<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 April 3, 1999
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 18, 1999 was approximately $421,521,728.
As of June 18, 1999, there were outstanding 27,982,558 shares of Common
Stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 1999 Annual Meeting of Shareholders of the
Registrant (Sections entitled "Kent Common Stock Beneficially Owned by
Directors, Officers and Five Percent Shareholders" and "Proposal 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, a network integrator and a vertically
integrated contract manufacturer of electronic products. The Company has
strategically aligned its operations into four 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. The
division also provides value-added services such as cable assembly, fan
assembly, taping and reeling, and component modification as well as a
variety of materials management services.
. Kent Datacomm offers a full range of end-to-end network solutions. The
division's areas of expertise includes video to desktop, network security,
wireless, network management and voice over data applications. 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.
. 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 full-service vertically integrated contract manufacturer whose
capabilities include electronic interconnect assemblies, printed circuit
board assemblies, sheet metal fabrication, powder painting, plastic
injection molding, specially fabricated battery power
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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 April 3, 1999, the Company invested approximately $117 million in capital
expenditures. These expenditures were primarily for information systems,
equipment and construction of the Company's state-of-the-art 220,000 square foot
distribution facility that is scheduled for completion in summer 1999 and the
adjacent 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.
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 Company expects networking customers, including
corporations, educational institutions and governmental agencies, to rely
increasingly on value-added resources to design, deliver, install, fine-tune and
maintain complex systems. The growth in electronic commerce and the Internet
will continue to present opportunities to provide network integration services.
The potential benefits from outsourcing materials management, manufacturing
operations and network integration services 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.
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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 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.
ACCESS TO LEADING NETWORK INTEGRATION SERVICES. Corporations and
educational and governmental institutions are faced with the challenge of
developing and maintaining complex network systems to harness the potential
of electronic commerce and the Internet. Networking customers are
motivated to work with a network integrator in order to gain access to a
selection of products and expertise in design, installation, monitoring and
technical support.
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.
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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.
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, and in
April 1999 acquired SabreData, Inc., a network integration company.
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. Customers of Kent Components may review the
status of their orders in an on-line, real-time environment through an
Internet connection. 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.
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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. Customers of Kent Components may review the status of their
orders in an on-line, real-time environment through an Internet connection. 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.
KENT DATACOMM. Kent Datacomm offers a full range of end-to-end network
solutions. The division's areas of expertise includes video to the desktop,
network security, wireless, network management and voice over data applications.
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, education, financial, food, government, manufacturing and medical
industries.
FUTRONIX SYSTEMS. Futronix Systems is a redistributor of specialty wire
and cable, serving more than 3,000 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
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telecommunication systems. Futronix Systems generally does not sell commodity
wire and cable, such as that used in commercial and residential construction.
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, networking, semiconductor capital
equipment 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.
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 complements 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.
SALES AND MARKETING
Each of the Company's business units maintains its own direct sales force.
At April 3, 1999, the Company employed approximately 325 sales representatives
operating out of sales offices in 31 cities in 23 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.
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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 and 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 1998 calendar year sales. Industry publications
estimate that thirteen distributors each had 1998 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 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. The Company's estimated backlog, exclusive of
"just-in-time" and other materials management programs and forecasts, was
approximately $73 million as of April 3, 1999 and $60 million as of March 28,
1998.
EMPLOYEES
At April 3, 1999, 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.
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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 summer 1999 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.
The following table summarizes the principal properties leased by the
Company:
APPROXIMATE LEASE
LOCATION SQUARE FOOTAGE EXPIRES
- -------- -------------- -------
Charlotte, North Carolina 32,000 1999
Exton, Pennsylvania 25,000 2001
Farmers Branch, Texas 30,000 1999
Houston, Texas 151,000 2003
Lombard, Illinois 24,000 2002
Milpitas, California 40,000 2000
Norcross, Georgia 26,000 2002
Richardson, Texas 34,000 1999
Santa Fe Springs, California 22,000 2001
Schaumburg, Illinois 20,000 2002
St. Paul, Minnesota 22,000 2000
Tampa, Florida 30,000 1999
As of April 3, 1999, the Company's other facilities, located in Austin,
Texas; Baton Rouge, Louisiana; Beaverton, Oregon; Cedar Rapids, Iowa; Columbia,
Maryland; Columbus, Ohio; Denver, Colorado; Englewood, Colorado; Fountain
Valley, California; Houston, Texas; Huntsville, Alabama; Indianapolis, Indiana;
Kent, Washington; Livermore, California; Lowell, Massachusetts; Mt. Laurel, New
Jersey; New York, New York; Oneida, New York; Orlando, Florida; Overland Park,
Kansas; Pine Brook, New Jersey; Redmond, Washington; Richardson, Texas; Salem,
New Hampshire; San Diego, California; San Jose, California; Tempe, Arizona;
Wallingford, Connecticut; and Warrensville Heights, Ohio occupied an aggregate
of approximately 226,000 square feet subject to leases expiring at various times
through the year 2003. 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.
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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 on the New York Stock Exchange under
the symbol "KNT." The following table presents the high and low closing prices
for the Company's Common Stock for each fiscal quarter of the Company's fiscal
years ended 1998 and 1999 and for a portion of the Company's current quarter, as
reported by the New York Stock Exchange.
FISCAL YEAR 1998 HIGH LOW
- ---------------- ------ -----
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 $23.81 $17.88
Second Quarter 18.69 8.00
Third Quarter 17.88 7.81
Fourth Quarter 13.75 8.31
FISCAL YEAR 2000
- ----------------
First Quarter (through June 18) $16.13 $ 9.13
On May 13, 1999, there were 1,341 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 April 3, 1999. 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
------------------------------------------------------------------------------
April 3, March 28, March 29, March 30, April 1,
1999 1998 1997(1) 1996 1995
------------ ------------ ------------ ------------ ------------
(In thousands, except per share data and ratio)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales $637,064 $659,400 $516,757 $425,810 $279,676
Cost of sales 536,519 512,147 396,054 313,643 206,935
-------- -------- -------- -------- --------
Gross profit 100,545 147,253 120,703 112,167 72,741
Selling, general and
administrative expenses 100,992 90,854 73,607 66,106 50,028
Merger and integration costs -- -- 5,500 -- --
-------- -------- -------- -------- --------
Operating profit (loss) (447) 56,399 41,596 46,061 22,713
Other income (expense):
Interest expense (10,495) (5,272) (1,192) (898) (340)
Other - net (principally interest
and dividend income) 11,236 7,040 4,696 3,932 1,138
-------- -------- -------- -------- --------
Earnings before income taxes 294 58,167 45,100 49,095 23,511
Income taxes 112 22,741 17,479 19,303 8,910
-------- -------- -------- -------- --------
Net earnings $ 182 $ 35,426 $ 27,621 $ 29,792 $ 14,601
======== ======== ======== ======== ========
Earnings per common share:
Basic $0.01 $1.33 $1.08 $1.28 $0.71
======== ======== ======== ======== ========
Diluted $0.01 $1.26 $1.00 $1.21 $0.68
======== ======== ======== ======== ========
Weighted average shares:
Basic 27,674 26,598 25,580 23,192 20,628
======== ======== ======== ======== ========
Diluted 28,099 28,097 27,580 24,722 21,488
======== ======== ======== ======== ========
Ratio of earnings to fixed charges(2) 1.0x 9.8x 20.1x 27.4x 22.7x
April 3, March 28, March 29, March 30, April 1,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
Balance Sheet Data:
Working capital $385,778 $366,482 $150,884 $172,758 $ 71,817
Total assets 604,641 591,710 325,594 305,174 148,276
Long-term debt, less current maturities 207,000 207,000 -- 1,258 1,269
Mandatorily redeemable preferred stock -- -- -- 2,200 2,200
Stockholders' equity 321,169 312,569 262,367 230,968 112,224
</TABLE>
- -----------------------
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(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.
(2) 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.
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
-------------------------------------------------------
April 3, March 28, March 29,
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Distribution(a) 71.5% 63.4% 65.6%
Manufacturing 28.5 36.6 34.4
----- ----- -----
Net sales 100.0 100.0 100.0
Cost of sales 84.2 77.7 76.6
----- ----- -----
Gross profit 15.8 22.3 23.4
Selling, general and administrative expenses 15.9 13.8 14.2
Merger and integration costs 0.0 0.0 1.1
----- ----- -----
Operating profit (loss) (0.1) 8.5 8.0
Other income (expense)
Interest expense (1.6) (0.8) (0.2)
Other - net (principally interest and
dividend income) 1.8 1.1 0.9
----- ----- -----
Earnings before income taxes 0.0 8.8 8.7
Income taxes 0.0 3.4 3.4
----- ----- -----
Net earnings 0.0% 5.4% 5.3%
===== ===== =====
</TABLE>
(a) The principal products the Company distributes consist of connectors,
receptacles and sockets, which collectively accounted for approximately
12%, 16% and 17% of the Company's total sales in its fiscal years ended in
1999, 1998 and 1997, respectively, other electronic connecting components,
such as cable and wiring products, which accounted for approximately 16%,
17% and 18% of the Company's total sales in such years and networking
equipment which accounted for approximately 14%, 8% and 7% 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 1999 WITH FISCAL 1998
Net sales for the fiscal year ended April 3, 1999 decreased $22.3 million,
or 3.4%, to $637.1 million. Sales from the Company's distribution businesses,
which represented 71.5% of net sales, increased 8.9% while contract
manufacturing sales decreased $59.7 million or 24.8%. The distribution sales
increase reflected internal growth primarily from increased demand for
networking products and services, wire and cable from existing customers and an
expanded customer base. The distribution sales increase was slightly offset by
lower sales of interconnect, passive and electromechanical products compared to
the prior year. The contract manufacturing sales decrease primarily resulted
from a decline in sales to manufacturers of PCs and computers, as well as
semiconductor capital equipment, partially offset by increased sales to
customers in the network systems industry.
Gross profit decreased $46.7 million, or 31.7%, compared to the prior year.
Gross profit as a percentage of sales decreased to 15.8% in fiscal 1999 from
22.3% in fiscal 1998. The decrease in gross profit was primarily due to
decreased sales combined with a decrease in the gross profit percentage. The
decrease in the gross profit percentage was due to plant and equipment under-
utilization in the Company's contract manufacturing facilities, the ramp up of
new contract manufacturing customers, product mix changes and continued pricing
pressures.
