ITEM 1. BUSINESS
Sterling Electronics Corporation was incorporated under the laws of the State of Nevada on July 6, 1967. It succeeded to the business of Sterling Electronics, Inc., a Texas corporation, by merger in October 1967. The term "Company" as used herein refers to Sterling Electronics Corporation and, unless the text indicates otherwise, its subsidiaries and its predecessors.
Sterling Electronics Corporation has been engaged in the distribution of electronic parts since inception. In April 1988, when the Company was operating from thirteen geographic locations, Sterling began an expansion program to place its distribution operations in additional geographic markets. These expansion moves bring Sterling's distribution network, as of June 1996, to 33 locations covering over 75% of the United States' geographic markets for electronic components.
Customers are principally manufacturers of capital goods containing electronic circuitry such as electronic measurement devices, personal computers, computer workstations, computer peripherals, process control systems, medical monitoring equipment and telecommunications devices. Products purchased by these manufacturers are part of their raw material requirements and quantities purchased are usually less than the order minimums established for direct sales by manufacturers of such components. Total sales to governmental units in the last fiscal year were less than 1% of sales. Distribution business is solicited by a force of field sales and telephone sales personnel. On March 30, 1996, the total backlog of confirmed, unshipped orders was $95,842,000 compared with $66,034,000 at April 1, 1995. Backlog is generated by scheduled orders as well as merchandise ordered for shipment to customers immediately upon receipt from the Company's suppliers.
Operations are conducted from three regional service centers/warehouses and 33 sales offices in office- warehouse type buildings generally located in industrial park sites. Each sales location has an array of product franchises granted by approximately 40 total suppliers. Most franchises are common to several or all sales branches. Each service center supplies products to customers in all geographic areas the Company covers. Sales locations are in Boston, Massachusetts; Parsippany and Mt. Laurel, New Jersey; Richmond, Virginia; Houston, Austin and Dallas, Texas; Albuquerque, New Mexico; Phoenix, Arizona; Wallingford, Connecticut; Tulsa, Oklahoma; Denver, Colorado; Kansas City, Kansas; Minneapolis, Minnesota; Irvine, Westlake Village, San Diego and San Jose, California; Salt Lake City, Utah; Columbia, Maryland; Chicago, Illinois; Cleveland, Ohio; Raleigh, North Carolina; Atlanta, Georgia; Portland, Oregon; Orlando, Florida; Calgary, Alberta; Vancouver, British Columbia; Ottawa and Toronto, Ontario; Montreal, Quebec; Seattle, Washington and Huntsville, Alabama.
All locations are connected by a data communications network to a computerized on-line, real-time order entry, inventory management system developed in-house several years ago. The host computer is in Houston, Texas. The system allows Sterling to provide rapid customer service to all geographic locations from central inventories concentrated in three service centers.
Products consisting of approximately 80,000 items include connectors, integrated circuits, microprocessors, power supplies, resistors, capacitors, relays, switches, and liquid crystal displays. Products are purchased from approximately 40 vendors and distributed to approximately 14,000 customers; no single customer's volume accounted for as much as 3% of the sales of the Company during the last fiscal year. Sterling assembles connectors to customers' specifications and fabricates custom flat and round cable assemblies. Dallas, the largest of the assembly centers, provides design support and fast turnaround of customer requirements for both connectors and cable assemblies. In addition, other products requiring added value are produced at the Dallas assembly center.
A substantial portion of the products sold are purchased pursuant to distributor-manufacturer franchise agreements; the agreements are largely nonexclusive, provide for a specified amount of inventory to be carried and may be canceled by either party on short notice. They provide, in most instances, for return of the manufacturers' inventory in the event of cancellation. In the opinion of the Company, cancellation of any particular agreement would not have a material adverse effect upon its business.
The ten largest suppliers providing merchandise to the Company are AMP Special Products, Dallas Semiconductor, Hitachi America Ltd., Kemet Electronics Corporation, Molex Connector Co., Murata Erie North America, NEC Electronics, Inc., Seiko Instruments, Sharp Electronics Corporation and Toshiba America, Inc. During fiscal 1996,
Toshiba America, Inc. supplied approximately 15% and Hitachi America Ltd. supplied approximately 10% of the products sold. No other single manufacturer supplied more than 10% of the products sold.
In the business of distributing electronic components, the Company competes with many concerns in each market area, including its own suppliers in certain quantities. A number of them are significantly larger and possess greater financial resources than the Company. The Company's sales volume places it among the fifteen largest industrial electronic parts distributing firms in the United States.
EMPLOYEES
At March 30, 1996, the Company and its subsidiaries employed 655 persons. None are employed subject to a collective bargaining agreement. In the opinion of the Company, it enjoys a good relationship with its employees. The Company provides its full time employees with group health, dental, life insurance and disability income benefits.
