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 June 28, 1997 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 IRS 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 7, 1997
- ---------------------------- -----------------------------
Common Stock, $.50 par value 7,167,109
<PAGE>
INDEX
STERLING ELECTRONICS CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated statements of financial position June 28, 1997
and March 29, 1997
Condensed consolidated statements of income - thirteen weeks ended
June 28, 1997 and June 29, 1996
Condensed consolidated statements of cash flows - thirteen weeks ended
June 28, 1997 and June 29, 1996
Notes to condensed consolidated financial statements - June 28, 1997
Item 2. Management's Discussion and Analysis of the Results of Operations
<PAGE>
STERLING ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 28, June 30,
1997 1996
------------------ ------------------
ASSETS
Current Assets
Cash $ 1,211,530 $ 4,677,968
Receivables-net of reserve
for doubtful accounts 50,607,690 42,018,187
Inventory 73,542,756 53,836,467
Other current assets 1,544,293 826,270
------------------ ------------------
126,906,269 101,358,892
Property and equipment - net of
depreciation 9,900,711 7,285,214
Goodwill, net of amortization 9,115,911 4,111,048
Other assets 4,306,279 4,425,824
------------------ ------------------
$ 150,229,170 $ 117,180,978
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and
accrued expenses $ 37,098,370 $ 36,245,928
Current portion - long term
obligations 240,544 277,600
Income taxes 1,582,091 1,906,117
------------------ ------------------
38,921,005 38,429,645
Long-term obligations - net of
amounts due within one year 47,150,810 23,455,263
Postemployment benefits and other
non-current liabilities 5,065,201 4,232,400
Shareholders' Equity
Common stock, $.50 par value 3,677,207 3,519,784
Additional paid-in capital 26,796,227 22,298,270
Retained earnings 31,460,859 27,374,575
------------------ ------------------
61,934,293 53,192,629
Less treasury stock, at cost 2,789,694 2,128,834
Foreign currency translation
adjustment
( 52,445) (125)
------------------ ------------------
59,092,154 51,063,670
------------------ ------------------
$ 150,229,170 $ 117,180,978
================== ==================
<PAGE>
STERLING ELECTRONICS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
THIRTEEN WEEKS ENDED JUNE 28, 1997 AND JUNE 29, 1996
1997 1996
----------------- ----------------
Net sales $ 94,842,298 $82,122,830
Cost of sales 75,332,231 63,965,326
Selling, administrative and
other operating expenses 16,383,976 13,640,695
----------------- ----------------
91,716,207 77,606,021
Income from operations 3,126,091 4,516,809
Interest expense 684,210 517,993
----------------- ----------------
Income before income taxes 2,441,881 3,998,816
Income taxes 952,000 1,608,000
----------------- ----------------
Net income $ 1,489,881 $ 2,390,816
================= ================
Income per common share and common share equivalents:
Primary $ 0.21 $ 0.32
Fully diluted $ 0.21 $ 0.32
Number of common shares and common share
equivalents used in computing per share amounts
Primary 7,215,664 7,400,492
Fully diluted 7,215,664 7,400,492
<PAGE>
STERLING ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED JUNE 28, 1997 AND JUNE 29, 1996
1997 1996
---------------- ----------------
OPERATING ACTIVITIES
Net income $ 1,489,881 $ 2,390,815
Adjustments needed to
reconcile net income
to net cash provided
by operating acitivities:
Depreciation and amortization 753,534 439,102
Provision for losses on accounts
receivable 302,205 331,477
Changes in operating assets and
liabilities
Decrease in accounts receivable 4,812,163 7,733,378
(Increase) decrease in inventories (6,011,563) 2,922,916
Decrease in prepaid and other
current assets (72,088) (899,651)
Decrease in accounts payable and
accrued expenses (10,987,029) (1,090,575)
Increase in postemployment benefits
and other non-current liabilities 29,941 40,371
Other adjustments for noncash
items - net 49,940 -
---------------- ----------------
Net cash (used) provided
by operating activities (9,633,016) 11,867,833
INVESTING ACTIVITIES
Purchase of property and equipment (847,219) (776,008)
(Increase) decrease in other assets (242,635) 207,158
---------------- ----------------
Net cash (used) provided in
investing activities (1,089,854) (568,850)
FINANCING ACTIVITIES
Proceeds from borrowings
under revolver 29,129,694 4,836,313
Repayments of borrwoings
under revolver (21,207,999) (30,030,166)
---------------- ----------------
Net increase (decrease) in
revolving line of credit 7,921,695 (25,193,853)
Proceeds from long term borrowings - 15,000,000
Principal payments on other
long term debt (70,068) (82,968)
Stock issued under employee plans 410,768 169,904
Purchases of treasury stock (142,065) (890,916)
---------------- ----------------
Net cash provided (used)
by financing activities 8,120,330 (10,997,833)
Effect of exchange rate changes on cash (3,500) -
---------------- ----------------
8,116,830 (10,997,833)
(DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (2,606,040) 301,150
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 3,817,570 4,376,818
---------------- ----------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 1,211,530 $ 4,677,968
================ ================
<PAGE>
STERLING ELECTRONICS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1997
Note A - Accounting Policies
The accompanying unaudited condensed consolidated financial statements include
the accounts of Sterling Electronics Corporation (the "Company") 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 June 28, 1997 and the results of operations for the thirteen
weeks then ended. The results of operations for the thirteen weeks ended June
28, 1997 are not necessarily indicative of the results to be expected for the
full year.
