<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended March 28, 1998
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 (I.R.S. employer
of incorporation or organization) identification no.)
1111 Gillingham Lane 77478
Sugar Land, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (281) 243-4000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, without par value New York Stock Exchange, Inc.
4 1/2% Convertible Subordinated Notes
Due 2004
(Title of each class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None.
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 17, 1998 was approximately $493,099,893.
As of June 17, 1998, there were outstanding 27,273,774 shares of Common
Stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 1998 Annual Meeting of Shareholders of the
Registrant (Sections entitled "Common Stock Outstanding and Principal Holders
Thereof" and "Proposal No. 1 - Election of Directors") is incorporated by
reference in Part III of this Report.
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PART I
This Annual Report on Form 10-K contains forward-looking statements as
defined in the Private Securities Litigation Reform Act of 1995. Forward-
looking statements include, without limitation, any statement that may predict,
forecast, indicate, or imply future results, performance or trends and may
contain the words "believe," "anticipate," "expect," "estimate," "project,"
"will be," "will continue," "will likely result," or words or phrases of similar
meaning. All forward-looking statements should be read in conjunction with the
cautionary statements included elsewhere herein which discuss certain risks and
other important factors that could cause the Company's actual results or
performance to differ materially from those stated in such forward-looking
statements. (See Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations, Risks Relating to Forward-Looking
Statements.)
ITEM 1. BUSINESS
THE COMPANY
Kent Electronics Corporation (the "Company") is a national specialty
distributor of electronic products and a manufacturer of custom-made electronic
products. The Company has strategically aligned its operations into four
distinct, yet complementary, business units that seek to develop competitive
advantages within targeted markets.
. Kent Components distributes electronic connectors, electronic wire and
cable, and other passive and electromechanical products and interconnect
assemblies used in assembling and manufacturing electronic products.
. Kent Datacomm designs, delivers, installs and supports a broad array of
networking products used in local area networks (LANs) and wide area
networks (WANs). Among the voice and data communication products it offers
are network interface cards, switches, hubs, routers, modems, connectivity
devices, fiber optics and copper cabling.
. Futronix Systems is a redistributor of specialty wire and cable to
electrical distributors nationwide. Futronix Systems provides just-in-time
availability of the exact quantities of specialty wire and cable products
as well as limited quantities of complementary products.
. K*TEC is a manufacturer whose capabilities include custom-made electronic
interconnect assemblies, printed circuit board assemblies, sheet metal
fabrication, powder painting, plastic injection molding, specially
fabricated battery power packs, other subassemblies that are built to
customers' specifications and final system integration (box build).
The Company focuses on providing its customers a continuum of products and
services that emphasizes technology-based materials management and manufacturing
solutions. To successfully execute its strategy, during the three fiscal years
ended March 28, 1998, the Company invested
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approximately $120 million in capital expenditures. These expenditures were
primarily for construction of the state-of-the-art K*TEC facility in Sugar Land,
Texas completed in spring 1997, consisting of approximately 420,000 square feet
for manufacturing and warehousing operations and the adjacent state-of-the-art
220,000 square foot distribution facility that is scheduled for completion in
late summer 1998.
INDUSTRY OVERVIEW
Outsourcing is a rapidly growing trend in many industry sectors in the
United States as companies seek to reduce costs and improve operating
efficiencies. Electronics original equipment manufacturers ("OEMs") are
increasingly outsourcing materials management and manufacturing operations,
ranging from inventory management to complete box build combined with
distribution to the end customer. Manufacturers of electronic products are
responding to this trend by utilizing technology-based materials management and
logistical solutions provided by distributors. In addition, the Company believes
that there is an emerging trend of OEMs to align with contract manufacturers who
have distribution capabilities and expertise. Because of its experience in both
distribution and manufacturing, the Company is particularly well-positioned to
capitalize on these trends. The potential benefits from outsourcing materials
management and manufacturing operations include:
FOCUSED RESOURCES. Because the electronics industry is experiencing
greater levels of competition and more rapid technological change, many
OEMs are focusing their resources on activities and technologies in which
they add the greatest value. By offering comprehensive materials
management solutions and integrated manufacturing services, the Company
allows OEMs to focus on their core competencies, such as product
development and marketing.
IMPROVED INVENTORY MANAGEMENT AND PURCHASING POWER. Electronics OEMs
are faced with increasing difficulties in efficiently planning, procuring
and managing their inventories due to frequent design changes, short
product life cycles, large investments in electronic components, component
price fluctuations and the need to achieve economies of scale in materials
procurement. By using the Company's volume procurement capabilities and
expertise in inventory management, an OEM can reduce production and
inventory costs.
REDUCED TIME TO MARKET. Due to intense competitive pressures and
rapid technological developments in the electronics industry, OEMs are
faced with increasingly shorter product life cycles and therefore have a
growing need to reduce the time required to bring a product to market.
OEMs can reduce their time to market by using the Company's expertise in
providing materials management, logistical and manufacturing solutions.
REDUCED COSTS AND CAPITAL INVESTMENT. As electronic products have
become more technologically advanced and shipped in greater volumes, the
distribution and manufacturing processes have become increasingly
automated, requiring greater investments in technology
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and capital equipment on an ongoing basis. The Company's materials
management services allow manufacturers to operate more efficiently by
relying on scheduled deliveries of components at the time they are needed
in the production process, thereby reducing inventory levels. K*TEC's
contract manufacturing services enable an OEM to gain access to advanced,
high-volume manufacturing and distribution capabilities while reducing the
OEM's capital requirements.
ACCESS TO LEADING MANUFACTURING TECHNOLOGY. Electronic products and
electronics manufacturing technology have become increasingly sophisticated
and complex, making it more difficult and expensive for OEMs to maintain
the necessary technological expertise to manufacture products internally.
OEMs are motivated to work with a contract manufacturer in order to gain
access to specialized process expertise and manufacturing know-how.
COMPANY STRATEGY
The Company is pursuing the following strategies to capitalize on current
and emerging electronics industry trends.
PROVIDING A CONTINUUM OF CUSTOMER SERVICES. The Company provides a
continuum of services to its customers, ranging from order fulfillment to
box build combined with direct distribution to an OEM's customers. In
response to evolving customer needs, the Company continues to shift from
order fulfillment to technology-based materials management services. In
addition, the Company continues to expand its manufacturing relationships
from subassemblies to box build as OEMs increase their demand for
outsourced supply chain management solutions.
REMAINING A KEY PLAYER IN TARGET MARKETS. The Company has focused on
markets where it strives to maintain and enhance its position as a national
distributor of premier products. The Company believes it can strengthen
its position within these markets by expanding its supplier relationships
and capitalizing on OEMs' shift toward using distribution channels.
CAPITALIZING ON INDUSTRY CONSOLIDATION. The Company expects
consolidation within the distribution and contract manufacturing sectors of
the electronics industry to continue in response to increasing demands on
suppliers by OEMs to provide integrated, technology-based materials
management and manufacturing solutions. In addition, the Company
anticipates increased opportunities to acquire the production capacity of
OEMs following the trend toward outsourcing manufacturing operations. The
Company will continue to evaluate and pursue acquisition opportunities that
enhance its position as a national distributor and contract manufacturer of
electronic products.
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CAPITALIZING ON NETWORK TECHNOLOGY PROLIFERATION. The Company expects
large networking customers to rely increasingly on value-added resources to
install, fine-tune and maintain complex systems. In response to these
customer needs, the Company has expanded its professional services,
including network design, product configuration, remote network monitoring
and troubleshooting, maintenance programs, and technical support.
Professional services are a source of incremental revenues, as well as a
means of solidifying relationships with customers and suppliers.
MAXIMIZING SYNERGIES BETWEEN BUSINESS UNITS. The Company believes its
four business units will continue to enjoy revenue and cost synergies and
economies of scale. These benefits include: (i) greater product offerings
to the Company's customers across business units, (ii) purchasing and
volume procurement synergies, (iii) cost efficient opportunities to expand
into new geographic markets by utilizing existing facilities and personnel,
and (iv) shared warehousing and materials handling capabilities.
FOCUSING ON CUSTOMER SERVICE. The Company continues to emphasize
customer service as a competitive advantage. The Company's technology-
based materials management services enable the Company to offer value-added
solutions to its customers. Similarly, K*TEC customers have Internet access
to K*TEC's intranet in order to monitor printed circuit board production
quality, board and box build assembly methods and product throughput in a
real-time environment. Each customer's Internet site is secured and
tailored for the customer's unique needs. The Company believes that
through these and other customer service innovations it will continue to
strengthen and develop customer relationships.
DISTRIBUTION
KENT COMPONENTS. Kent Components focuses primarily on providing its
industrial and OEM customers with rapid and reliable deliveries of interconnect,
passive and electromechanical products as well as a wide variety of materials
management services. The division also provides value-added services such as
cable assembly, fan assembly, taping and reeling, and component modification.
Kent Components utilizes a computerized inventory control system to assist in
the marketing of its products and to coordinate purchases from suppliers with
sales to customers. The division's computer system provides detailed on-line
information regarding the availability of the Company's entire stock of
inventory located at its stocking facilities as well as on-line access to the
inventories of most of the Company's major suppliers. Through its integrated
real-time information system, the Company can readily track customers' orders
through the entire process of entering the order, reserving products to fill the
order, ordering components from suppliers, if necessary, and shipping products
to customers on scheduled dates. Kent Components is thus able to provide the
type of distributor service required by its OEM customers that have adopted the
"just-in-time" method of inventory procurement. Kent Components serves numerous
markets, including the computer, instrumentation, medical, networking systems
and telecommunications markets.
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KENT DATACOMM. Kent Datacomm designs, delivers, installs and supports a
broad array of networking products used in local area networks (LANs) and wide
area networks (WANs). Among the voice and data communication products it offers
are network interface cards, switches, hubs, routers, modems, connectivity
devices, fiber optics and copper cabling. Kent Datacomm's expanded professional
services include network design, product configuration, remote network
monitoring and troubleshooting, maintenance programs, and 7-day-a-week, 24-hour-
a-day technical support. Through a focused sales effort, the Company believes it
is able to participate directly in the large and rapidly growing market for
connection devices, reflecting the increasing use of microcomputers in LANs and
WANs and the continued growth in networking and cabling needs of minicomputer
and mainframe users. Kent Datacomm serves numerous industries, including the
aerospace, airline, financial, food, government, manufacturing and medical
industries.
FUTRONIX SYSTEMS. Futronix Systems is a redistributor of specialty wire
and cable, serving more than 1,000 electrical distributors throughout the United
States. Futronix Systems seeks to serve as an efficient single source of
supply and as the distributor of choice for electrical distributors by
maintaining for immediate delivery large quantities of over 10,000 specialty
wire and cable products purchased from more than 50 manufacturers worldwide, as
well as limited quantities of complementary products. As a redistributor,
Futronix Systems enables electrical distributors to purchase exact quantities,
gain immediate access to products, obtain a wider variety of products and lower
overall materials acquisition costs. The products of Futronix Systems typically
are used in industrial applications, including computer systems, factory
automation, "intelligent" buildings and telecommunication systems. Futronix
Systems generally does not sell commodity wire and cable, such as that used in
commercial and residential construction. The Company believes that there are
opportunities for redistribution of existing Company product offerings through
Futronix Systems.
CONTRACT MANUFACTURING
K*TEC provides vertically integrated electronic manufacturing products and
services, including printed circuit board assembly and test, electronic
interconnect assemblies, specially fabricated battery power packs,
subassemblies, sheet metal fabrication and powder paint, plastic injection
molding and box build. The Company has developed innovative material
requirements planning relationships with a select group of OEMs in the data
processing, energy, medical instrumentation and telecommunications industries.
These relationships are supported by sophisticated in-house product design and
technical support capabilities. K*TEC support teams work closely with K*TEC's
customers through all stages of product planning and production to apply
advanced design and production technology. K*TEC's computer systems have a
computer aided design capability that allows its engineers to be on-line with an
OEM's engineers when developing and changing product designs. In addition,
K*TEC customers have Internet access to K*TEC's intranet in order to monitor
printed circuit board production quality, board and box build assembly methods
and product throughput in a real-time environment. Each customer's Internet
site is secured and tailored for the customer's unique needs.
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K*TEC's quality control standards provide another means of serving the
needs of the Company's customers, since OEMs rely on suppliers to assure quality
control for subassemblies rather than providing such quality control themselves.
The Company believes that K*TEC's adherence to strict quality control standards
and investment in state-of-the-art production facilities and equipment have
attracted and retained important customers who have established extremely rigid
product quality standards. K*TEC further compliments its offering by providing
full logistics support which allows the final assembly to be shipped directly to
the customer's end customer. This supply chain management ability
differentiates K*TEC as a resource in enhancing customers' cost-efficiency and
time-to-market.
MARKETING
Each of the Company's business units maintains its own direct sales force.
At March 28, 1998, the Company employed approximately 330 sales representatives
operating out of sales offices in 31 cities in 24 states. The Company's sales
representatives undergo continuous training and attend classes in order to
enhance both their technical expertise and sales techniques. Sales associates
are compensated primarily on a commission basis. In the marketing of its
products, the Company supplements the efforts of its direct sales force with
direct mailings of brochures and catalogs as well as advertisements in trade
journals. The Company concentrates its efforts in certain targeted markets in
which it only distributes the products of a select group of leading suppliers.
This facilitates sales personnel specialization within related product
groupings, and permits sales representatives to develop a high degree of
technical expertise.
COMPETITION
The Company faces intense competition from a large number of distributors,
suppliers and domestic and foreign manufacturers, some of which are larger, have
greater financial resources, broader name recognition, and may, in some
instances, have lower costs than the Company. According to industry
publications, the Company was the ninth largest electronics distributor in the
United States based on total 1997 calendar year sales. Industry publications
estimate that eleven distributors each had 1997 calendar year North American
sales in excess of $400 million.
The Company's manufacturing operations encounter competition from both
domestic and foreign manufacturers. Foreign-manufactured products are often
sold at prices below the Company's prices for comparable products. The
Company's products are not protected from competition by any proprietary or
intellectual property rights such as trade secrets or patents. The Company
competes by providing its customers with reliable, rapid delivery of products
that are priced at competitive levels and meet strict quality control standards.
BACKLOG
The Company's backlog (consisting of orders the Company believes to be
firm) is based upon its internal tracking system, including verbal orders from
customers, as well as written purchase
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orders, all of which may be modified, rescheduled or canceled without penalty.
Historically, the Company's backlog figures have provided an indication of
future sales in the short term, but traditional backlog has become a less
meaningful indicator of future sales for the Company. In recent years, since the
Company's business has been increasingly conducted through "just-in-time" and
other materials management programs, the Company is required to provide
materials in accordance with continually changing forecasts. This trend
continued in fiscal 1998 and is reflected in the decline in the Company's
estimated backlog, exclusive of "just-in-time" and other materials management
programs and forecasts, to $60 million as of March 28, 1998, from $68 million as
of March 29, 1997. The Company is currently evaluating another means of
indication of future sales arising from "just-in-time" and other materials
management programs and forecasts.
EMPLOYEES
At March 28, 1998, the Company employed approximately 1,830 persons, all on
a full time basis. The Company's employees are not subject to any collective
bargaining agreement. In addition to its employees, the Company uses other
workers on a contract basis, as its needs require.
TRADEMARKS
The Company has registered a number of trademarks and service marks
relating to the operation of its business. These have been of value to the
Company in the past and are expected to be of value in the future. The loss of
a single trademark or service mark other than "KE Kent Electronics" or "K*TEC
Electronics," in the opinion of management, would not have a material adverse
effect on the conduct of its business.
ITEM 2. PROPERTIES
In October 1997, the Company moved its headquarters to its K*TEC facility
located in Sugar Land, Texas. The Company's K*TEC facility was completed in
spring 1997 and consists of approximately 420,000 square feet for manufacturing
and warehousing operations and approximately 70,000 square feet for office
purposes. In addition, the Company expects to complete in late summer 1998 its
new Sugar Land distribution facility which consists of approximately 220,000
square feet. The Company's facilities in Sugar Land are located on a 96 acre
parcel of land.
The Company owns a 66,000 square foot office facility in Houston, Texas.
