Morning Tim, some news on your Marshall Industries... 10K filing...
MARSHALL INDUSTRIES FILES QUARTERLY REPORT (10-Q)
EDGAR Online SEC Filings - April 14, 1999 08:05
The EDGAR Online Glimpse is an extraction of the Management's
Discussion and Analysis section contained in the full 10-Q, available
from EDGAR Online
edgar-online.com.
All SEC Filings for MARSHALL INDUSTRIES from EDGAR Online
edgar-online.com
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------ ------------------
1999 1998 1999 1998
------ ------ ------ ------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.7 84.1 84.5 84.6
------ ------ ------ ------
Gross profit 15.3 15.9 15.5 15.4
Selling, general and administrative expenses 12.4 11.6 12.1 10.7
------ ------ ------ ------
Income from operations 2.9 4.3 3.4 4.7
Interest expense and other-net 1.3 .5 1.1 .3
------ ------ ------ ------
Income before provision for
income taxes and extraordinary gain 1.6 3.8 2.3 4.4
Provision for income taxes 0.9 1.6 1.1 1.8
------ ------ ------ ------
Income before extraordinary gain 0.7 2.2 1.2 2.6
Extraordinary gain -- -- -- 1.4
------ ------ ------ ------
Net income 0.7% 2.2% 1.2% 4.0%
====== ====== ====== ======
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THREE AND NINE MONTH PERIODS ENDED FEBRUARY 28, 1999 AND 1998
The Company's net sales increased by $25 million or 7% to $393 million and $246
million or 24% to $1,290 million for the three and nine months ended February
28, 1999, respectively, as compared to the same periods of the prior year. The
Company's results included Sterling Electronics Corporation ("Sterling") which
was acquired on January 16, 1998. Sterling accounted for $79 million and $260
million of net sales for the three and nine months ended February 28, 1999,
respectively, as compared to $47 million from the date of acquisition to
February 28, 1998.
Excluding Sterling's net sales, the Company's net sales decreased by $7 million
for the third quarter of fiscal 1999, and increased by $33 million for the nine
months ended February 28, 1999, as compared to the prior year. The Company's net
sales for fiscal 1999 benefited from a substantial increase in the sales of
microprocessors. The sales of such products increased by $20 million and $89
million for the third quarter and first nine months of fiscal 1999,
respectively, as compared to last year. 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 11% and 13% of the Company's sales for the three and nine months
ended February 28, 1999, respectively, as compared to approximately 6% and 8%
for the same periods of a year ago.
The increases in microprocessor sales, however, were partially offset by
declines in DRAM sales of $12 million and $59 million for the three and
nine-month periods ended February 28, 1999, respectively, as compared to the
prior year. The decrease in DRAM sales is 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 in recent months, supply considerations. Sales of DRAMs accounted for
approximately 4% of the Company's net sales for both the three and nine-month
periods ended February 28, 1999, as compared to approximately 7% and 10%,
respectively, for the same periods of a year ago.
The Company's third quarter of 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 approximately $10 million of the decrease
in the Company's net sales for the third quarter of fiscal 1999, as compared to
fiscal 1998.
In addition to the declines in DRAM and Xilinx sales, the Company experienced
decreases in the sales of many of its major products for the third quarter of
fiscal 1999 due to continuing market pressures on pricing and weaker customer
demand.
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The operating results for the nine months ended February 28, 1999 benefited from
the shipments of some large value-added orders for a major customer through its
contract manufacturer during the first quarter of fiscal 1999. 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 second and third quarters of fiscal 1999.
Net margins for the third quarter of fiscal 1999 decreased to 15.3% from 15.9%
for fiscal 1998. Net margins for the nine months ended February 28,1999 remained
relatively unchanged. The net margins for both the three and nine month periods
ended February 28, 1999 were 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 distributors, as compared to last year. This decrease on net
margins was partially offset by the decline in the sales volume of DRAMS, which
are lower margin products, in fiscal 1999, as compared to fiscal 1998, and the
inclusion of Sterling sales. Due to differences in product and customer mix,
Sterling's margins on sales are higher than those of Marshall.
Selling, general, and administrative expenses ("SG&A") increased by $5.8 million
and $43.4 million for the third quarter and first nine months of fiscal 1999,
respectively, as compared to fiscal 1998. Sterling's SG&A expenses totaled $13.2
million and $42.6 million for the third quarter and first nine months of fiscal
1999, as compared to $7.2 million from the date of acquisition to February 28,
1998. Excluding Sterling expenses, the Company's SG&A expenses were relatively
unchanged for the third quarter of fiscal 1999, but increased by $8.0 million
for the first nine months of fiscal 1999, as compared to the prior year. Salary
adjustments and staffing increases in product management and information
technology resulted in higher salary costs of $3.4 million for the first nine
months of fiscal 1999 as compared to the prior year. In addition, approximately
$0.8 million and $2.3 million in goodwill amortization expense relating to the
Sterling acquisition was incurred in the third quarter and first nine months of
fiscal 1999, respectively as compared to $0.4 million for the same periods in
the prior year. The balance of the increase in the Company's SG&A expenses for
the nine-month period ended February 28, 1999, as compared to last year, was
mainly to service the higher sales volumes. The Sterling expenses for fiscal
1999 included the costs of consolidating the warehousing operations and the
integration of the automated warehousing equipment to the Company's operating
systems. This project was completed during the second quarter of fiscal 1999 and
amounted to $1.9 million.
