<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 0-14643
--------------------------------------------------------
KENT ELECTRONICS CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-1763541
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7433 Harwin Drive, Houston, Texas 77036-2015
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 780-7770
---------------------------
Not applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 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 latest practicable date.
At November 4, 1996, 23,921,852 shares of common stock, no par value,
are issued and outstanding.
<PAGE> 2
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, March 30,
1996 1996
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $52,893,000 at September 28
and $75,552,000 at March 30)................ $ 47,443,000 $ 73,191,000
Trading securities, net....................... 26,877,000 38,747,000
Accounts receivable, less allowance of
$1,083,000 at September 28 and $999,000
at March 30................................. 65,782,000 52,469,000
Inventories
Materials and purchased products............ 53,374,000 44,741,000
Work in process............................. 1,887,000 3,414,000
------------ ------------
55,261,000 48,155,000
Other......................................... 4,445,000 4,297,000
------------
Total current assets...................... 199,808,000 216,859,000
PROPERTY AND EQUIPMENT
Land.......................................... 7,439,000 7,422,000
Buildings..................................... 26,088,000 18,590,000
Furniture, fixtures and equipment............. 55,295,000 34,444,000
Leasehold improvements........................ 1,778,000 1,722,000
------------ ------------
90,600,000 62,178,000
Less accumulated depreciation and amortization (20,195,000) (17,329,000)
------------ ------------
70,405,000 44,849,000
DEFERRED INCOME TAXES............................ 1,319,000 1,369,000
OTHER ASSETS..................................... 4,120,000 1,582,000
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $2,177,000
at September 28 and $1,994,000 at March 30.... 12,619,000 12,802,000
------------ ------------
$288,271,000 $277,461,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2 of 14
<PAGE> 3
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, March 30,
1996 1996
------------- -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................ $ 32,730,000 $ 30,924,000
Accrued compensation............................ 4,446,000 9,904,000
Other accrued liabilities....................... 5,215,000 5,177,000
Income taxes.................................... 2,604,000 5,172,000
----------- ------------
Total current liabilities................... 44,995,000 51,177,000
LONG-TERM DEBT..................................... ---- ----
LONG-TERM LIABILITIES.............................. 1,418,000 976,000
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; authorized
2,000,000 shares; none issued................. ---- ----
Common stock, no par value; authorized
30,000,000 shares; issued and outstanding,
23,917,050 shares at September 28 and
23,937,176 shares at March 30................. 40,072,000 38,336,000
Additional paid-in capital...................... 110,444,000 110,154,000
Retained earnings............................... 92,319,000 76,818,000
Less common stock in treasury - at cost, 50,000
shares at September 28....................... (977,000) ----
----------- ------------
241,858,000 225,308,000
----------- ------------
288,271,000 $277,461,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3 of 14
<PAGE> 4
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------- ---------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales.................................... $102,359,000 $90,190,000 $208,521,000 $167,775,000
Cost of sales................................ 78,798,000 66,387,000 157,059,000 123,999,000
----------- ----------- ------------ ------------
Gross profit............................ 23,561,000 23,803,000 51,462,000 43,776,000
Selling, general and administrative expenses. 14,386,000 14,259,000 28,653,000 26,934,000
----------- ----------- ---------- ------------
Operating profit............................. 9,175,000 9,544,000 22,809,000 16,842,000
Other income (expense)
Interest expense........................ (5,000) (5,000) (26,000) (10,000)
Other - net............................. 1,271,000 492,000 2,838,000 997,000
----------- ----------- ----------- ------------
Earnings before income taxes................. 10,441,000 10,031,000 25,621,000 17,829,000
Income taxes................................. 4,049,000 4,013,000 10,120,000 7,132,000
----------- ----------- ----------- ------------
NET EARNINGS............................ $ 6,392,000 $ 6,018,000 $ 15,501,000 10,697,000
=========== =========== ============ ===========
Earnings per share........................... $.25 $.29 $.61 $.51
==== ==== ==== ====
Weighted average shares...................... 25,134,700 20,966,600 25,312,400 20,789,500
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------------
September 28, September 30,
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $15,501,000 $10,697,000
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization . . . . . . . . . . . . . . . 3,054,000 1,940,000
Provision for losses on accounts receivable . . . . . . . . 84,000 139,000
Loss on sale of property, plant and equipment . . . . . . . 1,000 3,000
Stock option expense . . . . . . . . . . . . . . . . . . . . 290,000 568,000
Unrealized gains on trading securities . . . . . . . . . . . ---- (103,000)
Net sales of trading securities . . . . . . . . . . . . . . 11,870,000 ----
Change in assets and liabilities . . . . . . . . . . . . . .