The Company also owns a 2.7 acre tract of vacant land adjacent to the office
facility. In nearby owned facilities, the Company uses approximately 18,000
square feet of space for office purposes and approximately 97,000 square feet
for distribution operations. In addition, the Company owns a 10.8 acre tract of
vacant land adjoining these facilities which is the subject of a contract of
sale. The contract of sale provides for the sale of this tract on or before
August 1, 1998 (provided that this date may be extended under certain
circumstances) for a sale price payable in cash at the closing. The purchaser
has the right to terminate the contract of sale, with or without cause, at any
time on or before July 2, 1998, but as of June 22, 1998, this termination right
had not been exercised.
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The following table summarizes the principal properties leased by the
Company:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION SQUARE FOOTAGE EXPIRES
- ------------------------------- -------------- -------
<S> <C> <C>
Charlotte, North Carolina 32,000 1998
Columbus, Ohio 21,000 1998
Exton, Pennsylvania 25,000 2001
Farmers Branch, Texas 30,000 1999
Houston, Texas 151,000 2003
Milpitas, California 40,000 1998
Norcross, Georgia 26,000 2002
Richardson, Texas 34,000 1999
Santa Fe Springs, California 22,000 2001
St. Paul, Minnesota 22,000 2000
Tampa, Florida 30,000 1999
</TABLE>
As of May 23, 1998, the Company's other facilities, located in Austin,
Texas; Baton Rouge, Louisiana; Beaverton, Oregon; Cedar Rapids, Iowa; Columbia,
Maryland; Denver, Colorado; Englewood, Colorado; Fountain Valley, California;
Houston, Texas; Huntsville, Alabama; Indianapolis, Indiana; Kent, Washington;
Livermore, California; Lombard, Illinois; Lowell, Massachusetts; Mt. Laurel, New
Jersey; Oneida, New York; Orlando, Florida; Overland Park, Kansas; Pine Brook,
New Jersey; Portland, Oregon; Raleigh, North Carolina; Redmond, Washington;
Schaumburg, Illinois; Richardson, Texas; Salem, New Hampshire; San Diego,
California; San Jose, California; Tempe, Arizona; Wallingford, Connecticut; and
Warrensville Heights, Ohio occupied an aggregate of approximately 233,000 square
feet subject to leases expiring at various times through the year 2002. Most of
these leases are subject to renewal at the option of the Company for a term at
least equal to the initial term, but at a newly determined rental rate.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
COMMON STOCK PRICE RANGE
The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "KNT." The following table presents the high and low
closing prices for the Common Stock for each fiscal quarter of the Company's
fiscal years ended 1997 and 1998 and for a portion of the Company's current
quarter, as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
FISCAL YEAR 1997 HIGH LOW
- ---------------------------------- ------ ------
<S> <C> <C>
First Quarter $43.25 $26.75
Second Quarter 32.25 17.00
Third Quarter 28.13 21.63
Fourth Quarter 33.00 23.75
FISCAL YEAR 1998
- ----------------------------------
First Quarter $36.44 $22.13
Second Quarter 41.06 35.94
Third Quarter 41.44 20.00
Fourth Quarter 28.13 20.50
FISCAL YEAR 1999
- ----------------------------------
First Quarter (through June 17) $23.81 $18.19
</TABLE>
On May 5, 1998, there were 1,361 holders of record of the Company's Common
Stock.
DIVIDEND POLICY
Historically, the Company has reinvested earnings available for
distribution to holders of Common Stock, and accordingly, the Company has not
paid any cash dividends on its Common Stock. Although the Company intends to
continue to invest future earnings in its business, it may determine at some
future date that payment of cash dividends on Common Stock would be desirable.
The payment of any such dividends would depend, among other things, upon the
earnings and financial condition of the Company.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data of the
Company for each fiscal year of the five-year period ended March 28, 1998. The
following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements, including the notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------------------------------
March 28, March 29, March 30, April 1, April 2,
1998 1997/(1)/ 1996 1995 1994
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data and ratio)
Statement of Earnings Data:
Net sales........................................ $659,400 $516,757 $425,810 $279,676 $206,784
Cost of sales.................................... 512,147 396,054 313,643 206,935 151,634
-------- -------- -------- -------- --------
Gross profit............................... 147,253 120,703 112,167 72,741 55,150
Selling, general and
administrative expenses.................... 90,854 73,607 66,106 50,028 39,857
Merger and integration costs..................... -- 5,500 -- -- --
-------- -------- -------- -------- --------
Operating profit........................... 56,399 41,596 46,061 22,713 15,293
Other income (expense):
Interest expense........................... (5,272) (1,192) (898) (340) (156)
Other - net (principally interest and
dividend income)...................... 7,040 4,696 3,932 1,138 765
-------- -------- -------- -------- --------
Earnings before income taxes......... 58,167 45,100 49,095 23,511 15,902
Income taxes..................................... 22,741 17,479 19,303 8,910 5,844
-------- -------- -------- -------- --------
Net earnings.......................... 35,426 27,621 29,792 14,601 10,058
======== ======== ======== ======== ========
Earnings per common share/(2)/
Basic...................................... $1.33 $1.08 $1.28 $0.71 $0.49
======== ======== ======== ======== ========
Diluted.................................... $1.26 $1.00 $1.21 $0.68 $0.48
======== ======== ======== ======== ========
Weighted average shares/(2)/
Basic...................................... 26,598 25,580 23,192 20,628 20,344
======== ======== ======== ======== ========
Diluted.................................... 28,097 27,580 24,722 21,488 20,860
======== ======== ======== ======== ========
Ratio of earnings to fixed charges/(3)/.......... 9.8x 20.1x 27.4x 22.7x 21.3x
March 28, March 29, March 30, April 1, April 2,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
Balance Sheet Data:
Working capital.................................. $366,482 $150,884 $172,758 $ 71,817 $ 57,243
Total assets..................................... 591,710 325,594 305,174 148,276 120,970
Long-term debt, less current maturities/(4)/..... 207,000 -- 1,258 1,269 41
Mandatorily redeemable preferred stock........... -- -- 2,200 2,200 --
Stockholders' equity............................. $312,569 $262,367 $230,968 $112,224 $ 94,345
</TABLE>
- ------------------
(1) Includes non-recurring merger and integration charges of $5.5 million
($3.4 million, net of taxes, or $0.13 (basic) and $0.12 (diluted) per
share). Exclusive of such charges, fiscal 1997 net earnings were $31.0
million, or $1.21 (basic) and $1.12 (diluted) per share, and the ratio of
earnings to fixed charges was 22.4x.
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(2) The Company adopted Financial Accounting Standard No. 128, "Earnings Per
Share," in fiscal 1998. All prior period earnings per common share data
have been restated to conform to the provisions of this statement.
(3) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes plus fixed charges.
"Fixed charges" consist of interest expense, amortization of deferred
financing costs and that portion of rental expense deemed representative
of the interest factor.
(4) Includes $207.0 million of 4 1/2% Convertible Subordinated Notes due 2004
issued in fiscal 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, included
elsewhere herein.
RESULTS OF OPERATIONS
The following table presents, as a percentage of net sales, certain
selected consolidated financial data for each of the three fiscal years
indicated.
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------
March 28, March 29, March 30,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Distribution/(a)/............................... 63.4% 65.6% 61.4%
Manufacturing................................... 36.6 34.4 38.6
----- ----- -----
Net sales....................................... 100.0 100.0 100.0
Cost of sales................................... 77.7 76.6 73.7
----- ----- -----
Gross profit............................... 22.3 23.4 26.3
Selling, general and administrative expenses.... 13.8 14.2 15.5
Merger and integration costs.................... 0.0 1.1 0.0
----- ----- -----
Operating profit........................... 8.5 8.0 10.8
Other income (expense)
Interest expense........................... (0.8) (0.2) (0.2)
Other - net (principally interest and
dividend income)........................ 1.1 0.9 0.9
----- ----- -----
Earnings before income taxes........... 8.8 8.7 11.5
Income taxes.................................... 3.4 3.4 4.5
----- ----- -----
Net earnings........................... 5.4% 5.3% 7.0%
===== ===== =====
</TABLE>
- ---------------
(a) The principal products the Company distributes consist of connectors,
receptacles and sockets, which collectively accounted for approximately
16%, 17% and 13% of the Company's total sales in its fiscal years ended in
1998, 1997 and 1996, respectively, and other electronic connecting
components, such as cable and wiring products, which accounted for
approximately 17%, 18% and 17% of the Company's total sales in such years.
In addition, the Company distributes capacitors, resistors and
electromechanical parts.
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COMPARISON OF FISCAL 1998 WITH FISCAL 1997
Net sales for the fiscal year ended March 28, 1998 increased $142.6
million, or 27.6%, to $659.4 million. Sales from the Company's distribution
businesses, which represented 63.4% of net sales, increased 23.4% while contract
manufacturing sales increased 35.7%. The sales increase reflected internal
growth primarily from increased demand from existing customers, an expanded
customer base and the introduction of new and expanded services from the
Company's contract manufacturing business. Distribution sales also benefited
from a full year of operations of the EMC Distribution Division of Electronics
Marketing Corporation, which was acquired in the third quarter of fiscal 1997.
Gross profit increased $26.6 million, or 22.0%, compared to the prior year.
Gross profit as a percentage of sales decreased to 22.3% from 23.4% from fiscal
1997 to fiscal 1998. The increase in gross profit was primarily due to
increased sales, offset by a decrease in the gross profit percentage. The
decrease in the gross profit percentage was due to continued pricing pressures
in the contract manufacturing business and a product mix with a lower percentage
of certain higher margin contract manufacturing business. The Company believes
that the gross profit percentage could decline if revenues from certain contract
manufacturing services, such as printed circuit board assembly and final
integration, become a larger percentage of total revenues.
Exclusive of non-recurring merger and integration charges associated with
the acquisition of Futronix Corporation ("Futronix") and Wire & Cable
Specialties Corporation ("Wire & Cable") in fiscal 1997, selling, general and
administrative ("SG&A") expenses increased $17.2 million, or 23.4%, when
compared to the prior fiscal year. However, as a percentage of sales, expenses
declined to 13.8% from 14.2% in the preceding year. The decline as a percentage
of sales reflects the Company's continued focus on cost containment to reduce
such expenses as a percentage of sales. The increase in expenses was primarily
due to the expenses necessary to support the growth in the Company's existing
operations. The Company believes that its investment in technology in recent
years should increase its efficiency and reduce SG&A expenses as a percentage of
sales.
Interest expense increased $4.1 million due to interest on the 4 1/2%
Convertible Subordinated Notes due 2004 (the "Notes"), partially offset by the
retirement of all the outstanding debt of Futronix and Wire & Cable in the
fourth quarter of fiscal 1997.
Other-net consists principally of interest and dividend income generated by
cash and cash equivalents and trading securities. The increase in interest and
dividend income resulted from investment of the net proceeds from the Notes.
Net earnings for fiscal 1998 were $35.4 million compared to $27.6 million
for fiscal 1997. Net earnings for fiscal 1997 included merger and integration
charges of $5.5 million, pre-tax ($3.4 million, after-tax). Excluding these
charges, net income increased $4.4 million, or 14.3%. The improved
profitability was primarily due to the incremental profit associated with the
increase in
14
<PAGE>
sales volume, partially offset by the decrease in the gross profit percentage,
combined with the Company's continued focus on cost containment.
COMPARISON OF FISCAL 1997 WITH FISCAL 1996
Net sales for the fiscal year ended March 29, 1997 were $516.8 million, an
increase of 21.4% over the $425.8 million reported for fiscal 1996. The
increase in sales was primarily the result of continued gains in market share in
the Company's distribution operations, which had a 29.7% increase over fiscal
1996. Distribution sales also benefited from the December acquisition of the
EMC Distribution Division of Electronics Marketing Corporation and a full year
of operations in geographical markets entered during fiscal 1996 by Futronix and
Wire & Cable. The Company's contract manufacturing operations posted an 8.2%
increase over the prior year despite a significant downturn in the semiconductor
capital equipment sector during the September quarter of fiscal 1997. The
semiconductor capital equipment sector accounted for approximately 26.7% of the
manufacturing division revenue in fiscal 1997 compared to approximately 39.0% in
fiscal 1996.
Gross profit increased $8.5 million, or 7.6%, from fiscal 1996 to fiscal
1997 due to an increase in net sales. The decrease in gross profit margin from
26.3% to 23.4% reflected continued pricing pressures and a product mix with a
lower percentage of certain higher margin contract manufacturing business.
Excluding merger and integration charges associated with the acquisition of
Futronix and Wire & Cable, SG&A expenses increased $7.5 million, or 11.3%,
compared to the prior year. This increase reflected the costs necessary to
support the continued growth in the Company's operations. As a percentage of
sales, however, expenses decreased to 14.2% from 15.5% in the prior year. The
decrease was the result of the Company's continued focus on cost containment as
well as specific cost reduction initiatives taken in response to the difficult
business conditions the Company experienced during the year. SG&A expenses do
not reflect the cost savings or synergies which may result from the merger of
Futronix and Wire & Cable.
Merger and integration charges of $5.5 million include abandoned
registration costs associated with the planned business combination of Futronix
and Wire & Cable, professional expenses associated with the acquisition, an
employee bonus and integration costs incurred to consolidate operations.
Interest expense increased due to higher short-term borrowing by Futronix
and Wire & Cable prior to acquisition by the Company. All outstanding debt was
retired in the fourth quarter of fiscal 1997.
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 net proceeds from the September 1995
public offering invested for approximately four months longer than the prior
year.
15
<PAGE>
Net earnings for fiscal 1997 were $27.6 million compared to $29.8 million
for fiscal 1996. Net earnings for fiscal 1997 included merger and integration
charges of $5.5 million, pre-tax ($3.4 million after-tax). Excluding these
charges, net income increased $1.2 million, or 4.0%, to $31.0 million. The
improved profitability was primarily due to the incremental profit associated
with the increase in sales volume, offset by lower gross profit margins,
combined with the Company's continued focus on cost containment.
LIQUIDITY AND CAPITAL RESOURCES
At March 28, 1998, working capital was $366.5 million, an increase of
$215.6 million, or 142.9%, since March 29, 1997. The increase was primarily the
result of net proceeds from the Notes offering, and to a lesser extent, growth
in accounts receivable and inventories, offset by an increase in accounts
payable, in relation to current and future sales levels.
Included in the Company's working capital at March 28, 1998 are
investments, including trading securities, of $204.3 million, an increase of
$175.5 million since March 29, 1997. The increase was primarily the result of
the Notes offering, offset by capital expenditures of $46.9 million. 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 March 28, 1998, funds were invested primarily in a
reverse repurchase agreement, institutional money market funds and a managed
fund consisting primarily of taxable, high quality corporate debt instruments.
These investments are compatible with the Company's stated investment strategy.
The Company maintains a $25.0 million unsecured line of credit with a bank.
There have been no borrowings, and as of March 28, 1998, there was no
indebtedness outstanding under the line of credit.
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. The Company believes that current resources, including the line of
credit, along with funds generated from operations, should be sufficient to meet
its current capital requirements.
16
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer hardware and software systems as
well as computer controlled devices, including equipment used in the manufacture
or distribution of the Company's products, (collectively "computer systems")
that do not differentiate between centuries; accordingly, these computer systems
can potentially fail. As a result of the Company's strategic migration to new
application systems in recent years, many of the Company's computer systems are
Year 2000 compliant. In general, the Company expects to resolve any remaining
Year 2000 issues through planned replacement or upgrades of its computer
systems. The Company presently intends to utilize internal and external
resources to identify, correct or reprogram and test its computer systems for
Year 2000 compliance. In addition, the Company is monitoring the compliance
efforts of suppliers, service providers and other entities with which it has a
business relationship regarding compliance with Year 2000 requirements. Until
the assessments are complete, the Company cannot state with certainty whether it
has, or will have, significant Year 2000 issues. However, based on the
information currently available, the Company has no reason to believe that the
Year 2000 issues will be material to its results of operations, consolidated
financial position or liquidity.
RISKS RELATING TO FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statements to secure the
protection of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for all forward-looking statements made by the Company in
this Annual Report on Form 10-K. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate, or imply future
results, performance, or trends, and may contain the words "believe,"
"anticipate," "expect," "estimate," "project," "will be," "will continue," "will
likely result," or words or phrases of similar meaning. In addition, from time
to time, the Company (or its representatives) may make forward-looking
statements of this nature in its annual report to shareholders, proxy statement,
quarterly reports on Form 10-Q, current reports on Form 8-K or in oral or
written presentations to shareholders, securities analysts, members of the
financial press or others. All such forward-looking statements, whether written
or oral, and whether made by or on behalf of the Company, are expressly
qualified by these cautionary statements and any other cautionary statements
which may accompany the forward-looking statements. In addition, the forward-
looking statements speak only of the Company's view as of the date the statement
was made, and the Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
Forward-looking statements involve risks and uncertainties which could
cause actual results, performance or trends to differ materially from those
expressed in the forward-looking statements. The Company believes that all
forward-looking statements made by it have a reasonable basis, but there can be
no assurance that management's expectations, beliefs or projections as expressed
in the forward-looking statements will actually occur or prove to be correct.
