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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
--------------------------------------------
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
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KENT ELECTRONICS CORPORATION
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Exact name of registrant as specified in its charter)
Texas 74-1763541
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Gillingham Lane, Sugar Land, Texas 77478
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 243-4000
---------------
Not applicable
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At August 8, 2000, 28,492,333 shares of common stock, no par value, were
outstanding.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 1, April 1,
2000 2000
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $75,137 at July 1 and
$105,164 at April 1)............................ $ 84,639 $101,052
Accounts receivable, less allowance of $1,077
at July 1 and $932 at April 1................... 203,758 181,953
Inventories
Materials and purchased products................ 202,265 190,735
Work in process................................. 9,221 6,960
-------- --------
211,486 197,695
Other............................................. 17,002 13,328
-------- --------
Total current assets.......................... 516,885 494,028
PROPERTY AND EQUIPMENT
Land.............................................. 8,168 8,168
Buildings......................................... 44,323 44,294
Equipment, furniture and fixtures................. 133,446 134,850
Leasehold improvements............................ 2,269 2,965
-------- --------
188,206 190,277
Less accumulated depreciation and amortization.... (68,484) (67,323)
-------- --------
119,722 122,954
OTHER ASSETS........................................... 17,210 10,429
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $6,088 at
July 1 and $5,387 at April 1...................... 103,023 103,724
-------- --------
$756,840 $731,135
======== ========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
July 1, April 1,
2000 2000
-------- --------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................ $120,332 $108,088
Accrued compensation............................ 17,633 26,203
Other accrued liabilities....................... 23,118 17,812
Income taxes.................................... 3,787 589
Current maturities of long-term debt............ 4,000 4,000
-------- --------
Total current liabilities................... 168,870 156,692
LONG-TERM DEBT, less current maturities.............. 212,000 212,000
DEFERRED INCOME TAXES................................ 11,849 11,824
LONG-TERM LIABILITIES................................ 7,061 5,887
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; 28,495,888 shares issued
and 28,445,888 shares outstanding at July 1
and 28,375,032 shares issued and 28,325,032
shares outstanding at April 1................. 72,033 68,579
Additional paid-in capital...................... 117,852 117,797
Retained earnings............................... 168,152 159,333
-------- --------
358,037 345,709
Less common stock in treasury - at cost,
50,000 shares................................. (977) (977)
-------- --------
357,060 344,732
-------- --------
$756,840 $731,135
======== ========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Thirteen Weeks Ended
--------------------
July 1, July 3,
2000 1999
-------- --------
(Unaudited)
Net sales...................................... $308,268 $205,176
Cost of sales.................................. 254,038 173,146
-------- --------
Gross profit................................. 54,230 32,030
Selling, general and administrative expenses... 38,435 28,091
-------- --------
Operating profit............................. 15,795 3,939
Other income (expense)
Interest expense............................. (2,709) (2,578)
Other - net.................................. 1,611 1,782
-------- --------
Earnings before income taxes............... 14,697 3,143
Income taxes................................... 5,878 1,234
-------- --------
NET EARNINGS............................. $ 8,819 $ 1,909
======== ========
Earnings per common share:
Basic...................................... $.31 $.07
======== ========
Diluted.................................... $.30 $.07
======== ========
Weighted average shares:
Basic...................................... 28,385 27,974
======== ========
Diluted.................................... 29,597 28,329
======== ========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Thirteen Weeks Ended
---------------------
July 1, July 3,
2000 1999
-------- --------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings....................................... $ 8,819 $ 1,909
Adjustments to reconcile net earnings to net
cash used by operating activities
Depreciation and amortization.................. 5,452 4,341
Provision for losses on accounts receivable.... 144 53
(Gain) loss on disposition of assets........... (247) 3
Stock option expense........................... 55 72
Tax effect of common stock issued upon
exercise of employee stock options........... 2,011 19
Change in assets and liabilities, net of
effects from business acquisitions and
disposition of assets
Accounts receivable.......................... (22,529) (15,287)
Inventories.................................. (39,747) (2,699)
Other current assets......................... 2,979 1,616
Other assets................................. (3,781) 160
Accounts payable............................. 19,640 (3,341)
Accrued compensation......................... (8,464) (2,542)
Other accrued liabilities.................... 4,627 2,989
Income taxes................................. 3,198 ---
Deferred income taxes........................ 25 25
Long-term liabilities........................ 1,174 ---
-------- --------
Total adjustments...................... (35,463) (14,591)
-------- --------
Net cash used by operating
activities........................... (26,644) (12,682)
(Continued)
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Thirteen Weeks Ended
---------------------
July 1, July 3,
2000 1999
-------- --------
(Unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................... $ (3,212) $ (1,675)
Business acquisitions.............................. --- (64,000)
Proceeds from sale of assets....................... 12,000 ---
-------- ---------
Net cash provided (used) by investing
activities............................ 8,788 (65,675)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt of acquired businesses... --- (24,255)
Issuance of common stock........................... 1,443 174
-------- ---------
Net cash provided (used) provided by
financing activities....................... 1,443 (24,081)
-------- ---------
NET DECREASE IN CASH.................................... (16,413) (102,438)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 101,052 207,942
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 84,639 $ 105,504
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest......................................... $ --- $ ---
Income taxes..................................... 712 (1,217)
Non-cash investing activities:
Note and non-compete receivables from sale of
assets......................................... 9,846 ---
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
-------------------
The consolidated balance sheet as of July 1, 2000, and the consolidated
statements of earnings and cash flows for the thirteen week periods ended
July 1, 2000 and July 3, 1999, have been prepared by the Company without audit.
