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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 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
KENT ELECTRONICS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Texas 74-1763541
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
1111 Gillingham Lane 77478
Sugar Land, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (281) 243-4000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, without par value New York Stock Exchange, Inc.
4 1/2% Convertible Subordinated Notes
Due 2004
(Title of each class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 21, 2000 was approximately $777,805,084.
As of June 21, 2000, there were outstanding 28,446,028 shares of Common
Stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 2000 Annual Meeting of Shareholders of the
Registrant (Sections entitled "Kent Common Stock Beneficially Owned by
Directors, Officers and Five Percent Shareholders", "Compensation Tables",
"Executive Officers" and "Proposal 1 - Election of Directors", and Subsections
entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and "Certain
Transactions") 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, network integrator and full-service contract manufacturer. The
Company has strategically aligned its operations into three complementary
business units that seek to develop competitive advantages within targeted
markets.
o 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.
o Kent Datacomm offers a full range of end-to-end network solutions and
professional services, including design consulting, source selection,
product configuration and installation, and warranty and technical support.
The division's areas of expertise include voice over IP, video to the
desktop, network security, wireless, network management and structured
cabling solutions. The voice and data communication products it offers
include network interface cards, switches, hubs, routers, modems,
connectivity devices, fiber optics and copper cabling.
o K*TEC Electronics 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, 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 1, 2000, the Company invested approximately $77 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 began operating in fiscal 2000 and the adjacent
state-of-the-art K*TEC facility in Sugar Land, Texas completed in spring 1997,
consisting of approximately 472,000 square feet.
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
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increasingly on value-added resources to design, deliver, install, fine-tune and
maintain complex systems. The convergence of voice, data and video applications
and 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.
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, the Internet and the convergence of voice, data and
video applications. 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, security, 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
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manufacturing relationships from subassemblies to box build as OEMs
increase their demand for outsourced supply chain management solutions.
REMAINING A KEY PLAYER IN TARGET MARKETS. The Company has focused on
markets where it strives to maintain and enhance its position as a national
distributor of premier products. The Company believes it can strengthen its
position within these markets by expanding its supplier relationships and
capitalizing on OEMs' shift toward using distribution channels.
CAPITALIZING ON INDUSTRY CONSOLIDATION. The Company expects
consolidation within the specialty 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. The Company anticipates
increased opportunities to acquire the production capacity of OEMs
following the trend toward outsourcing manufacturing operations. In
addition, the Company expects consultation to continue in the network
integration sector in response to networking customers' increasing reliance
on outsourced professional services. The Company will continue to evaluate
and pursue acquisition opportunities that enhance its position as a
national distributor, network integrator 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 and consultation, product configuration, network
security, remote network monitoring and troubleshooting, and maintenance
programs and technical support. Professional services provide an emergent
source of revenues, as well as a means of solidifying relationships with
customers and suppliers.
MAXIMIZING SYNERGIES BETWEEN BUSINESS UNITS. The Company believes its
three 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 enter orders
and 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.
SPECIALTY DISTRIBUTION
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 enter orders and 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
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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.
NETWORK INTEGRATION
Kent Datacomm offers a full range of end-to-end network solutions. The
division's areas of expertise include voice over IP, video to the desktop,
network security, wireless, network management and structured cabling solutions.
The voice and data communication products it offers include network interface
cards, switches, hubs, routers, modems, connectivity devices, fiber optics and
copper cabling. Kent Datacomm's professional services include project
management, 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 networking market,
capitalizing on the increasing need for network bandwidth. Kent Datacomm serves
mid to large scale enterprises in numerous industries, as well as educational
institutions and governmental agencies.
CONTRACT MANUFACTURING
K*TEC provides vertically integrated electronic manufacturing products and
services, including printed circuit board assembly and test, electronic
interconnect assemblies, 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 computer, 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 May 27, 2000, the Company employed approximately 400 sales representatives
operating out of sales offices in 36 cities in 24 states. The Company's sales
representatives undergo continuous training and attend classes in order to
enhance both their technical expertise and sales techniques. Sales associates
are compensated primarily on a commission basis. In the marketing of its
products, the Company supplements the efforts of its direct sales force with
direct mailings of brochures and catalogs, the publication of various white
papers, 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 seventh largest electronics distributor in the
United States based on total 1999 calendar year sales. Industry publications
estimate that ten distributors each had 1999 calendar year North American sales
in excess of $500 million. Additionally, an industry publication estimated that
Kent Datacomm was the sixth largest network value added reseller in the United
States based on 1999 calendar year sales.
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 $199
million as of April 1, 2000 and $73 million as of April 3, 1999.
EMPLOYEES
At May 27, 2000, the Company employed approximately 2,600 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.
