TABLE>
Q 17
<PAGE> 18
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
FISCAL 1998 conversion of the note receivable from SEI, as described in
COMPARED TO Note 4 to the accompanying consolidated financial
FISCAL 1997 statements.
(CONTINUED)
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 15 to the accompanying consolidated financial
statements.
- -------------------------------------------------------------------------------------
LIQUIDITY AND The Company's sources of liquidity at May 31, 1999 consisted
CAPITAL principally of working capital of $371.6 million and a bank
RESOURCES credit facility of $317.5 million, of which $161.5 million
was outstanding at May 31, 1999. 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 decrease in the Company's working capital
of $64.0 million and proceeds received of $11.8 million from
the sales of facilities, the Company's long-term debt
decreased to $144.0 million at May 31, 1999 from $245.5
million at May 31, 1998. Under the terms of the bank
facility agreement, there are quarterly reductions in the
facility which began February 28, 1999, and will result in a
reduction of the facility availability by $100 million, in
the aggregate, by the year 2002.
Net cash provided by operating activities in fiscal 1999 of
$85.1 million was primarily due to a significant decrease in
working capital. At May 31, 1999, the Company's working
capital decreased by $64.0 million from the prior year, to
$371.6 million. This decrease was primarily due to
improvements in inventory turns from increased product
availability and reduced levels of inventory to align with
current sales levels.
Net cash provided by investing activities in fiscal 1999
related mainly to proceeds received from the sales of the
Dallas, Milpitas and Irvine facilities of $11.8 million,
partially offset by capital expenditures of $7.4 million.
Capital expenditures for fiscal 1999 related primarily to
the investment in information technology equipment and
building improvements.
The repayments under bank credit line and term loan
borrowings of $91.5 million represented the amount used in
financing activities for fiscal 1999.
Net cash provided by operating activities in fiscal 1998 of
$35.9 million was primarily the result of net income earned
reduced by increases in working capital. At May 31, 1998,
the Company's working capital increased by $104.6 million to
$435.6 million primarily from the Sterling acquisition and
increased inventory levels to support higher sales volume.
Net cash used by operating activities was $2.0 million for
fiscal 1997.
Net cash used in investing activities in fiscal 1998 was
primarily the result of cash consideration paid for the
acquisition of Sterling as described in Note 3 to the
accompanying consolidated financial statements and a $7.2
million investment in Serial. This was offset by a
non-recurring fee of $25.1 million, $14.6 million net of
income taxes, from the termination of a joint venture. The
Company incurred capital expenditures of $12.2 million and
$2.7 million in fiscal 1998 and 1997, respectively.
The borrowings to fund the acquisition of Sterling as
described in Notes 3 and 7 to the accompanying consolidated
financial statements, primarily contributed to the net cash
provided by financing activities in fiscal 1998. The
purchase of 725,000 share 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.
</TABLE>
Q 18
<PAGE> 19
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
YEAR 2000 The Company has completed an extensive program to ensure all
COMPLIANCE its critical business systems (including operational,
financial and EDI systems) are Year 2000 compliant.
Substantially all of the critical business systems have been
tested, upgraded or remediated. All such testing, upgrading
or remediating is expected to be completed by October 1,
1999. Although the Company believes that it has taken
appropriate measures against any disruption of its systems
due to the Year 2000 issue, there can be no assurances that
the Company has identified 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 cost of the Year 2000 program is
expected to be less than $1 million.
The Company is a franchised distributor for a large number
of well known, prominent manufacturers of electronic
component and production supply products. However, the
Company does not design or manufacture these products. All
the products sold by the Company are also sold by the
manufacturers and/or by other distributors. The Company is
not a sole source for these products. The Company does
depend, nevertheless, on its key suppliers and other
principal business partners to provide it with the products
it sells and services to support its operations. The Company
sent a written Year 2000 Compliance survey to approximately
2,500 suppliers and business partners and received a written
response from approximately 60% of those suppliers and
business partners. Although the Company cannot control the
efforts undertaken by third parties such as the suppliers
and business partners to whom the survey was sent, it does
not currently anticipate that there will be any significant
disruption of the Company's ability to conduct its
operations from failures of such third parties. There are
not assurances, on the other hand, that these third parties
will properly address all of the Year 2000 issues with
respect to any products or services that they provide to the
Company and the failure of a number of key suppliers, or
service providers, could have a material adverse impact on
the Company's financial performance. Contingency plans are
currently being developed and are expected to be completed
in December, 1999.
- -------------------------------------------------------------------------------------
NEW ACCOUNTING In June 1998, the Financial Accounting Standards Board
STANDARDS ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The new standard, which will be
effective for the second quarter of fiscal year 2001,
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.
</TABLE>
Q 19
<PAGE> 20
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
INFORMATION This Annual Report contains forward-looking statements
RELATING TO within the meaning of the "safe harbor" provisions of the
FORWARD-LOOKING Private Securities Litigation Reform Act of 1995. Reference
STATEMENTS 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.
- -------------------------------------------------------------------------------------
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company bears interest rate risk related to its $317.5
million credit facility. At May 31, 1999, the Company had
outstanding borrowings of $161.5 million under this credit
facility. To manage variable interest rate exposure, the
Company had interest rate swap agreements with two banks at
May 31, 1999, with notional amounts of $40 million and $30
million and fixed pay rates of 5.775% and 5.725% per annum,
respectively. These agreements expire in January 2003.
Substantially all of the remaining outstanding credit
facility balance as of May 31, 1999 bears interest at a
30-day LIBOR rate plus an applicable margin (as described in
Note 7 to the accompanying consolidated financial
statements). If such LIBOR rate were to increase by 10% over
a twelve-month period, the Company's income and cash flow
would be negatively impacted by $0.5 million.
</TABLE>
Q 20
<PAGE> 21
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE We have audited the accompanying consolidated balance sheets
SHAREHOLDERS AND of Marshall Industries (a California corporation) and
BOARD OF DIRECTORS subsidiaries as of May 31, 1998 and 1999, and the related
OF MARSHALL consolidated statements of income, shareholders' investment
INDUSTRIES: and cash flows for each of the three years in the period
ended May 31, 1999. 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, 1998 and 1999, and the results of their operations and
their cash flows for each of the three years in the period
ended May 31, 1999, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
schedule listed in Item 14(a)2 is presented for purposes of
complying with the Securities and Exchange Commission's
rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
August 25, 1999
</TABLE>
Q 21
<PAGE> 22
MARSHALL INDUSTRIES
CONSOLIDATED BALANCE SHEETS
Marshall Industries
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
ASSETS May 31, 1998 1999
-------------------------------------------------------------------------------------
(Dollars in thousands)
CURRENT ASSETS:
Cash $ 4,796 $ 2,831
Receivables, less reserves of $10,632 in 1998 and
$9,089 in 1999 212,956 215,041
Inventories 387,655 340,476
Prepaid expenses and other current assets 13,464 5,106
Deferred income tax benefits (Note 8) 22,872 20,985
-------------------------------------------------------------------------------------
Total current assets 641,743 584,439
-------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 1):
Land 9,068 6,837
Buildings and improvements 39,052 34,816
Equipment, furniture, fixtures and other 32,285 34,056
Computer equipment 22,550 24,707
-------------------------------------------------------------------------------------
102,955 100,416
Accumulated depreciation and amortization (57,099) (61,691)
-------------------------------------------------------------------------------------
45,856 38,725
INVESTMENTS (Notes 4 and 5) 43,486 30,571
GOODWILL, NET (Note 3) 120,744 117,179
OTHER ASSETS -- NET 1,995 1,614
-------------------------------------------------------------------------------------
$853,824 $772,528
-------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
LIABILITIES AND CURRENT LIABILITIES:
SHAREHOLDERS' Current portion of long-term debt (Note 7) $ 7,500 $ 17,500
INVESTMENT Accounts payable 168,008 167,598
Other accrued liabilities including salaries and wages 30,639 27,771
-------------------------------------------------------------------------------------
Total current liabilities 206,147 212,869
-------------------------------------------------------------------------------------
LONG-TERM DEBT (Note 7) 245,500 144,000
DEFERRED INCOME TAX LIABILITIES AND OTHER (Notes 5, 6 and 8) 1,738 5,468
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' INVESTMENT (Notes 1 and 12):
Common stock, $1.00 par value
Shares authorized -- 40,000,000
Shares issued and outstanding -- 16,616,364 in 1998
and in 1999 16,616 16,616
Additional paid-in capital 41,019 41,019
Accumulated other comprehensive income (loss) (Note 11) (3,869) 3,583
Retained earnings 346,673 348,973
-------------------------------------------------------------------------------------
400,439 410,191
-------------------------------------------------------------------------------------
$853,824 $772,528
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Q 22
<PAGE> 23
MARSHALL INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME
Marshall Industries
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1997 1998 1999
-----------------------------------------------------------------------------------------
(In thousands except per share data)
Net sales $1,184,604 $1,461,363 $1,722,646
Cost of sales 988,371 1,232,026 1,457,256
-----------------------------------------------------------------------------------------
Gross profit 196,233 229,337 265,390
Selling, general and administrative expenses 128,927 163,556 204,879
-----------------------------------------------------------------------------------------
Income from operations 67,306 65,781 60,511
Write-down of equity investment (Note 4) -- -- 19,500
Interest expense (income) and other, net
(Note 1) (1,197) 7,480 18,812
-----------------------------------------------------------------------------------------
Income before income taxes and
extraordinary gain 68,503 58,301 22,199
Provision for income taxes (Notes 1 and 8) 28,850 24,958 19,899
-----------------------------------------------------------------------------------------
Income before extraordinary gain 39,653 33,343 2,300
Extraordinary gain from termination of joint
venture (Net of income taxes of $10,535)
(Note 15) -- 14,615 --
