<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(K) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 1, 2000
ARROW ELECTRONICS, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C> <C>
NEW YORK 1-4482 11-1806155
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
25 HUB DRIVE, MELVILLE, NEW YORK 11747
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (516) 391-1300
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On August 7, 2000, a consortium consisting of the Company, an affiliate of
Schroder Ventures and another electronics distributor entered into a share
purchase agreement to purchase the VEBA Electronics Group from the Germany-based
E.ON AG for approximately $2.35 billion in cash. Under the terms of the share
purchase agreement, the Company has agreed to acquire Wyle Systems, Wyle
Components and Atlas Services North America (collectively, the "Wyle Companies"
or the "Wyle Electronics Groupo") for a purchase price of approximately $840
million, subject to adjustments, including adjustments for changes in working
capital from March 31, 2000.
Wyle Components is a franchised distributor for both broadline and
proprietary semiconductor suppliers in North America, with revenues of nearly
$1.1 billion in 1999 and $894 million for the six months ended June 30, 2000.
Wyle Systems is a distributor of computer products, with revenues of nearly $900
million in 1999 and 354 million for the first six moths of 2000. Atlas Services
provides logistics and value-added services to Wyle Components.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired:
See Attachment A.
(b) Pro Forma Financial Information:
The pro forma financial information as required by this Item
7(b) will be filed by amendment to this Current Report on
Form 8-K as soon as practicable, but not later than 60 days
after the date the Current Report on Form 8-K is required to
be filed:
(c) Exhibits:
Exhibit Description
2.1 Share Purchase Agreement, dated August 7, 2000, by and
among Arrow Electronics, Inc., Cherrybright Limited,
Avnet, Inc., E.ON AG and the Veba Electronics Group.
2
<PAGE> 3
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.
ARROW ELECTRONICS, INC.
By: /s/ ROBERT KLATELL
------------------------------------
Name: Robert Klatell
Title: Executive Vice President
Date: September 1, 2000
3
<PAGE> 4
ATTACHMENT A
4
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
of Wyle Electronics Group
In our opinion, the accompanying combined balance sheet and the related
combined statement of operations, of parent's equity and of cash flow present
fairly, in all material respects, the financial position of Wyle Electronics
Group at December 31, 1999 and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
March 21, 2000, except for second paragraph of
Note 1 which the date is August 7, 2000 and
except for fourth paragraph of Note 8 which
the date is August 4, 2000
San Jose, California
<PAGE> 6
WYLE ELECTRONICS GROUP
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,592
Accounts receivable (less allowance of $30,221) 338,479
Inventory, net 356,634
Prepaid expenses and other current assets 45,038
----------
Total current assets 752,743
Property, plant and equipment, net 64,646
Intangible assets, net 386,681
Other assets 24,742
----------
Total assets $1,228,812
==========
LIABILITIES AND PARENT'S EQUITY
Current liabilities:
Notes payable to affiliated companies, current $ 570,718
Accounts payable 113,503
Accrued liabilities 87,634
----------
Total current liabilities 771,855
Notes payable 50,000
Notes payable to affiliated companies, net of
current portion 200,000
Other liabilities 16,851
----------
Total liabilities 1,038,706
----------
Commitments and contingencies (Note 7 and 8)
Parent's equity:
Investment by parent 263,431
Accumulated deficit (73,325)
----------
Total parent's equity 190,106
----------
Total liabilities and parent's equity $1,228,812
==========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
<PAGE> 7
WYLE ELECTRONICS GROUP
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
<S> <C>
Net revenues $ 1,928,745
Cost of revenues (1,651,706)
-----------
Gross profit 277,039
Selling and administrative expenses (213,205)
Goodwill amortization (30,539)
Interest expense, net (45,123)
-----------
Loss before income taxes (11,828)
Income tax provision (9,593)
-----------
Net loss $ (21,421)
===========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
<PAGE> 8
WYLE ELECTRONICS GROUP
COMBINED STATEMENT OF PARENT'S EQUITY
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE
INCOME
INVESTMENT MINIMUM TOTAL
BY ACCUMULATED PENSION PARENT'S
PARENT DEFICIT LIABILITY EQUITY
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $263,431 $ (51,904) $ (3,328) $ 208,199
Minimum pension liability,
net of tax - - 3,328 3,328
Net loss - (21,421) - (21,421)
-------- ---------- -------- ---------
Balance at December 31, 1999 $263,431 $ (73,325) $ - $ 190,106
======== ========== ======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE> 9