RECENT DEVELOPMENTS SINCE FISCAL YEAR END
On May 22, 2000, the Company sold certain assets of its specialty wire and
cable redistribution business. The Company believes that this transaction is
consistent with its strategy of strengthening its core operations and
effectively deploying its resources to serve high growth applications. The
Company's redistribution assets which were sold generated annual revenues of
approximately $93 million, representing 9% of the Company's total sales for the
fiscal year ended April 1, 2000. The transaction is expected to be
earnings-neutral to the Company in fiscal 2001.
ITEM 2. PROPERTIES
The Company's K*TEC facility located in Sugar Land, Texas consists of
approximately 472,000 square feet. The Company's Sugar Land distribution
facility, which was completed in Fiscal 2000 consists of approximately 220,000
square feet. The Company's facilities in Sugar Land are located on a 96 acre
parcel of land.
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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 specialty distribution and network integration operations.
The following table summarizes the principal properties leased by the
Company:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
LOCATION SQUARE FOOTAGE EXPIRES
-------- -------------- -------
<S> <C> <C>
Austin, Texas 35,940(1) 2001
Fountain Valley, California 16,996 2003
Houston, Texas 151,000 2003
Linden, New Jersey 15,021 2004
McKean, Pennsylvania 56,700 2000
Milipitas, California 39,800 2003
Philadelphia, Pennsylvania 20,000 2001
Plano, Texas 52,432 2004
Santa Fe Springs, California 22,000 2001
Schaumburg, Illinois 19,614 2002
St. Paul, Minnesota 21,642 2005
</TABLE>
(1) includes two leased properties in Austin, Texas.
As of May 27, 2000, the Company's other facilities located in Bloomington,
Illinois; Carrollton, Texas; Cedar Rapids, Iowa; Columbia, Maryland; Columbus,
Ohio; Dayton, Ohio; Durham, Oregon; El Paso, Texas; Englewood, Colorado;
Houston, Texas; Huntsville, Alabama; Indianapolis, Indiana; Irvine, California;
Kentwood, Michigan; Livermore, California; Lowell, Massachusetts; McAllen,
Texas; Miami, Florida; Mt. Laurel, New Jersey; New York, New York; Novi,
Michigan; O'Hara Township, Pennsylvania; Orlando, Florida; Overland Park,
Kansas; Pewaukee, Wisconsin; Pine Brook, New Jersey; Pittsford, New York;
Plainview, New York; Raleigh, North Carolina; Redmond, Washington; Richardson,
Texas; Salem, New Hampshire; San Angelo, Texas; San Antonio, Texas; San Diego,
California; San Jose, California; Santa Clara, California; Seneca, New York;
Solon, Ohio; Tempe, Arizona; Wallingford, Connecticut; and Warrensville Heights,
Ohio occupied an aggregate of approximately 234,191 square feet subject to
leases expiring at various times through the year 2005. 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.
The Company is a party to certain leases through which the Company leased
certain properties primarily used in connection with the Company's specialty
wire and cable redistribution business, which was sold. In connection with the
sale, the Company is in the process of obtaining landlord consents with respect
to the assignment of the properties leased by the Company located in Baton
Rouge, Louisiana; Cerritos, California; Charlotte, North Carolina; Dallas,
Texas; Denver, Colorado; Exton, Pennsylvania; Kent, Washington; Lombard,
Illinois; Norcross, Georgia; and Tampa, Florida. These leased properties consist
of an aggregate of approximately 249,525 square feet and are subject to leases
expiring at various times through the year 2004.