Note B - Long-term Debt
Long-term debt as of June 28, 1997 and the amounts due within one year are as
follows:
AMOUNTS DUE LONG TERM MATURING IN
DESCRIPTION WITHIN ONE YEAR PORTION FISCAL YEAR
Revolving credit line $ 0 $ 31,921,695 1999
Senior note 0 15,000,000 2007
Capitalized lease obligation 62,771 81,387 2000
Equipment loans 177,773 147,728 1999-2001
----------- ------------
$ 240,544 $ 47,150,810
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS
Thirteen weeks ended June 28, 1997
compared to thirteen weeks ended June 29, 1996
Net Sales - Consolidated net sales for the current thirteen week period were 15%
ahead of sales for the thirteen week period a year ago. If the sales of Marsh
Electronics, Inc. ("Marsh"), acquired in November, 1996, were excluded, sales
would have increased 2.5%. Such increase would be the result of increased
passive, electromechanical and connector revenues partially offset by decreased
semiconductor revenues.
Gross Margin - Sterling's consolidated gross margin for the thirteen weeks
declined to 20.6% from 22.1% for the thirteen weeks a year ago. The gross margin
percentage declined in all major product categories as a result of competitive
pricing pressures.
Selling and Administrative Costs - Consolidated operating expenses increased to
17.3% of sales compared to 16.6% of sales for the thirteen weeks a year ago. The
majority of the dollar increase is due to the cost of operating the four Marsh
sales offices and the Marsh service center during the current period. In
addition to the four Marsh locations the Company operated two more sales
locations (Mission, Texas and Rochester, New York) during the current period
than a year ago. Warehouse expenses, management information system costs and the
cost of the recently established team of field application engineers increased
significantly for the current thirteen week period compared to the thirteen week
period a year ago.
Interest Expense - The 32% increase in interest expense is the result of the $11
million increase from the comparable period in average indebtedness.
Liquidity and Capital Resources - Since the beginning of the current fiscal
year, Sterling has reduced accounts payable and accrued expenses by
approximately $ 11.0 million. In connection with this reduction in current
liabilities, the Company increased its borrowings by approximately $7.9 million.
Additional use of funds has been capital expenditures of approximately $
800,000, principally for new computer hardware and software. These capital
expenditures were financed by cash flow from operations.
Working capital was $ 88.0 million at June 28, 1997 compared to $77.8 million at
March 39, 1997. The current ratio was 3.3 compared to 2.8 at the beginning of
the year. Working capital increased as a result of increased inventory and
decreased accounts payable and accrued expenses, partially offset by decreased
receivables. Average annualized inventory turnover for the current period was
4.3, the same as for fiscal 1997.
At June 28, 1997 the Company had $ 8 million in available credit under the $40
million bank credit line which matures on February 16, 1999. 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 year.
On June 5, 1996, the Company agreed to lease a 181,000 square foot warehouse
which was constructed during fiscal 1997 adjacent to the Dallas/Fort Worth
International Airport. The lease term is ten years with monthly rental payments
of approximately $82,000, plus the Company is responsible for all property
taxes, insurance and maintenance. As of June 28, 1997, the Company also has
leased material handling equipment, computer equipment and material management
software for this warehouse and distribution center. The lease term on the
equipment lease is five years with monthly rental payments of approximately
$57,000, plus the Company is responsible for all property taxes, insurance and
maintenance. As of June 28, 1997, the Company intends to purchase and/or lease
$3 million to $4 million of additional equipment and software during fiscal
1998. The Company intends to consolidate the distribution operations of its
three existing regional distribution centers into this new state-of-the-art
facility during the second and third quarters of fiscal 1998. Management
believes that the capital resources described above should be adequate to fund
the cost of this consolidation and the operation of the new distribution center.
<PAGE>
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 June 28, 1997
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
/s/Mac McConnell
--------------------------------
Date: August 10, 1997 Mac McConnell, Vice-President
Chief Financial Officer
<PAGE>
STERLING ELECTRONICS CORPORATION
(11) - Statement Re: COMPUTATION OF PER SHARE EARNINGS
Thirteen weeks ended
-------------------------------------
June 28, 1997 June 29, 1996
PRIMARY
Average shares outstanding 7,094,480 7,231,908
Net effect of dilutive
stock options- based on the
treasury stock method using
average market price 121,184 168,584
----------------- -----------------
Total 7,215,664 7,400,492
================= =================
Net income applicable to common stock $ 1,489,881 $ 2,390,816
Per share amount $ 0.21 $ 0.32
FULLY DILUTED
Average shares outstanding $ 7,094,480 $ 7,231,908
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 121,184 168,584
----------------- -----------------
Total 7,215,664 7,400,492
================= =================
Net income applicable to common stock $ 1,489,881 $ 2,390,816
Per share amount $ .21 $ .32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Form 10-Q for quarter ended June 28, 1997
</LEGEND>
<CIK> 0000094136
<NAME> Sterling Electronics Corporation
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Mar-28-1998
<PERIOD-END> Jun-28-1997
<CASH> 1,211,530
<SECURITIES> 0
<RECEIVABLES> 51,781,062
<ALLOWANCES> 1,173,372
<INVENTORY> 73,542,756
<CURRENT-ASSETS> 126,906,269
<PP&E> 16,542,929
<DEPRECIATION> 6,642,218
<TOTAL-ASSETS> 150,229,170
<CURRENT-LIABILITIES> 38,921,005
<BONDS> 47,150,810
0
0
<COMMON> 3,677,207
<OTHER-SE> 55,414,947
<TOTAL-LIABILITY-AND-EQUITY> 150,229,170
<SALES> 94,842,298
<TOTAL-REVENUES> 94,842,298
<CGS> 75,332,231
<TOTAL-COSTS> 91,716,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 753,534
<INTEREST-EXPENSE> 684,210
<INCOME-PRETAX> 2,441,881
<INCOME-TAX> 952,000
<INCOME-CONTINUING> 1,489,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,489,881
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