WYLE ELECTRONICS GROUP
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1999
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(21,421)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 43,597
Loss on retirement of fixed assets 41
Provision for losses on accounts receivable
and inventory obsolescence 34,378
Changes in operating assets and liabilities:
Receivables (98,471)
Inventory (23,732)
Other assets 16,763
Accounts payable 12,089
Accrued liabilities 2,207
Other non-current liabilities (7,637)
--------
Net cash used in operating activities (42,186)
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (18,844)
--------
Net cash used in investing activities (18,844)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 62,023
Principal payments of notes payable (1,325)
--------
Net cash provided by financing activities 60,698
--------
Decrease in cash and cash equivalents (332)
Cash and cash equivalents at beginning of period 12,924
--------
Cash and cash equivalents at end of period $ 12,592
--------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest $ 44,272
Income taxes $ 2,359
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE> 10
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Wyle Electronics Group ("Wyle" or the "Company") is a wholly owned
subsidiary of VEBA Electronics, LLC which is a wholly owned subsidiary of
VEBA Corporation, a US corporation, which is indirectly owned by E.ON AG, a
German company. Wyle is an operating company within the VEBA Electronics
Group. VEBA Electronics Group is a combination of companies indirectly
owned by E.ON AG which is in the business of electronics distribution,
marketing semiconductors and computer products, as well as providing
value-added services. These services include complex materials management
systems and engineering design for application-specific integrated
circuits, including field programmable logic devices.
On August 7, 2000, a consortium consisting of three entities entered into a
share purchase agreement to purchase the VEBA Electronics Group from EON
AG. Under the terms of the share purchase agreement, Arrow Electronics,
Inc. will acquire Wyle Electronics Group.
BASIS OF PRESENTATION
The combined financial statements include companies that comprise the Wyle
Electronics Group. Ownership of the group companies is not consolidated
within a single entity owned by Wyle Electronics. These combined financial
statements include, among other things, allocations of certain VEBA
Electronics Group corporate assets, liabilities (including profit sharing
and pension benefits) and expenses (including legal, accounting, employee
benefits, insurance services, information technology services, treasury and
other corporate overhead) to Wyle. These amounts have been allocated to
Wyle on the basis that is considered by management to reflect most fairly
or reasonably the utilization of the services provided to or the benefit
obtained by Wyle. Typical measures and activity indicators used for
allocation purposes include headcount, sales revenue and payroll expense.
The Company's management believes that the methods used to allocate these
amounts are reasonable. However, these allocations are not necessarily
indicative of the amounts that would have been or that will be recorded by
the Company on a stand-alone basis. All significant intercompany balances
and transactions between combined companies have been eliminated. The
accounts of the following companies were included in the combined financial
statements: Wyle Electronics, Wyle Distribution Group Santa Clara, Inc.,
Wyle Ginsbury Electronics, Inc., Wyle Electronics Ltd (Barbados), Wyle
Electronics Canada Corp, Wyle Electronics Caribbean Corp, Redwing of
California, Inc., Wyle Electronics de Mexico s de (Mexico), Wyle Systems
LLC, Atlas Business Services LLC, Atlas Services LLC and EBV Electronic
Holdings, Inc.
In August 1997, Raab Karcher ("Raab Karcher"), a wholly owned subsidiary of
E.ON AG, a German public company, completed its cash tender offer for all
of the outstanding common stock of Wyle, a U.S. publicly traded company.
Under the terms of the agreement, Raab Karcher acquired the outstanding
shares of Wyle for $50 per share, for a transaction valued at $810,000,
including Wyle's debt. The transaction was accounted for under the purchase
method of accounting and the asset valuation recorded by the Company is
based on the cost of the purchase to Raab Karcher. The amount paid in
excess of the fair value of the tangible net assets acquired was recorded
as intangible assets and included allocations for supplier relationships,
workforce, trade name, technical know-how and goodwill which are being
amortized over lives ranging from 5-18 years. The funds used to acquire
Wyle, which totaled $610,000, were initially recorded as a debt on the
Company's balance sheet. A portion of this acquisition debt in the amount
of $250,000 was subsequently converted into equity.