-----------------------------------------------------------------------------------------
NET INCOME $ 39,653 $ 47,958 $ 2,300
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC):
Income per share before extraordinary gain $2.35 $2.01 $0.14
Extraordinary gain per share -- 0.88 --
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
NET INCOME PER SHARE (Note 13) $2.35 $2.89 $0.14
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
EARNINGS PER SHARE (DILUTED):
Income per share before extraordinary gain $2.33 $1.99 $0.14
Extraordinary gain per share -- 0.87 --
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
NET INCOME PER SHARE (Note 13) $2.33 $2.86 $0.14
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Q 23
<PAGE> 24
MARSHALL INDUSTRIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Marshall Industries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
-------------------- Paid-in and Other
Shares Amount Capital Equity items
-----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1996 17,278,864 $17,279 $ 53,653 $259,062
Purchase of company stock (Note 10) (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 12) -- -- 7,408 --
Other comprehensive loss (Note 11) -- -- -- (3,869)
Net income -- -- -- 47,958
-----------------------------------------------------------------------------------------------
BALANCE, MAY 31, 1998 16,616,364 16,616 41,019 342,804
Other comprehensive income, net (Note 11) -- -- -- 7,452
Net income -- -- -- 2,300
-----------------------------------------------------------------------------------------------
BALANCE, MAY 31, 1999 16,616,364 $16,616 $ 41,019 $352,556
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Q 24
<PAGE> 25
MARSHALL INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Marshall Industries
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
For the Years Ended May 31, 1997 1998 1999
---------------------------------------------------------------------------------------------
(Dollars in thousands)
CASH FLOWS FROM Net income $ 39,653 $ 47,958 $ 2,300
OPERATING Adjustments to reconcile net income to net cash
ACTIVITIES: provided by (used for) operating activities:
Extraordinary gain from termination of joint venture,
net of income taxes -- (14,615) --
Depreciation and amortization 8,756 9,195 13,070
Provision for bad debts 2,370 2,540 3,477
Write-down of equity investment -- -- 19,500
Loss on equity investment -- -- 2,359
Gain on sale of facilities, net -- -- (281)
Interest on note receivable (2,421) (172) --
Change in current assets and liabilities net of
business acquired:
Decrease (increase) in receivables (29,354) 9,733 (5,562)
Decrease (increase) in inventories (43,537) (24,119) 47,179
Decrease (increase) in prepaid expenses -- (1,114) 588
Increase (decrease) in accounts payable 21,463 16,679 (410)
Increase (decrease) in other accrued liabilities,
including salaries and wages 2,329 (533) (5,643)
Increase (decrease) in income taxes payable 326 (7,346) 7,770
Deferred income tax benefit, net (1,431) (2,541) 738
Other (140) 260 10
---------------------------------------------------------------------------------------------
Total adjustments (41,639) (12,033) 82,795
---------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (1,986) 35,925 85,095
- ----------------------------------------------------------------------------------------------------------------------
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 (2,706) (12,216) (7,441)
Proceeds on sale of facilities -- -- 11,772
Deferred software costs (124) -- --
Other -- 312 35
---------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (2,830) (178,978) 4,366
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net borrowings (repayments) under bank credit lines 50,000 67,787 (84,000)
FINANCING Net term loan borrowings (repayments) (25,000) 79,761 (7,500)
ACTIVITIES: Purchase of common stock (21,819) -- --
Exercise of stock options 1,114 -- --
Capitalized financing costs -- (1,384) --
Other -- (2) 74
---------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,295 146,162 (91,426)
---------------------------------------------------------------------------------------------
Net increase (decrease) in cash (521) 3,109 (1,965)
Cash at beginning of year 2,208 1,687 4,796
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Cash at end of year $ 1,687 $ 4,796 $ 2,831
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Cash paid during the year for the following:
DISCLOSURES OF Interest $ 1,237 $ 7,323 $ 15,156
CASH FLOW ---------------------------------------------------------------------------------------------
INFORMATION: ---------------------------------------------------------------------------------------------
Income taxes $ 29,558 $ 43,911 $ 11,440
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
SUPPLEMENTAL In March 1999, the Company sold its Irvine, California
DISCLOSURE OF facility for $2.3 million in cash and a $2.5 million
NON-CASH non-recourse note due in March 2000. The Company has leased
INVESTING this facility under a 12-month operating lease. The cash
ACTIVITIES: proceeds, all future note payments to and lease payments
from the Company and the net gain related to this
transaction have been deferred until the transaction is
complete in March 2000 in accordance with SFAS No. 98, as
described in Note 6.
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
Q 25
<PAGE> 26
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
<TABLE>
<S> <C>
NOTE 1. NATURE OF OPERATIONS:
SUMMARY OF Through a network of sales and distribution facilities and
SIGNIFICANT corporate support and distribution centers in the United
ACCOUNTING States, Canada and Mexico, the Company supplies and services
POLICIES a broad range of products, including semiconductor, passive
component, connector and interconnect products, and computer
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 amounts
related to the purchase of Sterling and the investment in
Eurotronics (see Notes 3 and 4) are 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 AND OTHER, NET:
Interest income of $2.6 million, $0.4 million and $0.3
million is netted against interest expense in fiscal 1997,
1998 and 1999, respectively. In addition, amounts for 1998
and 1999 included the amortization of goodwill related to
the Company's equity investment in Eurotronics and the
Company's portion of SEI's net losses of $0.3 million and
$4.0 million, 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 $33.5
million and $27.1 million that had not yet been paid by the
Company's banks at May 31, 1998 and 1999,
</TABLE>
Q 26
<PAGE> 27
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
NOTE 1. respectively, are reflected in cash and accounts payable in
SUMMARY OF the accompanying consolidated financial statements.
SIGNIFICANT
ACCOUNTING INVENTORIES:
POLICIES The Company values its inventories at the lower of weighted
(CONTINUED) average cost or market.
FOREIGN CURRENCY:
Investments held in foreign entities are valued at the
exchange rate in effect at the balance sheet date. The
Company's pro-rata share of the earnings or loss from the
investment in the SEI companies are translated at the
monthly average exchange rates.
SHAREHOLDERS' INVESTMENT:
The Company has authorized 200,000 shares of no par value
preferred stock, of which none was outstanding at May 31,
1998 or 1999.
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.
In the second quarter of calendar 1998, the Company
established Marshall Industries Investments B.V., a wholly
owned subsidiary incorporated in the Netherlands, which
holds a 16% minority interest in Eurotronics as discussed in
Note 4 to the accompanying consolidated financial
statements.
During the third quarter of fiscal 1998, the Company
acquired all of the capital stock of Sterling Electronics
Corporation as described in Note 3 to the accompanying
consolidated financial statements.
During fiscal 1999, the Company established MI Technology
Products de Mexico, S. de R.L. de C.V. in order to conduct
sales in Mexico.
The Company is engaged in one business, the sales and
distribution of electronic components, passive and connector
components, computer products and production supplies.
</TABLE>
Q 27
<PAGE> 28
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
<TABLE>
<S> <C>
NOTE 2. On June 25, 1999, the Company entered into a definitive
PROPOSED agreement to merge with Avnet, one of the world's largest
AVNET industrial distributors of electronic components and
ACQUISITION OF computer products, with net sales in the fiscal year ended
MARSHALL INDUSTRIES July 2, 1999 of $6.3 billion and distribution operations in
the Americas, Europe, South Africa and the Asia/Pacific
region. Under the terms of the agreement, in connection with
the merger, each outstanding share of Marshall common stock
will be converted into the right to receive either $39.00 in
cash or .81569 shares of the common stock of Avnet, subject
to adjustment, or a combination thereof, in exchange for
each Marshall share. This proposed acquisition of the
Company by Avnet is subject to various regulatory approvals
and approval by the shareholders of both companies.
- -------------------------------------------------------------------------------------
NOTE 3. On January 16, 1998, the Company acquired all of the
ACQUISITION OF outstanding capital stock of Sterling Electronics
STERLING Corporation, a distributor of electronic components, for $21
ELECTRONICS per share or $169.0 million in cash plus the assumption of
CORPORATION 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. Accumulated
amortization relating to this goodwill was $1.2 million and
$4.2 million at May 31, 1998 and 1999, respectively. 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 and $347.0 million were included in the
Company's fiscal 1998 and 1999 results, respectively.
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>
<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>
<TABLE>
<S> <C>
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.
</TABLE>
Q 28
<PAGE> 29
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
NOTE 4. During the first quarter of fiscal 1998, the Company
INVESTMENT IN converted the note receivable from SEI plus accrued interest
EUROTRONICS into a minority equity interest of 16% in Eurotronics, the
holding company for SEI's electronics distribution
companies. In connection with this conversion, the Company
granted a stock option to SEI, which is exercisable until
September 15, 1999, 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. At conversion of the note receivable, the
Company's investment, including the value of the stock
option at $7.4 million, exceeded the net assets of
Eurotronics by $30 million. Goodwill is being amortized over
a period of thirty years. Goodwill amortization of $307,000
and $1,622,000 was recorded during fiscal 1998 and 1999,
respectively. During fiscal 1998 and fiscal 1999 the Company
recorded non-cash currency translation losses of $192,000
and $474,000, respectively, on the investment with an
offsetting charge against shareholders' investment. The
Company recorded $291,000 and $2,359,000 in net losses in
fiscal 1998 and 1999, respectively, as its share of SEI's
results of operations for such periods. The amortization of
goodwill and the Company's share of SEI's operating results
are included in "Interest expense (income) and other, net"
in the Company's accompanying Consolidated Statements of
Income.
As reported by Avnet, it has entered into an agreement with
the shareholders of Eurotronics to purchase the 84% of
Eurotronics not owned by the Company. Due to the significant
changes in market conditions affecting the industry,
particularly in Europe, the net book value of the Company's
16% position in Eurotronics exceeds its current realization
value. Accordingly, the Company has written down its
investment in Eurotronics to $16.0 million to reflect its
estimated current market value. The $19.5 million write-down
does not include any income tax benefit and will not affect
the pending acquisition of the Company by Avnet as described
in Note 2 to these consolidated financial statements.