Selling, general and administrative ("SG&A") expenses increased $10.1
million, or 11.2%, when compared to the prior fiscal year. As a percentage of
sales, SG&A expenses increased to 15.9% from 13.8% in the preceding year. The
increase as a percentage of sales was primarily due to costs associated with the
ramp up of new customers in the contract manufacturing division, expansion of
network services and expenses necessary to support the Company's existing
operations. The Company continues to focus on cost containment and expense
reduction initiatives, aligning the cost structure with current revenues that
enable the Company to reduce the impact of current business on profit margins.
Interest expense increased $5.2 million due to a full year of interest in
fiscal 1999 on the 4.5% Convertible Subordinated Notes due 2004 (the "Notes")
issued in September and October 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 a full year of investment of the net proceeds from
the Notes, partially offset by a decline in short-term interest rates.
Net earnings for fiscal 1999 were $0.2 million compared to $35.4 million
for fiscal 1998. The reduction of net earnings was primarily due to the lower
profit associated with the decrease in sales volume combined with the decrease
in the gross profit percentage and higher SG&A expenses.
14
<PAGE>
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.
Exclusive of non-recurring merger and integration charges associated with
the acquisition of Futronix and Wire & Cable in fiscal 1997, SG&A expenses
increased $17.2 million, or 23.4%, when compared to the prior fiscal year.
However, as a percentage of sales, SG&A 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.
Interest expense increased $4.1 million due to interest on 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 earnings increased $4.4 million, or 14.3%. The improved
profitability was primarily due to the incremental profit associated with the
increase in sales volume, partially offset by the decrease in the gross profit
percentage, combined with the Company's continued focus on cost containment.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 3, 1999, working capital was $385.8 million, an increase of $19.3
million, or 5.3%, since March 28, 1998. The increase was primarily due to growth
in inventories in relation to current and future sales levels and an increase in
other current assets that resulted from an income tax receivable.
Included in the Company's working capital at April 3, 1999 are investments
of $206.9 million, an increase of $2.6 million since March 28, 1998. 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 April 3, 1999, funds were invested primarily in
institutional money market funds and a reverse repurchase agreement. These
investments are compatible with the Company's stated investment strategy.
On April 5, 1999, the Company acquired all the outstanding common stock of
SabreData, Inc. for a cash purchase price of $31.0 million plus the assumption
of approximately $2.2 million of interest bearing obligations which were
subsequently retired.
On June 3, 1999, the Company acquired certain assets and assumed
liabilities of Advacom, Inc., for a cash purchase price of $33.0 million plus
the assumption of approximately $21.8 million of interest bearing obligations
which were retired on the day of closing.
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, along with funds
generated from operations, should be sufficient to meet its current capital
requirements.
YEAR 2000 STATEMENT
The Year 2000 Issue results from computer hardware and software systems
that were not designed to distinguish between centuries and may not accommodate
some or all dates beyond the year 1999. Therefore, computer hardware and
software systems will need to be modified prior to the year 2000 in order to
remain functional.
The Company has substantially completed a comprehensive inventory of its
critical systems, equipment and facilities. The Company's business Information
Technology (IT) systems include business applications, computing hardware and
software and related networking equipment and software. Non-IT systems are
primarily embedded technology such as microcontrollers, used in its
16
<PAGE>
facilities and the manufacture or distribution of the Company's products. As
part of its inventory process, the Company categorized each of its IT and non-IT
systems as critical, medium, or low priority, based upon the potential impact to
the Company of the failure of such a system to be ready for the year 2000. As a
result of the Company's strategic migration to new application systems that
began in 1995, substantially all of the Company's IT systems use hardware and
software platforms that the vendors have represented to be Year 2000 compliant.
In addition, vendors have represented that the majority of the Company's non-IT
systems are Year 2000 compliant. Nonetheless, for hardware or software which the
Company had categorized as being critical, the Company conducted testing to
verify the vendors' representations. Testing of the Company's IT and non-IT
systems that the Company categorized as critical is substantially completed, and
approximately three-fourths of the systems categorized as medium in priority
have also been tested. Many low priority systems will not be tested, as they are
either slated for replacement, or their failure would not have a material impact
on the Company. As a consequence, all testing of the Company's IT and non-IT
systems is expected to be substantially completed by June 1999. In general, the
Company expects to resolve any remaining Year 2000 Issues through planned
upgrades or the replacement of its IT and non-IT systems, equipment and
facilities that the Company categorized as critical or medium in priority. While
the total costs of the Company's Year 2000 project is still being evaluated, the
Company estimates that the costs to be incurred in 1999 and 2000 associated with
assessing, remediating and testing its IT and non-IT systems will not exceed
$0.5 million. This estimate assumes that the Company will not incur significant
Year 2000 related costs on behalf of its suppliers, customers or third parties.
It is possible that the Company may need to reassess its estimate of Year 2000
costs in the event the Company completes an acquisition of, or makes a material
investment in, substantial facilities or another business entity.
One component of the Company's Year 2000 program is to monitor the Year
2000 readiness efforts of suppliers, service providers and other entities with
which the Company has a business relationship. These assessments of third
parties are nearing completion. Although the Company does not expect the costs
of its Year 2000 project to have a material adverse effect on its financial
position, results of operations or cash flows, because the Company is relying,
in large measure, on statements made by such third parties in order to prepare
its assessment of third parties and its estimates of costs, the lack of
responsiveness or accuracy in such third-party statements could materially
affect the assessments and the costs of the Company's Year 2000 project. As a
result, the Company cannot predict the potential consequences if third parties
or their products are not Year 2000 compliant.
While the Company believes its efforts to address the Year 2000 Issues will
be successful in avoiding any material adverse effect on the Company's
operations or financial condition, the most reasonably likely worst case Year
2000 scenario would be the failure of a group of third-party suppliers to
conduct their respective operations after 1999 such that the Company's ability
to maintain, manufacture and distribute its products and services would be
limited for some indeterminate period of time. In addition to the suppliers of
products that the Company distributes, the Company relies on third-party
suppliers of transportation services, including express delivery
17
<PAGE>
services, both in obtaining products for assembly and manufacturing, and in
distributing its products after receiving an order from a customer. If there
were a widespread failure in the ability of such transportation enterprises to
be able to provide services, it would likely cause temporary financial losses
and an inability of the Company to provide products and services to its
customers. Furthermore, some of the products distributed by the Company are
available only from a single source (due to product branding) or from a limited
group of suppliers (due to technical specifications). Consequently, the failure
of such suppliers to be fully prepared for the Year 2000 advent could disrupt
the Company's ability to meet customer expectations.
Throughout 1999 and the early part of the year 2000, the Company will
continue to assess its Year 2000 issues related to its physical plant and
equipment, products, suppliers, and customers. As a part of that assessment,
the Company is engaged in a contingency planning process integral to its Year
2000 program. The contingency planning phase consists of developing a risk
profile of the Company's critical business processes, and then establishing a
plan of action that the Company may pursue to keep such processes operational in
the event that third parties suffer Year 2000 disruptions. The Company will
continue to monitor the efforts of third parties and public infrastructure to
prepare for the Year 2000, and may modify and adjust its contingency plan
throughout the year as additional information becomes available. In certain
cases, especially the failure of national infrastructure, there may be no
practical alternative course of action available to the Company.
The above disclosure is a "Year 2000 Readiness Disclosure" made with
the intention to comply fully with the Year 2000 Information and Readiness
Disclosure Act of 1998, Pub. L. No. 105-271, 112 Stat. 2386, signed into law
October 19, 1998. All statements made herein shall be construed within the
confines of that Act. To the extent that any reader of the above Year 2000
Readiness Disclosure is other than an investor or potential investor in the
Company's -- or any affiliate's -- equity or debt securities, this disclosure is
made for the sole purpose of communicating or disclosing information aimed at
correcting, helping to correct and/or avoid Year 2000 failures.
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
18
<PAGE>
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.
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 anticipates that this downward pressure will be offset
during fiscal 2000 by improving facility utilization rates, and as a result, the
Company expects that its contract manufacturing gross profit margin will
significantly improve during fiscal 2000, although there can be no assurance
that this will be the case.
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 historically enjoyed high rates of
growth in sales, the electronics industry was in a downturn during fiscal 1999,
and there can be no assurance that the Company's growth rates will return to
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 economic downturn in Asia, which had an adverse
effect on the Company in fiscal 1999. 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, the
Company has increased substantially its contract manufacturing capacity in
recent years. 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
capacity and achieving significant sales growth in the Company's contract
manufacturing business.
19
<PAGE>
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 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, network integrator 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.
20
<PAGE>
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.
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 April 3,
1999, the Company's purchases from AMP Incorporated and Belden Inc. represented
approximately 13% and 11%, 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, the Company could be exposed to market
risk from changes in interest rates. The Company continually monitors exposure
to market risk and, when appropriate, develops strategies to manage this risk.
Management does not use derivative financial instruments for trading or to
speculate on changes in interest rates. Currently, the Company's interest rate
risk, if any, relates to its 4 1/2% Convertible Subordinated Notes Due 2004.
