<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended July 1, 1995 Commission File No.: 1-5522
STERLING ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 74-1261194
(State or other jurisdiction of (I.R. S. Employer Identification No.)
incorporation or organization)
4201 SOUTHWEST FREEWAY, HOUSTON, TEXAS 77027
(Address of principal executive office) (Zip Code)
Registrant's area code and telephone number: (713) 627-9800
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period by this report.
CLASS OUTSTANDING AT AUGUST 2, 1995
---------------------------- -----------------------------
Common Stock, $.50 par value 6,607,885
Page 1 of 10
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INDEX
STERLING ELECTRONICS CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated statements of financial position
July 1, 1995 and April 1, 1995
Condensed consolidated statements of income - thirteen
weeks ended July 1, 1995 and July 2, 1994
Condensed consolidated statements of cash flows - thirteen
weeks ended July 1, 1995 and July 2, 1994
Notes to condensed consolidated financial statements -
July 1, 1995
Item 2. Management's Discussion and Analysis of the Results of
Operations
Page 2 of 10
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STERLING ELECTRONICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JULY 1, APRIL 1,
1995 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash $ 1,876,942 $ 3,148,290
Receivables-net of reserve for doubtful
accounts 38,095,250 34,958,561
Inventories
Finished goods 45,346,886 36,968,153
Raw materials and work in process 1,826,148 1,764,580
----------- -----------
Total inventories 47,173,034 38,732,733
Other current assets 526,290 363,907
----------- -----------
Total current assets 87,671,516 77,203,491
Property & equipment-net of depreciation 5,296,669 5,112,435
Goodwill, net of amortization 1,741,834 1,757,107
Other assets 2,795,071 2,751,619
----------- -----------
$97,505,090 $86,824,652
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable & accrued expenses $32,128,600 $29,757,332
Current portion - long term obligations 296,002 303,233
Income taxes 1,319,966 0
----------- -----------
Total current liabilities 33,744,568 30,060,565
Long-term obligations - net of amounts due
within one year 16,933,505 12,950,129
Postemployment benefits and other non-current
liabilities 3,868,909 3,832,994
Minority interest in consolidated subsidiaries 474,342 484,095
Shareholders' Equity
Common stock, $.50 par value 3,346,899 3,343,005
Additional paid-in capital 16,804,853 16,410,284
Retained earnings 22,832,216 20,535,094
----------- -----------
42,983,968 40,288,383
Less treasury stock, at cost 500,202 791,514
----------- -----------
42,483,766 39,496,869
----------- -----------
$97,505,090 $86,824,652
=========== ===========
</TABLE>
Page 3 of 10
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STERLING ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THIRTEEN WEEKS ENDED JULY 1, 1995 AND JULY 2, 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Net sales $71,228,851 $57,130,436
Cost of sales 55,888,384 44,087,909
Selling, administrative and
other operating expenses 11,263,031 9,626,577
----------- -----------
67,151,415 53,714,486
Income from operations 4,077,436 3,415,950
Interest expense 263,068 276,175
----------- -----------
Income before income taxes and
minority interests 3,814,368 3,139,775
Income taxes 1,527,000 1,259,000
Minority interests in earnings of
consolidated subsidiaries (9,753) 25,539
----------- -----------
Net income $ 2,297,121 $ 1,855,236
=========== ===========
Income per common share and common share equivalents:
Primary $.34 $.28
Fully diluted $.34 $.28
Number of common shares and common share
equivalent used in computing per share amounts
Primary 6,707,596 6,630,488
Fully diluted 6,750,898 6,630,488
</TABLE>
Page 4 of 10
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STERLING ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED JULY 1, 1995 AND JULY 2, 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,297,122 $ 1,855,234
Adjustments needed to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 302,485 177,368
Provision for losses on accounts receivable 235,219 283,121
Minority interests (9,753) 25,539
------------ ------------
2,825,073 2,341,262
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (3,371,980) 2,096
(Increase) in inventories (8,440,301) (5,375,769)
(Increase) in other current assets (162,383) (229,609)
Increase in accounts payable and
accrued expenses 4,313,509 925,453
Increase (decrease) in post employment benefits
and other non-current liabilities 35,915 (29,883)
------------ ------------
Net cash used in operating activities (4,800,095) (2,366,450)
INVESTING ACTIVITIES
Purchases of property and equipment (462,245) (432,242)
(Increase) decrease in other assets (52,653) 47,234
------------ ------------
Net cash used in investing activities (514,898) (385,008)
FINANCING ACTIVITIES
Proceeds from borrowings under revolving line of credit 21,526,562 12,412,801
Repayments of borrowings under revolving line of credit (17,462,805) (10,412,801)
------------ ------------
Net change in revolving line of credit 4,063,757 2,000,000
Principal payments on long-term debt, capital lease
obligations and other (87,612) (82,029)
Decrease in treasury stock 67,500 0
------------ ------------
Net cash provided by financing activities 4,043,645 1,917,971
Decrease in cash and cash equivalents (1,271,348) (833,487)
Cash and cash equivalents at beginning of period 3,148,290 2,914,290
------------ ------------
Cash and cash equivalents at end of period $ 1,876,942 $ 2,080,803
============ ============
</TABLE>
Page 5 of 10
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STERLING ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 1995
The accompanying unaudited condensed consolidated financial statements
include the accounts of Sterling Electronics Corporation and its
majority-owned subsidiaries after elimination of all significant
intercompany accounts and transactions. In the opinion of the company,
the unaudited condensed consolidated financial statements contain all
the adjustments (consisting of only normal accruals) necessary to
present fairly the financial position as of July 1, 1995 and the results
of operations for the thirteen weeks then ended. The results of
operations for the thirteen weeks ended July 1, 1995 are not necessarily
indicative of the results to be expected for the full year.