In the opinion of management, the financial statements include all adjustments
necessary for a fair presentation. All adjustments made were of a normal
recurring nature. Interim results are not necessarily indications of results for
a full year. For further financial information, refer to the audited financial
statements of the Company and notes thereto for the fiscal year ended April 1,
2000, included in the Company's Form 10-K for that period.
Business Acquisitions
---------------------
In November 1999, the Company acquired all the outstanding common stock of
Orange Coast Datacomm, Inc., Orange Coast Cabling, Inc. and Go Telecomm, Inc.,
collectively known as Orange Coast, for an aggregate purchase price of
approximately $17.7 million, which included an unsecured promissory note in the
amount of $9.0 million. Orange Coast, which reported sales of approximately
$19.0 million for the year ended December 31, 1998, provided comprehensive
end-to-end voice and data network solutions to major corporations from offices
in Irvine and Santa Clara, California.
In June 1999, the Company acquired certain assets and assumed certain
liabilities of Advacom, Inc. (Advacom) 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. Advacom was a
Pennsylvania based distributor of electronic connectors, passive and
electromechanical components and generated approximately $112.0 million in
revenue for the year ended December 31, 1998.
Sale of Redistribution Wire & Cable Assets
------------------------------------------
On May 23, 2000, the Company completed the sale of certain assets of its
specialty distribution business to Houston Wire & Cable Company. The sale
included assets related to the redistribution of high voltage specialty wire and
cable to electrical distributors. These assets generated approximately
$93.0 million in revenues for the fiscal year ended April 1, 2000.
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Cash and Cash Equivalents
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Temporary investments may be greater than the cash and cash equivalents balance
because they may be offset by individual bank accounts with a book overdraft
position within the same bank where multiple accounts are maintained.
Sales to Major Customers
------------------------
For the thirteen week period ended July 1, 2000, sales to Applied Materials,
Inc. represented approximately 12% of net sales.
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 1.2 million and 0.4 million were used in the calculation of diluted
earnings per common share for the thirteen week periods ended July 1, 2000 and
July 3, 1999, respectively. Options to purchase 0.1 million and 0.8 million
shares of common stock for the thirteen week periods ended July 1, 2000 and
July 3, 1999, respectively, were not included in the computation of diluted
earnings per common share because the option exercise price was greater than the
average market price of the common stock. The calculation of earnings per share
does not include approximately 4.2 million shares issuable upon conversion of
the 4 1/2% Convertible Subordinated Notes due 2004 because inclusion of such
shares would be antidilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Net sales for the thirteen week period ended July 1, 2000 increased $103.1
million, or 50.2%, compared to the same period a year ago. Net sales for the
Company's specialty distribution and network solutions businesses increased
$73.1 million, or 48.7%, compared to the prior year period, primarily as a
result of internal growth, strong market conditions in the industries that the
Company serves, and the Orange Coast and Advacom acquisitions, partially offset
by the loss of sales associated with the redistribution assets which were sold
in May 2000. The contract manufacturing business grew $30.0 million, or 54.5%,
compared
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to the same quarter last year, primarily as a result of increased sales to
customers in the semiconductor capital equipment, network systems and
telecommunications industries.