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 and
trades 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 1999 and 2000 and for a portion of the Company's
current quarter, as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
FISCAL YEAR 1999 HIGH LOW
---------------- ---- ---
<S> <C> <C>
First Quarter .................................... $ 23.81 $ 17.88
Second Quarter ................................... 18.69 8.00
Third Quarter .................................... 17.88 7.81
Fourth Quarter ................................... 13.75 8.31
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 2000
----------------
<S> <C> <C>
First Quarter .................................... $ 19.81 $ 9.13
Second Quarter ................................... 19.81 14.56
Third Quarter .................................... 24.06 16.38
Fourth Quarter ................................... 34.88 20.75
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 2001
----------------
<S> <C> <C>
First Quarter (through June 21, 2000) ............ $ 31.19 $ 24.50
</TABLE>
On May 11, 2000, there were 1,213 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 1, 2000. 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 1, April 3, March 28, March 29, March 30,
2000 1999 1998 1997(1) 1996
--------- --------- --------- --------- ---------
(In thousands, except per share data and ratio)
<S> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Net sales .................................. $ 993,938 $ 637,064 $ 659,400 $ 516,757 $ 425,810
Cost of sales .............................. 824,694 536,519 512,147 396,054 313,643
--------- --------- --------- --------- ---------
Gross profit ........................ 169,244 100,545 147,253 120,703 112,167
Selling, general and
administrative expenses ............. 134,310 100,992 90,854 73,607 66,106
Merger and integration costs ............... -- -- -- 5,500 --
--------- --------- --------- --------- ---------
Operating profit (loss) ............. 34,934 (447) 56,399 41,596 46,061
Other income (expense):
Interest expense .................... (10,470) (10,495) (5,272) (1,192) (898)
Other - net (principally interest and
dividend income) ................ 5,579 11,236 7,040 4,696 3,932
--------- --------- --------- --------- ---------
Earnings before income taxes ....... 30,043 294 58,167 45,100 49,095
Income taxes ............................... 11,792 112 22,741 17,479 19,303
--------- --------- --------- --------- ---------
Net earnings ........................ $ 18,251 $ 182 $ 35,426 $ 27,621 $ 29,792
========= ========= ========= ========= =========
Earnings per common share:
Basic ............................... $ 0.65 $ 0.01 $ 1.33 $ 1.08 $ 1.28
========= ========= ========= ========= =========
Diluted ............................. $ 0.63 $ 0.01 $ 1.26 $ 1.00 $ 1.21
========= ========= ========= ========= =========
Weighted average shares:
Basic ............................... 28,062 27,674 26,598 25,580 23,192
========= ========= ========= ========= =========
Diluted ............................. 28,888 28,099 28,097 27,580 24,722
========= ========= ========= ========= =========
Ratio of earnings to fixed charges(2) ...... 3.4x 1.0x 9.8x 20.1x 27.4x
</TABLE>
<TABLE>
<CAPTION>
April 1, April 3, March 28, March 29, March 30,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital ............................ $ 337,336 $ 385,778 $ 366,482 $ 150,884 $ 172,758
Total assets ............................... 731,135 604,641 591,710 325,594 305,174
Long-term debt, less current maturities .... 212,000 207,000 207,000 -- 1,258
Mandatorily redeemable preferred stock ..... -- -- -- -- 2,200
Stockholders' equity ....................... 344,732 321,169 312,569 262,367 230,968
</TABLE>
----------
(1) Includes non-recurring merger and integration charges of $5.5 million ($3.4
million, net of taxes, or $0.13 (basic) and $0.12 (diluted) per share).
Exclusive of such charges, fiscal 1997 net earnings were $31.0 million, or
$1.21 (basic) and $1.12 (diluted) per share, and the ratio of earnings to
fixed charges was 22.4x.
(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.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto, included
elsewhere herein. This discussion includes financial information relating to the
Company's specialty wire and cable redistribution business which was sold on May
22, 2000.
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 1, April 3, March 28,
2000 1999 1998
-------- -------- ---------
<S> <C> <C> <C>
Distribution* .................................... 74.7% 71.5% 63.4%
Manufacturing .................................... 25.3 28.5 36.6
-------- -------- --------
Net sales ........................................ 100.0 100.0 100.0
Cost of sales .................................... 83.0 84.2 77.7
-------- -------- --------
Gross profit ..................................... 17.0 15.8 22.3
Selling, general and administrative expenses ..... 13.5 15.9 13.8
-------- -------- --------
Operating profit (loss) .......................... 3.5 (0.1) 8.5
Other income (expense)
Interest expense ............................ (1.1) (1.6) (0.8)
Other - net (principally interest and
dividend income) ......................... 0.6 1.8 1.1
-------- -------- --------
Earnings before income taxes ..................... 3.0 0.0 8.8
Income taxes ..................................... 1.2 0.0 3.4
-------- -------- --------
Net earnings ..................................... 1.8% 0.0% 5.4%
======== ======== ========
</TABLE>
* Includes specialty distribution and network integration businesses. The
principal products the Company distributes consist of connectors,
receptacles and sockets, which collectively accounted for approximately
12%, 12% and 16% of the Company's total sales in its fiscal years ended in
2000, 1999 and 1998, respectively, and other electronic connecting
components, such as cable and wiring products, which accounted for
approximately 12%, 21% and 17% of the Company's total sales in such years
and networking equipment which accounted for approximately 17%, 14% and 8%
of the Company's total sales in such years. In addition, the Company
distributes capacitors, resistors and electromechanical parts.
COMPARISON OF FISCAL 2000 WITH FISCAL 1999
Net sales for the fiscal year ended April 1, 2000 increased $356.9 million,
or 56.0%, to $993.9 million. Sales from the Company's specialty distribution and
network integration businesses, which represented 74.7% of net sales for fiscal
2000, increased $287.2 million, or 63.0%, while contract manufacturing sales
increased $69.7 million, or 38.4%. The specialty distribution and network
integration sales increase reflected internal growth primarily from increased
demand for networking products and services, and interconnect, passive and
electromechanical products as well as contributions from acquisitions in fiscal
2000. The contract manufacturing sales increase primarily resulted from higher
sales to manufacturers of semiconductor capital equipment and customers in the
network systems industry, partially offset by lower sales to manufacturers of
computers.