- -------------------------------------------------------------------------------------
NOTE 5. In April 1998, the Company purchased 17,814,138 shares,
INVESTMENT IN comprising approximately 9%, of the common stock of Serial
SERIAL Systems Ltd., an electronic components distributor based in
SYSTEMS, LTD. 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 is accounted for as marketable
securities available for sale. Consequently, the investment
in Serial was written down by $3.6 million to $3.6 million
at 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. In May 1999, Serial issued a one-third stock
dividend to all of its shareholders which increased the
number of shares held by the Company to 23,752,184 shares,
comprising approximately 9% of the common stock of Serial as
of May 31, 1999. As of May 31, 1999, the investment in
Serial is carried at $14.6 million due to an increase in its
stock price. The Company did not record a tax benefit in
fiscal 1998 as a result of the investment write-down, but
recorded tax expense of $3.0 million in other comprehensive
income in fiscal 1999 related to the total investment gain
over cost of $7.4 million. These adjustments are reflected
in the Company's shareholders' investment in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
</TABLE>
Q 29
<PAGE> 30
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
<TABLE>
<S> <C>
NOTE 6. In October 1998, the Company sold its Dallas, Texas facility
SALES OF for cash proceeds of $2.6 million. The facility had been
FACILITIES leased to a third party. The gain recorded on the sale of
the Dallas facility was $0.8 million.
In March 1999, the Company received $5.1 million for the
sale of its Milpitas, California facility. The Company has
leased this facility under a five-year operating lease. This
sale is accounted for as a sale-leaseback transaction under
SFAS No. 98, "Accounting for Leases." SFAS No. 98 requires
that the Company recognize any gain in excess of the present
value of the minimum lease payments, with the remaining gain
allocated over the term of the lease. The gain recognized in
fiscal 1999 was not material to the Company's financial
position or results of operations. The remaining gain to be
allocated over the term of the lease amounted to $2.5
million. The future minimum lease payments under the terms
of this lease are as follows:
</TABLE>
<TABLE>
<CAPTION>
(In thousands)
--------------------------------------------------------------------
Year Ending May 31, Amount
--------------------------------------------------------------------
<S> <C>
2000 $ 593
2001 593
2002 593
2003 593
2004 544
--------------------------------------------------------------------
Total $2,916
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
In March 1999, the Company also sold its Irvine, California
facility for $2.3 million in cash and a $2.5 million
non-recourse note due in March 2000. The Company has leased
this facility under a 12-month operating lease. This
transaction is accounted for under the financing method of
sale-leaseback accounting in accordance with SFAS No. 98.
The financing method requires that the cash proceeds on the
sale, the payments received on the note and the lease
payments made, net of imputed interest expense, be deferred
until the transaction is complete in March 2000. At that
time, the total net gain of $3.0 million will be recognized.
At May 31, 1999, the deferred balance for this transaction
totaled $2.2 million.
</TABLE>
Q 30
<PAGE> 31
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
NOTE 7. Long-term debt consists of the following (in thousands):
LONG-TERM DEBT
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
May 31,
1998 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Bank credit lines $153,000 $ 69,000
Term loan 100,000 92,500
----------------------------------------------------------------------------------
253,000 161,500
Less current portion 7,500 17,500
----------------------------------------------------------------------------------
$245,500 $144,000
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
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 facility, which replaced the
Company's previous bank line of credit, provides for
interest on borrowings at either LIBOR plus a margin or at a
prime rate of interest. At May 31, 1999, the prime rate was
7.75%. 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 are 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%.
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 February 28, 1999, there were quarterly reductions
on the $100 million term loan portion of the credit facility
totaling $7.5 million for fiscal 1999 and increasing in
amounts from $17.5 million in the aggregate for fiscal 2000
to a total reduction of $100 million over the term of the
Agreement.
</TABLE>
Q 31
<PAGE> 32
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
<TABLE>
<S> <C>
NOTE 7. Interest Rate Swap Agreements
LONG-TERM DEBT
(CONTINUED) At May 31, 1999, the Company had interest rate swap
agreements with two banks for the notional amounts of $40
million and $30 million to manage variable interest rate
exposure. 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% and 5.725% 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. During fiscal 1999,
the Company reduced the notional amounts of the currently
existing agreements and terminated two other swap
agreements. Fees paid to reduce the notional amounts and
terminate the swap agreements were not material to the
Company's position or results of operations. Additional
interest expense resulting from these agreements totaled
$0.5 million in fiscal 1999.
Maturities of long-term debt
The maturities of long-term debt are as follows:
</TABLE>
<TABLE>
(In thousands)
----------------------------------------------------------------------
<S> <C> <C>
Fiscal Year Ended May 31, Amount
----------------------------------------------------------------------
2000 $ 17,500
2001 22,500
2002 32,500
2003 89,000
----------------------------------------------------------------------
$161,500
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Fair Value
The Company's bank credit lines and term loan approximate
fair value as they bear floating interest rates.
</TABLE>
Q 32
<PAGE> 33
MARSHALL INDUSTRIES
<TABLE>
<S> <C> <C> <C> <C>
NOTE 8. The provision for income taxes consists of the following (in thousands):
INCOME TAXES -----------------------------------------------------------------------------------------
Current: 1997 1998 1999
-----------------------------------------------------------------------------------------
Federal $23,386 $26,292 $15,520
State 6,895 6,660 3,641
-----------------------------------------------------------------------------------------
30,281 32,952 19,161
-----------------------------------------------------------------------------------------
Deferred:
Federal (1,144) 2,247 1,251
State (287) 294 (513)
-----------------------------------------------------------------------------------------
(1,431) 2,541 738
-----------------------------------------------------------------------------------------
Total $28,850 $35,493 $19,899
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
The difference between the income tax provision at the Federal statutory rate and the
recorded income tax provision is reconciled as follows (in thousands):
-----------------------------------------------------------------------------------------
1997 1998 1999
-----------------------------------------------------------------------------------------
Computed Federal income taxes at the statutory rate $23,976 $29,208 $ 7,770
Permanent items -- goodwill amortization -- -- 1,851
State income taxes, net of Federal income tax benefit 4,295 5,207 2,033
Temporary difference not benefitted -- -- 7,800
Other, net 579 1,078 445
-----------------------------------------------------------------------------------------
Provision for income taxes $28,850 $35,493 $19,899
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
As of May 31, 1998 and 1999, deferred tax assets (liabilities) were comprised of the
following (in thousands):
-----------------------------------------------------------------------------------------
1998 1999
-----------------------------------------------------------------------------------------
Operating reserves $14,854 $11,250
Tax depreciation in excess of book amounts (3,255) (2,014)
Deferred gain on sale of buildings -- 1,575
Capitalization of inventory costs for income tax purposes 1,253 1,249
State tax provision 1,921 617
Write-down equity investment -- 7,800
Provision for unrealized gain on investment -- (3,000)
Vacation expense accrued for book purposes 1,151 1,272
Other, net 5,210 6,447
Valuation allowance -- (7,800)
-----------------------------------------------------------------------------------------
Total net deferred tax asset $21,134 $17,396
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
As of May 31, 1999, the Company had total deferred tax
assets of $21.0 million and total deferred tax liabilities
of $3.6 million. The valuation allowance against deferred
tax assets at May 31, 1999 relates to a write-down in an
equity investment where no tax benefits have been recorded.
</TABLE>
Q 33
<PAGE> 34
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
<TABLE>
<S> <C>
NOTE 9. TAX DEFERRED PROFIT SHARING PLAN:
EMPLOYEE BENEFIT
PLANS Effective October 1, 1998, the Sterling Electronics
Corporation 401(k) Plan was merged with the Marshall
Industries Tax Deferred Profit Sharing Plan (the "Plan").
Under the provisions of the Plan, participating employees
may defer from two to fifteen percent, with certain
limitations, of their earnings, 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 each such employee's 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 outstanding shares. At
May 31, 1999, the Plan owned less than 2% of the Company's
outstanding shares. Company contributions to the Plan
amounted to $1.2 million in 1997, $1.4 million in 1998 and
$1.9 million in 1999.
EMPLOYEE COMPENSATION PLANS:
Sterling has supplemental compensation plans for certain key
employees. These plans provide certain benefits upon
retirement or termination. The expense related to these
plans for fiscal year 1998 and 1999 are not material to the
Company's results of operations.
- -------------------------------------------------------------------------------------
NOTE 10. LEASE COMMITMENTS:
COMMITMENTS AND
CONTINGENCIES 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 $2.6 million in 1997, $4.0 million in 1998 and
$7.3 million in 1999.
</TABLE>
<TABLE>
<S> <C>
The future minimum lease payments under all leases are shown
below (in thousands):
</TABLE>
<TABLE>
<S> <C> <C>
Operating Leases
-----------------------------------------------------------------------------
Year Ending May 31,
2000 $ 5,090
2001 4,083
2002 3,305
2003 2,305
2004 1,817
Thereafter 2,145
-----------------------------------------------------------------------------
$18,745
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
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.
LITIGATION:
In February 1999, a lawsuit was filed against the Company
under the private citizen enforcement provisions of the
California Safe Drinking Water and Toxic Enforcement Act of
1986 or "Proposition 65," Cal. Health & Safety Code Sections
25249.5-25249.13, and under the California Unfair
Competition Act, Cal. Bus. & Prof. Code Section 17200. This
lawsuit was settled in May 1999. The results of the
settlement were not material to the Company's financial
position or results of operations.
There are currently no material pending legal proceedings to
which the Company or any of its subsidiaries is a party.
</TABLE>
Q 34
<PAGE> 35
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
NOTE 10. INCOME TAXES:
COMMITMENTS AND
CONTINGENCIES During fiscal 1997, the Internal Revenue Service ("IRS")
(CONTINUED) completed its examination of the Company's Federal income
tax returns for taxable years 1991 through 1994 which
resulted in the issuance of a deficiency notice seeking
additional taxes. This assessment was appealed by the
Company at the administrative appeals level. During fiscal
1999, the IRS concluded its review of this administrative
appeal in favor of the Company on all of the material issues
and the final assessment did not have a material impact on
the Company's financial position or results of operations.
- -------------------------------------------------------------------------------------
NOTE 11. During fiscal 1999, the Company adopted SFAS No. 130,
COMPREHENSIVE INCOME "Reporting Comprehensive Income," which requires disclosure
of comprehensive income defined as the aggregate change in
shareholders' equity excluding changes in ownership
interests. The Company recognized comprehensive income as
follows (in thousands):
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
1997 1998 1999
----------------------------------------------------------------------------------------
Net income $39,653 $47,958 $ 2,300
Foreign currency translation loss -- (228) (918)
Unrealized gain (loss) on Serial System, Ltd. -- (3,641) 11,370
Tax provision on gain on Serial System Ltd. -- -- (3,000)
----------------------------------------------------------------------------------------
Comprehensive income $39,653 $44,089 $ 9,752
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
NOTE 12. The Company has two active stock option plans which provide
STOCK OPTIONS 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 35,000, 250,000 and 260,000
options granted in fiscal 1997, 1998 and 1999, respectively,
at exercise prices ranging from $17.625 to $35.625 per
share. At May 31, 1999, 218,750 shares were available for
additional grants.