BACKLOG
At March 30, 1996, the Company's total backlog of confirmed, unfilled orders was approximately $95,842,000. The Company expects almost all of this backlog to be shipped before the end of fiscal 1997. Backlog for the same operations at April 1, 1995 was $66,034,000. The backlog at year end is not necessarily indicative of sales for any specific subsequent period.
COMPETITION
In each of the fields of business engaged in by the Company, it is subject to intense competition from many firms of varying size and resources, including many which are larger and financially stronger than the Company.
INDUSTRY SEGMENT DATA
Industry segment data included on page 26 in the Company's 1996 annual shareholders' report is incorporated herein by reference.
ITEM 2.
ITEM 2. PROPERTIES
At March 30, 1996, the Company utilized facilities containing a total of approximately 307,000 square feet of floor space which are well maintained and satisfactory for the purpose used. All properties are leased for varying terms. Pertinent details with respect to the properties considered by the Company to be its principal operating facilities are as follows:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no significant active legal proceedings against the Company or any of its subsidiaries.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
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ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company had approximately 1,887, 2,259 and 2,366 shareholders of record at March 30, 1996, April 1, 1995 and April 2, 1994, respectively. Pages 16 and 18 of the Company's 1996 annual shareholders' report are incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data included on page 12 of the Company's 1996 annual shareholders' report is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of the Financial Condition and Results of Operations included on pages 13 through 15 of the Company's 1996 annual shareholders' report is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and its subsidiaries, included on pages 16 through 27 of the Company's 1996 annual shareholders' report are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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ITEM 10.
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information set forth under the heading "Security Ownership of Certain Beneficial Owners and Management", "Election of Directors" and "Executive Officers" in the Company's annual proxy statement dated July 15, 1996 is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading "Directors Compensation" and "Executive Compensation and Other Matters" in the Company's annual proxy statement dated July 15, 1996 is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the heading "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in the Company's annual proxy statement dated July 15, 1996 is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. 1. FINANCIAL STATEMENTS AND OTHER FINANCIAL DATA (incorporated by reference to the pages shown below of the Sterling Electronics Corporation 1996 annual report to shareholders):
With the exception of the financial statements and other financial data listed above or incorporated under items 1, 5, 6, 7 and 8 of this form 10-K, the Sterling Electronics Corporation 1996 annual report to shareholders is not deemed filed as part of this report. The financial statement Schedule II listed below should be read in conjunction with the financial statements listed above.
2. FINANCIAL STATEMENT SCHEDULE :
Schedule II - Valuation and Qualifying Accounts - fiscal years ended March 30, 1996, April 1, 1995 and April 2, 1994
All other schedules have been omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements including the notes thereto.
3. EXHIBITS:
___________________________________________________ * Incorporated by reference. (1) Management contract or compensatory plan or agreement.
B. REPORTS ON FORM 8-K:
None.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
STERLING ELECTRONICS CORPORATION
ALLOWANCE FOR DOUBTFUL TRADE ACCOUNTS FISCAL YEARS ENDED MARCH 30, 1996, APRIL 1, 1995 AND APRIL 2, 1994
Note: Balances exclude those of discontinued operations.
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 hereunto duly authorized.
STERLING ELECTRONICS CORPORATION
Date: June 27, 1996 By: /s/ R. S. Spolane --------------------------------------- R. S. Spolane, Chairman, President and Chief Executive Officer
/s/ Mac McConnell --------------------------------------- Mac McConnell, Vice President and Chief Financial Officer
MAJORITY OF THE BOARD OF DIRECTORS
/s/ Jay H. Golding --------------------------------------- Jay H. Golding
/s/ S. M. Lambert --------------------------------------- S. M. Lambert
/s/ H. G. Maltz --------------------------------------- H. G. Maltz
/s/ D. A. Spolane --------------------------------------- D. A. Spolane
/s/ R. S. Spolane --------------------------------------- R. S. Spolane
/s/ D. R. Toomim --------------------------------------- D. R. Toomim
EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NO. ITEM NUMBERED PAGES - ----------- ---- -------------- 10.10 Employment Agreement dated September 18, 1995 between Ronald S. Spolane and Sterling Electronics Corporation.
10.11 Employment Agreement dated September 18, 1995 between David S. Spolane and Sterling Electronics Corporation.
10.12 Sterling Electronics Corporation Broad Base Severance Plan dated November 14, 1995.
10.13 Sterling Electronics Corporation Upper Management Severance Plan dated November 14, 1995.
10.14 Bank Agreement dated February 16, 1996 between Sterling Electronics Corporation and Nations Bank of Texas, N.A.
11 Statement Re: Computation of Per Share Earnings.
13 Pages 12 through 27 of the Sterling Electronics Corporation 1996 annual report to shareholders.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP.
27 Financial Data Schedule.