Factors that could cause actual results to differ materially from those
discussed in the forward-looking statements include, but are not limited to, the
factors discussed below.
17
<PAGE>
DOWNWARD PRESSURE ON MARGINS. In recent quarters, the Company has
experienced downward pressure on its gross profit margin primarily due to a
lower percentage of certain high margin sales within its contract manufacturing
business. The Company's decrease in gross profit margin has been partially
offset by growth in sales and a reduction in SG&A expenses as a percentage of
sales resulting from the Company's continued focus on cost containment. The
Company believes that these recent gross profit margin trends will continue.
CYCLES IN THE ELECTRONICS INDUSTRY; GENERAL ECONOMIC CONDITIONS. The
Company's business depends on sustained demand for the products it distributes
and manufactures. Although the Company has enjoyed high rates of growth in
sales in recent years, the electronics industry is cyclical, and there can be no
assurance that such growth will continue at rates comparable to the Company's
historical levels. In addition, the Company's business is subject to general
business, economic, market, financial and industry conditions. For example,
certain customers of the Company sell and distribute their products in Asia and
have seen the demand for their products decline substantially during the current
economic downturn in Asia, which has had an adverse effect on the Company. A
continued downturn in the Asian market or a downturn in the electronics industry
in general could have a material adverse effect on the Company's business,
results of operations and financial condition, especially if a downturn occurred
in the Company's distribution and manufacturing businesses simultaneously.
DEPENDENCE ON K*TEC CUSTOMERS; UNCERTAINTY OF INCREASING CONTRACT
MANUFACTURING SALES. For many years K*TEC has strategically developed long-term
relationships with a select group of OEMs resulting in a concentrated customer
base. The Company expects that sales to a relatively small number of customers
will continue to account for a significant portion of K*TEC's sales in the
future. The loss of, or a significant decline in orders from, one or more of
K*TEC's key customers could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, with the
completion of its K*TEC facility, the Company has increased substantially its
contract manufacturing capacity. There can be no assurance, however, that the
Company will be able to secure the new OEM relationships that will be essential
to utilizing this additional capacity and achieving significant sales growth in
the Company's contract manufacturing business.
MANAGEMENT OF GROWTH. In recent years, the Company has expanded its
business through internal growth and acquisitions, and the Company anticipates
that it will continue this expansion in the future. To effectively manage this
expansion, the Company will be required to attract and retain highly skilled
managers and personnel and to evaluate the adequacy of existing systems and
procedures, including, but not limited to, information management systems,
financial and internal control systems, and management structure. In addition,
if the Company enters new markets, it will be required to, among other things,
establish suitable distribution centers, hire personnel and establish
distribution channels. Moreover, the Company anticipates that in response to
the growing trend of OEMs to outsource manufacturing operations, the Company
will expand K*TEC's box build operations and increasingly combine those
operations with the Company's distribution
18
<PAGE>
capabilities. There can be no assurance that management will adequately
anticipate all of the changing demands that growth and industry conditions and
trends will impose on the Company or that the Company will be able to adapt
timely its pricing, costs, systems, procedures and structure to such demands.
Any failure to anticipate and respond promptly and effectively to such changing
demands and industry trends could have a material adverse effect on the
Company's business, results of operations and financial condition.
COMPETITION. The markets for the Company's products and services are
highly competitive. The Company competes with a large number of distributors,
suppliers and domestic and foreign manufacturers. Foreign-manufactured products
are often sold at prices below the Company's prices for comparable products.
The Company's products are not protected from competition by any proprietary or
intellectual property rights such as trade secrets or patents. There can be no
assurance that the Company will continue to compete successfully against the
distributors, suppliers and manufacturers within its industry, some of which are
larger, have greater financial resources and broader name recognition, and may,
in some instances, have lower costs than the Company. In addition, although the
Company continues to focus on cost containment, there can be no assurance that
increasingly intense competition will not cause pricing or marketing pressures
that reduce gross profit margins or increase SG&A expenses as a percentage of
sales. Reduced gross profit margins and increased SG&A expenses as a percentage
of sales, either alone or together, could have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company will continue to evaluate
opportunities to acquire complementary businesses, assets or technologies, and
the Company expects to pursue acquisitions that it believes will enhance its
position as a national distributor and contract manufacturer of electronic
products. There can be no assurance, however, that the Company will be able to
identify and acquire complementary businesses, assets or technologies. Among
other things, the Company may not be able to identify acquisition candidates in
desirable geographic or product markets on terms that are satisfactory to the
Company. Moreover, acquisitions require the expenditure of large amounts of
capital, and the Company's competitors for acquisitions may have significantly
greater financial resources than the Company. Therefore, to finance
acquisitions, the Company may have to raise additional funds through either
public or private financings.
In addition, there can be no assurance that the Company will be able to
integrate successfully the operations, facilities and management of any acquired
business or realize any expected synergies, including cost reductions, from any
acquisition. Moreover, there can be no assurance that any acquisition will not
have an adverse effect on the Company's relationships with customers or
suppliers of an acquired business. Failure to integrate successfully any
acquisition made by the Company could have a material adverse effect on the
Company's business, results of operations and financial condition.
19
<PAGE>
DEPENDENCE ON SIGNIFICANT SUPPLIERS. As is customary in the electronics
distribution industry, the Company primarily operates under short-term contracts
with its suppliers. In the Company's past experience, such contracts have
typically been renewed from year to year. In the fiscal year ended March 28,
1998, the Company's purchases from AMP Incorporated and Belden Inc. represented
approximately 14% and 7%, respectively, of the Company's total purchases.
Although the Company believes that it may be able to obtain competitive products
of comparable quality from other suppliers, the loss of such suppliers could
have a material adverse effect on the Company's business, results of operations
and financial condition.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Kent Electronics Corporation
We have audited the consolidated balance sheets of Kent Electronics
Corporation and Subsidiaries as of March 28, 1998 and March 29, 1997, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended March 28, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kent
Electronics Corporation and Subsidiaries as of March 28, 1998 and March 29,
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended March 28, 1998, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
May 5, 1998
21
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 28, 1998 AND MARCH 29, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ----------------------------------------------------------- --------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $174,325 in 1998 and $28,728 in 1997).... $179,907 $ 25,050
Trading securities, net................................... 29,946 --
Accounts receivable, net.................................. 106,132 88,835
Inventories
Materials and purchased products........................ 112,964 91,100
Work in process......................................... 2,128 3,394
-------- --------
115,092 94,494
Other..................................................... 5,754 4,023
-------- --------
Total current assets.................................. 436,831 212,402
PROPERTY AND EQUIPMENT
Land...................................................... 8,761 7,439
Buildings................................................. 42,766 38,176
Equipment, furniture and fixtures......................... 109,079 68,247
Leasehold improvements.................................... 2,657 2,543
-------- --------
163,263 116,405
Less accumulated depreciation and amortization.......... (36,577) (25,515)
-------- --------
126,686 90,890
DEFERRED INCOME TAXES....................................... 93 1,280
OTHER ASSETS................................................ 12,193 4,618
COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated
amortization of $2,856 in 1998 and $2,359 in 1997......... 15,907 16,404
-------- --------
$591,710 $325,594
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ -- $ --
Accounts payable.......................................... 49,178 42,317
Accrued compensation...................................... 11,193 8,123
Other accrued liabilities................................. 7,032 8,051
Income taxes.............................................. 2,946 3,027
-------- --------
Total current liabilities............................ 70,349 61,518
LONG-TERM DEBT, less current maturities..................... 207,000 --
LONG-TERM LIABILITIES....................................... 1,792 1,709
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value per share;
authorized 2,000,000 shares; none issued............. -- --
Common stock, no par value; authorized
60,000,000 shares; 27,230,640 shares
issued and 27,180,640 shares outstanding
in 1998 and 26,301,651 shares issued
and 26,251,651 shares outstanding in 1997............ 55,457 41,348
Additional paid-in capital................................ 117,189 116,522
Retained earnings......................................... 140,900 105,474
-------- --------
313,546 263,344
Less common stock in treasury - at cost,
50,000 shares in 1997 and 1998....................... (977) (977)
-------- --------
312,569 262,367
-------- --------
$591,710 $325,594
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales....................................... $659,400 $516,757 $425,810
Cost of sales................................... 512,147 396,054 313,643
-------- -------- --------
Gross profit................................. 147,253 120,703 112,167
Selling, general and administrative expenses.... 90,854 73,607 66,106
Merger and integration costs.................... -- 5,500 --
-------- -------- --------
Operating profit............................. 56,399 41,596 46,061
Other income (expense)
Interest expense............................. (5,272) (1,192) (898)
Other - net (principally interest
and dividend income).................... 7,040 4,696 3,932
-------- -------- --------
Earnings before income taxes................. 58,167 45,100 49,095
Income taxes.................................... 22,741 17,479 19,303
-------- -------- --------
NET EARNINGS............................ $ 35,426 $ 27,621 $ 29,792
======== ======== ========
Earnings per common share:
Basic........................................ $1.33 $1.08 $1.28
======== ======== ========
Diluted...................................... $1.26 $1.00 $1.21
======== ======== ========
Weighted average shares:
Basic........................................ 26,598 25,580 23,192
======== ======== ========
Diluted...................................... 28,097 27,580 24,722
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings..................................................... $ 35,426 $ 27,621 $ 29,792
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization............................. 11,607 7,529 4,619
Provision for losses on accounts receivable............... (50) 409 249
Loss (gain) on sale of property and equipment............. 4 (2) 40
Stock option expense...................................... 667 540 1,116
Unrealized loss (gain) on trading securities.............. 54 (169) (45)
Net (purchases) sales of trading securities............... (30,000) 38,916 (21,869)
Change in assets and liabilities, net of effects
from the acquisition accounted for as a purchase
Increase in accounts receivable........................ (17,247) (26,828) (22,474)
Increase in inventories................................ (20,598) (23,904) (23,758)
(Increase) decrease in other........................... (1,731) 507 (1,635)
Increase in other assets............................... (7,575) (3,013) (585)
(Increase) decrease in deferred income taxes........... 1,187 89 (504)
Increase in accounts payable........................... 6,861 699 19,709
Increase (decrease) in accrued compensation............ 3,070 (2,238) 5,534
Increase (decrease) in other accrued liabilities....... (1,019) 2,419 2,136
Increase (decrease) in income taxes.................... (81) (2,230) 3,549
Increase in long-term liabilities...................... 83 733 695
-------- -------- --------
Net cash (used) provided by operating activities.... (19,342) 21,078 (3,431)
-------- -------- --------
Cash flows from investing activities
Capital expenditures............................................. (46,923) (50,816) (22,125)
Acquisition accounted for as a purchase.......................... -- (7,000) --
Proceeds from sale of property and equipment..................... 13 32 68
-------- -------- --------
Net cash used by investing activities............... (46,910) (57,784) (22,057)
-------- -------- --------
Cash flows from financing activities
Net (payments) borrowings under line of credit
agreements of pooled companies................................. -- (11,550) 6,606
Issuance of long-term debt....................................... 207,000 -- --
Payment on long-term debt of pooled companies.................... -- (1,254) (15)
Net payments to shareholder of pooled company.................... -- -- (61)
Redemption of mandatorily redeemable preferred stock
of pooled company.............................................. -- (2,200) --
Proceeds from issuance of convertible preferred
stock of pooled company........................................ -- -- 1,000
</TABLE>
24
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Issuance of common stock.................................... $ 6,891 $ 3,458 $86,281
Purchase of treasury stock.................................. -- (977) --
Tax effect of common stock issued upon exercise of
employee stock options.................................... 7,218 1,154 1,137
Distribution to shareholder of pooled company............... -- (650) (582)
-------- -------- -------
Net cash provided (used) by financing activities..... 221,109 (12,019) 94,366
-------- -------- -------
Net increase (decrease) in cash and cash equivalents........... 154,857 (48,725) 68,878
Adjustment for change in pooled companies' fiscal year ends.... -- 344 --
Cash and cash equivalents at beginning of year................. 25,050 73,431 4,553
-------- -------- -------
Cash and cash equivalents at end of year....................... $179,907 $ 25,050 $73,431
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 4,118 $ 1,285 $ 893
Income taxes........................................... $ 15,138 $ 15,054 $16,537
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 30, 1996, MARCH 29, 1997 AND MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional
------------------ paid-in Retained Treasury
Shares Amount capital earnings stock
------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1995............................... 21,308 $34,760 $ 26,765 $ 50,699 $ --
Net proceeds from public stock offering................ 4,000 20 83,826 -- --
Issuance of common stock of pooled company............. 391 4 996 -- --
Common stock issued upon exercise of
employee stock options, including tax effect....... 328 3,572 -- -- --
Common stock split for fractional shares............... -- 1 (1) -- --
Amortization of unearned compensation related
to stock option plans.............................. -- -- 1,116 -- --
Distribution to shareholder of pooled company.......... -- -- -- (582) --
Net earnings for the year.............................. -- -- -- 29,792 --
------ ------- -------- -------- --------
Balance at March 30, 1996.............................. 26,027 38,357 112,702 79,909 --
Issuance of common stock of pooled company............. 19 -- 47 -- --
Common stock issued under employee bonus and
upon exercise of employee stock options,
including tax effect............................... 256 2,991 1,574 -- --
Amortization of unearned compensation related to
stock option plans................................. -- -- 540 -- --
Purchase of treasury stock............................. (50) -- -- -- (977)
Reclassification of undistributed subchapter "S"
earnings of pooled company............................ -- -- 1,659 (1,659) --
Adjustment for change in fiscal year of
pooled companies................................... -- -- -- 253 --
Distribution to shareholder of pooled company.......... -- -- -- (650) --
Net earnings for the year.............................. -- -- -- 27,621 --
------ ------- -------- -------- --------
Balance at March 29, 1997.............................. 26,252 41,348 116,522 105,474 (977)
Common stock issued upon exercise of
employee stock options, including tax effect....... 929 14,109 -- -- --
Amortization of unearned compensation
related to stock option plans...................... -- -- 667 -- --
Net earnings for the year.............................. -- -- -- 35,426 --
------ ------- -------- -------- --------
Balance at March 28, 1998.............................. 27,181 $55,457 $117,189 $140,900 $(977)
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
26
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
- -----------------------
Kent Electronics Corporation (the "Company") is a leading national specialty
distributor of electronic products and a manufacturer of custom-made electronic
assemblies. The Company distributes electronic connectors, electronic wire and
cable, premise wiring products used in local area networks and wide area
networks, and other passive and electromechanical products and interconnect
assemblies used in assembling and manufacturing electronic equipment. The
Company's contract manufacturing services include printed circuit board
assembly, sheet metal fabrication, plastic injection molding, powder painting,
battery power pack and cable assembly, and final integration. The Company's
customers are primarily industrial users and original equipment manufacturers.
BASIS OF PRESENTATION
- ---------------------
As a result of the acquisitions of Futronix and Wire & Cable in fiscal 1997,
each accounted for as a pooling of interests, the consolidated financial
statements for prior periods have been restated to include the operations of
Futronix and Wire & Cable.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
Kent Electronics Corporation consolidates its accounts with those of its wholly-
owned subsidiaries. All material intercompany transactions have been
eliminated.
FISCAL YEAR
- -----------
The Company's fiscal year ends on the Saturday closest to the end of March. The
fiscal years ended March 28, 1998, March 29, 1997 and March 30, 1996 all
consisted of 52 weeks.
USE OF ESTIMATES
- ----------------
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required 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 financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS
- -------------------------
The Company's presentation of cash includes cash equivalents. Cash equivalents
are defined as short-term investments with maturity dates at purchase of ninety
days or less. Cash equivalents include $142.1 million and $21.3 million
invested in institutional money market funds at March 28, 1998 and March 29,
1997, respectively.
Securities purchased under agreements to resell (reverse repurchase agreements)
result from transactions that are collateralized by negotiable securities and
are carried at the amounts at which the securities will subsequently be resold.
