<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
KENT ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1763541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Gillingham Lane, Sugar Land, Texas 77478
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 243-4000
Not applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At November 10, 2000, 28,584,847 shares of common stock, no par value, were
outstanding.
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, April 1,
2000 2000
------------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $80,237 at September 30 and
$105,164 at April 1)............................ $ 74,162 $101,052
Accounts receivable, less allowance of $1,195
at September 30 and $932 at April 1............. 180,909 149,161
Inventories
Materials and purchased products................ 117,222 124,939
Work in process................................. 826 1,002
-------- --------
118,048 125,941
Net assets of discontinued operations............. 195,164 143,795
Other............................................. 8,792 12,594
-------- --------
Total current assets.......................... 577,075 532,543
PROPERTY AND EQUIPMENT
Land.............................................. 4,990 4,990
Buildings......................................... 18,424 19,627
Equipment, furniture and fixtures................. 57,050 58,808
Leasehold improvements............................ 855 1,541
-------- --------
81,319 84,966
Less accumulated depreciation and amortization.... (28,222) (29,209)
-------- --------
53,097 55,757
OTHER ASSETS........................................... 16,344 10,429
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $6,568 at
September 30 and $5,176 at April 1................ 101,772 103,164
-------- --------
$748,288 $701,893
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2 of 14
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, April 1,
2000 2000
------------- --------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................. $ 98,842 $ 82,782
Accrued compensation.............................. 20,460 23,877
Other accrued liabilities......................... 21,045 16,202
Income taxes...................................... 4,323 589
Current maturities of long-term debt.............. 4,000 4,000
-------- --------
Total current liabilities..................... 148,670 127,450
LONG-TERM DEBT, less current maturities................ 212,000 212,000
DEFERRED INCOME TAXES.................................. 11,874 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; 28,592,853 shares issued
and 28,542,853 shares outstanding at
September 30 and 28,375,032 shares issued and
28,325,032 shares outstanding at April 1........ 74,035 68,579
Additional paid-in capital........................ 117,908 117,797
Retained earnings................................. 177,717 159,333
-------- --------
369,660 345,709
Less common stock in treasury - at cost,
50,000 shares................................... (977) (977)
-------- --------
368,683 344,732
-------- --------
$748,288 $701,893
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3 of 14
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited - In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------------- --------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Net sales....................................... $231,364 $173,473 $454,677 $323,673
Cost of sales................................... 183,404 138,630 360,473 257,990
-------- -------- -------- --------
Gross profit............................... 47,960 34,843 94,204 65,683
Selling, general and administrative expenses.... 35,193 29,530 70,476 54,901
-------- -------- -------- --------
Operating profit........................... 12,767 5,313 23,728 10,782
Other income (expense)
Interest expense........................... (2,676) (2,575) (5,385) (5,153)
Other - net................................ 1,230 1,354 2,841 3,136
-------- -------- -------- --------
Earnings from continuing operations
before income taxes.................... 11,321 4,092 21,184 8,765
Income taxes.................................... 4,527 1,643 8,472 3,520
-------- -------- -------- --------
Earnings from continuing operations............. 6,794 2,449 12,712 5,245
Earnings from discontinued operations,
net of income taxes........................ 2,771 1,235 5,672 348
-------- -------- -------- --------
NET EARNINGS............................. $ 9,565 $ 3,684 $ 18,384 $ 5,593
======== ======== ======== ========
Basic earnings per common share:
Earnings from continuing operations.... $ .24 $ .09 $ .45 $ .19
======== ======== ======== ========
Net earnings........................... $ .34 $ .13 $ .65 $ .20
======== ======== ======== ========
Diluted earnings per common share:
Earnings from continuing operations.... $ .23 $ .09 $ .43 $ .18
======== ======== ======== ========
Net earnings........................... $ .32 $ .13 $ .62 $ .20
======== ======== ======== ========
Weighted average shares:
Basic.................................. 28,508 27,993 28,446 27,984
======== ======== ======== ========
Diluted................................ 29,675 28,740 29,636 28,534
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4 of 14
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
---------------------------
September 30, October 2,
2000 1999
------------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from continuing operations................. $ 12,712 $ 5,245
Adjustments to reconcile earnings from continuing
operations to net cash used by operating
activities
Depreciation and amortization................... 4,676 3,309
Provision for losses on accounts receivable..... 263 115
(Gain) loss on disposition of assets............ (245) 9
Stock option expense............................ 111 143
Tax effect of common stock issued upon
exercise of employee stock options............ 2,562 81
Change in assets and liabilities, net of
effects from business acquisitions and
disposition of assets
Accounts receivable........................... (32,590) (19,439)
Inventories................................... (18,063) (19,912)
Other current assets.......................... 3,609 3,741
Other assets.................................. (2,915) 343
Accounts payable.............................. 23,456 13,545
Accrued compensation.......................... (3,311) 960
Other accrued liabilities..................... 4,164 1,034