1
<PAGE> 11
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
-----------------------------------------------------------------------------
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 the
disclosure of contingent assets and liabilities at the date of the
unconsolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes sales upon shipment and is reflected net of an allowance
for estimated returns and discounts. Revenue from vendor rebates, discounts and
cooperative advertising is recognized when earned.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. The Company deposits cash and
cash equivalents with high credit quality financial institutions.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration
of credit risk consist principally of cash and cash equivalents and trade
accounts receivable. The Company's accounts receivable are derived from revenue
earned from customers. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. The Company maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable.
INVENTORY
Inventory, consisting of finished products, are stated at the lower of cost or
market, with cost being determined principally by the average costing method
that approximates the first-in first-out basis. The Company may from time to
time have inventory in excess of its short-term needs. Management maintains a
program to reduce this inventory to a desired level over the near term.
However, it is reasonably possible that the program will not be wholly
successful and a material loss could ultimately result. No estimate can be made
of the range of amounts of such loss.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally 2
to 40 years, or the lease term of the respective asset, whichever is shorter.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of goodwill and other long lived
assets for potential impairment on an ongoing basis. The Company considers
projected future operating results, cash flows, trends and other circumstances
in making such estimates and evaluations.
INVESTMENT BY PARENT
Funds contributed by wholly owned subsidiaries of E.ON AG or E.ON AG that are
not part of the Wyle Electronics Group are shown as Investment by Parent.
COMPREHENSIVE INCOME
Comprehensive income is defined as net income (loss) plus revenues, expenses,
gains, and losses that, under generally accepted accounting principles, are
excluded from net income (loss).
2
<PAGE> 12
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
BUSINESS SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information," effective for fiscal years
beginning after December 31, 1997. SFAS No. 131 supersedes Statement of
Financial Accounting Standards No. 14 ("SFAS No. 14"), "Financial Reporting for
Segments of a Business Enterprise." SFAS No. 131 changes current practice under
SFAS No. 14 by establishing a new framework on which to base segment reporting
and also requires interim reporting of segment information. The adoption of SFAS
No. 131 did not affect results of operations or financial position but did not
affect the disclosure of segment information, as presented in Note 9.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
the financial statements and tax basis of assets and liabilities using current
tax laws and rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on hedges item in the outcome statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 is effective for the
Company in fiscal year 2000 and will not require retroactive restatement of
prior period financial statements. The Company has not yet quantified the impact
of adopting SFAS No. 133 on its financial statements, but the Company believes
there will not be a significant impact.
In December 31, 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which outlines the basic criteria that must be met to recognize
revenue and provides guidance for presentation of revenue and for disclosure
related to revenue recognition policies in financial statements filed with the
SEC. In June 2000, the SEC issued SAB 101(B) which defers the implementation
date of SAB 101 to no later than the fourth fiscal quarter of fiscal years
commencing after December 15, 1999. The application of the guidance provided by
SAB 101 is not expected to have material impact on the statement of operations.
3
<PAGE> 13
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB 25." This Interpretation clarifies (a) the definition
of employee for purposes of applying Opinion 25, (b) the criteria for
determining whether a plan qualifies as a non-compensatory plan, (c) the
accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an
exchange of stock compensation awards in a business combination. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after either December 15,
1998, or January 12, 2000. To the extent that this Interpretation covers
events occurring during the period after December 15, 1998, or January 12,
2000, but before the effective date of July 1, 2000, the affects of
applying this Interpretation are recognized on a prospective basis from
July 1, 2000. The application of the guidance provided by FIN 44 is not
expected to have a material impact on the statement of operations.
2. PROPERTY AND EQUIPMENT
<TABLE>
<S> <C>
Land $ 5,554
Building and improvements 20,899
Machinery and equipment 33,109
Software 14,286
Construction in progress 15,249
--------
89,097
Less: Accumulated depreciation and amortization (24,451)
--------
$ 64,646
========
</TABLE>
Depreciation expense for the year ended December 31, 1999 was $13,058.