It is the policy of the Company not to take possession of securities purchased
under agreements to resell. At March 28, 1998 and March 29, 1997, agreements to
resell securities in the amount of $32.2 million with a fourteen-day maturity
and $7.4 million with a four-day maturity were outstanding, respectively.
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.
27
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
TRADING SECURITIES
- ------------------
The Company has classified all investment securities as trading securities which
are measured at fair value in the financial statements with unrealized gains and
losses included in earnings. Trading securities of $29.9 million at March 28,
1998 were invested in a managed fund consisting primarily of taxable, high
quality corporate debt instruments. Realized and unrealized gains and losses,
included in other income, are reflected in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
----- ------ ------
(In thousands)
<S> <C> <C> <C>
Net unrealized loss on trading securities
at beginning of year................... $ -- $ 257 $ 302
Increase (decrease) in unrealized loss
included in earnings during the year... 54 (169) (45)
Realized loss from sale of trading
securities............................. -- (88) --
----- ----- -----
Net unrealized loss on trading securities
at end of year......................... $ 54 $ -- $ 257
===== ===== =====
</TABLE>
INVENTORIES
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
- ----------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the life of the lease
or the service life of the improvements, whichever is shorter.
COSTS IN EXCESS OF NET ASSETS ACQUIRED
- --------------------------------------
Costs in excess of net assets acquired represents the excess of the purchase
price over the value of net assets acquired and is being amortized on a
straight-line basis over 40 years. Management evaluates these costs for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Impairment would be recognized if the
carrying amounts of such costs cannot be recovered by the net cash flows they
will generate.
REVENUE RECOGNITION
- -------------------
Revenue is recognized upon shipment of merchandise to customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
- -----------------------------------
The carrying amount of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and amounts included in other assets and liabilities
meeting the definition of a financial instrument approximates fair value.
At March 28, 1998, long-term debt had a carrying value of $207.0 million and an
estimated fair value of $174.9 million, which was based on the closing market
price.
EARNINGS PER SHARE
- ------------------
The Company adopted Financial Accounting Standard No. 128, "Earnings Per Share,"
beginning with the Company's third quarter of fiscal 1998. All prior period
earnings per common share data have been restated to conform to the
28
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
provisions of this statement. Basic earnings per common share is computed using
the weighted average number of shares outstanding. Diluted earnings per common
share is computed using the weighted average number of shares outstanding
adjusted for the incremental shares attributed to outstanding options to
purchase common stock. Incremental shares of 1.5 million, 2.0 million and 1.5
million in 1998, 1997 and 1996 respectively, were used in the calculation of
diluted earnings per common share. Options to purchase 0.4 million, 0.1 million
and 0.1 million shares of common stock in 1998, 1997 and 1996, respectively,
were not included in the computation of diluted earnings per common share
because the option exercise price was greater than the average market price of
the common stock. The calculation of earnings per share does not include
approximately 4.2 million shares issuable upon conversion of the 4 1/2%
convertible subordinated notes because inclusion of such shares would be
antidilutive.
NEW PRONOUNCEMENTS
- ------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for the reporting and
display of comprehensive income and its components, and FAS 131 establishes new
standards for public companies to report information about their operating
segments, products and services, geographic areas and major customers. Both
statements are effective for financial statements issued for periods beginning
after December 15, 1997.
BUSINESS ACQUISITIONS
FUTRONIX AND WIRE & CABLE
- -------------------------
In January 1997, the Company acquired all the outstanding equity instruments of
Futronix and Wire & Cable, both privately owned distributors of specialty wire
and cable, in exchange for 2.1 million shares of the Company's common stock in a
merger transaction accounted for as a pooling of interests.
Prior to the merger, Futronix and Wire & Cable used a calendar year end for
financial reporting purposes. The Futronix and Wire & Cable results of
operations for the year ended December 31, 1995 has been combined with those of
the Company for the year ended March 30, 1996. The Futronix and Wire & Cable
balance sheet and results of operations for the 52 weeks ending March 29, 1997
have been included in the consolidated financial statements for fiscal 1997.
During the three-month period ended March 30, 1996, Futronix and Wire & Cable
had net sales of $16.2 million, net earnings of $0.4 million and shareholder
distributions of $0.1 million. In order to reflect the change in fiscal year-
ends, retained earnings for these amounts has been increased by combined net
earnings and decreased by shareholder distributions.
29
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
Combined and separate results of Kent, Futronix and Wire & Cable during the
periods preceding the merger were as follows:
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED FISCAL YEAR
DECEMBER 28, 1996 ENDED
(UNAUDITED) MARCH 30, 1996
------------------------ --------------
(In thousands)
<S> <C> <C>
Net sales
---------
Kent..................... $314,906 $372,019
Futronix................. 40,679 29,280
Wire & Cable............. 20,000 24,511
-------- --------
Combined............. $375,585 $425,810
======== ========
Net earnings
------------
Kent..................... $ 22,136 $ 27,975
Futronix................. 278 614
Wire & Cable............. 806 1,203
-------- --------
Combined............. $ 23,220 $ 29,792
======== ========
</TABLE>
In the fourth quarter of fiscal 1997, the Company recorded costs of $5.5 million
associated with the merger and integration of Futronix and Wire & Cable.
EMC DISTRIBUTION DIVISION OF ELECTRONICS MARKETING CORPORATION
- --------------------------------------------------------------
In December 1996, the Company acquired certain assets of the EMC Distribution
Division of Electronics Marketing Corporation, a privately owned Ohio-based
specialty distributor of connectors, passive and electromechanical components,
for $7.0 million and the assumption of certain liabilities. The acquisition has
been accounted for as a purchase and, accordingly, the acquired assets and
liabilities have been recorded at their estimated fair values at the date of
acquisition. The operating results arising from the acquisition are included in
the consolidated statements of earnings from the acquisition date. The excess
of the purchase price over the value of the assets acquired is classified in the
accompanying balance sheet as cost in excess of net assets acquired and is being
amortized on a straight-line basis over 40 years. Pro forma financial
information is not presented, as the effect of the acquisition was not
significant to the financial statements.
ACCOUNTS RECEIVABLE
The Company's allowance for doubtful accounts was $1.2 million at March 28, 1998
and $1.3 million at March 29, 1997.
30
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
OTHER ASSETS
At March 28, 1998 and March 29, 1997, other assets included $3.1 million and
$1.8 million, respectively, of receivables from certain officers and directors
of the Company.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------------- ---------
(In thousands)
<S> <C> <C> <C>
Current......................................... $15,417 $16,316 $19,934
Tax reduction for exercise of stock options
credited to stockholders' equity.............. 7,218 1,154 1,137
Deferred........................................ 106 9 (1,768)
------- ------- -------
$22,741 $17,479 $19,303
======= ======= =======
</TABLE>
A reconciliation of income taxes computed at the statutory federal income tax
rate and income taxes reported in the consolidated statements of earnings
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------------- ---------
(In thousands)
<S> <C> <C> <C>
Tax at statutory rate................................ $20,358 $15,785 $17,161
Increases (reductions)
State income taxes, net of federal tax effect.... 1,780 1,377 1,687
Pre-acquisition earnings of
acquired S corporation......................... -- (217) (409)
Non-deductible merger and integration costs...... -- 291 --
Other-net........................................ 603 243 864
------- ------- -------
Income taxes as reported............................. $22,741 $17,479 $19,303
======= ======= =======
</TABLE>
31
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
INCOME TAXES (CONTINUED)
Net deferred tax assets at March 28, 1998 and March 29, 1997 consist of the
following:
1998 1997
--------- ---------
(In thousands)
Current deferred asset
- ----------------------
Allowance for doubtful accounts..................... $ 433 $ 493
Capitalization of additional inventory costs........ 1,647 805
Accrued expenses not currently deductible,
net of reversals................................ 412 641
Net operating losses................................ 314 314
Other............................................... 568 399
------- -------
$ 3,374 $ 2,652
======= =======
Long-term deferred asset
- ------------------------
Depreciation........................................ $(4,474) $(2,766)
Fixed asset bases differences....................... 384 450
Stock compensation.................................. 1,750 1,495
Net operating losses................................ 143 457
Deferred compensation............................... 2,266 1,644
Other............................................... 24 --
------- -------
$ 93 $ 1,280
======= =======
Acquired net operating losses of approximately $1.3 million at March 28, 1998,
expire in various amounts through 2003, and are subject to annual usage
limitations.
The current deferred asset is included in other current assets in the
accompanying balance sheets.
DEBT AND LINE OF CREDIT
The 4 1/2% Convertible Subordinated Notes due 2004 (the "Notes") are convertible
into Kent common stock at a conversion price of $49.53 per share, subject to
adjustment in certain events. Interest is payable semi-annually on March 1 and
September 1 of each year, and the Notes are redeemable at the option of the
Company at set redemption prices (which range from 100.64% to 102.57% of
principal), plus accrued interest, beginning September 6, 2000.
In June 1997, the Company entered a $25.0 million unsecured line of credit with
a bank at LIBOR plus 37.5 to 62.5 basis points, depending on certain cash flow
ratios, or at Prime less 100 basis points. There have been no borrowings, and,
as of March 28, 1998, there was no indebtedness outstanding under the line of
credit. A commitment fee of 12.5 to 25.0 basis points, depending on certain
cash flow ratios, is assessed against any undrawn amounts.
32
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
COMMITMENTS AND CONTINGENCIES
The Company conducts a portion of its operations in leased office, warehouse,
and manufacturing facilities and also leases transportation equipment. Rent
expense for 1998, 1997 and 1996 was approximately $4.1 million, $3.5 million and
$2.9 million, respectively.
As of March 28, 1998, the Company's minimum rental commitments under
noncancelable operating leases were $3.2 million in 1999; $2.4 million in 2000;
$1.7 million in 2001; $1.1 million in 2002; $0.7 million in 2003; and $0.3
million thereafter.
The Company has instituted a self-insurance program for employees' major medical
coverages. Claims under the self-insurance program are insured for amounts
greater than $75 thousand per employee. The aggregate annual self-insured
amount varies based on participant levels and was limited to approximately $4.4
million as of March 28, 1998. Claims are accrued as incurred and the total
expense under the program was approximately $3.9 million, $2.8 million and $2.1
million in 1998, 1997 and 1996, respectively.
The Company is engaged in litigation occurring in the normal course of business.
In the opinion of management, based upon advice of counsel, the ultimate outcome
of these lawsuits will not have a material impact on the Company's consolidated
financial statements.
SALES TO MAJOR CUSTOMERS
No customer constituted 10% or more of net sales in 1998 or 1997. Sales to
Compaq Computer Corporation represented 10.6% of net sales in 1996.
STOCKHOLDERS' EQUITY
FAIR PRICE PROVISION
- --------------------
The Company has adopted a fair price provision relating to certain business
combinations. The fair price provision provides that, except in certain
circumstances, a business combination between the Company and an interested
shareholder must be approved by the affirmative vote of the holders of 80% of
the outstanding voting stock, unless certain pricing and procedural requirements
regarding the business combination are satisfied.
STOCKHOLDER RIGHTS PLAN
- -----------------------
The Company has adopted a stockholder rights plan, declaring a distribution of
one equity purchase right on each outstanding share of the Company's common
stock. Upon the occurrence of certain events, each right would entitle the
holder to purchase, at a price of $40, one one-hundredth of a share of the
Company's Series A Preferred Stock. Additionally, under certain circumstances,
the holder of rights may be entitled to purchase either the Company's common
stock or securities of an acquiring entity at half of market value.
33
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
STOCK SPLIT
- -----------
The Company's common stock was split two-for-one to stockholders of record on
February 15, 1996, and was effected as a 100% stock dividend. All issued and
outstanding shares, stock option data and earnings per share amounts in the
consolidated financial statements have been restated to give effect to the stock
split.
BENEFIT PLANS
STOCK OPTIONS
- -------------
At March 28, 1998, the Company had nonqualified stock option plans which allow
for the grant of 3.3 million common shares for options, of which 1.0 million are
available for future grants. Options granted under the plans have a maximum term
of 15 years and are exercisable under the terms of the respective option
agreements. Under some plans, options may be granted with exercise prices of
less than the stock's market value at the date of grant. Options on 1.4
million, 1.6 million and 0.4 million shares were exercisable at March 28, 1998,
March 29, 1997 and March 30, 1996 with a weighted average exercise price of
$11.38, $7.68 and $7.51, respectively. A summary of the Company's stock option
activity, and related information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ---------------------------- -------------------------
(In thousands, except per share data) Weighted Weighted Weighted
average average average
Options exercise price Options exercise price Options exercise price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... 3,435 $12.00 2,570 $ 8.44 2,181 $ 5.25
Granted................. 506 23.94 1,144 19.72 803 17.58
Exercised............... (929) 7.37 (208) 8.49 (328) 7.58
Lapsed/forfeited........ (276) 17.58 (71) 17.84 (86) 16.09
----- ------ ----- ------ ----- ------
Outstanding at
end of year......... 2,736 $15.16 3,435 $12.00 2,570 $ 8.44
===== ====== ===== ====== ===== ======
The following table summarizes the weighted average fair value per share at date
of grant of options granted during the year:
1998 1997 1996
------------------------------- ----------------------------- ----------------------------
Weighted Weighted Weighted Weighted Weighted Weighted
average average average average average average
fair value exercise price fair value exercise price fair value exercise price
-------------- ---------------- ------------ ---------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equals
market price.......... $9.54 $23.94 $ 5.00 $19.73 $4.44 $20.73
Exercise price is
below market price.... -- -- 26.11 19.31 9.67 7.25
</TABLE>
34
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
BENEFIT PLANS (CONTINUED)
The following table summarizes significant ranges of outstanding and exercisable
options at March 28, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -----------------------
(In thousands, except per share data) Weighted
average Weighted Weighted
remaining life average average
Range of exercise prices Options (in years) exercise price Options exercise price
------- -------------- -------------- ------- --------------
<C> <S> <C> <C> <C> <C> <C>
$ 3.63 - $ 5.45................. 570 9.76 $ 3.75 570 $ 3.75
$ 6.96 - $10.44................. 451 5.47 7.24 258 7.24
$18.77 - $28.16................. 1,620 4.37 20.42 441 19.62
$28.75 - $37.38................. 95 3.66 32.47 88 32.47
</TABLE>
The Company has adopted only the disclosure provisions of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). The
Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than for
options granted with exercise prices of less than the stock's market value at
the date of grant.
The fair value of options at the date of grant was estimated using the Black-
Scholes option pricing model with the following weighted average assumptions:
1998 1997 1996
---- ---- ----
Expected life.... 2.6 years 2.3 years 3.1 years
Interest rate.... 5.8% 6.3% 6.0%
Volatility....... 58.3% 34.6% 26.5%
Dividend yield... 0.0% 0.0% 0.0%
Stock-based compensation costs would have reduced net earnings by approximately
$1.8 million, $1.4 million and $0.5 million in 1998, 1997 and 1996 and $0.07,
$0.05 and $0.02 per diluted share if the fair values of the options granted in
those years had been recognized as compensation expense over the vesting period
of the grant.
35
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
BENEFIT PLANS (CONTINUED)
TAX-DEFERRED SAVINGS AND RETIREMENT PLAN AND TRUST
- --------------------------------------------------
The Company sponsors a Tax-Deferred Savings and Retirement Plan (the Plan)
covering substantially all employees. Under the Plan, a participating employee
may allocate up to 12% of salary, and the Company makes matching contributions
of up to 3% thereof. Additionally, the Company may elect to make
additional contributions at its option. Such contributions accrue to
employee accounts regardless of whether they have elected to participate in the
salary deferral option of the Plan. The Company contributed approximately $1.1
million, $0.9 million and $0.6 million to the Plan in fiscal years ended March
28, 1998, March 29, 1997 and March 30, 1996, respectively.
The Company has deferred compensation plans for management and highly
compensated associates of the Company. Under one plan, a participant may elect
to defer a minimum of 3% of their compensation. The Company has agreed to match
the participant's compensation amount, limited to 50% of the first 6% of
compensation deferred. Participants become vested in the Company matching
contributions at the rate of 10% per plan year or vest fully at age 60. Under
another deferred benefit plan, the participant will receive minimum annual
payments subsequent to retirement of the participant for the greater of 15
years, participant's life or the life of participant's spouse.
Under the first plan, the Company has accrued at March 28, 1998 and March 29,
1997 approximately $1.8 million and $1.7 million, respectively, for participant
and Company contributions which are recorded as long-term liabilities on the
balance sheet. Under the second plan, annual expense will be approximately $2.4
million through March 31, 2001, based on accruing the present value of the
minimum benefits through the date the participant vests in the payments.