Income taxes.................................. 3,734 ---
Deferred income taxes......................... 50 50
Long-term liabilities.................... 1,174 ---
-------- --------
Total adjustments....................... (13,325) (16,021)
-------- --------
Net cash used by operating
activities of continuing operations... (613) (10,776)
</TABLE>
(Continued)
Page 5 of 14
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------------
September 30, October 2,
2000 1999
------------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................ $ (3,439) $ (2,529)
Business acquisitions............................... --- (64,000)
Proceeds from sale of assets........................ 18,846 ---
-------- ---------
Net cash provided (used) by investing
activities of continuing operations......... 15,407 (66,529)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term debt of acquired businesses.... --- (24,255)
Issuance of common stock............................ 2,894 352
-------- ---------
Net cash provided (used) by financing
activities of continuing operations......... 2,894 (23,903)
-------- ---------
NET INCREASE (DECREASE) IN CASH FROM CONTINUING
OPERATIONS.......................................... 17,688 (101,208)
NET DECREASE IN CASH FROM DISCONTINUED OPERATIONS........ (44,578) (2,999)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 101,052 207,942
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 74,162 $ 103,735
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest.......................................... $ 4,658 $ 4,658
Income taxes...................................... 5,909 (916)
Non-cash investing activities:
Non-compete receivable from sale of assets........ 3,000 ---
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6 of 14
<PAGE>
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
The consolidated balance sheet as of September 30, 2000, and the consolidated
statements of earnings and cash flows for the thirteen and twenty-six week
periods ended September 30, 2000 and October 2, 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 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.
Page 7 of 14
<PAGE>
Discontinued Operations
On October 10, 2000, subsequent to the end of the second quarter of fiscal 2001,
the Company sold the common stock of K*TEC Electronics Corporation, its contract
manufacturing operation, for $225.0 million, consisting of $175.0 million in
cash and a $50.0 million senior secured note maturing on March 10, 2001. K*TEC
is a vertically integrated contract manufacturer providing total box build and
subassemblies. The purchase price is subject to a post-closing adjustment based
upon K*TEC's net asset value as of October 7, 2000. A pretax gain on the sale
of K*TEC of approximately $30.0 million to $40.0 million is expected to be
recorded in the third quarter of fiscal 2001. The net assets and operations of
K*TEC are reflected as discontinued operations. Corporate, and shared general
and administrative costs of the Company were not allocated to discontinued
operations.
Certain information with respect to the discontinued operations of K*TEC is as
follows:
<TABLE>
<CAPTION>
(In thousands, except per share data) Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------------- -------------------------- ---------------------------
September 30, October 2, September 30, October 2,
2000 1999 2000 1999
------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $118,026 $ 62,600 $202,981 $117,576
-------- -------- -------- --------
Earnings before income taxes............ 4,620 1,974 9,454 444
Income taxes............................ 1,849 739 3,782 96
-------- -------- -------- --------
Earnings from discontinued
operations............................ $ 2,771 $ 1,235 $ 5,672 $ 348
======== ======== ======== ========
Earnings per common share from
discontinued operations:
Basic............................... $ .10 $ .04 $ .20 $ .01
======== ======== ======== ========
Diluted............................. $ .09 $ .04 $ .19 $ .01
======== ======== ======== ========
As of September 30, 2000 As of April 1, 2000
------------------------ ----------------------
Current assets.......................... $187,462 $105,280
Noncurrent assets....................... 66,178 67,757
-------- --------
Total assets............................ 253,640 173,037
-------- --------
Current liabilities..................... 58,476 29,242
-------- --------
Total liabilities....................... 58,476 29,242
-------- --------
Net assets of K*TEC..................... $195,164 $143,795
======== ========
</TABLE>
Page 8 of 14
<PAGE>
Cash and Cash Equivalents
Temporary investments may be greater than the cash and cash equivalents balance
because they may be offset by individual bank accounts with a book overdraft
position within the same bank where multiple accounts are maintained.
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 were used in the calculation of diluted earnings per
common share for both the thirteen and twenty-six week periods ended September
30, 2000. Incremental shares of 0.7 million and 0.6 million were used in the
calculation of diluted earnings per common share for the thirteen and twenty-six
week periods ended October 2, 1999, respectively. Options to purchase 0.3
million and 1.0 million shares of common stock for the thirteen week periods,
and 0.2 million and 1.1 million for the twenty-six week periods ended September
30, 2000 and October 2, 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 CONTINUING OPERATIONS
Results of Continuing Operations
Net sales for the thirteen and twenty-six week periods ended September 30, 2000
increased $57.9 million, or 33.4%, and $131.0 million, or 40.5%, compared to the
same periods a year ago. The Company's two core businesses, specialty
distribution and network solutions, accounted for 57.8% and 42.2% of sales in
the second fiscal quarter and posted sequential growth of 12.3% and 9.3%,
respectively. The sales increase from the prior year periods reflects internal
growth resulting from increased demand for networking products and services, and
interconnect, passive and electromechanical products, sales from Advacom and
Page 9 of 14
<PAGE>
Orange Coast since the respective acquisition dates, and partially offset by the
loss of sales associated with the wire and cable redistribution assets sold in
May 2000.