3. RELATED PARTY TRANSACTIONS
The accompanying financial statements include the following transactions
and balances with affiliates of the Company:
<TABLE>
<S> <C>
Sales to affiliates $ 1,828
Expenses allocated to affiliate 20,862
Accounts receivable 3,283
Purchases 1,860
Accrued liabilities 1,496
Notes payable 770,718
Interest expense 41,465
</TABLE>
4
<PAGE> 14
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------------
<TABLE>
<S> <C>
4. INCOME TAXES
The provision for income taxes consists of the following:
CURRENT:
Federal $ 3,696
State 1,004
---------
4,700
---------
DEFERRED:
Federal 4,200
State 693
---------
4,893
---------
Total $ 9,593
=========
The Company's effective tax rate differs from the U.S. federal
statutory tax rate, as follows:
Computed "expected" income taxes $ (4,140)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit 1,103
Goodwill amortization 10,689
Other, net 1,941
---------
$ 9,593
=========
Deferred tax assets and liabilities consist of the following:
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 5,987
Allowance for doubtful accounts 10,376
Inventory obsolescence allowance and capitalized costs 8,761
Employee benefit 6,523
Depreciation 1,990
Discontinued operations accrual 1,875
Operating accruals and other 6,230
---------
Total deferred tax assets 41,742
DEFERRED TAX LIABILITIES:
Sales returns and allowances 14,693
---------
Net deferred tax assets $ 27,049
=========
</TABLE>
Although realization of the deferred tax asset is not assured, the Company
believes that it is more likely than not that all deferred tax assets will be
realized.
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of $10,772, which are available to offset future
federal taxable income, if any, through 2012, subject to certain limitations.
5
<PAGE> 15
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------------
The Company is under routine audit by the U.S. Internal Revenue Service
("IRS"). Currently, the financial years of 1993 through 1998 are under
examination. The Company has been advised by the IRS that certain tax
return deductions and credits taken by the Company appear not to be in
compliance with applicable tax regulations. The Company disagrees with the
IRS position and is now in appeals proceedings. In the opinion of
management, although the ultimate outcome cannot be predicted, upon final
disposition, the additional tax, if any, is not expected to have an
unfavorable impact on the results from operations.
5. BANK LOANS AND LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
<TABLE>
<S> <C>
VEBA Electronics credit line borrowings $ 100,718
Fidelia Corporation borrowings:
At 6.10% to 6.24% due 2000 470,000
At 6.49% due 2002 70,000
At 6.68% due 2004 70,000
At 6.78% due 2007 60,000
Senior unsecured notes:
At 6.98% due 2001 30,000
At 7.18% due 2006 20,000
---------
820,718
Less: Current maturities (570,718)
---------
$ 250,000
=========
</TABLE>
The Company has loan agreements with Fidelia Corporation, a wholly owned
subsidiary of VEBA Corporation, which provide for term debts with various
maturities and interest rates as detailed above. The Company has the
ability to refinance the short-term portion of the notes payable through
its credit lines with affiliates of the Company.
Principal payments under the borrowings are as follows:
<TABLE>
<S> <C>
2000 $570,718
2001 30,000
2002 70,000
2003 -
2004 70,000
Thereafter 80,000
--------
$820,718
========
</TABLE>
Accrued interest payable at December 31, 1999 was $5,724, which is included
in accounts payable and accrued liabilities in the accompanying combined
financial statements.
6
<PAGE> 16
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------------
6. EMPLOYEE RETIREMENT BENEFITS
EMPLOYEE RETIREMENT PLAN
The Company has a defined benefit pension plan covering substantially all
of its employees. Plan benefits are generally based on employees' years of
service and average compensation during the final years of employment.
These benefits are no longer offered to employees who were employed by the
Company after December 31, 1998.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company sponsors a supplemental executive retirement plan ("SERP") that
provides benefits to certain employees whose benefits under the defined
benefit pension plan are reduced as a result of limitations imposed by the
Internal Revenue Code. These benefits are no longer offered to employees
who were employed by the Company after December 31, 1998.