36
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED MARCH 28, 1998, MARCH 29, 1997 AND MARCH 30, 1996
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal
years 1998, 1997 and 1996:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
Year ended March 28, 1998
- -------------------------
Net sales $152,080 $167,487 $177,426 $162,407
Gross profit 34,859 37,908 40,150 34,336
Net earnings 8,775 9,605 10,128 6,918
Basic earnings per share .33 .36 .38 .26
Diluted earnings per share .32 .34 .36 .25
Year ended March 29, 1997
- -------------------------
Net sales $125,144 $124,034 $126,407 $141,172
Gross profit 31,906 28,018 28,840 31,939
Net earnings 9,431 6,852 6,937 4,401
Basic earnings per share .37 .27 .27 .17
Diluted earnings per share .34 .25 .25 .16
Year ended March 30, 1996
- -------------------------
Net sales $ 87,255 $102,776 $116,064 $119,715
Gross profit 22,940 27,035 30,673 31,519
Net earnings 5,254 6,346 8,652 9,540
Basic earnings per share .25 .30 .34 .38
Diluted earnings per share .24 .28 .32 .35
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
In accordance with paragraph (3) of General Instruction G to Form 10-K,
Part III of this Report is omitted because the Company has filed with the
Securities and Exchange Commission, not later than 120 days after March 28,
1998, a definitive proxy statement pursuant to Regulation 14A involving the
election of directors. Reference is made to the sections of such proxy
statement entitled "Common Stock Outstanding and Principal Holders Thereof" and
"Proposal No. 1 --Election of Directors" which sections of such proxy statement
are incorporated herein.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND EXHIBITS:
1. FINANCIAL STATEMENTS:
PAGE
----
Report of Independent Certified Public Accountants.................. 21
Consolidated balance sheets at March 28, 1998 and March 29, 1997.... 22
Consolidated statements of earnings for the years ended
March 28, 1998, March 29, 1997 and March 30, 1996.............. 23
Consolidated statements of cash flows for the years ended
March 28, 1998, March 29, 1997 and March 30, 1996.............. 24
Consolidated statement of stockholders' equity for the years ended
March 30, 1996, March 29, 1997 and March 28, 1998.............. 26
Notes to consolidated financial statements.......................... 27
2. FINANCIAL STATEMENT SCHEDULE:
PAGE
----
Report of Independent Certified Public Accountants on Schedule...... 46
Schedule II--Allowance for Doubtful Receivables for the years ended
March 30, 1996, March 29, 1997 and March 28, 1998.............. S-1
3. EXHIBITS:
3.1* -- Amended and Restated Articles of Incorporation of Kent
Electronics Corporation. Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-3
(Registration No. 333-20265) filed with the Securities and
Exchange Commission ("SEC") on January 23, 1997.
3.2* -- Certificate of Designation, Preferences and Rights of Series A
Preferred Stock. Incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
March 30, 1991.
3.3 -- Amended and Restated Bylaws of Kent Electronics Corporation.
4.1* -- Specimen stock certificate for the Common Stock of Kent
Electronics Corporation. Incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-2
(Registration No. 33-40066) filed with the SEC on April 19, 1991.
4.2* -- Rights Agreement dated as of May 14, 1990 between Kent
Electronics Corporation and Ameritrust Company National
Association. Incorporated by
39
<PAGE>
reference to Exhibit 4 to the Company's Current Report on
Form 8-K dated May 14, 1990.
4.3* -- First Amendment to Rights Agreement dated as of May 14, 1990
between Kent Electronics Corporation and Ameritrust Company
National Association. Incorporated by reference to Exhibit 4.3 to
the Company's Annual Report on Form 10-K for the Fiscal Year
Ended March 28, 1992 (the "1992 Form 10-K").
4.4* -- Indenture between Kent Electronics Corporation, as Issuer, and
Texas Commerce Bank National Association, as Trustee, dated as of
September 23, 1997. Incorporated by reference to Exhibit 4.1 to
the Company's Quarterly Report on Form 10-Q/A for the Fiscal
Quarter ended September 27, 1997 (the "1997 Second Quarter Form
10-Q/A").
10.1* -- Chief Executive Officer Stock Option Plan and Agreement between
Kent Electronics Corporation and Morrie K. Abramson dated July
24, 1991. Incorporated by reference to Exhibit 10.1 to 1992 Form
10-K./(1)/
10.2* -- Amendment to Chief Executive Officer Stock Option Plan between
Kent Electronics Corporation and Morrie K. Abramson dated June
26, 1992. Incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
April 3, 1993 (the "1993 Form 10-K")./(1)/
10.3* -- Amendment to Chief Executive Officer Stock Option Plan and
Agreement between Kent Electronics Corporation and Morrie K.
Abramson dated June 30, 1994. Incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended April 1, 1995 (the "1995 Form 10-K")./(1)/
10.4* -- 1991 Non-Employee Director Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.2 to 1992 Form 10-K./(1)/
10.5* -- 1996 Non-Employee Director Stock Option Plan. Incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended March 30, 1996 (the "1996 Form 10-
K")./(1)/
10.6* -- Amended and Restated 1987 Stock Option Plan. Incorporated by
reference to Exhibit 10.3 to 1992 Form 10-K./(1)/
10.7* -- Amendments of Amended and Restated 1987 Stock Option Plan.
Incorporated by reference to Exhibit 10.8 to 1993 Form 10-K./(1)/
10.8* -- Stock Option Plan and Agreement for the Company's Executive Vice
President Sales-Distribution between Kent Electronics Corporation
and Larry
40
<PAGE>
D. Olson dated May 8, 1995. Incorporated by reference to Exhibit
10.11 to 1995 Form 10-K./(1)/
10.9* -- Stock Option Plan and Agreement for the Company's Executive Vice
President Operations-Distribution between Kent Electronics
Corporation and Mark A. Zerbe dated May 8, 1995. Incorporated by
reference to Exhibit 10.12 to 1995 Form 10-K./(1)/
10.10*-- Stock Option Plan and Agreement for the Company's Vice President,
Secretary and Treasurer between Kent Electronics Corporation and
Stephen J. Chapko dated May 8, 1995. Incorporated by reference
to Exhibit 10.13 to 1995 Form 10-K./(1)/
10.11*-- Stock Option Plan and Agreement for the Company's Vice President,
Corporate Controller between Kent Electronics Corporation and
David D. Johnson dated May 9, 1996. Incorporated by reference to
Exhibit 10.13 to 1996 Form 10-K./(1)/
10.12*-- 1996 Employee Incentive Plan. Incorporated by reference to
Exhibit 10.14 to 1996 Form 10-K./(1)/
10.13*-- Kent Electronics Corporation Tax-Deferred Savings and Retirement
Plan and Trust (As Amended and Restated Effective March 26,
1989). Incorporated by reference to Exhibit 10.15 to 1996
Form 10-K./(1)/
10.14*-- Kent Electronics Corporation Deferred Compensation Plan dated
July 28, 1994. Incorporated by reference to Exhibit 10.15 to 1995
Form 10-K./(1)/
10.15*-- First Amendment to the Kent Electronics Corporation Deferred
Compensation Plan. Incorporated by reference to Exhibit 10.17 to
1996 Form 10-K./(1)/
10.16*-- Trust Agreement for Kent Electronics Corporation Deferred
Compensation Plan dated July 28, 1994. Incorporated by reference
to Exhibit 10.16 to 1995 Form 10-K./(1)/
10.17*-- Contracts between Kent Electronics Corporation and AMP Products
Corporation effective as of July 22, 1988 and July 31, 1986,
respectively, and addenda thereto. Incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended April 1, 1989.
10.18*-- Form of Agreement by and between Kent Electronics Corporation and
Morrie K. Abramson dated March 16, 1993. Incorporated by
reference to Exhibit 10.21 to 1993 Form 10-K./(1)/
41
<PAGE>
10.19*-- Form of Executive Health Care Benefits and Consulting Agreement
by and between Kent Electronics Corporation and Morrie K.
Abramson dated January 27, 1993. Incorporated by reference to
Exhibit 10.22 to 1993 Form 10-K./(1)/
10.20*-- Employment Agreement dated January 3, 1996 by and between Morrie
K. Abramson and Kent Electronics Corporation. Incorporated by
reference to Exhibit 10.22 to 1996 Form 10-K./(1)/
10.21*-- Kent Electronics Corporation Chief Executive Officer Deferred
Compensation Plan and Agreement dated January 3, 1996 by and
between Kent Electronics Corporation and Morrie K. Abramson.
Incorporated by reference to Exhibit 10.23 to 1996 Form
10-K./(1)/
10.22*-- Trust Agreement for Kent Electronics Corporation Chief Executive
Officer Deferred Compensation Plan and Agreement and Employment
Agreement dated January 3, 1996 by and between Kent Electronics
Corporation and Texas Commerce Bank National Association, as
trustee. Incorporated by reference to Exhibit 10.24 to 1996 Form
10-K./(1)/
10.23*-- Revolving Promissory Note with Agreement between Kent Electronics
Corporation and Texas Commerce Bank National Association dated
June 12, 1997. Incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K/A for the Fiscal Year Ended
March 29, 1997.
10.24* -- Amendment to Chief Executive Officer Stock Option Plan and
Agreement between Kent Electronics Corporation and Morrie K.
Abramson dated July 2, 1997. Incorporated by reference to Exhibit
10.1 to 1997 Second Quarter Form 10-Q/A./(1)/
10.25*-- Amendment to 1991 Non-Employee Director Stock Option Plan.
Incorporated by reference to Exhibit 10.4 to 1997 Second Quarter
Form 10-Q/A./(1)/
10.26*-- Amendment to Amended and Restated 1987 Stock Option Plan.
Incorporated by reference to Exhibit 10.5 to 1997 Second Quarter
Form 10-Q/A./(1)/
10.27*-- Amendment to Stock Option Plan and Agreement for the Company's
Executive Vice President Sales-Distribution between Kent
Electronics Corporation and Larry G. Olson dated July 2, 1997.
Incorporated by reference to Exhibit 10.6 to 1997 Second Quarter
Form 10-Q/A./(1)/
10.28*-- Amendment to Stock Option Plan and Agreement for the Company's
Executive Vice President Operations-Distribution between Kent
Electronics Corporation and Mark A. Zerbe dated July 2, 1997.
Incorporated by reference to Exhibit 10.7 to 1997 Second Quarter
Form 10-Q/A./(1)/
42
<PAGE>
10.29*-- Amendment to Stock Option Plan and Agreement for the Company's
Vice President, Secretary and Treasurer between Kent Electronics
Corporation and Stephen J. Chapko dated July 2, 1997.
Incorporated by reference to Exhibit 10.8 to 1997 Second Quarter
Form 10-Q/A./(1)/
10.30*-- Amendment to Stock Option Plan and Agreement for the Company's
Vice President, Corporate Controller between Kent Electronics
Corporation and David D. Johnson dated July 2, 1997.
Incorporated by reference to Exhibit 10.9 to 1997 Second Quarter
Form 10-Q/A./(1)/
10.31*-- Amendment No. 1 to Employment Agreement by and among Morrie K.
Abramson, Rolaine S. Abramson and Kent Electronics Corporation
dated August 18, 1997. Incorporated by reference to Exhibit
10.10 to 1997 Second Quarter Form 10-Q/A./(1)/
10.32 -- Employment Agreement dated October 7, 1996 by and among Kent
Electronics Corporation, Futronix Acquisition Company and
Terrence M. Hunt./(1)/
11 -- Computation of Earnings Per Share.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of Kent Electronics Corporation.
23 -- Consent of Independent Certified Public Accountants.
27 -- Financial Data Schedule.
- -----------------------------
* Incorporated by reference.
(1) Management contract or compensatory plan or agreement
(b) REPORTS ON FORM 8-K:
None.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ MORRIE K. ABRAMSON
-----------------------------
Morrie K. Abramson
Chairman of the Board and
Chief Executive Officer
Date: June 24, 1998
44
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------- ------------------------------------------ -------------
<S> <C> <C>
/s/ MORRIE K. ABRAMSON Chairman of the Board and Chief June 24, 1998
- ------------------------- Executive Officer and Director (Principal
Morrie K. Abramson Executive Officer)
/s/ STEPHEN J. CHAPKO Executive Vice President, Chief Financial June 24, 1998
- ------------------------- Officer, Treasurer and Secretary
Stephen J. Chapko (Principal Financial Officer)
/s/ DAVID D. JOHNSON Vice President, Corporate Controller June 24, 1998
- ------------------------- (Principal Accounting Officer)
David D. Johnson
/s/ TERRENCE M. HUNT Director June 24, 1998
- -------------------------
Terrence M. Hunt
/s/ MAX S. LEVIT Director June 24, 1998
- -------------------------
Max S. Levit
/s/ LARRY D. OLSON Director June 24, 1998
- -------------------------
Larry D. Olson
/s/ DAVID SIEGEL Director June 24, 1998
- -------------------------
David Siegel
/s/ RICHARD C. WEBB Director June 24, 1998
- -------------------------
Richard C. Webb
/s/ ALVIN L. ZIMMERMAN Director June 24, 1998
- -------------------------
Alvin L. Zimmerman
</TABLE>
45
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Stockholders
Kent Electronics Corporation
In connection with our audit of the consolidated financial statements of
Kent Electronics Corporation and Subsidiaries for the year ended March 28, 1998,
we have also audited Schedule II for each of the three years in the period ended
March 28, 1998. In our opinion, this consolidated schedule presents fairly, in
all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Houston, Texas
May 5, 1998
46
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 30, 1996, MARCH 29, 1997 AND MARCH 28, 1998
(IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL RECEIVABLES
<TABLE>
<CAPTION>
Additions Deductions
-------------------------------------- ----------
Adjustment
for change in
pooled Charged Charged
Balance at Companies' to costs to other Balance at
beginning fiscal year and accounts- Amounts end of
Fiscal Years Ended of period ends expenses recoveries written-off period
- --------------------- ---------- -------------- -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
March 30, 1996....... $1,013 $ -- $ 249 $ 12 $ 226 $1,048
March 29, 1997....... 1,048 30 409 11 242 1,256
March 28, 1998....... 1,256 -- 302 38 390 1,206
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
-------------
SEQUENTIALLY
EXHIBIT NO. ITEM NUMBERED PAGES
- ----------- ---- --------------
3.3 Amended and Restated Bylaws of Kent Electronics
Corporation
10.32 Employment Agreement dated October 7, 1996 by and
among Kent Electronics Corporation, Futronix
Acquisition Company and Terrence M. Hunt.
11 Computation of Earnings Per Share.
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Kent Electronics Corporation.
23 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
KENT ELECTRONICS CORPORATION
(the "Company")
ARTICLE I
Offices
-------
Section 1.1 Offices. The principal business office of the Company shall be
in the City of Sugar Land, Fort Bend County, Texas. The Company may have such
other business offices within or without the State of Texas as the board of
directors may from time to time establish.
ARTICLE II
Capital Stock
-------------
Section 2.1 Certificate Representing Shares. Shares of the capital stock of
the Company shall be represented by certificates in such form or forms as the
board of directors may approve, provided that such form or forms shall comply
with all applicable requirements of law or of the articles of incorporation.
Such certificates shall be signed by the chairman of the board, the president or
a vice president, and by the secretary or an assistant secretary, of the Company
and may be sealed with the seal of the Company or imprinted or otherwise marked
with a facsimile of such seal. In the case of any certificate countersigned by
any transfer agent or registrar, provided such countersigner is not the Company
itself or an employee thereof, the signature of any or all of the foregoing
officers of the Company may be represented by a printed facsimile thereof. If
any officer whose signature, or a facsimile thereof, shall have been set upon
any certificate shall cease, prior to the issuance of such certificate, to
occupy the position in right of which his signature, or facsimile thereof, was
so set upon such certificate, the Company may nevertheless adopt and issue such
certificate with the same effect as if such officer occupied such position as of
such date of issuance; and issuance and delivery of such certificate by the
Company shall constitute adoption thereof by the Company. The certificates shall
be consecutively numbered, and as they are issued, a record of such issuance
shall be entered in the books of the Company.