Increase in accounts receivable . . . . . . . . . . . . . (13,397,000) (5,463,000)
Increase in inventories . . . . . . . . . . . . . . . . . (7,106,000) (8,645,000)
(Increase) decrease in other . . . . . . . . . . . . . . (148,000) 419,000
Increase in other assets . . . . . . . . . . . . . . . . (2,538,000) (537,000)
Decrease in deferred income taxes . . . . . . . . . . . . 50,000 50,000
Increase in accounts payable . . . . . . . . . . . . . . 1,806,000 5,504,000
Increase (decrease) in accrued . . . . . . . . . . . . .
compensation . . . . . . . . . . . . . . . . . . . . . (5,458,000) 466,000
Increase in other accrued liabilities . . . . . . . . . . 38,000 3,562,000
Increase (decrease) in income taxes . . . . . . . . . . . (2,568,000) 165,000
Increase in long-term liabilities . . . . . . . . . . . 442,000 364,000
----------- ----------
Total adjustments . . . . . . . . . . . . . . . . . (13,580,000) (1,568,000)
----------- ----------
Net cash generated by operating
activities . . . . . . . . . . . . . . . . . . . . $ 1,921,000 $9,129,000
</TABLE>
(Continued)
Page 5 of 14
<PAGE> 6
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
--------------------------
September 28, September 30,
1996 1995
------------ ------------
<S> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures........................... $(28,428,000) $(10,361,000)
Proceeds from sale of property, plant and
equipment.................................... ---- 7,000
----------- -----------
Net cash used by investing
activities....................... (28,428,000) (10,354,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock....................... 225,000 84,483,000
Purchase of treasury stock..................... (977,000) ----
Tax effect of common stock issued upon
exercise of employee stock options........... 1,511,000 518,000
----------- -----------
Net cash provided by financing
activities....................... 759,000 85,001,000
----------- -----------
NET INCREASE (DECREASE) IN CASH................... (25,748,000) 83,776,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 73,191,000 4,434,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $47,443,000 $88,210,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest..................................... $ ---- $ ----
Income taxes................................. $11,126,000 $ 6,400,000
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6 of 14
<PAGE> 7
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
The consolidated balance sheet as of September 28, 1996, and the related
consolidated statements of earnings and cash flows for the thirteen and
twenty-six week periods ended September 28, 1996 and September 30, 1995, have
been prepared by the Company without audit. In the opinion of management, the
financial statements include all adjustments necessary for a fair presentation.
All adjustments made were of a normal recurring nature. Interim results are
not necessarily indications of results for a full year. For further financial
information, refer to the audited financial statements of the Company and notes
thereto for the fiscal year ended March 30, 1996, included in the Company's
Form 10-K for that period.
Cash and Cash Equivalents
Temporary investments may be greater than the cash and cash equivalents balance
because they may be offset by individual bank accounts with a book overdraft
position within the same bank where multiple accounts are maintained.
Sales To Major Customers
For the thirteen and twenty-six week periods ended September 28, 1996, sales to
Compaq Computer Corporation represented 12.9% and 11.8% of net sales,
respectively. For the thirteen and twenty-six week periods ended September 30,
1995, sales to Compaq represented 12.9% and 12.6% of net sales, respectively.
Sales to Applied Materials, Inc. represented 13.2% and 13.0% of net sales,
respectively, for the same thirteen and twenty-six week periods ended September
30, 1995.
Business Combinations
The Company signed a definitive agreement on September 25, 1996, to acquire two
specialty wire and cable redistribution companies, Futronix Corporation of
Houston, Texas and Wire & Cable Specialties Corporation of Atlanta, Georgia.
The agreement calls for the exchange of approximately 2.1 million shares of
Kent common stock for all of the common stock equivalents of both companies.
The estimated value of the transaction is approximately $68 million, including
the assumption of approximately $20 million in debt that the Company plans to
retire upon consummation of the transaction. The Board of Directors of the
Company has voted to approve this transaction as well as to increase the
Company's authorized shares of common stock
Page 7 of 14
<PAGE> 8
from 30 million shares to 60 million shares to allow the Company to complete the
transaction and still have shares available for general corporate purposes.
Both the transaction and the increase in the number of authorized shares must be
approved by the Company's shareholders at a special meeting to be held in
January 1997.