Gross profit increased $68.7 million, or 68.3%, compared to the prior year.
Gross profit as a percentage of sales increased to 17.0% in fiscal 2000 from
15.8% in fiscal 1999. The increase in gross profit was primarily due to
increased sales combined with an increase in the gross profit percentage. The
increase in the gross profit percentage was due to growth in the specialty
distribution and network integration businesses, 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 $33.3
million, or 33.0%, when compared to the prior fiscal year. The increase in SG&A
expenses was primarily due to expenses necessary to support the
10
<PAGE> 11
growth in the Company's operations, including acquisitions and the expansion of
network integration services. As a percentage of sales, SG&A expenses decreased
to 13.5% from 15.9% in the preceding 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 4.5% 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. The decrease in interest and dividend income was due
to lower cash balances primarily as a result of acquisitions in fiscal 2000.
Net earnings for fiscal 2000 were $18.3 million compared to $0.2 million
for fiscal 1999. The improved profitability was primarily the result of
increased gross profit partially offset by both an increase in SG&A expenses and
a decrease in interest and dividend income.
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 specialty distribution and
network integration businesses, which represented 71.5% of net sales, increased
8.9% while contract manufacturing sales decreased $59.7 million, or 24.8%. The
specialty distribution and network integration sales increase reflected internal
growth primarily from increased demand for networking products and services,
wire and cable from both existing customers and an expanded customer base. The
specialty distribution and network integration 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 computers, and
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.
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 integration services and expenses
necessary to support the Company's existing operations.
Interest expense increased $5.2 million due to a full year of interest in
fiscal 1999 on 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
gross profit combined with higher SG&A expenses.
LIQUIDITY AND CAPITAL RESOURCES
At April 1, 2000, working capital was $337.3 million, a decrease of $48.5
million, or 12.6%, since April 3, 1999. The decrease was primarily the result of
the cash expended for acquisitions in fiscal 2000 and for the retirement of the
acquired companies' debt, offset by growth in accounts receivable and
inventories in relation to current and future sales levels.
11
<PAGE> 12
Included in the Company's working capital at April 1, 2000 are investments
of $105.2 million, a decrease of $101.7 million since April 3, 1999. 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 1, 2000, funds were invested primarily in
institutional money market funds. These investments 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 specialty distribution, network integration
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.
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, press releases or
in oral or written presentations to shareholders, securities analysts, members
of the financial press or others. All such forward-looking statements, whether
written or oral, and whether made by or on behalf of the Company, are expressly
qualified by these cautionary statements and any other cautionary statements
which may accompany the forward-looking statements. In addition, the
forward-looking statements speak only of the Company's views 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
thereof.
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 fiscal 1999, the Company experienced
downward pressure on its gross profit margin primarily due to a lower percentage
of certain high margin sales combined with underutilization of infrastructure
within its contract manufacturing business. Higher sales volume and improved
utilization rates led to increased absorption of manufacturing overhead and
improved margins in fiscal 2000. The Company anticipates that this margin
pressure resulting from product mix changes will continue to be offset during
fiscal 2001 by improving utilization rates, and as a result, the Company expects
that its contract manufacturing gross profit margin will improve during fiscal
2001, although there can be no assurance that this will be the case. However, as
the Company expects its contract manufacturing business to become a larger
percentage of total Company sales in fiscal 2001, overall Company gross profit
margins may remain flat or decline.
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 is subject to economic cycles and has,
in the past, and is likely in the future, to experience recessionary periods. A
general recession in the electronics industry could have a material adverse
effect on the Company's business, results of operation and financial condition,
especially if a downturn occurred in the Company's specialty distribution,
network integration and manufacturing businesses simultaneously.
12
<PAGE> 13
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 substantially increased 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.
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 specialty 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. Acquisitions also involve
significant financial risks such as (1) potential liabilities of the acquired
businesses; (2) the dilutive effect of the issuance of additional equity
securities; (3) the incurrence of additional debt; (4) the financial impact of
amortizing goodwill and other intangible assets involved in any acquisitions
that are accounted for using the purchase method of accounting; and (5) possible
adverse tax and accounting effects. 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 which could be
dilutive to existing shareholders.