Section 2.2 Stock Certificate Book and Shareholders of Record. Except as to
any class of the Company's stock as to which it has appointed a transfer agent
and registrar pursuant to Section 2.5, the secretary of the Company shall
maintain, among other records, a stock certificate book, the stubs in which
shall set forth the names and addresses of the holders of all issued shares of
the Company, the number of shares held by each, the number of certificates
representing such
<PAGE>
shares, the date of issue of such certificates, and whether or not such shares
originate from original issue or from transfer. The names and addresses of
shareholders as they appear on the stock certificate book or the records of such
transfer agent shall be the official list of shareholders of record of the
Company for all purposes. The Company shall be entitled to treat the holder of
record of any shares as the owner thereof for all purposes, and shall not be
bound to recognize any equitable or other claim to, or interest in, such shares
or any rights deriving from such shares on the part of any other person,
including, but without limitation, a purchaser, assignee, or transferee, unless
and until such other person becomes the holder of record of such shares, whether
or not the Company shall have either actual or constructive notice of the
interest of such other person.
Section 2.3 Shareholder's Change of Name or Address. Each shareholder shall
promptly notify the secretary of the Company, at its principal business office,
by written notice sent by certified mail, return receipt requested, of any
change in name or address of the shareholder from that as it appears upon the
official list of shareholders of record of the Company. The secretary of the
Company shall then enter such changes into all affected Company records,
including, but not limited to, the official list of shareholders of record.
Section 2.4 Transfer of Stock. The shares represented by any certificate of
the Company are transferable only on the books of the Company by the holder of
record thereof or by his duly authorized attorney or legal representative upon
surrender of the certificate for such shares, properly endorsed or assigned. The
board of directors may make such rules and regulations concerning the issue,
transfer, registration and replacement of certificates as they deem desirable or
necessary.
Section 2.5 Transfer Agent and Registrar. The board of directors may
appoint one or more transfer agents or registrars of the shares, or both, and
may require all share certificates to bear the signature of a transfer agent or
registrar, or both.
Section 2.6 Lost, Stolen or Destroyed Certificates. The Company may issue a
new certificate for shares of stock in the place of any certificate theretofore
issued and alleged to have been lost, stolen or destroyed, but the board of
directors may require the owner of such lost, stolen or destroyed certificate,
or his legal representative, to furnish an affidavit as to such loss, theft, or
destruction and to give a bond in such form and substance, and with such surety
or sureties, with fixed or open penalty, as the board may direct, in order to
indemnify the Company and its transfer agents and registrars, if any, against
any claim that may be made on account of the alleged loss, theft or destruction
of such certificate.
Section 2.7 Fractional Shares. Only whole shares of the common stock of the
Company shall be issued. In case of any transaction by reason of which a
fractional share of common stock might otherwise be issued, the directors, or
the officers in the exercise of powers delegated by the directors, shall take
such measures consistent with the law, the articles of incorporation and these
bylaws, including (for example, and not by way of limitation) the payment in
cash of an amount
2
<PAGE>
equal to the fair value of any fractional share of common stock as they may deem
proper to avoid the issuance of any fractional share of common stock. The
Company may issue fractional shares of preferred stock.
ARTICLE III
The Shareholders
----------------
Section 3.1 Annual Meeting. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held at the principal office of the
Company, at 2:00 p.m. local time, on the second Tuesday in August of each year
commencing in the calendar year 1987, unless such day is a legal holiday, in
which case such meeting shall be held at such hour on the first day thereafter
which is not a legal holiday; or at such other place and time as may be
designated by the board of directors. Failure to hold any annual meeting or
meetings shall not work a forfeiture or dissolution of the Company.
Section 3.2 Special Meetings. Except as otherwise provided by law or by
the articles of incorporation, special meetings of the shareholders may be
called by the chairman of the board of directors, the president, any one of the
directors, or the holders of not less than one-tenth of all the shares having
voting power at such meeting, and shall be held at the principal office of the
Company or at such other place, and at such time, as may be stated in the notice
calling such meeting. Business transacted at any special meeting of shareholders
shall be limited to the purpose stated in the notice of such meeting given in
accordance with the terms of Section 3.3.
Section 3.3 Notice of Meetings - Waiver. Written or printed notice of
each meeting of shareholders, stating the place, day and hour of any meeting,
and in the case of a special shareholder's meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the president, the secretary or the officer or
person calling the meeting, to each shareholder entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail addressed to the shareholder at his address as it
appears on the stock transfer books of the Company, with postage thereon
prepaid. Such further or earlier notice shall be given as may be required by
law. The signing by a shareholder of a written waiver of notice of any
shareholders' meeting, whether before or after the time stated in such waiver,
shall be equivalent to the receiving by him of all notice required to be given
with respect to such meeting. Attendance by a shareholder, whether in person or
by proxy, at a shareholders' meeting shall constitute a waiver of notice of such
meeting. No notice of any adjournment of any meeting shall be required.
Section 3.4 Closing of Transfer Books and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of, or to vote at, any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend or in order to
3
<PAGE>
make a determination of shareholders for any other proper purpose, the board of
directors of the Company may provide that the stock transfer books shall be
closed for a stated period in no case to exceed sixty (60) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least the ten days immediately preceding such meeting. In lieu
of closing the stock transfer books, the board of directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
no case to be more than sixty (60) days nor, in the case of a meeting of
shareholders, less than ten (10) days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the stock
transfer books are not closed and no record date is fixed for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the board
of directors declaring such dividend is adopted, as the case may be, shall be
the record date of such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made, as
provided in this section, such determination shall apply to any adjournment
thereof except where the determination has been made through the closing of
stock transfer books and the stated period of closing has expired.
Section 3.5 Voting List. The officer or agent having charge of the stock
transfer books for shares of the Company shall make, at least ten days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the
registered office of the Company and shall be subject to lawful inspection by
any shareholder at any time during the usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. Failure to comply with this section shall not affect the validity of
any action taken at such meeting.
Section 3.6 Quorum and Officers. Except as otherwise provided by law, by
the articles of incorporation or by these bylaws, the holders of a majority of
the shares entitled to vote and represented in person or by proxy shall
constitute a quorum at a meeting of shareholders, but the shareholders present
at any meeting, although representing less than a quorum, may from time to time
adjourn the meeting to some other day and hour, without notice other than
announcement at the meeting. The shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. The vote of the
holders of a majority of the shares entitled to vote and thus represented at a
meeting at which a quorum is present shall be the act of the shareholders'
meeting, unless the vote of a greater number is required by law. The chairman of
the board, or in his absence the president, of the Company shall preside at, and
the secretary shall keep the records of, each meeting of shareholders, and in
the absence of any such officer, his duties shall be performed
4
<PAGE>
by any other officer authorized by these bylaws or any person appointed by
resolution duly adopted at the meeting.
Section 3.7 Voting at Meetings. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders
except to the extent that the articles of incorporation, or bylaws of the
Company or the laws of the State of Texas provide otherwise.
Section 3.8 Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder, or by his duly authorized attorney-in-
fact. No proxy shall be valid after eleven (11) months from the date of its
execution unless otherwise provided in the proxy. A proxy shall be revocable
unless expressly provided therein to be irrevocable and unless otherwise made
irrevocable by law.
Section 3.9 Balloting. Upon the demand of any shareholder, the vote upon
any question before the meeting shall be by ballot. At each meeting inspectors
of election may be appointed by the presiding officer of the meeting, and at any
meeting for the election of directors, inspectors shall be so appointed on the
demand of any shareholder present or represented by proxy and entitled to vote
in such election of directors. No director or candidate for the office of
director shall be appointed as such inspector. The number of votes cast by
shares in the election of directors shall be recorded in the minutes.
Section 3.10 Prohibition of Cumulative Voting for Directors. No
shareholder shall have the right to cumulative voting in the election of
directors, but each share shall be entitled to one vote in the election of each
director. In the case of any contested election for any directorship, the
candidate for such position receiving a plurality of the votes cast in such
election shall be elected to such position.
Section 3.11 Record of Shareholders. The Company shall keep at its
principal business office, or the office of its transfer agents or registrars, a
record of its shareholders, giving the names and addresses of all shareholders
and the number and class of the shares held by each.
Section 3.12 Action Without Meeting. Any action required by statute to be
taken at a meeting of the shareholders of the Company, or any action which may
be taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof and
such consent shall have the same force and effect as a unanimous vote of the
shareholders. Any such signed consent, or a signed copy thereof, shall be placed
in the minute book of the Company.
5
<PAGE>
ARTICLE IV
The Board of Directors
----------------------
Section 4.1 Qualification and Number.
(a) The property, business and affairs of the Company shall be managed and
controlled by the board of directors and, subject to any restrictions imposed by
law, by the articles of incorporation or by these bylaws, the board of directors
may exercise all the powers of the Company. Directors need not be residents of
Texas or shareholders of the Company absent provision to the contrary in the
articles of incorporation or laws of the State of Texas.
(b) The number of directors of the Company (exclusive of directors to be
elected by the holders of any one or more classes or series of preferred stock
of the Company or any other class or series of stock of the Company, other than
the common stock, which may at some time be outstanding, voting separately as a
class or classes) shall be fixed at seven and may be increased, subject to
Section 7.2 of these bylaws, or decreased (provided that any decrease does not
shorten the term of any incumbent director) from time to time by amendment of
these bylaws. Such number shall, without the necessity of any amendment of this
Section 4.1(b), automatically be increased from time to time as may be necessary
to permit the inclusion on the board of directors of any director elected by a
separate vote of holders of any one or more classes or series of preferred stock
of the Company, or any other class or series of stock of the Company, other than
common stock, that are outstanding at the time of such increase.
Section 4.2 Term, Removal and Vacancies.
(a) The board of directors (exclusive of directors to be elected by the
holders of any one or more classes or series of preferred stock of the Company
or any other class or series of stock of the Company other than the common
stock, which may at some time be outstanding, voting separately as a class or
classes) shall be divided into three classes, as nearly equal in number as
possible as determined by the board of directors, with the term of office of one
class expiring each year. At the annual meeting of shareholders in 1990, one
director of the first class shall be elected to hold office for a term
expiring at the next succeeding annual meeting, two directors of the second
class shall be elected to hold office for a term expiring at the second
succeeding annual meeting and two directors of the third class shall be elected
to hold office for a term expiring at the third succeeding annual meeting. At
each annual meeting of shareholders, the respective successors to the class of
directors whose term shall then expire shall be elected to hold office for a
term expiring at the third succeeding annual meeting. Any increase in the
number of directors elected by holders of common stock shall be apportioned
among the classes of directors so as to make each class as nearly equal in
number as is practicable.
6
<PAGE>
(b) Notwithstanding any other provision of the articles of incorporation
or these bylaws (and notwithstanding the fact that some lesser percentage may be
specified by law, the articles of incorporation or these bylaws), any director
or the entire board of directors may be removed only for cause and only by the
affirmative vote of the holders of sixty-six and two-thirds percent (66 2/3%) of
all shares of stock of the Company entitled to vote at a meeting of
shareholders, voting together as a single class. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders of any one or more
classes or series of preferred stock of the Company or any other class or series
of stock of the Company other than the common stock, which may at some time be
outstanding, shall have the right, voting separately as a class or classes, to
elect one or more directors of the Company, the provisions of this Section
4.2(b) shall not apply with respect to the director or directors elected by such
holders of preferred stock or other stock.
(c) Any vacancies in the board of directors, for any reason, and any newly
created directorships resulting from any increase in the number of directors (to
the extent permitted by law) shall be filled by the board of directors, acting
by not less than a majority of the directors then in office, even if less than a
quorum (which majority may consist of a sole remaining director). Any directors
so chosen to fill any such vacancies or newly created directorships shall,
unless otherwise required by law, hold office until the next election of the
class for which such directors shall have been chosen and until their respective
successors shall be duly elected and qualified. Notwithstanding the foregoing,
and except as otherwise required by law, whenever the holders of any one or more
classes or series of preferred stock of the Company or any other class or series
of stock of the Company other than the common stock, which may at some time be
outstanding, shall have the right, voting separately as a class or classes, to
elect one or more directors of the Company, the provisions of this Section
4.2(c) shall not apply with respect to the director or directors elected by such
holders of preferred stock or other stock.
Section 4.3 Vacancies. Any vacancy occurring in the board of directors
may be filled by the vote of a majority of the remaining directors, even if such
remaining directors comprise less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any position on the board of directors to be filled
by reason of an increase in the number of directors shall be filled by either
(i) election at an annual meeting of the shareholders, or at a special meeting
of shareholders duly called for such purpose or (ii) election by the board of
directors for a term of office continuing only until the next election of one or
more directors by the shareholders; provided that the board of directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders.
Section 4.3A Nominations. No person (other than a person nominated or
recommended for nomination by the board of directors or any nominating committee
thereof or any person to be elected by the holders of any one or more classes or
series of preferred stock of the Company or any other class or series of stock
of the Company other than the common stock which may be outstanding at some
time, voting separately as a class or classes) shall be eligible for election as
a
7
<PAGE>
director at any annual or special meeting of shareholders unless a written
notice regarding such person's nomination, together with written consent of such
person to serve as a director, is received from a shareholder of record by the
secretary of the Company not later than the close of business on the tenth day
following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth (i) the name, age, business
address and residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares of stock of the Company which are beneficially owned by each such
nominee, and (iv) such other information in respect of such nominee as would be
required by the federal securities laws and the rules and regulations
promulgated thereunder in respect of an individual nominated as a director of
the Company and for whom proxies are solicited by the board of directors. The
chairman of any meeting of shareholders may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 4.4 Regular Meetings. Regular meetings of the board of directors
shall be held immediately following each annual meeting of shareholders, at the
place of such meeting, and at such other times and places as the board of
directors shall determine. No notice of any kind of such regular meetings needs
to be given to either old or new members of the board of directors.
Section 4.5 Special Meetings. Special meetings of the board of directors
shall be held at any time by call of the chairman of the board, the president,
or a majority of the directors. The secretary shall give notice of each special
meeting to each director at his usual business or residence address by mail at
least three days before the meeting or in person, by telegraph or telephone at
least one day before such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid.
Except as otherwise provided by law, by the articles of incorporation, or by
these bylaws, such notice need not specify the business to be transacted at, or
the purpose of, such meeting. No notice shall be necessary for any adjournment
of any meeting. The signing of a written waiver of notice of any special
meeting by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be equivalent to the receiving of such
notice. Attendance of a director at a meeting shall also constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express and announced purpose of objecting to the transaction of any business on
the ground that the meeting is not lawfully called or convened.
Section 4.6 Quorum. A majority of the number of directors fixed by these
bylaws shall constitute a quorum for the transaction of business and the act of
not less than a majority of the directors present at a meeting at which a quorum
is present shall be required in order to constitute the act of the board of
directors, unless the act of a greater number shall be required by law, by the
articles of incorporation or by these bylaws.
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Section 4.7 Procedure at Meetings. The board of directors, at each
regular meeting held immediately following the annual meeting of shareholders,
may appoint one of their number as chairman of the board of directors, to
preside at all meetings of the board of directors. In the event of failure to
designate a chairman of the board, or in his absence, the president of the
Company, if a director, shall perform the functions of the chairman of the board
and shall preside at meetings of the board. In the absence of the designated
chairman or the president of the Company, at any meeting, any officer authorized
by these bylaws to act in the absence of the president, who is a director, or
any member of the board selected by the members present shall preside. The
secretary of the Company shall act as secretary at all meetings of the board. In
his absence, the presiding officer of the meeting may designate any person to
act as secretary. At meetings of the board of directors, the business shall be
transacted in such order as the board may from time to time determine.
Section 4.8 Presumption of Assent. Any director of the Company who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered in the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 4.9 Action Without a Meeting. Any action required by statute to
be taken at a meeting of the directors of the Company, or which may be taken at
such meeting, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by each director entitled to vote at
such meeting, and such consent shall have the same force and effect as a
unanimous vote of the directors. Such signed consent, or a signed copy thereof,
shall be placed in the minute book of the Company.
Section 4.10 Compensation. Directors as such shall not receive any stated
salary for their service, but by resolution of the board of directors, may
receive a fixed sum and reimbursement for attendance at each regular or special
meeting of the board of directors or at any meeting of the executive committee
of directors, if any, to which such director may be elected in accordance with
the following Section 4.11; but nothing herein shall preclude any director from
serving the Company in any other capacity or receiving compensation therefor.
Section 4.11 Executive Committee. The board of directors, by resolution
adopted by a majority of the full board of directors, may designate an executive
committee, which committee shall consist of one or more of the directors of the
Company. Such executive committee may exercise such authority of the board of
directors in the business and affairs of the Company as the board of directors
may, by resolution duly adopted, delegate to it except as prohibited by law.