21
<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 April 3, 1999 and March 28, 1998, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended April 3, 1999. 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 April 3, 1999 and March 28, 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 3, 1999, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
May 11, 1999
22
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 3, 1999 and March 28, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
-------- --------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $206,919 in 1999 and $174,325 in 1998) $207,942 $179,907
Trading securities, net -- 29,946
Accounts receivable, net 103,364 106,132
Inventories
Materials and purchased products 118,535 112,964
Work in process 6,349 2,128
-------- --------
124,884 115,092
Other 17,549 5,754
-------- --------
Total current assets 453,739 436,831
PROPERTY AND EQUIPMENT
Land 8,168 8,761
Buildings 43,817 42,766
Equipment, furniture and fixtures 124,194 109,079
Leasehold improvements 2,681 2,657
-------- --------
178,860 163,263
Less accumulated depreciation and amortization (50,496) (36,577)
-------- --------
128,364 126,686
DEFERRED INCOME TAXES -- 93
OTHER ASSETS 7,095 12,193
COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated
amortization of $3,320 in 1999 and $2,856 in 1998 15,443 15,907
-------- --------
$604,641 $591,710
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES
Accounts payable $ 47,149 $ 49,178
Accrued compensation 13,862 11,193
Other accrued liabilities 6,950 7,032
Income taxes -- 2,946
-------- --------
Total current liabilities 67,961 70,349
LONG-TERM DEBT, less current maturities 207,000 207,000
DEFERRED INCOME TAXES 8,511 --
LONG-TERM LIABILITIES -- 1,792
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;
28,013,375 shares issued and 27,963,375 shares outstanding
in 1999 and 27,230,640 shares issued and 27,180,640 shares
outstanding in 1998 63,553 55,457
Additional paid-in capital 117,511 117,189
Retained earnings 141,082 140,900
-------- --------
322,146 313,546
Less common stock in treasury - at cost, 50,000 shares (977) (977)
-------- --------
321,169 312,569
-------- --------
$604,641 $591,710
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $637,064 $659,400 $516,757
Cost of sales 536,519 512,147 396,054
-------- -------- --------
Gross profit 100,545 147,253 120,703
Selling, general and administrative expenses 100,992 90,854 73,607
Merger and integration costs -- -- 5,500
-------- -------- --------
Operating profit (loss) (447) 56,399 41,596
Other income (expense)
Interest expense (10,495) (5,272) (1,192)
Other - net (principally interest
and dividend income) 11,236 7,040 4,696
-------- -------- --------
Earnings before income taxes 294 58,167 45,100
Income taxes 112 22,741 17,479
-------- -------- --------
NET EARNINGS $ 182 $ 35,426 $ 27,621
======== ======== ========
Earnings per common share:
Basic $0.01 $1.33 $1.08
======== ======== ========
Diluted $0.01 $1.26 $1.00
======== ======== ========
Weighted average shares:
Basic 27,674 26,598 25,580
======== ======== ========
Diluted 28,099 28,097 27,580
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 182 $ 35,426 $ 27,621
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities
Depreciation and amortization 15,075 11,607 7,529
Provision for losses on accounts receivable (216) (50) 409
(Gain) loss on sale of property and equipment (445) 4 (2)
Stock option expense 322 667 540
Unrealized loss (gain) on trading securities 327 54 (169)
Net sales (purchases) of trading securities 29,619 (30,000) 38,916
Change in assets and liabilities, net of effects
from the acquisition accounted for as a purchase
Accounts receivable 2,984 (17,247) (26,828)
Inventories (9,792) (20,598) (23,904)
Other current assets (11,795) (1,731) 507
Other assets 5,098 (7,575) (3,013)
Deferred income taxes 8,604 1,187 89
Accounts payable (2,029) 6,861 699
Accrued compensation 2,669 3,070 (2,238)
Other accrued liabilities (82) (1,019) 2,419
Income taxes (2,946) (81) (2,230)
Long-term liabilities (1,792) 83 733
-------- -------- --------
Net cash provided (used) by operating activities 35,783 (19,342) 21,078
-------- -------- --------
Cash flows from investing activities
Capital expenditures (18,895) (46,923) (50,816)
Acquisition accounted for as a purchase -- -- (7,000)
Proceeds from sale of property and equipment 3,051 13 32
-------- -------- --------
Net cash used by investing activities (15,844) (46,910) (57,784)
-------- -------- --------
Cash flows from financing activities
Net payments under line of credit
agreements of pooled companies -- -- (11,550)
Issuance of long-term debt -- 207,000 --
Payment on long-term debt of pooled companies -- -- (1,254)
Redemption of mandatorily redeemable preferred stock
of pooled company -- -- (2,200)
</TABLE>
25
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Issuance of common stock $ 4,152 $ 6,891 $ 3,458
Purchase of treasury stock -- -- (977)
Tax effect of common stock issued upon exercise of
employee stock options 3,944 7,218 1,154
Distribution to shareholder of pooled company -- -- (650)
-------- -------- --------
Net cash provided (used) by financing activities 8,096 221,109 (12,019)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 28,035 154,857 (48,725)
Adjustment for change in pooled companies' fiscal year ends -- -- 344
Cash and cash equivalents at beginning of year 179,907 25,050 73,431
-------- -------- --------
Cash and cash equivalents at end of year $207,942 $179,907 $ 25,050
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 9,345 $ 4,118 $ 1,285
Income taxes 787 15,138 15,054
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Fiscal years ended March 29, 1997, March 28, 1998 and April 3, 1999
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- paid-in Retained Treasury
Shares Amount capital earnings stock
------------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
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)
Common stock issued upon exercise of
employee stock options, including tax effect 782 8,096 -- -- --
Amortization of unearned compensation related
to stock option plans -- -- 322 -- --
Net earnings for the year -- -- -- 182 --
------ ------- -------- -------- --------
BALANCE AT APRIL 3, 1999 27,963 $63,553 $117,511 $141,082 $(977)
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
27
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Kent Electronics Corporation (the "Company") is a national specialty distributor
of electronic connectors, electronic wire and cable, networking products, and
other passive and electromechanical products and interconnect assemblies used in
assembling and manufacturing electronic equipment. In addition, the Company
provides network integration services, including network design, product
configuration, maintenance programs and technical support. The Company also
provides contract manufacturing services including 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, original equipment manufacturers and
other major corporations throughout the United States.
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 year ended April 3, 1999 consisted of 53 weeks. The fiscal years ended
March 28, 1998 and March 29, 1997 both 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 $203.6 million and $142.1 million
invested in institutional money market funds at April 3, 1999 and March 28,
1998, 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 April 3, 1999 and March 28, 1998, agreements to
resell securities in the amount of $3.3 million with a three-day maturity and
$32.2 million with a fourteen-day maturity were outstanding, respectively.
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. Realized and unrealized gains and losses, included
in other income, are reflected in the following table:
28
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
(In thousands)
<S> <C> <C> <C>
Net unrealized loss on trading securities
at beginning of year $ 54 $ -- $ 257
Increase (decrease) in unrealized loss
included in earnings during the year 327 54 (169)
Realized loss from sale of trading
securities (381) -- (88)
----- ----- -----
Net unrealized loss on trading securities
at end of year $ -- $ 54 $ --
===== ===== =====
</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 April 3, 1999, long-term debt had a carrying value of $207.0 million and an
estimated fair value of $155.3 million, which was based on the closing market
price.
EARNINGS PER SHARE
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 0.4 million, 1.5 million and 2.0 million in 1999, 1998 and 1997,
respectively, were used in the calculation of diluted earnings per common share.
Options to purchase 1.1 million, 0.4 million and 0.1 million shares of common
stock in 1999, 1998 and 1997, 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
29
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
not include approximately 4.2 million shares issuable upon conversion of the
4.5% convertible subordinated notes because inclusion of such shares would be
antidilutive.
STOCK-BASED COMPENSATION
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 footnotes include the pro forma disclosures of the
effect on net income and earnings per share as if the fair value method
suggested in Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" had been applied.
NEW PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1, which is effective for fiscal years beginning after December 15, 1998,
requires that certain costs incurred in connection with internal-use computer
software projects be capitalized. The Company adopted SOP 98-1 in fiscal 1999
with no material effect on the Company's financial position or results of
operation, as this accounting standard is consistent with the Company's existing
policy.
BUSINESS ACQUISITIONS
FUTRONIX AND WIRE & CABLE
In January 1997, the Company acquired all the outstanding equity instruments of
Futronix Corporation ("Futronix") and Wire & Cable Specialties Corporation
("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 balance sheets 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.
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.
30
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
ACCOUNTS RECEIVABLE
The Company's allowance for doubtful accounts was $1.0 million at April 3, 1999
and $1.2 million at March 28, 1998.
OTHER ASSETS
At April 3, 1999, other current assets and other assets included $1.4 million
and $1.8 million, respectively, of receivables from certain officers and
directors of the Company. At March 28, 1998, other assets included $3.1 million
of such receivables.
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>
1999 1998 1997
---------------- ---------------- ---------------
(In thousands)
<S> <C> <C> <C>
Current $(6,914) $15,417 $16,316
Tax reduction for exercise of stock options
credited to stockholders' equity 3,944 7,218 1,154
Deferred 3,082 106 9
------- ------- -------
$ 112 $22,741 $17,479
======= ======= =======
</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>
1999 1998 1997
----------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
Tax at statutory rate $ 103 $20,358 $15,785
Increases (reductions)
State income taxes, net of federal tax effect 245 1,780 1,377
Pre-acquisition earnings of
acquired S corporation -- -- (217)
Non-deductible merger and integration costs -- -- 291
Other-net (236) 603 243
----- ------- -------
Income taxes as reported $ 112 $22,741 $17,479
===== ======= =======
</TABLE>
31
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
INCOME TAXES (CONTINUED)
Net deferred tax assets at April 3, 1999 and March 28, 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
------------ --------------
(In thousands)
<S> <C> <C>
Current deferred asset
Allowance for doubtful accounts $ 345 $ 433
Capitalization of additional inventory costs 2,012 1,647
Accrued expenses not currently deductible,
net of reversals 597 412
Net operating losses 1,233 314
Other 29 568
-------- -------
$ 4,216 $ 3,374
======== =======
Long-term deferred (liability) asset
Depreciation $(11,432) $(4,474)
Fixed asset bases differences 335 384
Stock compensation 446 1,750
Net operating losses 143 143
Deferred compensation 1,973 2,266
Other 24 24
-------- -------
$ (8,511) $ 93
======== =======
</TABLE>
Acquired net operating losses of approximately $1.3 million at April 3, 1999,
expire in various amounts through 2003, and are subject to annual usage
limitations. State tax loss carryforwards of approximately $21.6 million at
April 3, 1999, expire primarily in 2004.
The current deferred asset is included in other current assets in the
accompanying balance sheets.
DEBT
In September and October 1997, the Company issued $207.0 million of 4.5%
Convertible Subordinated Notes due 2004 (the "Notes"). 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.
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 1999, 1998 and 1997 was approximately $4.5 million, $4.1 million and
$3.5 million, respectively.
As of April 3, 1999, the Company's minimum rental commitments under
noncancelable operating leases were $3.5 million in 2000; $2.6 million in 2001;
$1.9 million in 2002; $0.9 million in 2003; and $0.4 million in 2004.
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 $0.1 million per employee. The aggregate annual self-insured
32
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
amount varies based on participant levels and was limited to approximately $5.4
million as of April 3, 1999. Claims are accrued as incurred and the total
expense under the program was approximately $5.2 million, $3.9 million and $2.8
million in 1999, 1998 and 1997, 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.
The Company has severance agreements with certain executive officers that become
operative only upon a change in control of the Company. Compensation which may
be payable under these agreements has not been accrued in the consolidated
financial statements as a change in control, as defined, has not occurred.