On October 30, 1996, subsequent to the close of the quarter, the Company
entered into a Letter of Intent with Electronics Marketing Corporation to
purchase all of the assets of the EMC Distribution Division, a regional
specialty electronics distributor based in Columbus, Ohio. Based upon the
current level of sales, EMC Distribution Division expects to report calendar
1996 sales of approximately $21 million. The acquisition is contingent upon the
completion of due diligence and the negotiation and execution of definitive
documentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the thirteen and twenty-six weeks ended September 28, 1996,
increased $12,169,000, or 13.5%, and $40,746,000, or 24.3%, compared to the
same periods a year ago. The sales increase reflected internal growth
primarily from increased demand from existing customers and an expanded
customer base. Results for the thirteen and twenty-six week period reflected a
slowdown in the business environment for electronics manufacturing and
distribution. Specifically, the Company's contract manufacturing operations
were affected by the severe downturn in the semiconductor capital equipment
sector which represented approximately 40% of the Company's contract
manufacturing revenues in the fiscal year ended March 30, 1996. The Company
anticipates that net sales for the thirteen week periods ending December 28,
1996 and March 29, 1997, will not be less than the quarter ended September 28,
1996.
Gross profit decreased $242,000, or 1.0%, for the thirteen weeks and increased
$7,686,000, or 17.6%, for the twenty-six weeks when compared to the
corresponding periods a year ago. Gross profit as a percentage of sales
decreased to 23.0% from 26.4% for the thirteen week period, and to 24.7% from
26.1% for the twenty-six week period, compared to the same periods last year.
The decrease in gross profit for the thirteen week period and the decrease in
the gross profit percentage for the
Page 8 of 14
<PAGE> 9
thirteen and twenty-six week periods resulted from continued pricing pressures
and the transitioning of new business services by the Company's contract
manufacturing division.
Selling, general and administrative ("SG&A") expenses increased $127,000, or
0.1%, for the thirteen week period and $1,719,000, or 6.4%, for the twenty-six
week period, compared to the same periods in the previous year. As a
percentage of sales, SG&A declined to 14.1% from 15.8% for the thirteen weeks
and to 13.7% from 16.1% for the twenty-six weeks compared to the same prior
year periods. The decline of SG&A as a percentage of sales reflects the
Company's continued focus on cost containment, as well as specific steps to
reduce SG&A expenses in light of the current difficult business environment.
Other-net consists principally of interest and dividend income generated by
cash, cash equivalents and trading securities. The increase in interest and
dividend income was primarily due to the invested net proceeds from the
September 1995 public offering.
Net earnings increased $374,000, or 6.2%, and $4,804,000, or 44.9%, for the
thirteen and twenty-six week periods, respectively, compared to the same
periods a year ago. Net earnings for the quarter ended September 28, 1996 were
lower than the quarter ended June 29, 1996 due to gross margin pressures and a
decrease in net sales.
Liquidity and Capital Resources
Working capital at September 28, 1996 was $154,813,000, a decrease of
$10,869,000, or 6.6%, from March 30, 1996.
Included in the Company's working capital at September 28, 1996 are investments
of $79,770,000, a decrease of $34,529,000 since March 30, 1996. The decrease
reflects the Company's continued investment in property, equipment, accounts
receivable and inventory. The Company's investment strategy is low-risk and
short-term, keeping the funds readily available to meet capital requirements as
they arise in the normal course of business. At September 28, 1996, funds were
invested primarily in a reverse repurchase agreement and a managed fund
consisting primarily of taxable, high quality corporate debt instruments. Both
are compatible with the Company's stated investment strategy.
Page 9 of 14
<PAGE> 10
The Company intends to apply its capital resources to expand its business by
establishing or acquiring similar distribution and manufacturing operations in
geographic areas that are attractive to the Company, by acquiring new
facilities and by enlarging or improving existing facilities. In addition to
the capital required to purchase existing businesses or to fund start-up
operations, the expansion of the Company's operations at both new and existing
locations will require greater levels of capital to finance the purchase of
additional equipment, increased levels of inventory and greater accounts
receivable.
During the quarter, the Company signed a definitive agreement to acquire two
specialty wire and cable redistribution companies, Futronix Corporation of
Houston, Texas and Wire & Cable Specialties Corporation of Atlanta, Georgia.
The agreement calls for the exchange of approximately 2.1 million shares of
Kent common stock for all of the common stock equivalents of both companies.
The Company will record certain one time charges related to the transaction in
the fourth quarter of fiscal 1997. The transaction will be accounted for as a
pooling of interests.