POSTRETIREMENT HEALTH CARE
The Company provides postretirement medical coverage to qualifying
employees. Upon retirement, the Company's employees may become eligible
for benefits if they meet certain age and length at service requirement as
specified in the plan. These benefits are no longer offered to employees
who were employed by the Company after December 31, 1998.
401(k) PLAN
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. Employer contributions under this plan amounted to
$2,355 for the year ended December 31, 1999.
DIRECTORS DEFERRED COMPENSATION PLAN
The Company sponsored a plan for the directors of the Company that deferred
their directorship fees. The Company has set up a Rabbi Trust to fund the
benefit payments under its SERP and Directors Deferred Compensation Plan.
Trust assets are irrevocable to the Company but are subject to creditor
claims under certain conditions.
VOLUNTARY EMPLOYEE'S BENEFICIARY ASSOCIATION
The Company has a Voluntary Employee's Beneficiary Association trust to
fund medical and dental benefit payments of current employees. Trust
assets, which are irrevocable to the Company amounted to $448 at December
31, 1999.
7
<PAGE> 17
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
The Company's expense for pensions, SERP and post retirement health care plan
was as follows:
<TABLE>
<CAPTION>
POST
PENSION RETIREMENT
BENEFITS SERP HEALTH CARE TOTAL
<S> <C> <C> <C> <C>
COST RECOGNIZED IN INCOME STATEMENT:
Service cost $ 2,223 $142 $ 14 $ 2,379
Interest cost 5,505 469 120 6,094
Expected return on plan assets (6,640) -- -- (6,640)
Amortization of:
Plan amendments -- 112 -- 112
Prior service cost -- -- (39) (39)
Gains, losses and other 249 -- -- 249
------- ---- ---- -------
Net pension/postretirement expense $ 1,337 $723 $ 95 $ 2,155
======= ==== ==== =======
Discount rate for expense 7.00% 7.00% 7.75%
Assumed long-term rate of return on assets 9.50% 9.50% 0.00%
</TABLE>
The year end status of these plans was as follows:
<TABLE>
<CAPTION>
POST
PENSION RETIREMENT
BENEFITS SERP HEALTH CARE TOTAL
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at January 1, 1999 $80,386 $ 6,900 $ 1,795 $89,081
Service cost 2,223 142 14 2,379
Interest cost 5,505 469 120 6,094
Special programs -- 1,085 -- 1,085
Plan participant contributions -- -- 98 98
Benefits paid (3,500) (365) (354) (4,219)
Actuarial loss (6,602) (885) (11) (7,498)
------- ------- ------- -------
Benefit obligation at December 31, 1999 $78,012 $ 7,346 $ 1,662 $87,020
======= ======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1, 1999 $68,624 $ -- $ -- $68,624
Actual return on plan assets 5,887 -- -- 5,887
Company contributions 2,058 365 -- 2,423
Benefits paid (3,500) (365) -- (3,865)
------- ------- ------- -------
Fair value of plan assets at December 31, 1999 $73,069 $ -- $ -- $73,069
======= ======= ======= =======
AMOUNTS RECOGNIZED IN THE BALANCE SHEET
CONSISTS OF ASSETS/(LIABILITIES):
Other non-current assets $ 2,590 $ -- $ -- $ 2,590
Accrued non-current liabilities -- (6,770) (2,156) (8,926)
------- ------- ------- -------
Net amount recognized $ 2,590 $(6,770) $(2,156) $(6,336)
======= ======= ======= =======
</TABLE>
8
<PAGE> 18
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSUMPTIONS AS OF DECEMBER 31, 1999:
<S> <C> <C> <C> <C>
Discount rate 7.75% 7.75% 7.75%
Expected return on assets 9.50% 9.50% 0.00%
Average rate of increase in compensation 5.00% 5.00%
Initial health care costs trend rate -- -- 7.00%
Ultimate health care cost trend rate -- -- 5.50%
Year in which ultimate trend rate is reached -- -- 2001
<CAPTION>
FUNDED STATUS OF THE PLAN:
<S> <C> <C> <C> <C>
Plan assets less than benefit obligations $(4,943) $(7,346) $(1,662) $(13,951)
Unamortized:
Prior service cost -- 1,117 (510) 607
Net losses 7,533 (541) 16 7,008
------- ------- ------- --------
Net amount recognized $ 2,590 $(6,770) $(2,156) $( 6,336)
======= ======= ======= ========
</TABLE>
7. COMMITMENTS
LEASES
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through September 30, 2014. Rent expense
for the year ended December 31, 1999 was $10,598.