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
Under the Company's amended and restated stockholder rights plan, there is one-
third of an equity purchase right associated with 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, each 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 April 3, 1999, March 28, 1998 and March 29, 1997
BENEFIT PLANS
STOCK OPTIONS
At April 3, 1999, the Company had nonqualified stock option plans which allow
for the grant of 2.8 million common shares for options, of which 0.8 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. On September 1, 1998,
the Stock Option Committee of the Company's Board of Directors approved a stock
option repricing program whereby each eligible stock option was amended to have
an exercise price equal to $8.94, the closing market price of the Company's
common stock on that date. Options held by the Company's directors and
executive officers were excluded from the repricing program. As a result,
approximately 0.6 million options were amended. The terms during which the
amended stock options may be exercised were extended two years for approximately
0.4 million options. All other terms and conditions remained the same. A
summary of the Company's stock option activity and related information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- ------------------------- --------------------------
(In thousands, except per share Weighted Weighted Weighted
data) average average average
Options exercise price Options exercise price Options exercise price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,736 $15.16 3,435 $12.00 2,570 $ 8.44
Granted 469 9.94 506 23.94 1,144 19.72
Exercised (782) 5.00 (929) 7.37 (208) 8.49
Lapsed/forfeited (170) 17.91 (276) 17.58 (71) 17.84
----- ------ ----- ------ ----- ------
Outstanding at end of year 2,253 $14.47 2,736 $15.16 3,435 $12.00
===== ====== ===== ====== ===== ======
Exercisable at end of year 1,008 $16.86 1,357 $11.38 1,553 $ 7.68
===== ====== ===== ====== ===== ======
</TABLE>
The following table summarizes the weighted average fair value per share at date
of grant of options granted during the year:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- ------------------------------ ------------------------------
Weighted Weighted Weighted
average Weighted average average Weighted average average Weighted 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 $4.98 $9.94 $9.54 $23.94 $ 5.00 $19.73
Exercise price is
below market price -- -- -- -- 26.11 19.31
</TABLE>
34
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
BENEFIT PLANS (CONTINUED)
The following table summarizes significant ranges of outstanding and exercisable
options at April 3, 1999:
<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
------------ -------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.96 - $10.44 902 7.50 $ 8.89 208 $ 9.05
$11.78 - $17.67 456 4.49 12.97 230 12.25
$18.00 - $27.00 825 2.87 19.77 500 19.88
$29.63 - $44.44 70 2.61 33.77 70 33.77
----- -----
2,253 1,008
===== =====
</TABLE>
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:
1999 1998 1997
---------- ---------- ----------
Expected life 3.7 years 2.6 years 2.3 years
Interest rate 5.0% 5.8% 6.3%
Volatility 65.1% 58.3% 34.6%
Dividend yield 0.0% 0.0% 0.0%
Stock-based compensation costs would have reduced net earnings by approximately
$3.3 million, $1.8 million and $1.4 million in 1999, 1998 and 1997 and $0.12,
$0.07 and $0.05 per basic and 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.
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 $1.4 million, $1.1
million and $0.9 million to the Plan in fiscal years ended April 3, 1999, March
28, 1998 and March 29, 1997, respectively.
The Company has deferred compensation plans for management and highly
compensated associates. Under one plan, the participant may elect to defer a
maximum of 100% of compensation. Under another plan, which was terminated in
fiscal 1999, participants could elect to defer a minimum of 3% of their
compensation. The Company agreed to match the participant's compensation
amount, limited to 50% of the first 6% of compensation deferred. Participants
became vested in the Company matching contributions at the rate of 10% per plan
year or vested fully at age 60. At March 28, 1998, the Company had accrued
approximately $1.8 million for participant and Company contributions which are
recorded as long-term liabilities on the balance sheet. In conjunction with the
termination of the plan, amounts deferred and the vested Company match were
distributed to participants.
35
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fiscal years ended April 3, 1999, March 28, 1998 and March 29, 1997
The Company has a deferred benefit plan whereby 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.
Annual expenses will be approximately $2.3 million through March 31, 2001, based
on accruing the present value of the minimum benefits through the date the
participant vests in the payments.
SUBSEQUENT EVENTS (SECOND PARAGRAPH UNAUDITED)
On April 5, 1999, the Company acquired all the outstanding common stock of
SabreData, Inc., for a cash purchase price of $31.0 million plus the assumption
of approximately $2.2 million of interest bearing obligations. SabreData is a
Texas based network integrator with sales of approximately $37.0 million for the
year ended December 31, 1998.
On June 3, 1999, the Company acquired certain assets and assumed liabilities of
Advacom, Inc. for a cash purchase price of $33.0 million plus the assumption of
approximately $21.8 million of interest bearing obligations. Advacom is a
Pennsylvania based distributor of electronic connectors, passive and
electromechanical components with sales of approximately $111.9 million for the
year ended December 31, 1998.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal
years 1999, 1998 and 1997:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended April 3, 1999
- ------------------------
Net sales $157,057 $147,500 $155,424 $177,083
Gross profit 31,088 19,351 23,709 26,397
Net earnings (loss) 4,108 (3,521) (939) 534
Basic earnings (loss) per share .15 (.13) (.03) .02
Diluted earnings (loss) per share .15 (.13) (.03) .02
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
</TABLE>
36
<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 April 3, 1999,
a definitive proxy statement pursuant to Regulation 14A involving the election
of directors. Reference is made to the sections of such proxy statement
entitled "Kent Common Stock Beneficially Owned by Directors, Officers and Five
Percent Shareholders" and "Proposal 1 -- Election of Directors" which sections
of such proxy statement are incorporated herein.
37
<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 22
Consolidated balance sheets at April 3, 1999 and March 28, 1998 23
Consolidated statements of earnings for the years ended
April 3, 1999, March 28, 1998 and March 29, 1997 24
Consolidated statements of cash flows for the years ended
April 3, 1999, March 28, 1998 and March 29, 1997 25
Consolidated statement of stockholders' equity for the years ended
March 29, 1997, March 28, 1998 and April 3, 1999 27
Notes to consolidated financial statements 28
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 29, 1997, March 28, 1998 and April 3, 1999. 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.
Incorporated by reference to Exhibit 3 to the Company's Quarterly Report
on Form 10-Q for the Fiscal Quarter ended September 26, 1998 (the "1999
Second Quarter Form 10-Q")
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.
38
<PAGE>
4.2* -- Amended and Restated Rights Agreement dated as of September 3, 1998
between Kent Electronics Corporation and ChaseMellon Shareholder
Services, L.L.C. Incorporated by reference to Exhibit 4 to 1999 Second
Quarter Form 10-Q.
4.3* -- 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 "1998 Second Quarter Form 10-Q/A").
10.1* -- 1991 Non-Employee Director Stock Option Plan, as amended. Incorporated
by reference to Exhibit 10.2 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended March 28, 1992 (the "1992 Form
10-K").(1)
10.2* -- 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)
10.3* -- Amended and Restated 1987 Stock Option Plan. Incorporated by
reference to Exhibit 10.3 to 1992 Form 10-K.(1)
10.4* -- Amendments of Amended and Restated 1987 Stock Option Plan. Incorporated
by reference to Exhibit 10.8 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended April 3, 1993 (the "1993 Form 10-K").(1)
10.5* -- Stock Option Plan and Agreement for the Company's Executive Vice
President Sales-Distribution between Kent Electronics Corporation and
Larry D. Olson dated May 8, 1995. Incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for the Fiscal Year
Ended April 1, 1995 (the "1995 Form 10-K").(1)
10.6* -- 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)
10.7* -- 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)
39
<PAGE>
10.8* -- 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)
10.9* -- 1996 Employee Incentive Plan. Incorporated by reference to Exhibit
10.14 to 1996 Form 10-K.(1)
10.10* -- 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)
10.11* -- Kent Electronics Corporation Deferred Compensation Plan dated July 28,
1994. Incorporated by reference to Exhibit 10.15 to 1995 Form 10-K.(1)
10.12* -- First Amendment to the Kent Electronics Corporation Deferred
Compensation Plan. Incorporated by reference to Exhibit 10.17 to 1996
Form 10-K.(1)
10.13* -- 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)
10.14* -- 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.
10.15* -- 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)
10.16* -- 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)
10.17* -- 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)
10.18* -- 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)
40
<PAGE>
10.19* -- 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)
10.20* -- Amendment to 1991 Non-Employee Director Stock Option Plan.
Incorporated by reference to Exhibit 10.4 to 1998 Second Quarter Form
10-Q/A.(1)
10.21* -- Amendment to Amended and Restated 1987 Stock Option Plan. Incorporated
by reference to Exhibit 10.5 to 1998 Second Quarter Form 10-Q/A.(1)
10.22* -- Amendment to Stock Option Plan and Agreement for the Company's
Executive Vice President Sales-Distribution between Kent Electronics
Corporation and Larry D. Olson dated July 2, 1997. Incorporated by
reference to Exhibit 10.6 to 1998 Second Quarter Form 10-Q/A.(1)
10.23* -- 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 1998 Second Quarter Form
10-Q/A.(1)
10.24* -- 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 1998 Second Quarter Form 10-Q/A.(1)
10.25* -- 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 1998 Second Quarter Form 10-Q/A.(1)
10.26* -- 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 1998
Second Quarter Form 10-Q/A.(1)
10.27* -- Amendment No. 2 to Employment Agreement by and among Morrie K.
Abramson, Rolaine S. Abramson and Kent Electronics Corporation dated
November 10, 1998. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the Fiscal Quarter ended
December 26, 1998 (the "1999 Third Quarter Form 10-Q").(1)
41
<PAGE>
10.28* -- Severance Agreement by and between Kent Electronics Corporation and
Terrence M. Hunt dated November 10, 1998. Incorporated by reference to
Exhibit 10.2 to 1999 Third Quarter Form 10-Q.(1)
10.29* -- Severance Agreement by and between Kent Electronics Corporation and
Larry D. Olson dated November 10, 1998. Incorporated by reference to
Exhibit 10.3 to 1999 Third Quarter Form 10-Q.(1)
10.30* -- Severance Agreement by and between Kent Electronics Corporation and
Frank M. Billone dated November 11, 1998. Incorporated by reference to
Exhibit 10.4 to 1999 Third Quarter Form 10-Q.(1)
10.31* -- Severance Agreement by and between Kent Electronics Corporation and
Stephen J. Chapko dated November 11, 1998. Incorporated by reference
to Exhibit 10.5 to 1999 Third Quarter Form 10-Q.(1)
10.32* -- Severance Agreement by and between Kent Electronics Corporation and
Richard J. Hightower dated November 11, 1998. Incorporated by
reference to Exhibit 10.6 to 1999 Third Quarter Form 10-Q.(1)
10.33* -- Severance Agreement by and between Kent Electronics Corporation and
Mark A. Zerbe dated November 11, 1998. Incorporated by reference to
Exhibit 10.7 to 1999 Third Quarter Form 10-Q.(1)
10.34 -- Amended and Restated 1998 Stock Option Plan.(1)
10.35 -- 1999 Stock Option Plan.(1)
10.36* -- Employment Agreement dated October 7, 1996 by and among Kent
Electronics Corporation, Futronix Acquisition Company and Terence M.