The Company is currently constructing the second phase of the K*TEC
manufacturing facility and a new distribution facility at its Sugar Land, Texas
campus which will require aggregate capital expenditures of approximately $22
million. For the twenty-six week period ended September 28, 1996,
approximately $7 million was spent on these projects. Due to the continuing
difficult business environment, work has been slowed on these projects, and
will be completed as business conditions warrant. Management believes that
current resources, along with funds generated from operations, should be
sufficient to meet its current capital requirements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking information that involves risks and
uncertainties. The Company is providing this information in view of the
current heightened concern about the industry's immediate prospects and the
effect of those general industry conditions on the Company. The
forward-looking statements, including statements relating to the Company's
performance for its third quarter and forward are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. In
making these forward-looking statements, and in addition to the effects of
current general industry and economic
Page 10 of 14
<PAGE> 11
conditions, we assume that (i) revenues for the quarters ending December 28,
1996 and March 29, 1997 will not be less than the quarter ended September 28,
1996, (ii) there will be continued pricing pressures on the Company's operating
margins, (iii) the manufacturing business may become slightly more concentrated
with certain customers, (iv) the manufacturing business will continue to make
progress transitioning its business to new services for its existing customers,
(v) the Company will be able to successfully integrate and manage the growth of
the operations, facilities and management of Futronix and Wire & Cable
Specialties, including, but not limited to, the integration and management of
information systems, financial and internal control systems, and management
structure, (vi) the transaction will not have an adverse effect on the Company's
relationships with customers or suppliers of Futronix or Wire & Cable
Specialties, (vii) upon entry into new markets, the Company will be able to
successfully establish suitable distribution centers, hire personnel and
establish distribution channels, (viii) the acquisition costs and integration
expenses associated with the Futronix and Wire & Cable acquisition will be
recorded in fiscal 1997, and (ix) the combined sales following the Futronix
and Wire & Cable acquisition will grow as anticipated. There can be no
assurance that the above mentioned range of estimated net sales will actually
result or that the other anticipated developments will occur.
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 - Statement re computation of per share earnings.
27 - Financial Data Schedule (filed only in electronic format).
(b) Reports on Form 8-K:
Current Report on Form 8-K filed September 24, 1996.
Page 11 of 14
<PAGE> 12
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.
KENT ELECTRONICS CORPORATION
--------------------------------------
(Registrant)
Date: November 12, 1996 By: /s/ Morrie K. Abramson
----------------------------- ------------------------------------
Morrie K. Abramson
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Date: November 12, 1996 By: /s/ Stephen J. Chapko
----------------------------- ------------------------------------
Stephen J. Chapko
Vice President, Treasurer and
Secretary (Principal Financial
Officer)
Date: November 12, 1996 By: /s/ David D. Johnson
----------------------------- ------------------------------------
Vice President, Corporate Controller
(Principal Accounting Officer)
Page 12 of 14
<PAGE> 13
EXHIBIT INDEX
Exhibit numbers are in accordance with the
Exhibit Table in Item 601 of Regulation S-K
Exhibit No. Exhibit Description Sequential Page No.
- ----------- ------------------- -------------------
11 Statement re computation 14
of per share earnings
27 Financial Data Schedule
(filed only in electronic format) --
Page 13 of 14
<PAGE> 1
EXHIBIT 11
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------------------------------- ----------------------------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
---------------------- ----------------------- ------------------------ ------------------------
Fully Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted Primary Diluted
---------- ------------ ---------- ------------ ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net earnings............. $6,392,000 $6,392,000 $6,018,000 $6,018,000 $15,501,000 $15,501,000 $10,697,000 $10,697,000
========== ========== ========== ========== =========== =========== =========== ===========
Weighted average number
of common shares
outstanding............ 23,920,100 23,920,100 19,764,600 19,764,600 23,930,600 23,930,600 19,690,200 19,690,200
Excess of shares issuable
upon exercise of stock
options over shares
deemed retired
utilizing the treasury
stock method........... 1,214,600 1,236,200 1,202,000 1,323,600 1,381,800 1,410,200 1,099,300 1,259,600
---------- ---------- ---------- ---------- ---------- ---------- ------------ -----------
25,134,700 25,156,300 20,966,600 21,088,200 25,312,400 25,340,800 20,789,500 20,949,800
========== ========== ========== ========== ========== ========== ============ ===========
Earnings per share....... $.25 $.25 $.29 $.29 $.61 $.61 $.51 $.51
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793024
<NAME> KENT ELECTRONICS CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> SEP-28-1996
<CASH> 47,443,000
<SECURITIES> 26,877,000
<RECEIVABLES> 66,865,000
<ALLOWANCES> 1,083,000
<INVENTORY> 55,261,000
<CURRENT-ASSETS> 199,808,000
<PP&E> 90,600,000
<DEPRECIATION> 20,195,000
<TOTAL-ASSETS> 288,271,000
<CURRENT-LIABILITIES> 44,995,000
<BONDS> 0
0
0
<COMMON> 39,095,000
<OTHER-SE> 202,763,000
<TOTAL-LIABILITY-AND-EQUITY> 288,271,000
<SALES> 208,521,000
<TOTAL-REVENUES> 208,521,000
<CGS> 157,059,000
<TOTAL-COSTS> 157,059,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 84,000
<INTEREST-EXPENSE> 26,000
<INCOME-PRETAX> 25,621,000
<INCOME-TAX> 10,120,000
<INCOME-CONTINUING> 15,501,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,501,000
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