Gross profit increased $22.2 million, or 69.3%, for the thirteen weeks compared
to the corresponding period a year ago primarily due to increased sales combined
with an increase in the gross profit percentage. Gross profit as a percentage
of sales increased to 17.6% from 15.6% in the same period last year. The
increase in the gross profit percentage was primarily due to growth in the
specialty distribution business, an improved pricing environment for certain
products and services, and improvements in plant and equipment utilization in
the Company's contract manufacturing business.
Selling, general and administrative (SG&A) expenses increased $10.3 million, or
36.8%, compared to the same quarter last year. The increase in SG&A expenses
was primarily due to expenses necessary to support the growth in the Company's
operations, including acquisitions and the expansion of network solutions
services. As a percentage of sales, SG&A expenses decreased to 12.5% compared
to 13.7% in the corresponding period last year. The decrease as a percentage of
sales was the result of the continued focus on cost containment and leveraging
operating expenses on higher sales.
Interest expense consists primarily of interest on the 4 1/2% Convertible
Subordinated Notes due 2004.
Other-net consists principally of interest and dividend income generated by cash
and cash equivalents.
Net earnings for the thirteen week period were $8.8 million compared to
$1.9 million in the same period last year. The increase in net earnings was
primarily the result of increased gross profit partially offset by an increase
in SG&A expenses.
Liquidity and Capital Resources
-------------------------------
Working capital at July 1, 2000 was $348.0 million, an increase of
$10.7 million, or 3.2%, since April 1, 2000. The increase was primarily due to
the growth in accounts receivable and inventories in relation to current and
future sales levels.
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Temporary investments at July 1, 2000 were $75.1 million, a decrease of
$30.0 million since April 1, 2000, which was primarily due to the growth in
other working capital. 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 July 1, 2000, funds were invested in
institutional money market funds, which are compatible with the Company's stated
investment strategy.
The Company intends to apply its capital resources to expand its business by
establishing or acquiring similar distribution and manufacturing operations in
geographic areas that are attractive to the Company, by acquiring new facilities
and by enlarging or improving existing facilities. In addition to the capital
required to purchase existing businesses or to fund start-up operations, the
expansion of the Company's operations at both new and existing locations will
require greater levels of capital to finance the purchase of additional
equipment, increased levels of inventory and greater accounts receivable. The
Company believes that current resources including funds generated from
operations should be sufficient to meet its current capital requirements.
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 Quarterly Report on Form 10-Q. 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 "should," "will" or
words or phrases of similar meaning. 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-
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looking statements include, but are not limited to, the factors discussed in the
Company's Annual Report on Form 10-K for the fiscal year ended April 1, 2000.
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 temporary investments and its 4 1/2% Convertible
Subordinated Notes Due 2004.
PART II - OTHER INFORMATION
Items 1, 2, 3 and 5 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders.
------------------------------------------------------------
The Company held its Annual Meeting of Shareholders on June 29, 2000. At such
meeting, Messrs. LeRoy J. Morgan and David Siegel were elected to serve as
directors of the Company for the next three years. In addition, shareholders
ratified the appointment of Grant Thornton LLP as the Company's independent
public accountants for the fiscal year ending March 31, 2001.
Votes Against
or Withheld Votes Broker
Proposal Votes For Authority Abstained Non-Votes
-------- --------- ------------- --------- ---------
1. Election of Directors:
LeRoy J. Morgan 24,432,405 285,973 0 0
David Siegel 24,434,736 283,602 0 0
2. Approval and ratification
of the appointment of
Grant Thornton LLP as the
Company's independent
public accountants for the
fiscal year ending
March 31, 2001. 24,684,828 21,993 11,557 0
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Item 6. Exhibits and Reports on Form 8-K.
-----------------------------------------
(a) Exhibits:
3 - Amended and Restated Bylaws of Kent Electronics Corporation.
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8K dated June 14, 2000
reporting under "Item 5. Other Events" the announcement of the sale of
certain assets of its specialty wire and cable redistribution
business.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENT ELECTRONICS CORPORATION
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(Registrant)
Date: August 11, 2000 By: /s/Larry D. Olson
--------------------- ------------------------------
Larry D. Olson
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: August 11, 2000 By: /s/Stephen J. Chapko
--------------------- ------------------------------
Stephen J. Chapko
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer)
Date: August 11, 2000 By: /s/David D. Johnson
--------------------- ------------------------------
David D. Johnson
Vice President, Corporate
Controller (Principal Accounting
Officer)
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