The designation of such committee and the delegation thereto of authority shall
not operate to relieve the board of directors, or any member thereof, of any
responsibility imposed upon it or him by law.
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Any member of the executive committee may be removed by the board of directors.
The executive committee shall keep regular minutes of its proceedings and report
the same to the board of directors when required. The minutes of the proceeds of
the executive committee shall be placed in the minute book of the Company.
Members of the executive committee shall receive such compensation as may be
approved by the board of directors and will be reimbursed for reasonable
expenses actually incurred by reason of membership on the executive committee.
Section 4.12 Other Committees. The board of directors, by resolution
adopted by a majority of the full board of directors, may appoint one or more
committees of two or more directors each. Such committees may exercise such
authority of the board of directors in the business and affairs of the Company
as the board of directors may, by resolution duly adopted, delegate, except as
prohibited by law. The designation of any committee and the delegation thereto
of authority shall not operate to relieve the board of directors, or any member
thereof, of any responsibility imposed on it or him by law. Any member of a
committee may be removed at any time by the board of directors. Members of any
such committees shall receive such compensation as may be approved by the board
of directors and will be reimbursed for reasonable expenses actually incurred by
reason of membership on a committee.
ARTICLE V
Officers
--------
Section 5.1 Number. The officers of the Company shall consist of a
chairman of the board, a president, one or more vice presidents, a secretary and
a treasurer; and, in addition, such other officers and assistant officers and
agents as may be deemed necessary or desirable. Officers shall be elected or
appointed by the board of directors. In its discretion, the board of directors
may leave unfilled any office except those of president, treasurer and
secretary.
Section 5.2 Election; Term; Qualification. Officers shall be chosen by
the board of directors annually at the meeting of the board of directors
following the annual shareholders' meeting. Each officer shall hold office until
his successor has been chosen and qualified, or until his death, resignation, or
removal.
Section 5.3 Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the Company will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create any contract rights.
Section 5.4 Vacancies. Any vacancy in any office for any cause may be
filled by the board of directors at any meeting.
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Section 5.5 Duties. The officers of the Company shall have such powers
and their offices, respectively, as well as such powers and duties as from time
to time shall be conferred by the board of directors and by these bylaws.
Section 5.6 The Chairman of the Board. The chairman of the board shall be
the chief executive officer and shall have general direction of the affairs of
the Company and general supervision over its several officers, subject however,
to the control of the board of directors. He shall at each annual meeting, and
from time to time, report to the shareholders and to the board of directors all
matters within his knowledge which, in his opinion, the interest of the Company
may require to be brought to the notice of such persons. He may sign, with the
secretary or an assistant secretary, any or all certificates of stock of the
Company. He shall preside at all meetings of the shareholders, and, in the
absence of a chairman, at meetings of the board of directors, shall sign and
execute in the name of the Company (i) all contracts or other instruments
authorized by the board of directors, and (ii) all contracts or instruments in
the usual and regular course of business, pursuant to Section 6.2 hereof, except
in cases when the signing and execution thereof shall be expressly delegated or
permitted by the board or by these bylaws to some other officer or agent of the
Company; and, in general, shall perform all duties incident to the office of
president, and such other duties as from time to time may be assigned to him by
the board of directors or as are prescribed by these bylaws.
Section 5.7 The President. The president shall be the chief operating
officer of the Company. The president shall, in the absence or disability of
the chairman of the board, perform the duties and exercise the powers of the
chairman of the board and shall perform such other duties and have such other
powers as the board of directors may form time to time prescribe. The president
may sign certificates of stock of the Company.
Section 5.8 The Vice Presidents. At the request of the president, or in
his absence or disability, the vice presidents, in the order of their election,
shall perform the duties of the president, and, when so acting shall have all
the powers of, and be subject to all restrictions upon, the president. Any
action taken by a vice president in the performance of the duties of the
president shall be conclusive evidence of the absence or inability to act of the
president at the time such action was taken. The vice presidents shall perform
such other duties as may, from time to time, be assigned to them by the board of
directors or the president. A vice president may sign, with the secretary or an
assistant secretary, certificates of stock of the Company.
Section 5.9 Secretary. The secretary shall keep the minutes of all
meetings of the shareholders, of the board of directors, and of the executive
committee, if any, of the board of directors, in one or more books provided for
such purpose and shall see that all notices are duly given in accordance with
the provisions of these bylaws or as required by law. He shall be custodian of
the corporate records and of the seal (if any) of the Company and see, if the
Company
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has a seal, that the seal of the Company is affixed to all documents the
execution of which on behalf of the Company under its seal is duly authorized;
shall have general charge of the stock certificate books, transfer books and
stock ledgers, and such other books and papers of the Company as the board of
directors may direct, all of which shall, at all reasonable times, be open to
the examination of any director, upon application at the office of the Company
during business hours; and in general shall perform all duties and exercise all
powers incident to the office of the secretary and such other duties and powers
as the board of directors or the president from time to time may assign to or
confer on him.
Section 5.10 Treasurer. The treasurer shall keep complete and accurate
records of account, showing at all times the financial condition of the Company.
He shall be the legal custodian of all money, notes, securities and other
valuables which may from time to time come into the possession of the Company.
He shall furnish at meetings of the board of directors, or whenever requested, a
statement of the financial condition of the Company, and shall perform such
other duties as these bylaws may require or the board of directors may
prescribe.
Section 5.11 Assistant Officers. Any assistant secretary or assistant
treasurer appointed by the board of directors shall have power to perform, and
shall perform, all duties incumbent upon the secretary or treasurer of the
Company, respectively, subject to the general direction of such respective
officers, and shall perform such other duties as these bylaws may require or the
board of directors may prescribe.
Section 5.12 Salaries. The salaries or other compensation of the officers
shall be fixed from time to time by the board of directors. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that he is also a director of the Company.
Section 5.13 Bonds of Officers. The board of directors may secure the
fidelity of any officer of the Company by bond or otherwise, on such terms and
with such surety or sureties, conditions, penalties or securities as shall be
deemed proper by the board of directors.
Section 5.14 Delegation. The board of directors may delegate temporarily
the powers and duties of any officer of the Company, in case of his absence or
for any other reason, to any other officer, and may authorize the delegation by
any officer of the Company of any of his powers and duties to any agent or
employee, subject to the general supervision of such officer.
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ARTICLE VI
Miscellaneous
-------------
Section 6.1 Dividends. Dividends on the outstanding shares of the
Company, subject to the provisions of the articles of incorporation, if any, may
be declared by the board of directors at any regular or special meeting,
pursuant to law. Dividends may be paid by the Company in cash, in property, or
in the Company's own shares, but only out of the unreserved and unrestricted
earned surplus of the Company, except as otherwise allowed by law.
Subject to limitations upon the authority of the board of directors imposed
by law or by the articles of incorporation, the declaration of and provision for
payment of dividends shall be at the discretion of the board of directors.
Section 6.2 Contracts. The chairman of the board and the president shall
have the power and authority to execute, on behalf of the Company, contracts or
instruments in the usual and regular course of business, and in addition the
board of directors may authorize any officer or officers, agent or agents, of
the Company to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Company, and such authority may be general or
confined to specific instances. Unless so authorized by the board of directors
or by these bylaws, no officer, agent or employee shall have any power or
authority to bind the Company by any contract or engagement, or to pledge its
credit or to render it pecuniarily liable for any purpose or in any amount.
Section 6.3 Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by such officers or employees of the Company
as shall from time to time be authorized pursuant to these bylaws or by
resolution of the board of directors.
Section 6.4 Depositories. All funds of the Company shall be deposited
from time to time to the credit of the Company in such banks or other
depositories as the board of directors may from time to time designate, and upon
such terms and conditions as shall be fixed by the board of directors. The board
of directors may from time to time authorize the opening and maintaining within
any such depository as it may designate, of general and special accounts, and
may make such special rules and regulations with respect thereto as it may deem
expedient.
Section 6.5 Endorsement of Stock Certificates. Subject to the specific
directions of the board of directors, any share or shares of stock issued by a
corporation and owned by the Company, including reacquired shares of the
Company's own stock, may, for sale or transfer, be endorsed in the name of the
Company by the president or any vice president; and such endorsement may be
attested or witnessed by the secretary or any assistant secretary either with or
without the affixing thereto of the corporate seal.
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Section 6.6 Corporate Seal. The corporate seal, if any, shall be in such
form as the board of directors shall approve, and such seal, or a facsimile
thereof, may be impressed on, affixed to, or in any manner reproduced upon,
instruments of any nature required to be executed by officers of the Company.
Section 6.7 Fiscal Year. The fiscal year of the Company shall begin and
end on such dates as the board of directors at any time shall determine.
Section 6.8 Books and Records. The Company shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and board of directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 6.9 Resignations. Any director or officer may resign at any time.
Such resignations shall be made in writing and shall take effect at the time
specified therein, or, if no time is specified, at the time of its receipt by
the chairman of the board, the president or secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
Section 6.10 Indemnification of Directors and Officers and Insurance.
(a) The Company shall, to the maximum extent permissible under applicable
provisions of the Texas Business Corporation Act, pay, reimburse or otherwise
indemnify any present or former director or officer of the Company in respect of
any costs or expenses incurred by that person in any action, suit or proceeding
to which the officer is made a party by reason of holding such position or any
other position held by such person at the request of the Company.
(b) The Company may purchase and maintain insurance on behalf of any
person who is or was a director, officer or employee of the Company, or who is
or was serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, other enterprise, or employee benefit plan, against any
liability asserted against and incurred by that person in such a capacity or
arising out of his status as such a person, whether or not the Company would
have the power to indemnify such person against such liability under this
Article.
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(c) Any indemnification of a director or an officer of the Company in
accordance with this Article shall be reported in writing to the shareholders
when and as required by applicable provisions of the Texas Business Corporation
Act.
Section 6.11 Meetings by Telephone. Subject to the provisions required or
permitted by these bylaws or the laws of the State of Texas for notice of
meetings, shareholders, members of the board of directors, or members of any
committee designated by the board of directors may participate in and hold any
meeting required or permitted under these bylaws by telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at such a meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE VII
Amendments
----------
Section 7.1 Amendments. These bylaws may be altered, amended, or
repealed, or new bylaws may be adopted, by a majority of the board of directors
at any duly held meeting of directors or by the holders of a majority of the
shares represented at any duly held meeting of shareholders provided that notice
of such proposed action shall have been contained in the notice of any such
meeting.
Section 7.2 Restrictions on Amendments. Notwithstanding any other
provisions of these bylaws and in addition to any requirements of the provisions
of any class or series of stock of the Company that may be outstanding, no
amendment to these bylaws shall amend, alter, change or repeal any of the
provisions of this Section 7.2 or Section 4.2 of these bylaws, nor shall any
amendment increase the number of directors provided in accordance with Section
4.1(b) of these bylaws, unless such amendment, alteration, change or repeal
shall receive either (a) the affirmative vote of the holders of not less than
eighty percent (80%) of all shares of stock of the Company entitled to vote at a
meeting of shareholders, voting together as a single class; or (b) the
affirmative vote of a majority of directors in office.
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EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Agreement is made as of the 7th day of October, 1996 between Kent
Electronics Corporation ("Kent"), a Texas corporation, Futronix Acquisition
Company, a Texas corporation (the "Company"), and Terrence M. Hunt (the
"Employee").
RECITALS
WHEREAS, the Employee has been an executive level employee of a company
that proposes to merge into the Company on the effective date hereof;
WHEREAS, the Company is a wholly-owned subsidiary of Kent;
WHEREAS, the Company desires to entrust Employee with access to certain
Confidential Information (as hereinafter defined) concerning the Company's
business and the relationships between the Company and its customers, but only
if the Employee agrees and covenants not to use or disclose such Confidential
Information in competition with the Company;
WHEREAS, Employee recognizes that the Company will not entrust such
Confidential Information to him unless he agrees to the terms of this Agreement;
WHEREAS, Employee and the Company recognize that the agreements and
covenants contained in this Agreement are essential to protect the business of
the Company; and
WHEREAS, the Company desires to retain the Employee to provide services to
the Company and the Employee desires to provide services to the Company upon the
terms and conditions hereinafter set forth.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
(a) The Company hereby employs the Employee as an executive level
employee, and the Employee hereby accepts such continued employment on the
terms and conditions set forth in this Agreement. During the term of the
Employee's employment under this Agreement (the "Employment Term"), the
Employee shall perform such services as shall be specified from time to
time by the Board of Directors of the Company (the "Board") and by any
senior executive officer of the Company in a senior position
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relative to the Employee, which services shall be rendered on behalf of the
Company, Kent and any other affiliated company, as designated from time to
time by the Board or any such senior executive officer.
(b) The Company has elected the Employee as of the date hereof to the
position of President. The Employee shall continue to hold such office or
offices and to have such responsibilities as are associated with such
office or assigned to him by the Board or a senior executive officer until
any change in such office or in such responsibilities as may be approved in
writing by a majority vote of the Board or a senior executive officer;
provided, however, that notwithstanding any such change, the Employee shall
at all times during the Employment Term remain an executive level employee
and shall have responsibilities commensurate with such status; and provided
further that the Employee shall not be required by the Company to relocate
to a metropolitan area different from that in which the Employee resides on
the date hereof.
2. Performance.
-----------
The Employee shall devote his entire business efforts to the
performance of his duties hereunder; provided, however, that the Employee
may engage in personal investment and charitable activities so long as they
do not interfere with the performance of his duties hereunder.
3. Term.
----
The Employment Term shall consist of an initial term beginning on the
date hereof and continuing until April 1, 2000.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be
$150,000 (such amount, as adjusted in accordance with this Section 4, is
referred to herein as the "Salary"), which the Company shall pay (or cause
to be paid) to the Employee in equal installments in accordance with the
normal payroll policies of the Company. The Salary may be adjusted upward
on an annual basis as the Board may approve, in its sole discretion, but
the Salary shall not be decreased.
(b) The Employee shall be eligible to receive a bonus (the "Bonus")
upon such terms and conditions as may be determined from time to time by
the Board; provided, however, that (i) for the period from the date hereof
through the end of 1996 the Employee shall receive no Bonus, and (ii) for
the fourth quarter of the Company's 1997 fiscal year and the Company's 1998
fiscal year, and only in the event that the Company's income
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from operations for its 1998 fiscal year exceeds $7,025,000, the Company
shall pay the Employee a bonus in an amount equal to the product of 1.25
times 2.34% of the Company's income from operations for the 1998 fiscal
year without taking into account any bonuses paid to the Employee or other
management-level employees of the Company pursuant to the Employment
Agreements (as defined in the Reorganization Agreement ("Reorganization
Agreement") dated September 25, 1996) ("Adjusted Pre-Tax Income").
Thereafter, the Company shall permit the Employee to participate in bonus
plans comparable to those then provided to other officers of Kent and its
subsidiaries in comparable executive positions. Except as provided herein
with respect to a termination, the Company shall pay the Bonus with respect
to a particular fiscal year in the next fiscal year promptly after the
receipt of the Kent's consolidated audited financial statements from its
independent accountants.
(c) During the Employment Term, the Company shall provide (or cause to
be provided) the Employee with fringe benefits comparable to those provided
to other officers of Kent and its subsidiaries in comparable executive
positions (the "Fringe Benefits").
5. Termination Without Compensation.
--------------------------------
(a) Termination After Employment Term. After the expiration of the
Employment Term, the Employee or the Company may terminate Employee's
employment by the Company on 30 days' written notice. As of the
termination date, the Company shall have no further liability or obligation
to the Employee hereunder except that the Company shall provide the
Employee with any unpaid Salary and Fringe Benefits that may have accrued
through the date of termination, and the Company shall either pay the
Employee as severance compensation one year's salary, payable in accordance
with the Company's customary payroll practices, or, at the sole option of
the Company, release the Employee from his covenants not to compete with
the Company described in the Reorganization Agreement and this Agreement.
The Employee agrees that he shall not be entitled to any such severance
compensation unless and until he delivers the release contemplated by
Section 6(b) hereof, which severance compensation shall be treated as
Termination Compensation for the purposes of this Agreement.