In March and April 1999, the Company reduced the exercise
price of 455,000 stock options outstanding from market value
at date of grant to $17.625 per share. The market price of
the Company's common stock was $14.625 as of the March
repricing and $17.00 as of the April repricing. In fiscal
1999, the Company did not record any compensation expense
related to these repricings since the option price was above
market price at the date of repricing.
</TABLE>
Q 35
<PAGE> 36
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
<TABLE>
<S> <C>
NOTE 12. As permitted by SFAS No. 123, "Accounting for Stock-Based
STOCK OPTIONS Compensation," effective for fiscal 1999, the Company
(CONTINUED) 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>
<TABLE>
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
1997 1998 1999
----------------------------------------------------------------------------------------------
Net income As reported $39,653 $47,958 $ 2,300
Pro forma $39,490 $47,564 $ (7)
Net income per share, basic As reported $ 2.35 $ 2.89 $ 0.14
Pro forma $ 2.34 $ 2.86 $ 0.00
Net income per share, diluted As reported $ 2.33 $ 2.86 $ 0.14
Pro forma $ 2.32 $ 2.84 $ 0.00
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
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, 1998 and 1999: risk-free interest rate of approximately 7%, 6% and 5%,
respectively; expected dividend yields of 0%; expected volatility of approximately 29%; and
expected life of 6 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, 1999:
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Weighted-Average
Shares Exercise Price
<S> <C> <C> <C>
---------------------------------------------------------------------------------------
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 granted 260,000 19.173
Options forfeited (38,750) 27.867
-------
OPTIONS OUTSTANDING AT MAY 31, 1999 922,250 $18.618
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Options exercisable at May 31, 1997 111,000 $21.138
Options exercisable at May 31, 1998 153,500 23.363
OPTIONS EXERCISABLE AT MAY 31, 1999 253,500 17.982
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
Q 36
<PAGE> 37
MARSHALL INDUSTRIES
NOTE 12.
STOCK OPTIONS
(CONTINUED)
The following table outlines the detail of options outstanding at May 31,
1999:
<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, 1999 Exercisable Shares
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
260,000 $14.00 $ 14.00 11.9 50,000 $ 14.00
455,000 17.625 17.625 7.9 147,500 17.625
186,250 23.375 - 35.625 28.585 8.8 35,000 30.634
21,000 8.675 - 8.90 8.89 1.7 21,000 8.89
--------------------------------------------------------------------------------------------------------
922,250 $8.675 - $35.625 $18.618 9.1 253,500 $17.982
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</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. No
amounts were charged in fiscal 1997, 1998 and 1999. 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. Upon
a change in control of the Company, all options become fully
vested and exercisable.
There are an additional 874,545 shares of options outstanding
at $34.5685 per share as discussed in Note 4, which expire in
September 1999.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
NOTE 13. In February 1997, the FASB issued SFAS No. 128, "Earnings
INCOME PER per Share" (EPS), which requires dual presentation of basic
SHARE 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.
</TABLE>
Q 37
<PAGE> 38
MARSHALL INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Marshall Industries
May 31, 1999
NOTE 13.
INCOME PER
SHARE
(CONTINUED)
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,
-----------------------------------------------------------
1997 1998
---------------------------- ----------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER
SHARE
Income before
extraordinary
gain $39,653 16,861 $2.35 $33,343 16,616 $2.01
Extraordinary gain -- -- -- 14,615 16,616 0.88
Net income 39,653 16,861 2.35 47,958 16,616 2.89
Options -- 136 -- 156 --
----------------------------------------------------------------------------------
DILUTED EARNINGS PER
SHARE
Income before
extraordinary
gain $39,653 16,997 $2.33 $33,343 16,772 $1.99
Extraordinary gain -- -- -- 14,615 16,772 0.87
Net income 39,653 16,997 2.33 47,958 16,772 2.86
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
<CAPTION>
--------------------- ----------------------------
For the Years Ended May 31,
----------------------------
1999
----------------------------
Per Share
Income Shares Amount
--------------------- ----------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER
SHARE
Income before
extraordinary
gain $ 2,300 16,616 $0.14
Extraordinary gain -- -- --
Net income 2,300 16,616 0.14
Options 44
-------------------------------------------------------------
DILUTED EARNINGS PER
SHARE
Income before
extraordinary
gain $ 2,300 16,660 $0.14
Extraordinary gain -- -- --
Net income $ 2,300 16,660 $0.14
------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
The effect of this accounting change on previously reported earnings per share
(EPS) data was as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
For the Year Ended
May 31, 1997
--------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE AMOUNTS
Diluted EPS as reported $2.32
Effect of SFAS No. 128 .01
-----
Diluted EPS as restated $2.33
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Options to purchase 1,059,545 shares of common stock at
option prices ranging from $23.375 to $35.625 per share were
outstanding as of May 31, 1999, 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, 1999. The options
expire on September 15, 1999 through July 31, 2008.
In fiscal 1998, 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.
In fiscal 1997, options to purchase 50,000 shares of common
stock at $35.875 per share were outstanding as of May 31,
1997, 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, 1997.
</TABLE>
Q 38
<PAGE> 39
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
NOTE 14. The Company is engaged in the distribution of industrial
BUSINESS electronic components, passive and connector components,
SEGMENT computer products 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 segment.
The Company's Canadian and Mexican operations are currently
not material to its results of operations or financial
position.
The Company's revenues are derived from four main product
lines as described below (in thousands of dollars):
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
1997 1998 1999
-----------------------------------------------------------------------------------------
Semiconductors $ 850,647 $ 940,645 $1,064,847
Passive Components, Connectors and
Interconnect Products 128,667 203,204 294,874
Computer and Peripheral Products 134,062 241,048 292,222
Industrial Production Supplies 71,229 76,466 70,703
-----------------------------------------------------------------------------------------
$1,184,604 $1,461,363 $1,722,646
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
NOTE 15. In August 1996, the Company formed a joint venture with Wyle
ACCORD CONTRACT Electronics ("Wyle"), another distributor of semiconductors
SERVICES JOINT and computer products. The venture, known as Accord Contract
VENTURE 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.
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
NOTE 16. In February 1999 the Board of Directors adopted a
SHAREHOLDER Shareholder Rights Plan. The Plan was designed to protect
RIGHTS PLAN all shareholders of the Company against hostile acquirers
who may seek to take advantage of the Company without paying
all shareholders of the Company a full and fair price. As
part of this Plan, a special type of dividend was declared
on the common stock of the Company in the form of a
distribution of rights to all shareholders of record on
February 19, 1999.
</TABLE>
Q 39
<PAGE> 40
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
- -------------------------------------------------------------------------------------
PART III
<S> <C>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of
July 31, 1999 with respect to those persons who are
directors and executive officers of the Company
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Shares of Common
Stock Beneficially
Owned(2)
-----------------------
Amount and
Nature of Percent
Beneficial of
Name Age Position(1) Ownership Class
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Gordon S. Marshall............. 79 Chairman of the Board 284,030 1.7%
Robert Rodin................... 45 Director, President and 166,000(3) *
Chief Executive Officer
Richard D. Bentley............. 59 Director and Executive 9,584 *
Vice President
Henry W. Chin.................. 52 Vice President, Finance, 57,250(4) *
Chief Financial Officer
and Secretary
Richard C. Colyear............. 60 Director 3,250(5) *
Jean Fribourg.................. 54 Director 500 *
Lathrop Hoffman................ 74 Director 5,450(5)(6) *
Jose Menendez.................. 62 Director 500 *
Raymond G. Rinehart............ 77 Director 5,450(5)(7) *
Howard C. White................ 58 Director 3,050(5)(8) *
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
* Represents less than 1%.
(1) Each director is elected to serve until the next annual
meeting of shareholders or until his successor is elected to
the Board. Each officer serves at the pleasure of the
Board.
(2) Except as provided under state community property laws
and unless otherwise indicated, each nominee has sole voting
and investment power with respect to the shares shown as
beneficially owned by him.
(3) Includes 137,500 shares which are subject to options
that are presently exercisable or become exercisable within
60 days of July 31, 1999.
(4) Includes 51,250 shares which are subject to options that
are presently exercisable or become exercisable within 60
days of July 31, 1999.
(5) Includes 1,250 shares which are subject to options that
are presently exercisable.
(6) Includes 200 shares held by Mr. Hoffman's wife.
(7) Includes 2,600 shares held in a revocable trust for
which Mr. Rinehart is the trustee.
(8) Includes 400 shares which are held in the retirement
account of Mr. White's wife.
</TABLE>
Q 40
<PAGE> 41
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
Mr. Marshall is the founder of the Company and has been its
Chairman of the Board since October 1954 and was Chief
Executive Officer of the Company until April 1994.
Additionally, he served as President of the Company from
April 1982 to June 1992. Mr. Marshall is also a member of
the Board of Amistar Corporation.
Mr. Rodin has served as a director of the Company since
October 1992. He has been the President since June 1992 and
Chief Executive Officer of the Company since April 1994. He
joined the Company in 1983 and was promoted to Vice
President in October 1988 and Senior Vice President in
August 1989.
Mr. Bentley has served as a director of the Company since
October 1992. He has been Executive Vice President of the
Company since August 1989. He joined the Company in 1978 and
was promoted to Vice President in October 1986 and Senior
Vice President in April 1988.
Mr. Chin has served as the Vice President, Finance and Chief
Financial Officer of the Company since October 1991. He
joined the Company as Corporate Controller in November 1984
and was promoted to Vice President in August 1989. Mr. Chin
is a Certified Public Accountant.