The increase in net interest expense to $3.7 million and $12.2 million in the
third quarter and first nine months of fiscal 1999, as compared to $1.9 million
and $3.1 million for the same periods in the last fiscal year was primarily due
to bank borrowings incurred for the acquisition of Sterling. Additionally, the
Company had higher levels of borrowings to support increases in inventories and
receivables related to the higher levels of sales volumes during the first
quarter, as compared to the second and third quarters of fiscal 1999. The
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Company's interest expense would have been higher for the nine months to date in
fiscal 1999 than the amounts recorded except for the significant declines in the
Company's borrowing levels during the last two quarters.
"Interest expense and other-net" includes the amortization of goodwill
associated with the Company's investment in the Sonepar Electronique
International ("SEI") companies, along with the Company's pro-rata share of
SEI's net income or loss. Such amounts were $1.4 million and $1.9 million in net
expenses for the three and nine months ended February 28, 1999, respectively.
The net amortization of goodwill and the Company's share of SEI's net operating
results were not material in fiscal 1998. SEI's operating results for fiscal
1999 have been negatively impacted by the difficult market conditions in Europe.
As described elsewhere herein, the Company's net operating results for the
periods reported included amortization of goodwill from the Sterling acquisition
and SEI investment and the Company's pro-rata share of SEI's net income or loss.
The higher than statutory Federal and state income tax rates used to record the
tax expense in the periods reported is the result of the non-deductibility of
these charges and credits.
The Company's distribution agreement with Xilinx was terminated effective
December 31, 1998. Xilinx, which supplies mostly field programmable logic
products, represented approximately 2% and 4% of the Company's consolidated
sales for the three months and nine months ended February 28, 1999,
respectively, as compared to 5% for the same periods in fiscal 1998. The Company
has a strategy of adding new suppliers to increase and enhance its product
offerings. Since early fiscal 1999, the Company has signed distributor
agreements with three new major suppliers: Berg Electronics, Inc. (FCI/Berg
Electronics, Inc.), Vishay Intertechnology, Inc., and Micron Semicondutor
Products, Inc. In December 1998, the Company signed distributor agreements with
two other major suppliers of semiconductor products, Maxim Integrated Products
and Lucent Technologies, Inc., which is considered a leading supplier of field
programmable logic products. The Company believes that the additional sales from
these new suppliers, once fully launched, will offset most of the sales lost by
the Xilinx termination. During the transition period, however, the Company
expects that quarterly operating results may be adversely impacted.
The Company's sources of liquidity at February 28, 1999 consisted principally of
working capital of $380 million and available borrowings under the Company's
bank credit facility. As of February 28, 1999, there were $184 million in
borrowings outstanding under the Company's $325 million bank credit facility.
Under the terms of the bank facility, quarterly amortization payments are
required beginning in the third quarter of fiscal 1999, which would result in
full payment by the year 2002. The total amortization payment due in fiscal 1999
is $7.5 million, of which $3.75 million was paid in February, 1999. The Company
believes that its working capital, borrowing capabilities and additional funds
generated from operations for the remainder of the year should be sufficient to
finance its anticipated operating requirements.
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In August, 1998, the Company entered into an agreement, subsequently amended, to
purchase an 8-acre property for $10.4 million in Milpitas, California for the
construction of a new sales, marketing and distribution facility. Due to the
difficult market conditions that the Company and industry are experiencing, the
Company has decided to defer this expansion plan and will cancel this purchase
agreement for the land.
To optimize its working capital and space requirements, the Company has sold
three of its facilities with leaseback provisions of one and five years for two
of the facilities. The cash proceeds of approximately $10 million from these
transactions were received in the fourth quarter of fiscal 1999. The resulting
gains, due to the leaseback of two of these facilities and the receipt of a one
year note on one of the transactions, will not have a material impact on the
Company's fourth quarter operating results.
This Quarterly Report contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for future operations, assumptions underlying such plans and
objectives and other forward-looking statements included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other portions of this Quarterly 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 could 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, fluctuation in quarterly results, foreign currency translations and
other risks and uncertainties that are detailed in the Company's Annual Report
on Form 10-K and other reports filed by the Company with the Securities and
Exchange Commission.
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The EDGAR Online Glimpse is an extraction of the Management's
Discussion and Analysis section contained in the full 10-Q, available
from EDGAR Online
edgar-online.com.
All SEC Filings for MARSHALL INDUSTRIES from EDGAR Online
edgar-online.com
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