(b) Total Disability. If the Employee becomes totally disabled (as
defined below), the Company may terminate the Employment Term by notice to
the Employee, and as of the termination date, the Company shall have no
further liability or obligation to the Employee hereunder except as
follows: the Company shall provide the Employee with (i) any unpaid Salary
and Fringe Benefits that have accrued through the date of termination; (ii)
whatever benefits that he may be entitled to receive under any then
existing disability benefit plans of the Company, including any such plans
included in the Fringe Benefits, and (iii) in the fiscal year immediately
following the fiscal year of termination, the Bonus to which the Employee
would have been entitled if he had been employed for the full
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period to which the Bonus relates but reduced proportionately to correspond
to the portion of the period for which the Employee was actually employed
(a"Proportionate Bonus"). For the purposes hereof, the Employee shall be
deemed to be "totally disabled" if the Employee is unable to perform his
services hereunder despite reasonable accommodation as a result of illness,
injury or incapacity for a continuous period of six months. In the event of
any dispute under this Section 5(b), the Employee shall submit to a
physical examination by a licensed physician mutually satisfactory to the
Company and the Employee, the cost of such examination to be paid by the
Company, and the determination of such physician shall be determinative.
(c) Death. If the Employee dies, this Employment Agreement shall
terminate on the date of death, and thereafter the Company shall not have
any further liability or obligation to the Employee, his executors,
administrators, heirs, assigns or any other person claiming under or
through him except that the Company shall provide the Employee's estate
with any unpaid Salary and Fringe Benefits that have accrued through the
date of termination and a Proportionate Bonus.
(d) Cause. The Company may terminate the Employment Term for "cause"
by giving the employee 30 days' notice of the termination date, and as of
the termination date, the Company shall not have any further liability or
obligation to the Employee, except that the Company shall provide the
Employee with any unpaid Salary and Fringe Benefits that have accrued
through the date of termination, net of any liabilities that the Employee
may have to the Company. For purposes of this Agreement, "cause" shall
mean (i) conviction of a felony, (ii) conduct amounting to a material act
of fraud or dishonesty involving the Company, (iii) a material act of fraud
or dishonesty not involving the Company that has a material adverse effect
upon the business or reputation of the Company, (iv) the failure or refusal
of the Employee in any material respect to observe or perform (other than
by reason of illness, injury or incapacity) any of the material terms or
provisions of this Agreement if such non-performance continues uncured for
a period of 30 days after notice thereof, which notice specifies the nature
of such failure or refusal and requests that it be cured or (v) chronic
alcoholism, drug addiction or any other form of addiction that materially
impairs the Employee's ability to perform the terms and provisions of this
Agreement, as determined by a physician retained by the Company.
(e) Resignation. The Employee shall have the right to terminate the
Employment Term at any time by giving the Company at least 30 days' notice
of the termination date. Under such circumstances, the Company shall
continue to pay the Salary and provide the Fringe Benefits to the Employee
through the termination date. As of such termination date, the Company
shall not have any further liability or obligation to the Employee, except
that the Company shall provide the Employee with any unpaid Salary and
Fringe Benefits that have been accrued through the date of termination.
The Employee shall not be entitled to receive any Bonus or Proportionate
Bonus.
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6. Termination With Compensation.
-----------------------------
(a) Without Cause. The Company shall have the right to terminate the
Employment Term without cause at any time by giving the Employee 30 days'
notice of the termination date. Under such circumstances, the Company
shall pay to the Employee in a single payment within 45 days after the
termination date, an amount (the "Lump Sum Payment") equal to (i) the
Salary for the remainder of the Employment Term plus (ii) an amount equal
to (x) the quotient resulting from dividing the Bonus paid to the Employee
for the fiscal year period immediately preceding the fiscal year of
termination (in the case of a termination prior to April 1, 1998, the Bonus
shall be deemed to be $150,000, and the Bonus for the 1998 fiscal year
shall equal 80% of the Bonus earned for the fifteen-month period ending on
the last day of the Company's 1998 fiscal year) by 12, multiplied by (y)
the number of months from the end of the last fiscal year for which a Bonus
was paid or, in the case of a termination prior to April 1, 1998, from
December 31, 1996 through the end of the Employment Term; provided,
however, that if the Lump Sum Payment is not equal to at least one year's
Salary then the Company shall, at its sole option, either increase the Lump
Sum Payment to an amount equal to the Salary or release the Employee from
his covenants not to compete with the Company described in the
Reorganization Agreement and this Agreement. In addition, the Company
shall continue to provide to the Employee the health benefits in effect for
the Employee at the time of termination until the earlier of the expiration
of 18 months after the termination date and the date on which the Employee
obtains health benefits from another source. As of such termination date,
the Company shall not have any further liability or obligation to the
Employee other than to continue paying the amounts and provide the health
benefits specified in this Section 6(a). Notwithstanding the foregoing,
the Company shall not be obligated to pay the Lump Sum Payment unless the
Employee delivers the release specified under Section 6(b).
(b) Consideration for Termination Compensation. The Lump Sum Payment
is referred to herein as the "Termination Compensation." The Employee
shall not be entitled to any Termination Compensation unless the Employee
executes and delivers to the Company after notice of termination a release
in a form satisfactory to the Company in its sole discretion by which the
Employee releases the Company from any obligations and liabilities of any
type whatsoever, except for the Company's obligations with respect to the
Termination Compensation. The parties hereto acknowledges that the
Termination Compensation to be provided under this Section 6 is to be
provided in consideration for the above-specified release.
7. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others,
whether or not patentable or copyrightable, at any time during the
Employment Term or during his employment by the Company prior to the
commencement of the Employment Term and that relate to the actual
5
<PAGE>
or planned business activities of the Company (collectively, the
"Developments") and all of the Employee's right, title and interest
therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right,
title and interest in and to any and all such Developments. The Employee
shall disclose fully, as soon as practicable and in writing, all
Developments to the Board. At any time and from time to time, upon the
request of the Company, the Employee shall execute and deliver to the
Company any and all instruments, documents and papers, give evidence and do
any and all other acts that, in the opinion of counsel for the Company, are
or may be necessary or desirable to document such transfer or to enable the
Company to file and prosecute applications for and to acquire, maintain and
enforce any and all patents, trademark registrations or copyrights under
United States or foreign law with respect to any such Developments or to
obtain any extension, validation, reissue, continuance or renewal of any
such patent, trademark or copyright. The Company will be responsible for
the preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Employee for all
reasonable expenses incurred by him in compliance with the provisions of
this Section 7.
8. Confidential Information; Noncompetition; Non-Solicitation.
----------------------------------------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company and Kent
and their affiliated companies, including writings, equipment, processes,
drawings, reports, manuals, invention records, financial information,
business plans, customer lists, the identity of or other facts relating to
prospective customers, inventory lists, arrangements with suppliers and
customers, computer programs, or other material embodying trade secrets,
customer or product information or technical or business information of the
Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Confidential
Information". The Confidential Information is a valuable, special and
unique asset of the Company and Employee's access to and knowledge of the
Confidential Information is essential to the performance of his duties as
an Employee of the Company. In light of the competitive nature of the
business in which the Company is engaged, Employee agrees that during the
Employment Term and thereafter, the Employee shall not (i) disclose any
Confidential Information to any person or entity; (ii) use or exploit in
any manner the Confidential Information for himself or any person,
partnership, association, corporation or other entity other than the
Company; (iii) remove any Confidential Information, or any reproduction
thereof, from the possession or control of the Company or (iv) treat
Confidential Information otherwise than in a confidential manner.
(b) All Confidential Information developed, created or maintained by
the Employee, alone or with others while employed by the Company, and all
Confidential Information maintained by the Employee thereafter, shall
remain at all times the exclusive property of the Company. The Employee
shall return to the Company all Confidential
6
<PAGE>
Information, and reproductions thereof, whether prepared by him or others,
that are in his possession immediately upon request and in any event upon
the completion of his employment by the Company.
(c) In furtherance of the agreements contained in Section 8(a) hereof,
from the date hereof and for a period of three years after Employee's
employment with the Company is terminated, Employee, on behalf of himself
and his present and future affiliates and employers, agrees not to and
shall not directly or indirectly, for his own account or the account of
others, whether as owner, partner, joint venturer, lender, shareholder,
director, officer, employee, consultant or otherwise: (i) in any state
where the Company does business, engage, invest or otherwise take part in,
or render any service (whether for or without compensation) to any person
or company (other than the Company) who or which is directly or indirectly
engaged in any business that is competitive with any business conducted by
the Company in which Employee has been, is or shall be actively involved,
including but not limited to the purchase and sale, distribution,
marketing, brokering of or dealing in electrical and electronic wire and
cable; (ii) compete for or solicit any of the business conducted by the
Company from any customer of the Company other than for the benefit of the
Company; (iii) induce any customer of the Company, or request or advise any
such customer to withdraw, curtail, or cancel any such customer's business
with the Company; or (iv) solicit directly or indirectly for employment
outside of the Company any person currently employed by the Company or who
has been employed by the Company. However, the Employee may have a
financial interest in a competitor of the Surviving Corporation if that
interest is in the form of ownership of less than one percent (1%) of the
outstanding stock of a company whose securities are listed on a national
stock exchange or quoted on the NASDAQ National Market System.
(d) Employee recognizes, agrees and represents that the Company would
not permit Employee to access the Company's Confidential Information unless
Employee agrees to the restrictions contained herein, and that the Company
is relying on the agreements of Employee contained in this Agreement in
permitting Employee access to the Confidential Information. Employee
represents that being permitted to access the Confidential Information and
the compensation described in this Agreement constitutes significant and
valuable consideration for his agreements hereunder. Employee has read and
considered the provisions of this Section 8 and, having done so, agrees,
states, and covenants that the geographical area, and scope of activities
to be restrained, are reasonably required for the protection of the
goodwill and other business interests of the Company. In the event a court
of competent jurisdiction determines as a matter of law that any of the
terms of Section 8 are unreasonable or overbroad, the parties expressly
allow such court to reform this Agreement to the extent necessary to make
it reasonable as a matter of law and to enforce it as so reformed.
9. Remedies.
--------
7
<PAGE>
The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7 and 8 will be inadequate and that upon any such breach
or threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's
obligations under these provisions without the necessity of providing the
actual damage to the Company or the inadequacy of a legal remedy. The
rights conferred upon the Company by the preceding sentence shall not be
exclusive of, but shall be in addition to, any other rights or remedies
which the Company may have at law, in equity or otherwise.
10. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by
the laws of the State of Texas.
(b) Company. For purposes of Sections 7, 8 and 9, the term "Company"
shall be deemed to include any incorporated or unincorporated entities that
are controlled, directly or indirectly, by the Company through ownership,
agreement or otherwise.
(c) Guaranty. Kent hereby guarantees the payment and performance of
the obligations of the Company hereunder.
(d) Effective Time; Binding Effect. This Agreement shall become
effective and binding on the parties hereto only upon the effectiveness of
the merger of Wire & Cable Specialties Corporation, a Georgia corporation,
and Futronix Corporation, a Texas corporation, with and into the Company
pursuant to the Reorganization Agreement. All of the terms and provisions
of this Agreement shall be binding upon and inure to the benefit and be
enforceable by the respective heirs, representatives, successors (including
any successor as a result of a merger or similar reorganization) and
assigns of the parties hereto, except that the duties and responsibilities
of the Employee hereunder are of a personal nature and shall not be
assignable in whole or in part by the Employee.
(e) Notices. All notices required to be given under this Agreement
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage pre-paid,
return receipt requested, or when sent by Federal Express or other
overnight delivery service addressed (i) in the case of the Company, to the
Company at its principal executive offices, to the attention of the
President, and (ii) in the case of the Employee, to the Employee at the
Employee's residential address on the records of the Company at that time.
(f) Entire Agreement; Modification. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and may not be
8
<PAGE>
modified or amended in any way except in writing by the parties hereto.
(g) Duration. Notwithstanding the termination of the Employment Term
and of the Employee's employment by the Company, this Agreement shall
continue to bind the parties for so long as any obligations remain under
the terms of this Agreement.
(h) Waiver. No waiver of any breach of this Agreement shall be
construed to be a waiver as to succeeding breaches.
(i) Severability. If any provision of this Agreement or application
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect any other provisions or applications of this Agreement
which can be given effect without the invalid or unenforceable provision or
application and shall not invalidate or render unenforceable such provision
in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
KENT ELECTRONICS CORPORATION
By: /s/ MORRIE K. ABRAMSON
______________________________________
FUTRONIX ACQUISITION COMPANY
By: /s/ STEPHEN J. CHAPHO
______________________________________
/s/ TERRENCE M. HUNT
_________________________________________
Terrence M. Hunt
9
<PAGE>
EXHIBIT 11
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Years Ended
---------------------------------------------------------------------------------------------------
March 28, 1998 March 29, 1997 March 30, 1996
----------------------------- ------------------------------ ----------------------------
Per-Share Per-Share Per-Share
Income Shares Amount Income Shares Amount Income Shares Amount
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Earnings $35,426 26,598 $ 1.33 $27,621 25,580 $ 1.08 $29,792 23,192 $ 1.28
====== ======== ========
EFFECT OF DILUTIVE SECURITIES
Excess of shares issuable
upon exercise of stock options
over shares deemed retired
utilizing the treasury
stock method - 1,499 - 1,508 - 1,253
Convertible preferred stock
of pooled company - - - 293 - 11
Warrants of pooled company - - - 199 - 266
------- ------ ------- ------ ------- ------
DILUTED EARNINGS PER SHARE
Net earnings plus assumed $35,426 28,097 $ 1.26 $27,621 27,580 $ 1.00 $29,792 24,722 $ 1.21
conversions ======== ====== ====== ======= ====== ======== ======= ====== ========
</TABLE>
<PAGE>
EXHIBIT 12
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO)
<TABLE>
<CAPTION>
Fiscal years ended
--------------------------------------------------------------
April 2, April 1, March 30, March 29, March 28,
1994 1995 1996 1997/(1)/ 1998
------- -------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes $15,902 $23,511 $49,095 $ 45,100 $58,167
Add fixed charges 783 1,085 1,857 2,363 6,647
------- ------- ------- ----------- -------
Earnings as adjusted 16,685 24,596 50,952 47,463 64,814
======= ======= ======= =========== =======
Fixed charges:
Interest expense 156 340 898 1,192 5,272
Interest portion of rental
expense/(2)/ 627 745 959 1,171 1,375
------- ------- ------- ----------- -------
Total fixed charges $ 783 $ 1,085 $ 1,857 $ 2,363 $ 6,647
======= ======= ======= =========== =======
Ratio of earnings to fixed 21.3x 22.7x 27.4x 20.1x 9.8x
charges ======= ======= ======= =========== =======
</TABLE>
/(1)/ Includes non-recurring merger and integration charges of $5.5 million,
pre-tax, in fiscal year 1997. Exclusive of such charges, the ratio of
earnings to fixed charges for fiscal year 1997 was 22.4.
/(2)/ The interest factor of rental expense is estimated at one-third of total
rental expense, which the Company believes to be a reasonable
approximation.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF KENT ELECTRONICS CORPORATION
STATE OF
SUBSIDIARY INCORPORATION
---------- -------------
K*TEC Electronics Corporation Delaware
Kent Datacomm Corporation Texas
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated May 5, 1998, accompanying the consolidated
financial statements and schedule included in the Annual Report of Kent
Electronics Corporation and Subsidiaries on Form 10-K for the year ended March
28, 1998. We do hereby consent to the incorporation by reference of said reports
in the Registration Statements of Kent Electronics Corporation on Form S-3, File
No. 333-20265 and Form S-8, File Nos. 33-12028, 33-17821, 33-18527, 33-66030,
and 333-20367.
GRANT THORNTON LLP
Houston, Texas
June 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-END> MAR-28-1998
<CASH> 179,907
<SECURITIES> 29,946
<RECEIVABLES> 107,338
<ALLOWANCES> 1,206
<INVENTORY> 115,092
<CURRENT-ASSETS> 436,831
<PP&E> 163,263
<DEPRECIATION> 36,577
<TOTAL-ASSETS> 591,710
<CURRENT-LIABILITIES> 70,349
<BONDS> 207,000
0
0
<COMMON> 54,480
<OTHER-SE> 258,089
<TOTAL-LIABILITY-AND-EQUITY> 591,710
<SALES> 659,400
<TOTAL-REVENUES> 659,400
<CGS> 512,147
<TOTAL-COSTS> 512,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (50)
<INTEREST-EXPENSE> 5,272
<INCOME-PRETAX> 58,167
<INCOME-TAX> 22,741
<INCOME-CONTINUING> 35,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,426
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.26
</TABLE>