Hunt. Incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended March 28,
1998.(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
42
<PAGE>
(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 23, 1999
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 Executive June 23, 1999
- ------------------------------- Officer and Director (Principal Executive
Morrie K. Abramson Officer)
/s/ Stephen J. Chapko Executive Vice President, Chief Financial June 23, 1999
- ------------------------------- Officer, Treasurer and Secretary
Stephen J. Chapko (Principal Financial Officer)
/s/ David D. Johnson Vice President, Corporate Controller June 23, 1999
- ------------------------------- (Principal Accounting Officer)
David D. Johnson
Director June 23, 1999
- -------------------------------
Terrence M. Hunt
/s/ Max S. Levit Director June 23, 1999
- -------------------------------
Max S. Levit
/s/ Larry D. Olson Director June 23, 1999
- -------------------------------
Larry D. Olson
/s/ David Siegel Director June 23, 1999
- -------------------------------
David Siegel
/s/ Richard C. Webb Director June 23, 1999
- -------------------------------
Richard C. Webb
/s/ Alvin L. Zimmerman Director June 23, 1999
- -------------------------------
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 April 3, 1999,
we have also audited Schedule II for each of the three years in the period ended
April 3, 1999. 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 11, 1999
46
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended March 29, 1997, March 28, 1998 and April 3, 1999
(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 29, 1997 1,048 30 409 11 242 1,256
March 28, 1998 1,256 -- 302 38 390 1,206
April 3, 1999 1,206 -- 98 47 360 991
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. ITEM NUMBERED PAGES
------------ ------ --------------
<C> <S> <C>
10.34 Amended and Restated 1998 Stock Option Plan.
10.35 1999 Stock Option Plan.
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.
</TABLE>
<PAGE>
EXHIBIT 10.34
KENT ELECTRONICS CORPORATION
AMENDED AND RESTATED
1998 STOCK OPTION PLAN
ARTICLE I
Plan
1.1 PURPOSE. The Kent Electronics Corporation Amended and Restated 1998
Stock Option Plan is intended to provide a means whereby the Employees and Non-
Employee Directors of Kent Electronics Corporation, a Texas corporation, and its
Affiliates may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company,
thereby advancing the interests of the Company and its shareholders.
Accordingly, the Company may grant Options to certain Employees and Non-Employee
Directors in the form of Incentive Stock Options and Nonqualified Stock Options,
subject to the terms of the Plan.
1.2 EFFECTIVE DATE OF PLAN. The Plan is effective January 1, 1998, and
no Option shall be granted pursuant to the Plan after January 1, 2008.
ARTICLE II
Definitions
The capitalized words and phrases defined in this Article shall have the
meaning set out in these definitions throughout the Plan, unless the context in
which any such word or phrase appears reasonably requires a broader, narrower or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if, at
the time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "ADMINISTRATOR" means (i) the Committee with respect to any Option
granted to any Employee or (ii) the Board with respect to any Option granted to
any Non-Employee Director.
2.3 "BOARD OF DIRECTORS" or "BOARD" means the board of directors of the
Company.
<PAGE>
2.4 "CHANGE OF CONTROL" means the happening of any of the following events:
(i) the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation or
the Stock is converted into other securities, cash or other property in
connection with such merger or consolidation;
(ii) the Company is recapitalized in such a manner that shares of Stock
are converted into or exchanged for other securities of the Company;
(iii) the Company sells or otherwise disposes of substantially all its
assets to another person, corporation or entity;
(iv) over 30% of the then outstanding Stock is acquired by another
corporation in exchange for stock (or stock and securities) of such
corporation; or
(v) over 30% of the then outstanding Stock is acquired in a single
transaction or a series of related transactions.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended.
2.6 "COMMITTEE" means the Stock Option Committee of the Board of
Directors or such other committee designated by the Board of Directors.
2.7 "COMPANY" means Kent Electronics Corporation, a Texas corporation.
2.8 "EMPLOYEE" means any employee employed by the Company or any
Affiliate.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.10 "FAIR MARKET VALUE" means, on a particular date or on the most
recent prior date on which Stock was traded, the reported closing price per
share of the Stock of the Company as reported by the New York Stock Exchange,
Inc. or other principal exchange or market on which the Stock is traded; in the
event the Stock of the Company is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its Fair Market Value shall be made by the Committee in such manner as it
deems appropriate.
2.11 "INCENTIVE OPTION" means an option granted under the Plan which is
designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.
2.11 "NON-EMPLOYEE DIRECTOR" means any director of the Company who is not
an Employee.
2
<PAGE>
2.12 "NONQUALIFIED OPTION" means an option granted under the Plan other
than an Incentive Option.
2.13 "OPTION" means an Incentive Option or a Nonqualified Option granted
under the Plan to purchase shares of Stock.
2.14 "OPTION AGREEMENT" means the written agreement provided for in
connection with an Option setting forth the terms and conditions of the Option.
Such Agreement may contain any other provisions that the Committee, in its sole
discretion, shall deem advisable which are not inconsistent with the terms of
the Plan.
2.15 "OPTIONEE" means any Employee or Non-Employee Director who is granted
an Option under the Plan.
2.16 "PLAN" means the Kent Electronics Corporation Amended and Restated
1998 Stock Option Plan, as set out in this document and as it may be amended
from time to time.
2.17 "SECTION 16 REPORTING PERSON" means any person subject to the
reporting requirements under Section 16 of the Exchange Act.
2.18 "STOCK" means the voting common stock of the Company, without par
value, or in the event that the outstanding shares of voting common stock are
later changed into or exchanged for a different class of stock or securities of
the Company or another corporation, that other stock or security.
2.19 "10% SHAREHOLDER" means an individual who, at the time the Option
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the stock owned, directly or indirectly, by or for
his brothers and sisters (whether by whole or half blood), spouse, ancestors,
and lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust, shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.
ARTICLE III
Eligibility
All Employees shall be eligible to receive Options as determined by the
Committee from time to time, and all Non-Employee Directors shall be eligible to
receive Options as determined by the Board from time to time; provided, however,
that at least a majority of the shares of Stock underlying Options granted under
the Plan, during both the three-year period commencing on the date the Plan is
adopted and the term of the Plan, shall be granted to Employees who are not
Section 16 Reporting Persons.
3
<PAGE>
ARTICLE IV
General Provisions Relating to Options
4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant Options to those
Employees as it shall determine from time to time under the terms and conditions
of the Plan, and the Board may grant Options to those Non-Employee Directors as
it shall determine from time to time under the terms and conditions of the Plan.
Subject only to any applicable limitations set out in the Plan, (i) the amount
of any Option and the number of shares of Stock to be covered by any Option to
be granted to an Employee shall be as determined by the Committee and (ii) the
amount of any Option and the number of shares of Stock to be covered by any
Option to be granted to a Non-Employee director shall be as determined by the
Board. Each Option shall be evidenced by an Option Agreement which shall set
forth the terms and conditions of the Option. An Optionee who has received an
Option in any year may receive an additional Option or Options in the same year
or in subsequent years.
4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options may be granted under the Plan shall be 750,000 shares. The
shares of Stock may be treasury shares or authorized but unissued shares. The
numbers of shares of Stock stated in this Section 4.2 shall be subject to
adjustment in accordance with the provisions of Section 4.5.
In the event that any Option shall expire or terminate for any reason or
any Option is surrendered, the shares of Stock allocable to that Option may
again be subject to an Option under the Plan.
4.3 NON-TRANSFERABILITY. Except as set forth below, the Options granted
hereunder shall not be transferable by the Optionee otherwise than by will or
operation of the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
The Administrator may grant Options that are transferable, without payment of
consideration, to immediate family members of the Optionee or to trusts or
partnerships for such family members; the Administrator may also amend
outstanding Options to provide for such transferability.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, the Company shall not be required to issue any Stock
unless the Administrator has received evidence satisfactory to it to the effect
that the holder of that Option will not transfer the Stock except in accordance
with applicable law, including receipt of an opinion of counsel satisfactory to
the Company to the effect that any proposed transfer complies with applicable
law. The determination by the Administrator on this matter shall be final,
binding and conclusive. The Company may, but shall in no event be obligated to,
register any Stock covered by the Plan
4
<PAGE>
pursuant to applicable securities laws of any country or any political
subdivision. In the event the Stock issuable pursuant to an Option is not
registered, the Company may imprint on the certificate evidencing the Stock any
legend that counsel for the Company considers necessary or advisable to comply
with applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of, or the issuance of shares
under, an Option to comply with any law or regulation of any governmental
authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of the
Plan and the Options granted hereunder shall not affect or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Stock or the rights thereof, the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of similar character or
otherwise.
In the event of any change in the outstanding shares of Stock of the
Company by reason of any stock split, stock dividend, split-up, split-off, spin-
off, recapitalization, merger, consolidation, liquidation, rights offering,
share offering, reorganization, combination or exchange of shares, a sale by the
Company of all or part of its assets, any distribution to shareholders other
than a normal cash dividend, or other extraordinary or unusual event, if the
Administrator shall determine, in its discretion, that such change equitably
requires an adjustment in the terms of any Option or the number of shares of
Stock available for Options, such adjustment may be made by the Administrator
and shall be final, conclusive and binding for all purposes of the Plan.
4.6 TERMINATION OF EMPLOYMENT. Except as specifically provided herein,
the Administrator shall set forth in the Option Agreement the status of any
Option or shares of Stock underlying any Option upon the termination of the
Employee's employment for any reason.