Mr. Colyear has served as a director of the Company since
August 1991. Since 1989, Mr. Colyear has been President of
Colyear Development Corporation, a privately held real
estate firm which develops and operates both office and
industrial properties. From 1967 to 1989, Mr. Colyear was
employed by Security Pacific National Bank in various
capacities, including First Vice President, in connection
with its commercial lending activities.
Mr. Fribourg has served as a director since October 1994 and
since 1992 has been the Chief Executive Officer of SEI, one
of the largest electronic components distributors in Europe,
and is a member of the Executive Boards of SEI and Sonepar
Distribution. During the last ten years, Mr. Fribourg has
held several management and executive positions with Sonepar
and SEI, including SEI Country Manager (Spain) and Sonepar
Distribution Country Manager (Spain and Portugal). On
September 9, 1998, Mr. Fribourg was appointed as Chevalier
Dans L'ordre National du Merite by the President of the
Republic of France.
Mr. Hoffman has served as a director since August 1984. For
more than 25 years, Mr. Hoffman, through several
corporations, has and continues to own and operate
automobile dealerships in Southern California including
Acura, General Motors, Honda, Isuzu and Saturn. Mr. Hoffman
is also Chairman of the Board of Granite State Bank
(formerly The Bank of Monrovia) in Monrovia, California.
Mr. Menendez has served as a director since October 1994 and
has been the Chairman of the Executive Board of SEI since
1990. Mr. Menendez served as the Chairman of the Executive
Board of Sonepar from 1991 to January 1, 1999. Since January
1, 1999, Mr. Menendez has served on the Supervisory Board of
Sonepar. Mr. Menendez also has held the position of Managing
Director and since 1992 has been a member of the Executive
Board of Sonepar, S.A. Mr. Menendez has held management and
executive positions with the Sonepar companies for over
twenty years.
Mr. Rinehart has been a director of the Company since 1982.
Mr. Rinehart formerly served as Chairman of the Executive
Committee of the Board of Directors, Chairman of the Board,
President and Chief Executive Officer of Clow Corporation.
For more than the last 5 years, Mr. Rinehart has been the
Chairman of the Board of RGR Enterprises, and is a director
of Goshen Rubber Co.
</TABLE>
Q 41
<PAGE> 42
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
Mr. White has been a director since January 1992. From 1965
to 1991, Mr. White was associated with the international
accounting and consulting firm of Andersen Worldwide. Until
his retirement in 1991, Mr. White was Managing Director of
Finance for Arthur Andersen's worldwide business unit and
had also served as Managing Partner, Accounting, Audit and
Financial Consulting Practice, Los Angeles/Southern
California, Hawaii and Nevada. Mr. White is currently
President of White & White LLC, a financial and business
consulting services company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on its review of copies of Forms 3, 4 and 5 filed by
the officers and directors of the Company with the
Securities and Exchange Commission, the Company believes
that all such Forms required to be filed with respect to the
fiscal year ended May 31, 1999 were timely filed pursuant to
Section 16 of the Securities Exchange Act.
- -------------------------------------------------------------------------------------
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information
concerning the compensation for the last three fiscal years
of the Chief Executive Officer and each of the other
executive officers of the Company (the "named executive
officers"):
SUMMARY COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation(2)
--------------------------------- ------------------
Name and Principal Fiscal Incentive Stock Options (No.
Position Year Salary Payments(3) Of Options)(4)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gordon S. Marshall(7) 1999 $555,000 $ 47,816 --
Chairman of the Board 1998 555,000 84,816 --
1997 542,500 153,630 --
Robert Rodin(7) 1999 $925,008 $179,693(8) 50,000(9)
Director, President and 1998 837,503 222,872(8) 65,000(10)
Chief Executive Officer 1997 750,000 313,846(8) --
Richard D. Bentley 1999 $361,000 $ 82,952(8) --
Director and Executive 1998 361,000 55,169 --
Vice President 1997 361,000 102,932 --
Henry W. Chin 1999 $262,429 $ 73,009(8) 15,000(9)
Vice President Finance, 1998 253,702 87,845(8) 15,000(10)
Chief Financial 1997 239,000 93,144(8) 15,000(10)
Officer and Secretary
--------------------------------------------------------------------------------------
<CAPTION>
All Other
Compensation(5)(6)
------------------
<S> <C>
$ 4,800
4,800
4,750
$ 6,130
5,930
58,784(11)
$ 9,720
9,720
29,374(11)
$ 5,388
5,657
22,315(11)
--------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) The amounts included in this column for each of the
named executive officers do not include the value
of certain perquisites which in the aggregate did
not exceed the lower of $50,000 or 10% of each
named executive's aggregate fiscal 1997, 1998 or
1999 salary and bonus compensation.
(2) The Company did not make any payments or awards
that would be classifiable under the "Restricted
Stock Award" and "LTIP Payout" columns otherwise
required to be included in the table by the
applicable Securities and Exchange Commission
disclosure rules.
(3) The Company has a profit sharing plan in which all
full-time employees are participants and is based
on the Company's pre-tax profits. Under this profit
sharing plan, the Company's officers can earn up to
80% of their base salaries as incentive
compensation.
</TABLE>
Q 42
<PAGE> 43
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
(4) There were no individual grants of stock options in
tandem with stock appreciation rights ("SAR's") or
freestanding SAR's made during the fiscal years ended
May 31, 1997, 1998 or 1999 to the above-named executive
officers.
(5) Includes amounts contributed by the Company under the
Marshall Industries Tax Deferred Profit Sharing Plan which
provides for participation by any employee of Marshall
who has completed approximately six months of
employment. Each participant may defer from 2% to 15% of
his earnings each payroll period, the amount of which is
placed by the Company in a nonforfeitable, fully vested
account on the employee's behalf. Under the tax laws,
the maximum amount which can be deferred for calendar
years 1997, 1998 and 1999 were $9,500, $10,000 and
$10,000, respectively. The Company contributes quarterly
an amount equal to 50% of the employee's contributions
in the quarter up to a maximum amount equal to 3% of the
employee's earnings in the quarter. The vesting for the
Company's contributions is at 20% for each year of
service with the Company. The employer contributions for
fiscal 1999 for Messrs. Marshall, Rodin, Bentley and
Chin were $4,800, $5,000, $5,000 and $4,368,
respectively.
(6) In 1992, the Board authorized increased amounts of life
insurance for Messrs. Rodin, Bentley and Chin at a total
annual premium cost of approximately $7,000. In
addition, because the annual premium for a $1,000,000
insurance policy on Mr. Marshall's life would be very
substantial, it was deemed preferable to provide a
widow's benefit of $200,000 per year to Mrs. Marshall if
she survives Mr. Marshall. The present value of that
benefit on an actuarial basis is less than $400,000.
(7) See "Certain Relationships and Related Transactions"
below.
(8) In addition to his participation in the Company's profit
sharing plan, the Board of Directors awarded Mr. Rodin
discretionary bonuses of $100,000 for fiscal years 1997,
1998 and 1999. Mr. Rodin's bonuses were paid in the
fiscal year awarded. Mr. Bentley was awarded a $50,000
discretionary bonus for fiscal 1999. Mr. Chin was
awarded discretionary bonuses of $25,000, $50,000 and
$50,000 for each of fiscal years 1997, 1998 and 1999,
respectively. For Mr. Chin the amount listed for fiscal
1997 reflects the $25,000 bonus earned but not paid
until fiscal 1998, and the amount listed for fiscal 1998
reflects the $50,000 bonus awarded and paid in fiscal
1998.
(9) Represents shares of stock underlying options granted
under the Marshall Industries 1997 Stock Option Plan (the
"1997 Stock Option Plan").
(10) Represents shares of stock underlying options granted
under the Marshall Industries 1992 Stock Option Plan (the
"1992 Stock Option Plan").
(11) During fiscal 1997 the Company amended its vacation
policy. In connection with the change in policy, all
employees with vacation accrued in excess of the
maximum were given a one time excess vacation payment.
Messrs. Rodin, Bentley and Chin received $52,904,
$19,904, and $17,124, respectively.
</TABLE>
<TABLE>
<S> <C>
STOCK OPTION PLANS
Under change in control agreements with the Company's named
executive officers, if there is a change in control of the
Company, all options become immediately exercisable.
Approval by the Company's shareholders of the proposed
merger with Avnet will constitute a change in control under
such agreements.
</TABLE>
Q 43
<PAGE> 44
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to the
stock option grants made during the 1999 fiscal year under
the Company's stock option plans to the named executive
officers:
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------
% of Total
Number of Options
Securities Granted To Market
Underlying Employees Price on New
Options In Fiscal Grant Exercise Expiration
Granted(1)(2) Year Date(3) Price(4) Date
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert Rodin.......... 50,000 19.2% $22.75 $17.625 1/20/09
Henry W. Chin......... 15,000 5.8% $25.00 $17.625 10/20/08
----------------------------------------------------------------------------------------
<CAPTION>
---------------------- ----------------------
Potential Value Annual
Stock Appreciation For
Options
----------------------
5%(5) 10%(5)
---------------------- ----------------------
<S> <C> <C>
Robert Rodin.......... $554,200 $1,404,485
Henry W. Chin......... $166,260 $ 421,350
---------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) Represents options to purchase shares of Common Stock
granted under the 1997 Stock Option Plan. The grant date for
Messrs. Rodin and Chin was January 20, 1999 and October
20, 1998, respectively. Mr. Rodin's and Mr. Chin's stock
option grants will become exercisable four years after
the grant date with a ten-year option period.
(2) Under the terms of the Company's stock option plans, the
Compensation Committee retains discretion, subject to plan
limits, to modify the terms of outstanding options and
to reprice options.
(3) At fair market value at date of grant.
(4) Mr. Rodin's options were repriced on April 21, 1999. Mr.
Chin's options were repriced on March 22, 1999. See "Option
Repricing" below.
(5) Represents gain that would be realized assuming the
options were held for the entire ten-year option period with
respect to Mr. Rodin's and Mr. Chin's stock option
grants and the stock price increased at annual
compounded rates of 5% and 10%.
</TABLE>
<TABLE>
<S> <C>
Actual gains, if any, on stock option exercises and Common
Stock holdings will be dependent on overall market
conditions and on the future performance of the Company and
its Common Stock. There can be no assurance that the amounts
reflected in this table will be achieved.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
The following table provides information concerning the
exercise of stock options during the 1999 fiscal year by
each of the named executive officers and the fiscal year-end
value of their unexercised options.