Gross profit increased $13.1 million, or 37.6%, for the thirteen weeks and $28.5
million, or 43.4%, for the twenty-six weeks compared to the corresponding
periods a year ago primarily due to increased sales combined with an increase in
the gross profit percentage. For the thirteen and twenty-six week periods,
gross profit as a percentage of sales increased to 20.7% in both current year
periods from 20.1% and 20.3%, respectively, in the same periods last year. The
increase in the gross profit percentage was primarily due to an improved pricing
environment for certain products.
Selling, general and administrative (SG&A) expenses increased $5.7 million, or
19.2%, and $15.6 million, or 28.4%, for the thirteen and twenty-six week
periods, respectively. 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, partially offset
by the sale of the wire and cable redistribution assets. As a percentage of
sales, SG&A expenses decreased to 15.2% and 15.5% in the thirteen and twenty-six
week periods, respectively, compared to 17.0% in both corresponding periods last
year. The decrease as a percentage of sales was the result of leveraging
operating expenses on higher sales, the sale of the wire and cable
redistribution assets, the continued focus on cost containment, and an increase
in service sales as a percentage of total 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.
Earnings from continuing operations were $6.8 million for the thirteen week
period compared to $2.4 million in the corresponding period a year ago. For the
twenty-six week period, earnings from continuing operations were $12.7 million
compared to $5.2 million last year. The increase in earnings from continuing
operations was primarily the result of increased gross profit partially offset
by an increase in SG&A expenses.
Page 10 of 14
<PAGE>
Liquidity and Capital Resources
Working capital excluding assets of discontinued operations was $233.2 million,
a decrease of $28.1 million, or 10.7%, since April 1, 2000. The decrease was
primarily due to the growth in accounts payable and other accrued liabilities.
Included in the Company's working capital at September 30, 2000 are temporary
investments of $80.2 million, a decrease of $24.9 million since April 1, 2000,
which was primarily due to funding growth in inventories and accounts receivable
of discontinued operations. The Company's investment strategy is low-risk and
short-term, keeping the funds readily available to meet capital requirements as
they arise in the normal course of business. At September 30, 2000, funds were
invested in institutional money market funds, which are compatible with the
Company's stated investment strategy. On October 10, 2000, subsequent to the
end of the second quarter of fiscal 2001, the Company received cash of $175.0
million and a $50 million senior secured note maturing on March 10, 2001, for
the sale of K*TEC Electronics.
On October 6, 2000, the Company obtained a $25.0 million line of credit with a
bank. As of the date of this filing, there was no indebtedness outstanding
under the line of credit.
The Company intends to apply its capital resources to expand its business by
establishing or acquiring similar specialty distribution and network solutions
operations in geographic areas that are attractive to the Company, by acquiring
new facilities and by enlarging or improving existing facilities. In addition
to the capital required to purchase existing businesses or to fund start-up
operations, the expansion of the Company's operations at both new and existing
locations will require greater levels of capital to finance the purchase of
additional equipment, increased levels of inventory and greater accounts
receivable. The Company believes that current resources, including the line of
credit, along with funds generated from operations, should be sufficient to meet
its current capital requirements.
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
Page 11 of 14
<PAGE>
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-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, notes receivable and 4 1/2%
Convertible Subordinated Notes Due 2004.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 - Computation of Earnings Per Share.
27.1 - Financial Data Schedule.
27.2 - Financial Data Schedule.
27.3 - Financial Data Schedule.
Page 12 of 14
<PAGE>
(b) Reports on Form 8-K:
(i) The Company filed a Current Report on Form 8-K dated October 11,
2000 reporting under "Item 2. Acquisition or Disposition of
Assets" the sale of 100% of the common stock of K*TEC
Electronics Corporation.
(ii) The Company filed a Current Report on Form 8-K dated October 25,
2000 reporting under "Item 5. Other Events" the announcement of
financial results for the fiscal second quarter and six months
ended September 30, 2000.
Page 13 of 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENT ELECTRONICS CORPORATION
--------------------------------------
(Registrant)
Date: November 14, 2000 By: /s/Larry D. Olson
------------------ --------------------
Larry D. Olson
Chief Executive Officer,
President and Director
(Principal Executive Officer)
Date: November 14, 2000 By: /s/Stephen J. Chapko
------------------ --------------------
Stephen J. Chapko
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer)
Date: November 14, 2000 By: /s/David D. Johnson
------------------ -------------------
David D. Johnson
Vice President, Corporate Controller
(Principal Accounting Officer)
Page 14 of 14