4.7 ELECTION UNDER SECTION 83(b) OF THE CODE. No Optionee shall exercise
the election permitted under Section 83(b) of the Code without written approval
of the Administrator. Any Optionee doing so shall forfeit all Options issued to
the Optionee under the Plan.
ARTICLE V
Options
5.1 TYPE OF OPTION. The Administrator shall specify whether a given
option shall constitute an Incentive Option or a Nonqualified Option.
5.2 OPTION PRICE. The price per share at which shares of Stock may be
purchased under an Incentive Option shall not be less than the greater of: (a)
100% of the Fair Market Value per share of Stock on the date the Option is
granted or (b) the per share par value of the Stock on the date the Option is
granted. The Administrator in its discretion may provide that the price per
share at which
5
<PAGE>
shares of Stock may be purchased shall be more than 100% of Fair Market Value
per share. In the case of any 10% Shareholder, the price per share at which
shares of Stock may be purchased under an Incentive Option shall not be less
than the greater of: (a) 110% of the Fair Market Value per share of Stock on the
date the Incentive Option is granted or (b) the per share par value of the Stock
on the date the Incentive Option is granted.
The price per share at which shares of Stock may be purchased under a
Nonqualified Option shall not be less than the greater of: (a) 100% of the Fair
Market Value per share of Stock on the date the Option is granted or (b) the per
share par value of the Stock on the date the Option is granted. The
Administrator in its discretion may provide that the price per share at which
shares of Stock may be purchased shall be more than 100% of Fair Market Value
per share.
5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of ten years from the date the Option is granted. In the case of a
10% Shareholder, no Incentive Option shall be exercisable after the expiration
of five years from the date the Incentive Option is granted.
5.4 AMOUNT EXERCISABLE. Each Option may be exercised from time to time,
in whole or in part, in the manner and subject to the conditions the
Administrator, in its discretion, may provide in the Option Agreement, as long
as the Option is valid and outstanding. To the extent that the aggregate Fair
Market Value (determined as of the time an Incentive Option is granted) of the
Stock with respect to which Incentive Options first become exercisable by the
optionee during any calendar year (under the Plan and any other incentive stock
option plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive
Options shall be treated as Nonqualified Options. In making this determination,
Incentive Options shall be taken into account in the order in which they were
granted.
5.5 EXERCISE OF OPTIONS. Subject to the tax withholding requirements set
forth in Section 8.3 herein, Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares with respect to
which the Option is to be exercised and the address to which the certificates
representing shares of Stock issuable upon the exercise of such Option shall be
mailed, together with: (a) cash, check, certified check, bank draft, or postal
or express money order payable to the order of the Company for an amount equal
to the Option Price of the shares, (b) Stock at its Fair Market Value equal to
the Option Price of the shares on the date of exercise, and/or (c) any other
form of payment which is acceptable to the Administrator. In order to enable an
Employee to have sufficient funds to pay the Option Price, the Administrator
may, to the extent permitted by law, cause the Company to loan funds to the
Optionee, to guarantee a loan by a third party to the Optionee or to take such
other action as the Administrator deems appropriate. The Company and used for
its corporate purposes. No fractional shares shall be issued under the Plan.
Subject to the tax withholding requirements set forth in Section 8.3
herein, as promptly as practicable after receipt of written notification and
payment, the Company or a stock transfer agent of the Company shall deliver to
the Optionee certificates for the number of shares with respect to which the
Option has been exercised, issued in the Optionee's name. If shares of Stock
are used in
6
<PAGE>
payment, the Fair Market Value of the shares of Stock tendered must be less than
the Option Price of the shares being purchased, and the difference must be paid
by check. Delivery shall be deemed effected for all purposes when the Company or
a stock transfer agent of the Company shall have deposited the certificates in
the United States mail, addressed to the Optionee, at the address specified by
the Optionee.
Whenever an Option is exercised by exchanging shares of Stock owned by the
Optionee, the Optionee shall deliver to the Company certificates registered in
the name of the Optionee representing a number of shares of Stock legally and
beneficially owned by the Optionee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by the Company or a commercial bank or trust company or by a brokerage firm
having a membership on a registered national stock exchange). The delivery of
certificates upon the exercise of Options is subject to the condition that the
person exercising the Option provide the Company with the information the
Company might reasonably request pertaining to exercise, sale or other
disposition.
5.6 SUBSTITUTION OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees or non-employee directors of or
affiliated with the Company or any Affiliate as the result of a merger or
consolidation of the employing corporation with the Company or any Affiliate, or
the acquisition by the Company or any Affiliate of the assets of the employing
corporation, or the acquisition by the Company or any Affiliate of stock of the
employing corporation as the result of which it becomes an Affiliate of the
Company. The terms and conditions of the substitute Options granted may vary
from the terms and conditions set out in the Plan to the extent the
Administrator, at the time of grant, may deem appropriate to conform, in whole
or in part, to the provisions of the stock options in substitution for which
they are granted.
5.7 NO RIGHTS AS STOCKHOLDER. No Optionee shall have any rights as a
stockholder with respect to Stock covered by an Option until the date a stock
certificate is issued for the Stock.
5.8 CHANGE IN CONTROL. On a date at least 30 days prior to the effective
date of a Change in Control, any limitations as to the amount exercisable each
year may be modified at the discretion of the Administrator so that all Options
from and after such date shall, if the Administrator in its discretion so
determines, be exercisable in full. In addition, with respect to any event
described in clauses (i) through (v) of the definition of Change in Control,
either (a) after the effective date of such Change in Control, each holder of an
outstanding Option shall be entitled, upon exercise of such Option, to receive,
in lieu of shares of Stock, shares of such stock or other securities of the
Company or the surviving or acquiring corporation or such other property at the
same rate per share as the holders of shares of Stock received pursuant to the
Change in Control, or (b) all outstanding Options may be canceled by the Board
as of the effective date of the Change in Control, provided that notice of such
cancellation shall be given to each holder of an Option and each holder of an
Option shall have the right to exercise such Options in full (without regard to
any limitations that
7
<PAGE>
might be set forth in the Option Agreement) during a 30-day period preceding the
effective date of the Change in Control.
ARTICLE VI
Administration
The Plan shall be administered by the Committee with respect to any Option
granted to any Employee, and the Plan shall be administered by the Board with
respect to any Option granted to any Non-Employee Director. All questions of
interpretation and application of the Plan and Options granted thereunder shall
be subject to the determination of the Committee or the Board, as appropriate.
A majority of the members of the Committee or the Board, as appropriate, shall
constitute a quorum. All determinations of the Committee or the Board, as
appropriate, shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by a majority of the members shall
be as effective as if it had been made by a majority vote at a meeting properly
called and held. The Plan shall be administered in such a manner as to permit
the Options granted under it which are designated to be Incentive Options to
qualify as Incentive Options. In carrying out its authority under the Plan, the
Committee or the Board, as appropriate, shall have full and final authority and
discretion, including but not limited to the following rights, powers and
authorities, to:
(a) determine the Employees or Non-Employee Directors to whom and the
time or times at which Options will be made,
(b) determine the number of shares and the purchase price of Stock or
dollar amount of cash covered in each Option, subject to the terms of the
Plan,
(c) determine the terms, provisions and conditions of each Option,
which need not be identical,
(d) define the effect, if any, on an Option of the death, disability,
retirement, or termination of employment of the Employee,
(e) define the effect, if any, on an Option of the death, disability,
or resignation or removal from the Board of a Non-Employee Director,
(f) proscribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of the
Plan.
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The actions of the Committee or the Board, as appropriate, in exercising
all of the rights, powers, and authorities set out in this Article and all other
Articles of the Plan, when performed in good faith and in its sole judgment,
shall be final, conclusive and binding on all parties
ARTICLE VII
Amendment or Termination of Plan
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that to the extent required to
maintain the status of any Incentive Option under the Code, no amendment that
would (a) change the aggregate number of shares of Stock which may be issued
under Incentive Options, (b) change the class of employees eligible to receive
Incentive Options, or (c) decrease the Option price for Incentive Options below
the Fair Market Value of the Stock at the time it is granted, shall be made
without the approval of the Company's shareholders. Subject to the preceding
sentence, the Board shall have the power to make any changes in the Plan and in
the regulations and administrative provisions under it or in any outstanding
Incentive Option as in the opinion of counsel for the Company may be necessary
or appropriate from time to time to enable any Incentive Option granted under
the Plan to continue to qualify as an incentive stock option or such other stock
option as may be defined under the Code so as to receive preferential federal
income tax treatment.
ARTICLE VIII
Miscellaneous
8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Optionee under the Plan. All Optionees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
8.3 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Optionee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Optionee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Optionee (or other person exercising the Option) is
required to pay the sum directly, payment in cash or by check of such sums for
taxes shall be delivered on the date of exercise. The Company shall have no
obligation upon exercise of any Option until payment has been
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received, unless withholding as of or prior to the date of exercise of Stock is
sufficient to cover all sums due with respect to that exercise of Stock. The
Company and its Affiliates shall not be obligated to advise an Optionee of the
existence of the tax or the amount which the employer corporation will be
required to withhold.
8.4 FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary
in the Plan, if the Administrator finds, after full consideration of the facts
presented on behalf of both the Company and the Optionee, that the Optionee has
been engaged in fraud, embezzlement, theft, commission of a felony or dishonesty
in the course of his employment by or directorship with the Company which
damaged the Company or an Affiliate, or for disclosing trade secrets of the
Company or an Affiliate, the Optionee shall forfeit all unexercised Options and
all exercised Options under which the Company has not yet delivered the
certificates. The decision of the Administrator shall be final. No decision of
the Administrator, however, shall affect the finality of the discharge of such
Optionee by the Company in any manner.
8.5 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors, and each member
of the Committee and the Board of Directors shall be entitled without further
act on his part to indemnity from the Company to the fullest extent allowed
under the Texas Business Corporation Act.
8.6 GENDER. If the context requires, words of one gender when used in
the Plan shall include the others and words used in the singular or plural shall
include the other.
8.7 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
8.8 OTHER COMPENSATION PLANS. The adoption of the Plan shall not
preclude the Company from establishing any other forms of incentive or other
compensation for Employees or Non-Employee Directors.
8.9 OTHER OPTIONS. The grant of an Option shall not confer upon the
Optionee the right to receive any future or other Options under the Plan,
whether or not Options may be granted to similarly situated Optionees, or the
right to receive future Options upon the same terms or conditions as previously
granted.