13
<PAGE> 14
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. Acquisitions involve other significant operating risks such as (1)
the diversion of management's attention to the assimilation of the businesses to
be acquired; (2) the risk that the acquired business will fail; (3) the need to
implement financial and other systems and add management resources; (4) the risk
that key employees of the acquired businesses will leave after the acquisition;
and (5) unforeseen difficulties in the acquired operations. 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 1,
2000, the Company's purchases from Cisco Systems and Tyco Electronics
represented approximately 14% 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 temporary investments and its 4 1/2% Convertible
Subordinated Notes Due 2004.
14
<PAGE> 15
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 1, 2000 and April 3, 1999, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended April 1, 2000. 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 in the United States. 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 1, 2000 and April 3, 1999,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended April 1, 2000, in conformity with
generally accepted accounting principles in the United States.
GRANT THORNTON LLP
Houston, Texas
May 8, 2000
15
<PAGE> 16
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2000 AND APRIL 3, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 2000 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $105,164 in 2000 and $206,919 in 1999) .................. $ 101,052 $ 207,942
Accounts receivable, net ................................................... 181,953 103,364
Inventories
Materials and purchased products ...................................... 190,735 118,535
Work in process ....................................................... 6,960 6,349
--------- ---------
197,695 124,884
Other ...................................................................... 13,328 17,549
--------- ---------
Total current assets .................................................. 494,028 453,739
PROPERTY AND EQUIPMENT
Land ....................................................................... 8,168 8,168
Buildings .................................................................. 44,294 43,817
Equipment, furniture and fixtures .......................................... 134,850 124,194
Leasehold improvements ..................................................... 2,965 2,681
--------- ---------
190,277 178,860
Less accumulated depreciation and amortization ........................ (67,323) (50,496)
--------- ---------
122,954 128,364
OTHER ASSETS .................................................................. 10,429 7,095
COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated
amortization of $5,387 in 2000 and $3,320 in 1999 .......................... 103,724 15,443
--------- ---------
$ 731,135 $ 604,641
========= =========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable ........................................................... $ 108,088 $ 47,149
Accrued compensation ....................................................... 26,203 13,862
Other accrued liabilities .................................................. 17,812 6,950
Income taxes ............................................................... 589 --
Current maturities of long-term debt ....................................... 4,000 --
--------- ---------
Total current liabilities ............................................. 156,692 67,961
LONG-TERM DEBT, less current maturities ....................................... 212,000 207,000
DEFERRED INCOME TAXES ......................................................... 11,824 8,511
LONG-TERM LIABILITIES ......................................................... 5,887 --
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; 28,375,032 shares
issued and 28,325,032 shares outstanding in 2000 and 28,013,375 shares
issued and 27,963,375 shares outstanding in 1999...................... 68,579 63,553
Additional paid-in capital ................................................. 117,797 117,511
Retained earnings .......................................................... 159,333 141,082
--------- ---------
345,709 322,146
Less common stock in treasury - at cost, 50,000 shares ..................... (977) (977)
--------- ---------
344,732 321,169
--------- ---------
$ 731,135 $ 604,641
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 17
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Net sales ............................................... $ 993,938 $ 637,064 $ 659,400
Cost of sales ........................................... 824,694 536,519 512,147
--------- --------- ---------
Gross profit ......................................... 169,244 100,545 147,253
Selling, general and administrative expenses ............ 134,310 100,992 90,854
--------- --------- ---------
Operating profit (loss) .............................. 34,934 (447) 56,399
Other income (expense)
Interest expense ..................................... (10,470) (10,495) (5,272)
Other - net (principally interest and dividend income) 5,579 11,236 7,040
--------- --------- ---------
Earnings before income taxes ......................... 30,043 294 58,167
Income taxes ............................................ 11,792 112 22,741
--------- --------- ---------
NET EARNINGS .................................... $ 18,251 $ 182 $ 35,426
========= ========= =========
Earnings per common share:
Basic ................................................ $ 0.65 $ 0.01 $ 1.33
========= ========= =========
Diluted .............................................. $ 0.63 $ 0.01 $ 1.26
========= ========= =========
Weighted average shares:
Basic ................................................ 28,062 27,674 26,598
========= ========= =========
Diluted .............................................. 28,888 28,099 28,097
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 18
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings ..................................................................... $ 18,251 $ 182 $ 35,426
Adjustments to reconcile net earnings to net cash
(used) provided by operating activities
Depreciation and amortization ............................................... 19,349 15,075 11,607
Provision for losses on accounts receivable ................................. 589 98 302
Loss (gain) on sale of property and equipment ............................... 16 (445) 4
Stock option expense ........................................................ 286 322 667
Unrealized loss on trading securities ....................................... -- 327 54
Net sales (purchases) of trading securities ................................. -- 29,619 (30,000)
Change in assets and liabilities, net of effects
from business acquisitions
Accounts receivable ...................................................... (52,525) 2,670 (17,599)