Future minimum lease payments under noncancelable operating leases, including
lease commitments entered into subsequent to December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C>
2000 $ 8,387
2001 6,830
2002 4,054
2003 2,731
2004 362
Thereafter 1,603
-------
$23,967
=======
</TABLE>
9
<PAGE> 19
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
-------------------------------------------------------------------------------
8. CONTINGENCIES
In May 1993, Avnet, Inc. ("Avnet") and Hall-Mark Electronics Corporation
("Hall-Mark") filed a civil action against the Company and a former
employee in the Superior Court of Fulton county, Georgia, seeking
injunctive relief and monetary damages, and alleging, inter alia, that the
Company conspired with Hall-Mark employees to tortuously interfere with
the employment relations of Hall-Mark and its employees and with a
proposed business combination between the plaintiffs, which combination
was consummated subsequently. Plaintiffs' motion for a preliminary
injunction was denied in part by the trial court and affirmed by the
Georgia Supreme Court in December 1993. In October 1995, plaintiffs
voluntarily dismissed their claims in Georgia without prejudice.
In September 1995, Avnet re-filed the same action against the Company and
certain Company employees in the Circuit Court of Hillsborough County,
Florida ("Florida Action"). After a five month trial, on February 4, 2000
the jury returned a unanimous verdict in favor of the Company and eight
individually named defendants. Avnet has filed a motion for a new trial,
which has yet to be set for hearing. The Company believes that the
plaintiffs' complaint is without merit and will contest it vigorously.
In the event that the court were to rule against the Company, the Company
could be adversely impacted by the potential monetary damages or injunctive
relief that could ultimately be awarded if a new trial were granted. Due to
the nature of the litigation, the Company's management cannot estimate the
total expense, the possible loss, if any, or the range of loss that may
ultimately be incurred in connection with the allegations. Although no
assurances can be given as to the results of this case based on the present
status, management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results of
operations.
On May 10, 2000, the trial court denied Avnet's motion for a new trial,
and on July 7, 2000 entered a final judgement in favor of the Company and
the individual defendants. On August 4, 2000, Avnet filed a Notice of
Appeal from the final judgement; in the meantime, the Company has filed a
motion to recover its attorneys' fees and costs from Avnet. The Company
believes that the plaintiffs' complaint is without merit and will contest
it vigorously.
Because of the nature of its activities, the Company is at times subject
to pending and threatened legal actions which arise out of the normal
course of business. In the opinion of management, based in part upon
advice of legal counsel, the disposition of all such matters will not have
a material effect on the combined financial statements.
9. SEGMENT INFORMATION
Wyle Electronics Group distributes electronics components and systems. The
components business concentrates on the in-process distribution of
semiconductor parts and products to manufacturers and the systems business
concentrates on the wholesale distribution of final products to
value-added resellers, original equipment manufacturers and retailers.
10
<PAGE> 20
WYLE ELECTRONICS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS)
------------------------------------------------------------------------------
Wyle Electronics represents the electronics components business, which
distributes active, mainly non-commodity, electronics components such as
microprocessors and microcontrollers to industrial semiconductor customers for
use in manufactured products. The electronics components business also provides
technical customer consultations, supply chain management for customers and
manufacturers, and added value services such as component programming and
special packaging.
Wyle Systems represents the electronics systems business, engages in the
wholesale distribution of computer systems, computer peripherals such as
printers and monitors, PC application software and networking products to
members of the retail trade and system integrators in Europe and the United
States.
<TABLE>
<CAPTION>
WYLE WYLE
ELECTRONICS SYSTEMS
<S> <C> <C>
Assets $ 1,207,184 $ 253,327
Revenue 1,286,333 642,412
Depreciation and amortization 38,877 4,720
Capital expenditures 6,864 11,974
</TABLE>
11