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Number of Securities
Number of Underlying Unexercised
Shares Aggregate Options At Fiscal Year End
Acquired on Value ---------------------------
Name Exercise Realized Exercisable Unexercisable
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gordon S. Marshall....... -- -- -- --
Robert Rodin............. -- -- 137,500(2) 217,500
Richard D. Bentley....... -- -- -- 120,000
Henry W. Chin............ -- -- 51,250 33,750
<CAPTION>
Value of Unexercised In-
The-Money Options at
Fiscal Year End(1)
---------------------------
Exercisable Unexercisable
---------------------------
<S> <C> <C>
$ -- $ --
283,250 326,250
-- 435,000
72,500 --
</TABLE>
<TABLE>
<S> <C>
------------------------------------------------------------
(1) Based on the fair market value of the shares or $17.625
per share on the last day of the fiscal year less the
exercise price payable for such shares.
(2) On October 20, 1998 the Board of Directors voted to
accelerate 30,000 of the 120,000 options granted to Mr.
Rodin in January 1992.
</TABLE>
Q 44
<PAGE> 45
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
EMPLOYEE AGREEMENTS
The Company has entered into Change In Control Agreements
with its executive officers, Messrs. Marshall, Rodin,
Bentley and Chin. Each of these agreements provides that
should there be a "change in control" (as defined), and the
officer's employment is terminated within twenty four months
of any change in control either (i) involuntarily, without
just cause, or (ii) voluntarily, if the officer has
determined in good faith that his duties have been altered
in a material respect or there has been a material reduction
in, or shift in the composition of, his compensation or the
officer is required to be based at any office or location
more than thirty miles from the Company's corporate
headquarters immediately preceding the change in control,
then upon termination, the officer would be entitled to
receive cash compensation subject to a non-compete
provision. Approval by the Company's shareholders of the
proposed merger with Avnet will constitute a change in
control under the agreements.
Mr. Marshall's agreement provides for a one-time cash
payment equal to the product of five times the greater of
the compensation for the last full calendar year or
$750,000. The agreements with Messrs. Rodin and Chin provide
for a one time payment equal to the product of 36 times the
highest monthly base salary paid or payable during the
12-month period immediately preceding the month of
termination. In addition, Messrs. Rodin and Chin would
receive a one-time cash payment equal to the product of
three times their average annual bonus for the last three
full fiscal years before the change in control date. Mr.
Chin's agreement was amended on February 1, 1999 to increase
his benefits from two times salary and bonus to three times
salary and bonus.
Mr. Bentley's agreement provides for a one-time cash payment
equal to the product of two times the greater of base
salary, bonuses and other compensation for the last full
calendar year before Mr. Bentley's termination or $500,000.
The agreement with Mr. Bentley also provides that he may
elect retirement from the Company at age 59 and become a
consultant to the Company at a monthly amount equal to
one-twenty fourth of the payment that would have been paid
under a change in control, as described above, up to a
twenty-four month period. This consulting arrangement with
Mr. Bentley would terminate in the event of Mr. Bentley's
death or disability.
Following such terminations under these agreements, the
officers and their families will be entitled to all benefits
that are generally applicable to an executive of the Company
up to three years for Messrs. Marshall, Rodin and Chin and
two years for Mr. Bentley. Pursuant to each of the
agreements, upon a change in control, the Company shall
cause the vesting of any stock options held to be
accelerated to the change in control date and in the case of
Mr. Bentley's agreement, the Company shall cause the vesting
of any stock options to be accelerated upon his retirement
date. The total payments payable under these agreements
could be reduced in the event that all or a portion of such
payments would be subject to the parachute provisions of
Section 280G (limiting deductibility) and Section 4999
(providing for an excise tax on the recipient) of the
Internal Revenue Code. Such reduction is designed to produce
the maximum after-tax benefit to the recipient of the
payments.
A "change in control" of the Company is generally defined as
(i) any approval by the shareholders of any consolidation,
merger, reorganization or sale or other disposition of all
or substantially all of the assets of the Company (a
"Business Combination"), other than a Business Combination
in which the holders of the Company's common stock
immediately prior to the
</TABLE>
Q 45
<PAGE> 46
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
Business Combination have at least seventy percent (70%)
ownership of the voting capital stock of the surviving
corporation immediately after the Business Combination, no
person beneficially owns 30 percent or more of the Company's
outstanding common stock and at least a majority of the
Board of Directors remains in place, (ii) shareholder
approval of any plan for the liquidation or dissolution of
the Company, (iii) any person becoming the beneficial owner
of thirty percent (30%) or more of the Company's outstanding
common stock or voting securities and the conditions of
clause (iv) below are satisfied within six months
thereafter, or (iv) individuals who, as of the date of the
agreement, constitute the entire Board of Directors shall
cease for any reason to constitute a majority thereof unless
the election, or the nomination for election by the
Company's shareholders, of each new director was approved by
a vote of at least a majority of the directors who were on
the Board as of the date of the agreement.
Under the terms of the agreements, an officer may be
terminated without liability to the Company due to
disability or for "cause", defined generally as (i) the
willful and continued failure to perform his or her duties,
or (ii) the willful engagement in misconduct which is
materially injurious to the Company. The agreements will
automatically be extended for one additional year at their
expiration dates unless terminated earlier due to
termination of the officer, death or disability of the
officer or both parties agree to terminate the Agreements
with six months' written notice prior to the expiration
dates.
The Company's Articles of Incorporation limit the liability
of the Company's directors, officers, and other agents to
the extent permitted under California law. On October 22,
1996, the Company entered into indemnification agreements
with each of its directors and officers: Gordon S. Marshall,
Robert Rodin, Richard D. Bentley, Henry W. Chin, Richard C.
Colyear, Jean Fribourg, Lathrop Hoffman, Jose Menendez,
Raymond G. Rinehart and Howard C. White (each an
"Indemnitee"). Pursuant to the indemnification agreements,
the Company has agreed to indemnify each Indemnitee to the
fullest extent permitted by law against expenses (including
attorneys' fees), judgements, fines and/or amounts paid in
settlement actually and reasonably incurred by the
Indemnitee in connection with actions, suits or proceedings
involving the Indemnitee and relating to the Indemnitee's
service to the Company. If the Merger is consummated, Avnet
has agreed to indemnify each present and former director and
officer of the Company and their respective subsidiaries to
the full extent permitted by California law. Avnet has also
agreed that it will maintain a policy of directors' and
officers' liability insurance coverage for up to six years
following the Merger on terms no less advantageous than the
Company's existing insurance.
OPTION REPRICING
In March 1999, the Compensation Committee of the Board of
Directors (the "Committee") determined that because the
then-current market price of the Company's common stock was
significantly below the exercise prices of the stock options
held by executives and certain key employees of the Company,
the options were no longer motivational, nor were they true
incentives for such executives and employees and could
impact the Company's ability to retain such executives and
employees. Therefore, the Committee decided to reprice a
number of stock options for executives and certain key
employees.
In making the decisions about which shares would be
repriced, the Committee focused on options that had exercise
prices of $24.00 and above which were substantially above
current market price. The Committee repriced many of those
options to $17.625, which was $3.00 above
</TABLE>
Q 46
<PAGE> 47
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
the market price on March 22, 1999. In April 1999, the
Committee repriced a number of stock options for a number of
other employees and an executive officer who had option
grants with exercise prices just below that level. The
Committee believed that it was critical to retain these
other employees and that as a matter of fairness it would be
appropriate to put them on the same level as the executive
officers and other key employees whose shares had been
repriced. The named executive officers set forth below
participated in both the March and the April repricings.
</TABLE>
<TABLE>
<CAPTION>
10-YEAR OPTION REPRICINGS
Length of
Number of Market Original
Securities Price of Exercise Option Term
Underlying Stock at Price at New Remaining
Options Time of Time of Exercise at Date of
Name and Repricing Repriced Repricing Repricing Price Repricing
Principal Position Date (#) ($) ($) ($) (# of yrs)
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Rodin.......... 4/21/99 50,000 17.00 22.75 17.625 10
Director, President 3/22/99 50,000 14.625 35.875 17.625 7
and Chief Executive 3/22/99 65,000 14.625 35.063 17.625 9
Officer 3/22/99 50,000 14.625 24.00 17.625 5
Henry W. Chin......... 3/22/99 15,000 14.625 25.00 17.625 10
Vice President, 3/22/99 15,000 14.625 35.625 17.625 9
Finance, Chief 3/22/99 15,000 14.625 30.125 17.625 8
Financial Officer and 3/22/99 20,000 14.625 25.250 17.625 6
Secretary
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
IN COMPENSATION DECISIONS
The members of the Compensation Committee during the 1999
fiscal year were Howard White, Richard Colyear, Lathrop
Hoffman and Raymond Rinehart. None of the members or former
members of the Compensation Committee are officers or
employees, or former officers or employees, of the Company
or any of its subsidiaries. No interlocking relationship
exists between the members of the Board or Compensation
Committee and the board of directors or compensation
committee of any other company, nor has any such
interlocking relationship existed in the past.
REMUNERATION OF DIRECTORS
Directors who are employees receive no additional
compensation for serving as directors. Except for Mr. White,
all non-employee directors receive monthly retainers of
$1,500. As Chairman of the Compensation Committee, Mr. White
receives a monthly retainer of $2,000. In addition, all
non-employee directors received $3,000 for each of the four
regularly scheduled meetings per year requiring attendance.
Additional formal meetings are compensated.
</TABLE>
Q 47
<PAGE> 48
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
ITEM 12. PRINCIPAL SHAREHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of
July 31, 1999 with respect to each shareholder known by the
Company to be the beneficial owner of more than 5% of its
outstanding Common Stock, and share ownership by all
executive officers and directors of the Company as a group.
</TABLE>
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent of
Name and Address of Beneficial Owner Ownership(1) Class
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Pacific Advisors, Inc. 2,545,700(2) 15.3%
11400 West Olympic Blvd.
Suite 1200
Los Angeles, California 90064
Royce & Associates, Inc. 1,001,300(3) 6.0%
1414 Avenue of the Americas
New York, NY 10019
All executive officers and directors as a group (10 535,064(4) 3.2%
persons)
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(1) Except as provided under state community property laws
and unless otherwise indicated, each shareholder has sole
voting and investment power with respect to the shares
shown as beneficially owned by that shareholder.