Inventories .............................................................. (48,366) (9,792) (20,598)
Other current assets ..................................................... 6,244 (11,795) (1,731)
Other assets ............................................................. 2,628 5,098 (7,575)
Accounts payable ......................................................... 33,544 (2,029) 6,861
Accrued compensation ..................................................... 10,170 2,669 3,070
Other accrued liabilities ................................................ 1,344 (82) (1,019)
Income taxes ............................................................. 591 (2,946) (81)
Deferred income taxes .................................................... 3,435 8,604 1,187
Long-term liabilities .................................................... -- (1,792) 83
--------- --------- ---------
Net cash (used) provided by operating activities ...................... (4,444) 35,783 (19,342)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures ............................................................. (10,980) (18,895) (46,923)
Business acquisitions, net of cash acquired ...................................... (71,906) -- --
Proceeds from sale of property and equipment ..................................... 19 3,051 13
--------- --------- ---------
Net cash used by investing activities ................................. (82,867) (15,844) (46,910)
--------- --------- ---------
Cash flows from financing activities
Issuance of long-term debt ....................................................... -- -- 207,000
Payment of long-term debt of acquired businesses ................................. (24,605) -- --
Issuance of common stock ......................................................... 4,718 4,152 6,891
Tax effect of common stock issued upon exercise of employee stock options ........ 308 3,944 7,218
--------- --------- ---------
Net cash (used) provided by financing activities ...................... (19,579) 8,096 221,109
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents ................................ (106,890) 28,035 154,857
Cash and cash equivalents at beginning of year ...................................... 207,942 179,907 25,050
--------- --------- ---------
Cash and cash equivalents at end of year ............................................ $ 101,052 $ 207,942 $ 179,907
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest .................................................................... $ 9,315 $ 9,345 $ 4,118
Income taxes ................................................................ (1,823) 787 15,138
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE> 19
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 28, 1998, APRIL 3, 1999 AND APRIL 1, 2000
(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 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)
Common stock issued upon exercise of
employee stock options, including tax effect ........... 362 5,026 -- -- --
Amortization of unearned compensation related
to stock option plans .................................. -- -- 286 -- --
Net earnings for the year .................................. -- -- -- 18,251 --
-------- -------- -------- -------- --------
BALANCE AT APRIL 1, 2000 ................................... 28,325 $ 68,579 $117,797 $159,333 $ (977)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE> 20
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Kent Electronics Corporation (the "Company") is a national specialty electronics
distributor and network integrator. The Company also provides contract
manufacturing services. The Company's customers are primarily industrial users,
original equipment manufacturers, financial institutions, service organizations,
and education and governmental agencies located primarily 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 years ended April 1, 2000 and March 28, 1998 both consisted of 52 weeks.
The fiscal year ended April 3, 1999 consisted of 53 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 $105.2 million and $203.6 million
invested in institutional money market funds at April 1, 2000 and April 3, 1999,
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, agreements to resell securities in
the amount of $3.3 million with a three-day maturity were outstanding.
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.
20
<PAGE> 21
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
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:
<TABLE>
2000 1999 1998
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Net unrealized loss on trading securities
at beginning of year ................. $ -- $ 54 $ --
Increase in unrealized loss
included in earnings during the year.. -- 327 54
Realized loss from sale of trading
securities ........................... -- (381) --
----- ----- -----
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
Revenues for product sales are recognized upon shipment of merchandise to
customers. Revenues and anticipated profits under long-term contracts are
recorded on the percentage of completion basis, under which a portion of the
total contract price is accrued based on the ratio of costs incurred to
estimated costs at completion. Revenues from maintenance contracts are
recognized ratably over the life of the contracts, ranging from one to three
years.
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.
The fair value of the Company's long-term debt, including current maturities,
was estimated to be $186.6 million at April 1, 2000, and $155.3 million at April
3, 1999, compared to a carrying value of $216.0 million at April 1, 2000 and
$207.0 million at April 3, 1999. The fair value of marketable debt was based on
quoted market prices and the fair value of other debt was based on the
discounted present value of cash flows using the Company's estimated borrowing
rate.
21
<PAGE> 22
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
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 0.8 million, 0.4 million and 1.5 million in 2000, 1999 and 1998,
respectively, were used in the calculation of diluted earnings per common share.
Options to purchase 0.1 million, 1.1 million and 0.4 million shares of common
stock in 2000, 1999 and 1998, 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 4.5% 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.
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 includes the issuance of an unsecured
promissory note in the amount of $9.0 million. The note is due in principal
installments of $4.0 million in January 2001, $4.0 million in January 2002 and
$1.0 million in January 2003. Amounts outstanding under the note accrue interest
at a rate of 4.5%. Orange Coast provides 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 is a Pennsylvania
based distributor of electronic connectors, and passive and electromechanical
components.