8.10 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.
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EXHIBIT 10.35
KENT ELECTRONICS CORPORATION
1999 STOCK OPTION PLAN
ARTICLE I
Plan
1.1 PURPOSE. The Kent Electronics Corporation 1999 Stock Option Plan is
intended to provide a means whereby certain Employees of Kent Electronics
Corporation, a Texas corporation, and its Affiliates may develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company, and to encourage them to remain with and devote their best
efforts to the business of the Company, thereby advancing the interests of the
Company and its shareholders. Accordingly, the Company may grant Options to
certain Employees in the form of Incentive Stock Options and Nonqualified Stock
Options, subject to the terms of the Plan.
1.2 EFFECTIVE DATE OF PLAN. The Plan is effective January 1, 1999, and
no Option shall be granted pursuant to the Plan after January 1, 2009.
ARTICLE II
Definitions
The capitalized words and phrases defined in this Article shall have the
meaning set out in these definitions throughout the Plan, unless the context in
which any such word or phrase appears reasonably requires a broader, narrower or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending with the Company if, at
the time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
2.2 "BOARD OF DIRECTORS" or "BOARD" means the board of directors of the
Company.
<PAGE>
2.3 "CHANGE OF CONTROL" means the happening of any of the following
events:
(i) the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation or
the Stock is converted into other securities, cash or other property in
connection with such merger or consolidation;
(ii) the Company is recapitalized in such a manner that shares of Stock
are converted into or exchanged for other securities of the Company;
(iii) the Company sells or otherwise disposes of substantially all its
assets to another person, corporation or entity;
(iv) over 30% of the then outstanding Stock is acquired by another
corporation in exchange for stock (or stock and securities) of such
corporation; or
(v) over 30% of the then outstanding Stock is acquired in a single
transaction or a series of related transactions.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the Stock Option Committee of the Board of
Directors or such other committee designated by the Board of Directors.
2.6 "COMPANY" means Kent Electronics Corporation, a Texas corporation.
2.7 "EMPLOYEE" means any employee employed by the Company or any
Affiliate.
2.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.9 "FAIR MARKET VALUE" means, on a particular date or on the most recent
prior date on which Stock was traded, the reported closing price per share of
the Stock of the Company as reported by the New York Stock Exchange, Inc. or
other principal exchange or market on which the Stock is traded; in the event
the Stock of the Company is not publicly traded at the time a determination of
its value is required to be made hereunder, the determination of its Fair Market
Value shall be made by the Committee in such manner as it deems appropriate.
2.10 "INCENTIVE OPTION" means an option granted under the Plan which is
designated as an "Incentive Option" and satisfies the requirements of Section
422 of the Code.
2.11 "NONQUALIFIED OPTION" means an option granted under the Plan other
than an Incentive Option.
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2.12 "OPTION" means an Incentive Option or a Nonqualified Option granted
under the Plan to purchase shares of Stock.
2.13 "OPTION AGREEMENT" means the written agreement provided for in
connection with an Option setting forth the terms and conditions of the Option.
Such Agreement may contain any other provisions that the Committee, in its sole
discretion, shall deem advisable which are not inconsistent with the terms of
the Plan.
2.14 "PLAN" means the Kent Electronics Corporation 1999 Stock Option
Plan, as set out in this document and as it may be amended from time to time.
2.15 "SECTION 16 REPORTING PERSON" means any person subject to the
reporting requirements under Section 16 of the Exchange Act.
2.16 "STOCK" means the voting common stock of the Company, without par
value, or in the event that the outstanding shares of voting common stock are
later changed into or exchanged for a different class of stock or securities of
the Company or another corporation, that other stock or security.
2.17 "10% SHAREHOLDER" means an individual who, at the time the Option is
granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or of any Affiliate. An individual shall
be considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by whole or half blood), spouse, ancestors, and
lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate, or trust, shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.
ARTICLE III
Eligibility
All Employees shall be eligible to receive Options as determined by the
Committee from time to time; provided, however, that at least a majority of the
shares of Stock underlying Options granted under the Plan, during both the
three-year period commencing on the date the Plan is adopted and the term of the
Plan, shall be granted to Employees who are not Section 16 Reporting Persons.
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ARTICLE IV
General Provisions Relating to Options
4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant Options to those
Employees as it shall determine from time to time under the terms and conditions
of the Plan. Subject only to any applicable limitations set out in the Plan,
the amount of any Option and the number of shares of Stock to be covered by any
Option to be granted to an Employee shall be as determined by the Committee.
Each Option shall be evidenced by an Option Agreement which shall set forth the
terms and conditions of the Option. An Employee who has received an Option in
any year may receive an additional Option or Options in the same year or in
subsequent years.
4.2 DEDICATED SHARES. The total number of shares of Stock with respect
to which Options may be granted under the Plan shall be 750,000 shares. The
shares of Stock may be treasury shares or authorized but unissued shares. The
numbers of shares of Stock stated in this Section 4.2 shall be subject to
adjustment in accordance with the provisions of Section 4.5.
In the event that any Option shall expire or terminate for any reason or
any Option is surrendered, the shares of Stock allocable to that Option may
again be subject to an Option under the Plan.
4.3 NON-TRANSFERABILITY. Except as set forth below, the Options granted
hereunder shall not be transferable by the Employee otherwise than by will or
operation of the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
The Committee may grant Options that are transferable, without payment of
consideration, to immediate family members of the Employee or to trusts or
partnerships for such family members; the Committee may also amend outstanding
Options to provide for such transferability.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Option if issuing that Stock would constitute or
result in a violation by the Employee or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, the Company shall not be required to issue any Stock
unless the Committee has received evidence satisfactory to it to the effect that
the holder of that Option will not transfer the Stock except in accordance with
applicable law, including receipt of an opinion of counsel satisfactory to the
Company to the effect that any proposed transfer complies with applicable law.
The determination by the Committee on this matter shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register
any Stock covered by the Plan pursuant to applicable securities laws of any
country or any political subdivision. In the event the Stock issuable pursuant
to an Option is not registered, the Company may imprint on the certificate
evidencing the Stock any legend that counsel for the Company considers necessary
or advisable to comply with applicable law. The Company shall not be obligated
to take any other affirmative
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<PAGE>
action in order to cause the exercise of, or the issuance of shares under, an
Option to comply with any law or regulation of any governmental authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of the
Plan and the Options granted hereunder shall not affect or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Stock or the rights thereof, the dissolution or liquidation of the
Company, or any sale or transfer of all or any part of its assets or business,
or any other corporate act or proceeding, whether of similar character or
otherwise.
In the event of any change in the outstanding shares of Stock of the
Company by reason of any stock split, stock dividend, split-up, split-off, spin-
off, recapitalization, merger, consolidation, liquidation, rights offering,
share offering, reorganization, combination or exchange of shares, a sale by the
Company of all or part of its assets, any distribution to shareholders other
than a normal cash dividend, or other extraordinary or unusual event, if the
Committee shall determine, in its discretion, that such change equitably
requires an adjustment in the terms of any Option or the number of shares of
Stock available for Options, such adjustment may be made by the Committee and
shall be final, conclusive and binding for all purposes of the Plan.
4.6 TERMINATION OF EMPLOYMENT. Except as specifically provided herein,
the Committee shall set forth in the Option Agreement the status of any Option
or shares of Stock underlying any Option upon the termination of the Employee's
employment for any reason.
4.7 ELECTION UNDER SECTION 83(b) OF THE CODE. No Employee shall exercise
the election permitted under Section 83(b) of the Code without written approval
of the Committee. Any Employee doing so shall forfeit all Options issued to the
Employee under the Plan.
ARTICLE V
Options
5.1 TYPE OF OPTION. The Committee shall specify whether a given option
shall constitute an Incentive Option or a Nonqualified Option.
5.2 OPTION PRICE. The price per share at which shares of Stock may be
purchased under an Incentive Option shall not be less than the greater of: (a)
100% of the Fair Market Value per share of Stock on the date the Option is
granted or (b) the per share par value of the Stock on the date the Option is
granted. The Committee in its discretion may provide that the price per share
at which shares of Stock may be purchased shall be more than 100% of Fair Market
Value per share. In the case of any 10% Shareholder, the price per share at
which shares of Stock may be purchased under an Incentive Option shall not be
less than the greater of: (a) 110% of the Fair Market Value per share
5
<PAGE>
of Stock on the date the Incentive Option is granted or (b) the per share par
value of the Stock on the date the Incentive Option is granted.
The price per share at which shares of Stock may be purchased under a
Nonqualified Option shall not be less than the greater of: (a) 100% of the Fair
Market Value per share of Stock on the date the Option is granted or (b) the per
share par value of the Stock on the date the Option is granted. The Committee
in its discretion may provide that the price per share at which shares of Stock
may be purchased shall be more than 100% of Fair Market Value per share.
5.3 DURATION OF OPTIONS. No Option shall be exercisable after the
expiration of ten years from the date the Option is granted. In the case of a
10% Shareholder, no Incentive Option shall be exercisable after the expiration
of five years from the date the Incentive Option is granted.
5.4 AMOUNT EXERCISABLE. Each Option may be exercised from time to time,
in whole or in part, in the manner and subject to the conditions the Committee,
in its discretion, may provide in the Option Agreement, as long as the Option is
valid and outstanding. To the extent that the aggregate Fair Market Value
(determined as of the time an Incentive Option is granted) of the Stock with
respect to which Incentive Options first become exercisable by the optionee
during any calendar year (under the Plan and any other incentive stock option
plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Options
shall be treated as Nonqualified Options. In making this determination,
Incentive Options shall be taken into account in the order in which they were
granted.
5.5 EXERCISE OF OPTIONS. Subject to the tax withholding requirements set
forth in Section 8.3 herein, Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares with respect to
which the Option is to be exercised and the address to which the certificates
representing shares of Stock issuable upon the exercise of such Option shall be
mailed, together with: (a) cash, check, certified check, bank draft, or postal
or express money order payable to the order of the Company for an amount equal
to the Option Price of the shares, (b) Stock at its Fair Market Value equal to
the Option Price of the shares on the date of exercise, and/or (c) any other
form of payment which is acceptable to the Committee. In order to enable an
Employee to have sufficient funds to pay the Option Price, the Committee may, to
the extent permitted by law, cause the Company to loan funds to the Employee, to
guarantee a loan by a third party to the Employee or to take such other action
as the Committee deems appropriate. The Company and used for its corporate
purposes. No fractional shares shall be issued under the Plan.