(2) Pursuant to a Schedule 13G dated March 12, 1999 and
filed with the Securities and Exchange Commission, First
Pacific Advisors, Inc. reported beneficial ownership of
over 5% of the Company's Common Stock. Based on
information subsequently obtained from First Pacific
Advisors, Inc., the Company believes that on July 31,
1999 it had shared voting and dispositive power with
respect to 887,000 shares and shared dispositive power
with respect to 1,658,700 shares.
(3) Pursuant to a Schedule 13G dated February 10, 1999 and
filed with the Securities and Exchange Commission, Royce &
Associates, Inc. reported beneficial ownership of over
5% of the Company's Common Stock. Based on information
subsequently obtained from Royce & Associates, Inc., the
Company believes that on July 31, 1999, it had sole
voting and dispositive power with respect to 1,001,300
shares.
(4) Includes 193,750 shares which are subject to options
that are presently exercisable or become exercisable within
60 days of July 31, 1999.
</TABLE>
Q 48
<PAGE> 49
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
ADOPTION OF SHAREHOLDER RIGHTS PLAN
On February 5, 1999, the Board of Directors adopted a
Shareholder Rights Plan (the "Plan"). The Plan is designed
to protect all shareholders of the Company against hostile
acquirers who may seek to take advantage of the Company and
its shareholders through coercive or unfair tactics aimed at
gaining control of the Company without paying all
shareholders of the Company a full and fair price. As part
of this Plan, a special type of dividend was declared on the
Common Stock of the Company in the form of a distribution of
rights to all shareholders of record on February 19, 1999.
The rights are not intended to prevent a fair and equitable
takeover of the Company. However, the rights should
discourage any effort to acquire the Company in a manner or
on terms not approved by the Board of Directors. The rights
are designed to deal with the serious problem of a potential
acquirer using coercive or unfair tactics to deprive the
Company's Board of Directors of any real opportunity to
determine the future of the Company and to realize the value
of each shareholder's investment in the Company.
The distribution of rights will not alter the financial
strength of the Company or interfere with its business
plans. The distribution will not change the way in which
shareholders can currently trade the Company's shares and
will not be dilutive or affect reported per share results.
While the distribution of the rights was not taxable either
to shareholder or to the Company, shareholders may,
depending on their individual circumstances, recognize
taxable income should the rights become exercisable.
Many publicly-traded companies have adopted shareholder
rights plans similar to the one adopted by the Company. The
Board is aware that some argue that such plans could deter
legitimate acquisition proposals. The Board, assisted by the
Company's investment banking and legal advisors, carefully
considered these arguments and concluded that such arguments
are speculative and do not justify denying shareholders the
protection which the rights afford against abusive takeover
tactics. Among other things, the Board considered third
party studies which suggested that rights plans do not
prevent takeovers, and that companies protected by rights
plans receive premiums higher than companies without such
plans in takeover contests.
</TABLE>
Q 49
<PAGE> 50
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In addition to the distribution of component parts, the
Company provides a variety of value-added services to its
customers. Through the use of third party contractors, the
Company provides cable assembling and manufacturing
capabilities. One of the third party contract manufacturing
arrangements is with Amistar, a company of which Mr.
Marshall is a director and a substantial shareholder. Under
this arrangement, the Company accepts orders from its
customers and provides the necessary components, which
Amistar then "mounts" on circuit boards. The Company pays
Amistar for its services and invoices the customers for the
completed product. The Company believes that the amounts
paid to Amistar are not in excess of the amounts that would
be charged by unaffiliated manufacturers for the same
services. During the fiscal years ended May 31, 1997, 1998
and 1999 the Company paid Amistar approximately $941,000,
$1,393,000 and $860,859 respectively, under this
arrangement.
Mr. Rodin wrote and published a biography of the Company.
All of the expenses, including $129,000 paid to an
independent writer associated with the project, will be
borne by the Company. Mr. Rodin owns all rights, including
but not limited to, distribution rights and copyrights to
the book as well as all derivative works of the book. He is
also entitled to receive, as a bonus, any profits from the
book in excess of expenses paid by the Company.
</TABLE>
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
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:
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------
Page
------------------------------------------------------------------
<S> <C>
Report of Independent Public Accountants 21
Consolidated Financial Statements:
Balance Sheets -- May 31, 1998 and 1999 22
Statements for the years ended May 31, 1997, 1998 and
1999 --
Income 23
Shareholders' Investment 24
Cash Flows 25
Notes to Consolidated Financial Statements 26
</TABLE>
<TABLE>
<S> <C>
(a) 2. FINANCIAL STATEMENT SCHEDULES -- All schedules, other
than Schedule II, are omitted since they are not applicable,
not required, or the required information is included in the
consolidated financial statements or notes thereto.
</TABLE>
Q 50
<PAGE> 51
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
</TABLE>
<TABLE>
<CAPTION>
MARSHALL INDUSTRIES
FOR THE THREE YEARS ENDED MAY 31, 1999
(IN THOUSANDS)
---------------------------------------------------------------------------------
ADDITIONS
-----------------------
(1)
BALANCE AT CHARGED TO
BEGINNING COSTS AND (2) BALANCE AT
OF YEAR EXPENSES OTHER(a) DEDUCTIONS(b) END OF YEAR
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance
for doubtful
accounts:
1997 $ 8,405 $2,370 $ -- $2,772 $ 8,003
1998 8,003 2,540 2,909 2,820 10,632
1999 10,632 3,477 -- 5,020 9,089
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
(a) Represents the reserve for doubtful accounts of Sterling
Electronics Corporation as of acquisition date of January
16, 1998
(b) Represents uncollectible accounts written off, net of
recoveries
</TABLE>
<TABLE>
<S> <C>
(a) 3. EXHIBITS -- The following exhibits are attached to
this Annual Report on Form 10-K:
</TABLE>
<TABLE>
<S> <C>
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.)
Exhibit 3.3: Certificate of Determination of Junior Participating
Preferred Stock. (Incorporated herein by reference to
Exhibit 2.2 on Form 8-A12B/A filed on March 18, 1999.)
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.)
</TABLE>
Q 51
<PAGE> 52
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C>
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: Amendment and Waiver to Credit Agreement dated June 29, 1998
by and among Marshall Industries, Sterling Electronics
Corporation, the Lenders party to the Credit Agreement and
First Union National Bank, as Administrative Agent.
Exhibit 10.6*: Marshall Industries 1984 Stock Option Plan. (Incorporated
herein by reference to Exhibit A to the Company's Final
Proxy Statement dated September 17, 1984.)
Exhibit 10.7*: Marshall Industries 1992 Nonqualified Stock Option Plan.
(Incorporated herein by reference to Exhibit A to the
Company's Final Proxy Statement dated August 31, 1992.)
Exhibit 10.8*: 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 10.9*: 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 10.10*: 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 10.11*: 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 10.12*: 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.)
Exhibit 10.13*: 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 10.14*: 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.)
</TABLE>
Q 52
<PAGE> 53
MARSHALL INDUSTRIES
<TABLE>
<S> <C>
Exhibit 10.15*: 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 10.16: 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 10.17: 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 10.18: 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 10.19: 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 10.20*: 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 10.21: 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 10.22: Rights Agreement dated as of February 8, 1999 between
Marshall Industries and First Union National Bank.
(Incorporated herein by reference to Exhibit 2.1 on Form
8-A12B filed on February 17, 1999.)
Exhibit 10.23*: Amendment dated February 1, 1999 to the Change in Control
Agreement between Marshall Industries and Henry W. Chin.
Exhibit 23: Consent of Independent Public Accountants.
Exhibit 27: Financial Data Schedule.
</TABLE>
<TABLE>
<S> <C>
* Management contract, compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K -- None.
</TABLE>
Q 53
<PAGE> 54
MARSHALL INDUSTRIES
FORM 10-K
Marshall Industries
Year Ended May 31, 1999
<TABLE>
<S> <C> <C>
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 25, 1999
----------------------------------------------------
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.
GORDON S. MARSHALL August 25, 1999
--------------------------------------------------------
Gordon S. Marshall
Chairman of the Board and Director
ROBERT RODIN August 25, 1999
--------------------------------------------------------
Robert Rodin
President, Chief Executive Officer and Director
(Principal Executive Officer)
HENRY W. CHIN August 25, 1999
--------------------------------------------------------
Henry W. Chin
Vice President, Finance, Chief Financial Officer and
Secretary
(Principal Financial and Accounting Officer)
RICHARD D. BENTLEY August 25, 1999
--------------------------------------------------------
Richard D. Bentley
Director
RICHARD C. COLYEAR August 25, 1999
--------------------------------------------------------
Richard C. Colyear
Director
JEAN FRIBOURG August 25, 1999
--------------------------------------------------------
Jean Fribourg
Director
LATHROP HOFFMAN August 25, 1999
--------------------------------------------------------
Lathrop Hoffman
Director
JOSE MENENDEZ August 25, 1999
--------------------------------------------------------
Jose Menendez
Director
RAYMOND G. RINEHART August 25, 1999
--------------------------------------------------------
Raymond G. Rinehart
Director
HOWARD C. WHITE August 25, 1999
--------------------------------------------------------
Howard C. White
Director
</TABLE>
Q 54
<PAGE> 55
MARSHALL INDUSTRIES
CORPORATE INFORMATION
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
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 Board
of Sonepar Electronique
Richard C. Colyear International
President,
Colyear Development Corporation Raymond G. Rinehart
El Monte, CA Former Chairman of the Board
and President
Jean Fribourg Clow Corporation
Chief Executive Officer, Oak Brook, IL
Sonepar Electronique International
Howard C. White
Lathrop Hoffman Retired Partner
President, Andersen Worldwide
Sierra Autocars, Inc. Chicago, IL
Monrovia, CA
- --------------------------------------------------------------------------------------------------------------------------
CORPORATE INFORMATION CORPORATE HEADQUARTERS TRANSFER AGENT & REGISTRAR
Marshall Industries First Union National Bank
9320 Telstar Avenue of North Carolina
El Monte, CA 91731-2895 Charlotte, NC
(626) 307-6000
www.marshall.com AUDITORS
www.electronicdesign.com
Arthur Andersen LLP
STOCK LISTING 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
MI Technology Products de Mexico, S. de R.L. de C.V.