In April 1999, the Company acquired all the outstanding common stock of
SabreData, Inc. (SabreData) 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. SabreData is a Texas based network integrator.
The Company has accounted for these acquisitions using the purchase method of
accounting, 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 acquisitions are included in the consolidated
statements of earnings from the acquisition date.
The following unaudited pro forma consolidated results of operations assume that
the purchase acquisitions occurred on March 29, 1998. The pro forma results have
been prepared for comparative purposes only and do not purport to indicate the
results of operations which would actually have occurred had the combination
been in effect, or which may occur in the future.
22
<PAGE> 23
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
<TABLE>
<CAPTION>
2000 1999
-------------------------------
(In thousands)
<S> <C> <C>
Net sales ....................... $ 1,025,291 $ 804,296
Net earnings (loss) ............. 17,004 (1,956)
Earnings (loss) per common share:
Basic ........................ $ 0.61 $ (0.07)
Diluted ...................... $ 0.59 $ (0.07)
</TABLE>
ACCOUNTS RECEIVABLE
The Company's allowance for doubtful accounts was $0.9 million at April 1, 2000,
$1.0 million at April 3, 1999 and $1.2 million at March 28, 1998. The provision
for allowance was $0.6 million in 2000, $0.1 million in 1999 and $0.3 million in
1998. Charge-offs, net of recoveries, were $0.6 million in 2000, $0.3 million in
1999 and $0.4 million in 1998.
OTHER ASSETS
At April 1, 2000, other current assets included $3.0 million of receivables from
certain officers and directors of the Company. At April 3, 1999, other current
assets and other assets included $1.4 million and $1.8 million, respectively, 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>
2000 1999 1998
-----------------------------------
(In thousands)
<S> <C> <C> <C>
Current ..................................... $ 9,087 $ (6,914) $ 15,417
Tax reduction for exercise of stock options..
credited to stockholders' equity ........ 307 3,944 7,218
Deferred .................................... 2,398 3,082 106
-------- -------- --------
$ 11,792 $ 112 $ 22,741
======== ======== ========
</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>
2000 1999 1998
--------------------------------
(In thousands)
<S> <C> <C> <C>
Tax at statutory rate ................................ $10,515 $ 103 $20,358
Increases (reductions)
State income taxes, net of federal tax effect... 1,047 245 1,780
Other-net ...................................... 230 (236) 603
------- ------- -------
Income taxes as reported ............................. $11,792 $ 112 $22,741
======= ======= =======
</TABLE>
23
<PAGE> 24
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
Net deferred tax liabilities at April 1, 2000 and April 3, 1999 consist of the
following:
<TABLE>
<CAPTION>
2000 1999
----------------------
(In thousands)
<S> <C> <C>
Current deferred asset
Allowance for doubtful accounts ............... $ 341 $ 345
Accounts receivable basis differences ......... 348 --
Capitalization of additional inventory costs... 3,204 2,012
Inventory reserve ............................. 444 --
Accrued expenses not currently deductible,
net of reversals .......................... 1,360 597
Net operating losses .......................... 1,217 1,233
Other ......................................... 468 29
-------- --------
$ 7,382 $ 4,216
======== ========
Long-term deferred liability
Fixed asset basis differences ................. $(13,906) $(10,823)
Deductible goodwill ........................... (940) (274)
Stock compensation ............................ 534 446
Net operating losses .......................... 60 143
Deferred compensation ......................... 2,411 1,973
Other ......................................... 17 24
-------- --------
$(11,824) $ (8,511)
======== ========
</TABLE>
Acquired net operating losses of approximately $0.3 million at April 1, 2000,
expire in various amounts through 2003, and are subject to annual usage
limitations. State tax loss carryforwards of approximately $26.1 million at
April 1, 2000, 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 2000, 1999 and 1998 was approximately $6.1 million, $4.5 million and
$4.1 million, respectively.
As of April 1, 2000, the Company's minimum rental commitments under
noncancelable operating leases were $6.9 million in 2001; $6.0 million in 2002;
$4.5 million in 2003; $2.0 million in 2004; $0.7 million in 2005 and $0.1
million thereafter.
The Company has instituted a self-insurance program for employees' major medical
coverages. Claims under the self-insurance program are insured for amounts
greater than $0.1 million per employee. The aggregate annual self-insured amount
varies based on participant levels and was limited to approximately $8.2 million
as of April 1, 2000. Claims are accrued as incurred and the total expense under
the program was approximately $6.8 million, $5.2 million and $3.9 million in
2000, 1999 and 1998, respectively.
24
<PAGE> 25
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
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 stockholder rights plan, there is one 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 $100, 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.