Subject to the tax withholding requirements set forth in Section 8.3
herein, as promptly as practicable after receipt of written notification and
payment, the Company or a stock transfer agent of the Company shall deliver to
the Employee certificates for the number of shares with respect to which the
Option has been exercised, issued in the Employee's name. If shares of Stock
are used in payment, the Fair Market Value of the shares of Stock tendered must
be less than the Option Price of the shares being purchased, and the difference
must be paid by check. Delivery shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have
6
<PAGE>
deposited the certificates in the United States mail, addressed to the optionee,
at the address specified by the Employee.
Whenever an Option is exercised by exchanging shares of Stock owned by the
Employee, the Employee shall deliver to the Company certificates registered in
the name of the Employee representing a number of shares of Stock legally and
beneficially owned by the Employee, free of all liens, claims, and encumbrances
of every kind, accompanied by stock powers duly endorsed in blank by the record
holder of the shares represented by the certificates (with signature guaranteed
by the Company or a commercial bank or trust company or by a brokerage firm
having a membership on a registered national stock exchange). The delivery of
certificates upon the exercise of Options is subject to the condition that the
person exercising the Option provide the Company with the information the
Company might reasonably request pertaining to exercise, sale or other
disposition.
5.6 SUBSTITUTION OPTIONS. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and
conditions of the substitute Options granted may vary from the terms and
conditions set out in the Plan to the extent the Committee, at the time of
grant, may deem appropriate to conform, in whole or in part, to the provisions
of the stock options in substitution for which they are granted.
5.7 NO RIGHTS AS STOCKHOLDER. No Employee shall have any rights as a
stockholder with respect to Stock covered by an Option until the date a stock
certificate is issued for the Stock.
5.8 CHANGE IN CONTROL. On a date at least 30 days prior to the effective
date of a Change in Control, any limitations as to the amount exercisable each
year may be modified at the discretion of the Committee so that all Options from
and after such date shall, if the Committee in its discretion so determines, be
exercisable in full. In addition, with respect to any event described in
clauses (i) through (v) of the definition of Change in Control, either (a) after
the effective date of such Change in Control, each holder of an outstanding
Option shall be entitled, upon exercise of such Option, to receive, in lieu of
shares of Stock, shares of such stock or other securities of the Company or the
surviving or acquiring corporation or such other property at the same rate per
share as the holders of shares of Stock received pursuant to the Change in
Control, or (b) all outstanding Options may be canceled by the Board as of the
effective date of the Change in Control, provided that notice of such
cancellation shall be given to each holder of an Option and each holder of an
Option shall have the right to exercise such Options in full (without regard to
any limitations that might be set forth in the Option Agreement) during a 30-day
period preceding the effective date of the Change in Control.
7
<PAGE>
ARTICLE VI
Administration
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Options granted thereunder shall
be subject to the determination of the Committee. A majority of the members of
the Committee shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or determination
reduced to writing and signed by a majority of the members shall be as effective
as if it had been made by a majority vote at a meeting properly called and held.
The Plan shall be administered in such a manner as to permit the Options granted
under it which are designated to be Incentive Options to qualify as Incentive
Options. In carrying out its authority under the Plan, the Committee shall have
full and final authority and discretion, including but not limited to the
following rights, powers and authorities, to:
(a) determine the Employees to whom and the time or times at which
Options will be made,
(b) determine the number of shares and the purchase price of Stock or
dollar amount of cash covered in each Option, subject to the terms of the
Plan,
(c) determine the terms, provisions and conditions of each Option,
which need not be identical,
(d) define the effect, if any, on an Option of the death, disability,
retirement, or termination of employment of the Employee,
(e) proscribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(f) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of the
Plan.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Article and all other Articles of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
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ARTICLE VII
Amendment or Termination of Plan
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that to the extent required to
maintain the status of any Incentive Option under the Code, no amendment that
would (a) change the aggregate number of shares of Stock which may be issued
under Incentive Options, (b) change the class of employees eligible to receive
Incentive Options, or (c) decrease the Option price for Incentive Options below
the Fair Market Value of the Stock at the time it is granted, shall be made
without the approval of the Company's shareholders. Subject to the preceding
sentence, the Board shall have the power to make any changes in the Plan and in
the regulations and administrative provisions under it or in any outstanding
Incentive Option as in the opinion of counsel for the Company may be necessary
or appropriate from time to time to enable any Incentive Option granted under
the Plan to continue to qualify as an incentive stock option or such other stock
option as may be defined under the Code so as to receive preferential federal
income tax treatment.
ARTICLE VIII
Miscellaneous
8.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside nor
shall a trust fund of any kind be established to secure the rights of any
Employee under the Plan. All Employees shall at all times rely solely upon the
general credit of the Company for the payment of any benefit which becomes
payable under the Plan.
8.2 NO EMPLOYMENT OBLIGATION. The granting of any Option shall not
constitute an employment contract, express or implied, nor impose upon the
Company or any Affiliate any obligation to employ or continue to employ any
Employee. The right of the Company or any Affiliate to terminate the employment
of any person shall not be diminished or affected by reason of the fact that an
Option has been granted to him.
8.3 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Employee any sums required by
federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option. In the alternative, the Company may require the Employee
(or other person exercising the Option) to pay the sum directly to the employer
corporation. If the Employee (or other person exercising the Option) is
required to pay the sum directly, payment in cash or by check of such sums for
taxes shall be delivered on the date of exercise. The Company shall have no
obligation upon exercise of any Option until payment has been received, unless
withholding as of or prior to the date of exercise of Stock is sufficient to
cover all sums due with respect to that exercise of Stock. The Company and its
Affiliates shall not be
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obligated to advise an Employee of the existence of the tax or the amount which
the employer corporation will be required to withhold.
8.4 FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary
in the Plan, if the Committee finds, after full consideration of the facts
presented on behalf of both the Company and the Employee, that the Employee has
been engaged in fraud, embezzlement, theft, commission of a felony or dishonesty
in the course of his employment by the Company which damaged the Company or an
Affiliate, or for disclosing trade secrets of the Company or an Affiliate, the
Employee shall forfeit all unexercised Options and all exercised Options under
which the Company has not yet delivered the certificates. The decision of the
Committee shall be final. No decision of the Committee, however, shall affect
the finality of the discharge of such Employee by the Company in any manner.
8.5 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of the Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors, and each member
of the Committee and the Board of Directors shall be entitled without further
act on his part to indemnity from the Company to the fullest extent allowed
under the Texas Business Corporation Act.
8.6 GENDER. If the context requires, words of one gender when used in
the Plan shall include the others and words used in the singular or plural shall
include the other.
8.7 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
8.8 OTHER COMPENSATION PLANS. The adoption of the Plan shall not
preclude the Company from establishing any other forms of incentive or other
compensation for employees of the Company or any Affiliate.
8.9 OTHER OPTIONS. The grant of an Option shall not confer upon the
Employee the right to receive any future or other Options under the Plan,
whether or not Options may be granted to similarly situated Employees, or the
right to receive future Options upon the same terms or conditions as previously
granted.
8.10 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas.
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EXHIBIT 11
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------------------------
April 3, 1999 March 28, 1998
----------------------------------- ------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------- ------ -------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Earnings $182 27,674 $0.01 $35,426 26,598 $ 1.33
===== ======
EFFECT OF DILUTIVE SECURITIES
Excess of shares issuable upon exercise of stock - 425 - 1,499
options over shares deemed retired utilizing
the treasury stock method
Convertible preferred stock of pooled company - - - -
Warrants of pooled company - - - -
-------- ------ ------- ------
DILUTED EARNINGS PER SHARE
Net earnings plus assumed conversions $182 28,099 $0.01 $35,426 28,097 $ 1.26
======== ====== ===== ======= ====== ======
Fiscal Years Ended
---------------------------------
March 29, 1997
-----------------------------------
Per-Share
Income Shares Amount
-------- ------ ---------
BASIC EARNINGS PER SHARE
Net Earnings $27,621 25,580 $1.08
=====
EFFECT OF DILUTIVE SECURITIES
Excess of shares issuable upon exercise of - 1,508
stock options over shares deemed retired
utilizing
the treasury stock method
Convertible preferred stock of pooled company - 293
Warrants of pooled company - 199
------- ------
DILUTED EARNINGS PER SHARE
Net earnings plus assumed conversions $27,621 27,580 $1.00
======= ====== =====
</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 1, March 30, March 29, March 28, April 3,
1995 1996 1997(1) 1998 1999
--------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes $23,511 $49,095 $45,100 $58,167 $ 294
Add fixed charges 1,085 1,857 2,363 6,647 12,009
------- ------- ------- ------- -------
Earnings as adjusted 24,596 50,952 47,463 64,814 12,303
======= ======= ======= ======= =======
Fixed charges:
Interest expense 340 898 1,192 5,272 10,495
Interest portion of rental 745 959 1,171 1,375 1,514
expense(2) ------- ------- ------- ------- -------
Total fixed charges $ 1,085 $ 1,857 $ 2,363 $ 6,647 $12,009
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 22.7x 27.4x 20.1x 9.8x 1.0x
======= ======= ======= ======= =======
</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 11, 1999, 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
April 3, 1999. We do hereby consent to the incorporation by reference of said
reports in the Registration Statements of Kent Electronics Corporation on Form
S-8, File Nos. 33-12028, 33-17821, 33-18527, 33-66030, and 333-20367.
GRANT THORNTON LLP
Houston, Texas
June 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> APR-03-1999
<CASH> 207,942
<SECURITIES> 0
<RECEIVABLES> 104,355
<ALLOWANCES> 991
<INVENTORY> 124,884
<CURRENT-ASSETS> 453,739
<PP&E> 178,860
<DEPRECIATION> 50,496
<TOTAL-ASSETS> 604,641
<CURRENT-LIABILITIES> 67,961
<BONDS> 207,000
0
0
<COMMON> 62,576
<OTHER-SE> 258,593
<TOTAL-LIABILITY-AND-EQUITY> 604,641
<SALES> 637,064
<TOTAL-REVENUES> 637,064
<CGS> 536,519
<TOTAL-COSTS> 536,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (216)
<INTEREST-EXPENSE> 10,495
<INCOME-PRETAX> 294
<INCOME-TAX> 112
<INCOME-CONTINUING> 182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