Marshall Industries Investments B.V.
</TABLE>
Q 55
<PAGE> 1
EXHIBIT 10.5
AMENDMENT AND WAIVER TO CREDIT AGREEMENT
THIS AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment") is made
and entered into as of this 29th day of June, 1998 by and among MARSHALL
INDUSTRIES, a corporation organized under the laws of California ("Marshall"),
STERLING ELECTRONICS CORPORATION, a corporation organized under the laws of
Nevada ("Sterling," and together with Marshall, the "Borrower"), the Lenders who
are or may become a party to the Credit Agreement referred to below, and FIRST
UNION NATIONAL BANK, as Administrative Agent for the Lenders.
Statement of Purpose
The Lenders agreed to make certain Extensions of Credit to the Borrower
pursuant to the Credit Agreement dated as of January 16, 1998 by and among the
Borrower, the Lenders and the Administrative Agent, as amended by the First
Amendment dated February 26, 1998 (as so amended and as further amended or
supplemented from time to time, the "Credit Agreement").
The parties now desire to amend the Credit Agreement in certain respects
and waive certain provisions of the Credit Agreement on the terms and conditions
set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Effect of Amendment and Waiver. Except as expressly amended hereby,
the Credit Agreement and Loan Documents shall be and remain in full force and
effect. The waivers granted herein are specific and limited and shall not
constitute an amendment of the Credit Agreement or the Loan Documents or a
modification, acceptance or waiver of any other provision of or default under
the Credit Agreement, the Loan Documents or any other document or instrument
entered into in connection therewith or a future modification, acceptance or
waiver of the provisions set forth therein.
2. Capitalized Terms. All capitalized undefined terms used in this
Amendment shall have the meanings assigned thereto in the Credit Agreement.
3. Modification of Credit Agreement. Section 8.1(c) of the Credit
Agreement is hereby deleted in its entirety and the following Section 8.1(c)
shall be substituted in lieu thereof:
"(c) Annual Business Plan and Financial Projections. As soon as
practicable and in any event within thirty (30) days after the
beginning of each Fiscal Year, a business plan of the Borrower and its
Subsidiaries for the ensuing five (5) Fiscal Years, such plan to be
prepared in accordance with GAAP and (i) to include for the first such
ensuing Fiscal Year, on a quarterly basis, a quarterly operating and
capital budget, a projected income statement, statement of cash flows
and balance sheet, and (ii) for the next four (4) Fiscal Years
following such first ensuing Fiscal Year, to include, on an annual
basis, an annual operating and capital budget, a projected income
statement, statement of cash flows and balance sheet, together with a
report containing management's major assumptions
<PAGE> 2
covering such projections. Such projections shall be accompanied by a
certificate of the chief executive officer or chief financial officer
of the Borrower to the effect that the projections are based on
reasonable estimates and assumptions, all of which are fair in light
of the conditions which existed at the time the projections were made,
have been prepared on the basis of the assumptions stated therein, and
reflect, as of the time so furnished, the reasonable estimate of the
Borrower and its Subsidiaries of the results of the operations and
other information projected therein, it being recognized by the
Administrative Agent and the Lenders that such projections as to
future events are not to be viewed as facts and that actual results
during the period or periods covered by any such projections may
differ from the projected results."
4. Waiver. The Lenders hereby agree to waive the requirement that the
Borrower deliver to the Administrative Agent and Lenders financial projections
pursuant to Sections 8.1(c) of the Credit Agreement within thirty (30) days
after the beginning of the Fiscal Year beginning June 1, 1998 and ending May
31, 1999; provided, that the Borrower shall deliver such financial projections
on or prior to July 31, 1998. The failure of the Borrower to deliver such
financial projections on or prior to July 31, 1998 shall constitute a Default
under the Credit Agreement.
5. Representations and Warranties/No Default. By their execution hereof,
the Borrower hereby certifies that (giving effect to this Amendment) each of
the representations and warranties set forth in the Credit Agreement and the
other Loan Documents is true and correct in all material respects as of the
date hereof as if fully set forth herein, except to the extent that such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties shall have been true and correct in
all material respects on and as of such earlier date), and that as of the date
hereof no Default or Event of Default has occurred and is continuing.
6. Expenses. The Borrowers shall pay all reasonable out-of-pocket
expenses of the Administrative Agent in connection with the preparation,
execution and delivery of this Amendment, including without limitation, the
reasonable fees and disbursements of counsel for the Administrative Agent.
7. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of North Carolina.
8. Counterparts. This Amendment may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
9. Effectiveness. This Amendment will become effective when it has been
executed by the Borrowers and Required Lenders and copies of such executed
counterparts have been delivered to the Administrative Agent.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date and year first above written.
[CORPORATE SEAL] MARSHALL INDUSTRIES
By: /s/ HENRY W. CHIN
-------------------------------------
Name: Henry W. Chin
Title: Vice President, Finance and CFO
[CORPORATE SEAL] STERLING ELECTRONICS CORPORATION
ATTEST:
By: /s/ LINDA CHAVEZ By: /s/ HENRY W. CHIN
------------------------- -------------------------------------
Name: Linda Chavez Name: Henry W. Chin
Title: Controller Title: Vice President, Treasurer
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
3
<PAGE> 4
FIRST UNION NATIONAL BANK,
as Administrative Agent and Lender
By: /s/ GEORGE L. WOOLSEY
-------------------------------------
Name: George L. Woolsey
-----------------------------------
Title: Vice President
----------------------------------
THE BANK OF NEW YORK
By: /s/ REBECCA K. LEVINE
-------------------------------------
Name: Rebecca K. Levine
-----------------------------------
Title: Vice President
----------------------------------
COMERICA BANK
By: /s/ EMMANUEL M. SKEVOFILEX
-------------------------------------
Name: Emmanuel M. Skevofilex
-----------------------------------
Title: Assistant Vice President
----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ MARK A. ISLEY
-------------------------------------
Name: Mark A. Isley
-----------------------------------
Title: First Vice President
----------------------------------
NATIONSBANK OF TEXAS, N.A.
By: /s/ GEORGE V. HAUSLER
-------------------------------------
Name: George V. Hausler
-----------------------------------
Title: Vice President
----------------------------------
4
<PAGE> 5
UNION BANK OF CALIFORNIA, N.A.
By /s/ ANN M. YASUDA
------------------------------
Name: Ann M. Yasuda
---------------------------
Title: Vice President
--------------------------
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By /s/ NANCY S. MARTORAND
-----------------------------
Name: Nancy S. Martorand
---------------------------
Title: Vice President
-------------------------
BANQUE NATIONAL DE PARIS
By /s/ CLIVE BETTLES
------------------------------
Name: Clive Bettles
---------------------------
Title: Senior Vice President &
Manager
---------------------------
By /s/ DEBBIE GOHN
------------------------------
Name: Debbie Gohn
--------------------------
Title: Vice President
--------------------------
BANK OF MONTREAL
By /s/ RICHARD W. CAMM
------------------------------
Name: Richard W. Camm
---------------------------
Title: Managing Director
--------------------------
ABN AMRO BANK
By /s/ PAUL K. STIMPEL
-----------------------------
Name: Paul K. Stimpel
---------------------------
Title: Group Vice President
--------------------------
By /s/ CATHERYN N. FULLER
------------------------------
Name: Catheryn N. Fuller
---------------------------
Title: SVP
--------------------------
<PAGE> 1
EXHIBIT 10.23
AMENDMENT AGREEMENT
This Amendment Agreement dated as of February 1, 1999 is entered into by
and between Marshall Industries, a California corporation (the "Company") and
Henry W. Chin, an individual (the "Executive").
WHEREAS, the Company and the Employee have entered into that certain
Change in Control Agreement dated as of August 26, 1997 (the "Change in Control
Agreement").
WHEREAS, the Board of Directors of the Company has determined that it is
in the best interests of the Company and its shareholders to amend the Change
in Control Agreement to provide the Executive with an additional year of
benefits in the event of a change in control of the Company.
AGREEMENT
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Amendments. The Change in Control Agreement is hereby amended as follows:
a. Section 4(a) is amended by replacing the number "24" with the number
"36".
b. Section 4(b) is amended by replacing the words "two times" with
"three times" and the words "last two full fiscal years" with "last three full
fiscal years".
c. Section 5(a) is amended by replacing the words "two years" with
"three years".
2. No Other Changes. Except for the changes specified in Section 1 above, all
other provisions of the Change in Control Agreement will remain the same.
3. Miscellaneous Provisions. The provisions of Section 14 of the Change in
Control Agreement are incorporated herein by reference.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
MARSHALL INDUSTRIES
By: /s/ ROBERT RODIN
-----------------------------
Name:
Title:
By:
-----------------------------
Name:
Title:
HENRY W. CHIN
By: /s/ HENRY W. CHIN
-----------------------------
Name:
Title:
<PAGE> 1
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 25, 1999
<TABLE> <S> <C>
<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-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 2,831
<SECURITIES> 0
<RECEIVABLES> 224,130
<ALLOWANCES> (9,089)
<INVENTORY> 340,476
<CURRENT-ASSETS> 584,439
<PP&E> 100,416
<DEPRECIATION> (61,691)
<TOTAL-ASSETS> 772,528
<CURRENT-LIABILITIES> 212,869
<BONDS> 0
0
0
<COMMON> 16,616
<OTHER-SE> 393,575
<TOTAL-LIABILITY-AND-EQUITY> 772,528
<SALES> 1,722,646
<TOTAL-REVENUES> 1,722,646
<CGS> 1,457,256
<TOTAL-COSTS> 1,662,135
<OTHER-EXPENSES> 19,500
<LOSS-PROVISION> 3,477
<INTEREST-EXPENSE> 18,812
<INCOME-PRETAX> 22,199
<INCOME-TAX> 19,899
<INCOME-CONTINUING> 2,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,300
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