Long-term debt as of July 1, 1995 and the amounts due within one year
are as follows:
<TABLE>
<CAPTION>
AMOUNTS DUE LONG-TERM MATURING IN
DESCRIPTION WITHIN ONE YEAR PORTION FISCAL YEAR
----------- --------------- ---------- ------------
<S> <C> <C> <C>
Revolving credit line $ -0- $16,223,834 1998
Capitalized lease
obligations 122,494 224,423 1996-2000
Equipment loans 173,508 485,248 1999-2001
-------- -----------
$296,002 $16,933,505
</TABLE>
Page 6 of 10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JULY 1, 1995 COMPARED TO THIRTEEN WEEKS ENDED
JULY 2, 1994.
NET SALES - Consolidated net sales for the current thirteen week period
were 25% ahead of sales for the thirteen week period a year ago. This
increase is the result of increases in semiconductor revenues (up 31%),
connector revenues (up 20%) and passive/electromechanical revenues (up 19%).
GROSS MARGIN - Sterling's consolidated gross margin for the thirteen
weeks declined to 21.5% from 22.8% for the thirteen weeks a year ago
stemming principally from competitive pressures on semiconductor pricing
and semiconductor sales increasing more rapidly than sales of higher
margin passive and connector products.
SELLING AND ADMINISTRATIVE COSTS - Consolidated operating expenses
declined to 15.8% of sales compared to 16.9% of sales for the thirteen
weeks a year ago. This improvement resulted from economies of scale
from sales growth (fixed costs were spread over an increasing sales
base) coupled with continuing cost controls.
OPERATING INCOME - As a result of gross margin dollars increasing more
rapidly than operating expenses, operating income increased $661,000, a
19% improvement over the previous fiscal year.
INTEREST EXPENSE - The 5% decrease in interest expense is the result of
the $1.9 million increase from the comparable period in average
indebtedness under the revolving credit line reduced by the effect of
lower effective interest rates for the Company.
LIQUIDITY AND CAPITAL RESOURCES
Since the beginning of the current fiscal year, Sterling has invested
$11.8 million in increased receivables and inventory to support higher
sales volume. In connection with this increased investment, the Company
increased its borrowings under the bank line by $4.1 million.
A secondary use of funds has been capital expenditures of $460,000,
principally for new computer hardware and software. These expenditures
were financed by cash flow from operations.
The Company's needs for additional investment in receivables and
inventories is expected to continue in connection with anticipated sales
growth and geographic expansion.
Page 7 of 10
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Management believes that internal generation of cash flow (net income
plus non-cash items such as depreciation and amortization), available
equipment financing,funds available under the bank credit line, plus
possible increases in the bank credit line will be sufficient to meet
liquidity needs over the next two fiscal years. The Company is currently
in process of increasing the $25 million line of credit to $35 million.
Working capital was $54.3 million at July 1, 1995 compared to $47.5
million at April 1, 1995. The current ratio was 2.6, the same as at
the beginning of the year. Working capital continues to increase,
reflected principally in higher inventory and receivables required to
support higher sales, partially offset by increased accounts payable and
accrued expenses.
The ratio of long-term debt to equity was 40% at July 1, 1995
compared to 33% at the beginning of the year.
Page 8 of 10
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OTHER INFORMATION
ITEM 1 THROUGH ITEM 5
The Company was not required to report on Items 1 through 5.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is included herein:
(11) Statement re: computation of earnings per share
(b) Reports of Form 8-K -- There were no reports on Form 8-K filed
during the thirteen weeks ended July 1, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STERLING ELECTRONICS CORPORATION
DATE: August 14, 1995 Mac McConnell
---------------------- --------------------------------
Mac McConnell, Vice-President
Chief Financial Officer
Page 9 of 10
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(EXHIBIT 11)
STERLING ELECTRONICS CORPORATION
(11) - Statement Re: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
JULY 1, 1995 JULY 2, 1994
------------ ------------
<S> <C> <C>
PRIMARY
Average shares outstanding 6,555,322 6,501,279
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 152,274 129,209
---------- ----------
Total 6,707,596 6,630,488
========== ==========
Net income applicable to common stock $2,297,121 $1,855,236
========== ==========
Per share amount $.34 $.28
========== ==========
FULLY DILUTED
Average shares outstanding 6,555,322 6,501,279
Net effect of dilutive stock options-
based on the treasury stock method
using the end of period market price,
if higher than average market price 195,576 129,209
---------- ----------
Total 6,750,898 6,630,488
========== ==========
Net income applicable to common stock $2,297,121 $1,855,236
========== ==========
Per share amount $.34 $.28
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the quarter ended July 1, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> APR-02-1995
<PERIOD-END> JUL-01-1995
<CASH> 1,876,942
<SECURITIES> 0
<RECEIVABLES> 39,002,563
<ALLOWANCES> 907,313
<INVENTORY> 41,173,034
<CURRENT-ASSETS> 87,671,516
<PP&E> 10,170,045
<DEPRECIATION> 4,873,376
<TOTAL-ASSETS> 97,505,090
<CURRENT-LIABILITIES> 33,744,568
<BONDS> 16,933,505
<COMMON> 3,346,899
0
0
<OTHER-SE> 39,136,867
<TOTAL-LIABILITY-AND-EQUITY> 97,505,090
<SALES> 71,228,851
<TOTAL-REVENUES> 71,228,851
<CGS> 55,888,384
<TOTAL-COSTS> 67,151,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 235,219
<INTEREST-EXPENSE> 263,068
<INCOME-PRETAX> 3,814,368
<INCOME-TAX> 1,527,000
<INCOME-CONTINUING> 2,297,121
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,297,121
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