25
<PAGE> 26
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
STOCK OPTIONS AND WARRANTS
At April 1, 2000, the Company had nonqualified stock option plans which allow
for the grant of 3.5 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>
2000 1999 1998
-----------------------------------------------------------------
Weighted Weighted Weighted
average average average
(In thousands, except per share data) exercise exercise exercise
Options price Options price Options price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year .......................... 2,253 $14.47 2,736 $15.16 3,435 $12.00
Granted ........................... 959 14.01 469 9.94 506 23.94
Exercised ......................... (362) 13.20 (782) 5.00 (929) 7.37
Lapsed/forfeited .................. (198) 14.19 (170) 17.91 (276) 17.58
------ ------ ------ ------ ------ ------
Outstanding at end of year ........ 2,652 $14.51 2,253 $14.47 2,736 $15.16
====== ====== ====== ====== ====== ======
Exercisable at end of year ........ 983 $16.67 1,008 $16.86 1,357 $11.38
====== ====== ====== ====== ====== ======
</TABLE>
The following table summarizes the weighted average fair value per share at date
of grant of options granted during the year:
<TABLE>
<CAPTION>
2000 1999 1998
--------------------------- --------------------------- ----------------------------
Weighted Weighted Weighted Weighted Weighted Weighted
average average average average average average
fair value exercise price fair value exercise price fair value exercise price
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equals
market price ...... $ 7.16 $ 14.01 $ 4.98 $ 9.94 $ 9.54 $ 23.94
</TABLE>
26
<PAGE> 27
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
The following table summarizes significant ranges of outstanding and exercisable
options at April 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- --------------------------
Weighted
average Weighted Weighted
remaining life average average
(In thousands, except per share data) Options (in years) exercise price Options exercise price
------- ---------------- --------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices
$ 6.96 - $10.44 ........ 841 7.42 $ 8.93 222 $ 9.44
$11.78 - $17.67 ........ 775 7.36 12.45 190 12.41
$18.00 - $27.00 ........ 986 4.03 19.90 521 19.61
$29.63 - $44.44 ........ 50 1.90 34.28 50 34.28
------ ------
2,652 983
====== ======
</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:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Expected life ...... 3.5 years 3.7 years 2.6 years
Interest rate ...... 5.6% 5.0% 5.8%
Volatility ......... 65.9% 65.1% 58.3%
Dividend yield ..... 0.0% 0.0% 0.0%
</TABLE>
Stock-based compensation costs would have reduced net earnings by approximately
$2.3 million, $3.3 million and $1.8 million in 2000, 1999 and 1998, and $0.08,
$0.12 and $0.07 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.
In February 2000, the Company issued five-year warrants at the exercise price of
$22.81 for the purchase of 0.3 million shares of the Company's common stock in
conjunction with the award from a customer of a three-year manufacturing
contract. The warrants vest over the three-year contract based upon the
attainment of certain revenue targets, and the estimated fair value of the
warrants will be amortized into cost of sales.
TAX-DEFERRED SAVINGS AND RETIREMENT PLAN AND OTHER BENEFITS
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 $2.0 million, $1.4
million and $1.1 million to the Plan in 2000, 1999 and 1998, respectively.
The Company has a deferred compensation plan whereby the participant may elect
to defer a maximum of 100% of compensation. Since inception of the plan, the
amount of deferred compensation has been deposited in a trust, and accordingly
the assets of the trust are included in other assets and the deferred
compensation liability is included in other long-term liabilities.
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.
27
<PAGE> 28
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FISCAL YEARS ENDED APRIL 1, 2000, APRIL 3, 1999 AND MARCH 28, 1998
SUBSEQUENT EVENTS (UNAUDITED)
On May 22, 2000, the Company sold certain assets of its specialty wire and cable
redistribution business. The Company believes that this transaction is
consistent with its strategy of strengthening its core operations and
effectively deploying its resources to serve high growth applications. The
Company's redistribution assets which were sold generated annual revenues of
approximately $93 million, representing 9% of the Company's total sales for the
fiscal year ended April 1, 2000.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal
years 2000, 1999 and 1998:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Year ended April 1, 2000
Net sales $ 205,176 $ 236,073 $ 259,035 $ 293,654
Gross profit 32,030 39,710 44,958 52,546
Net earnings 1,909 3,684 5,228 7,430
Basic earnings per share .07 .13 .19 .26
Diluted earnings per share .07 .13 .18 .25
--------- --------- --------- ---------
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
--------- --------- --------- ---------
</TABLE>
28
<PAGE> 29
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 1, 2000, 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",
"Compensation Tables", "Executive Officers" and "Proposal 1 -- Election of
Directors", and the subsections of such proxy statement entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" and "Certain Transactions", which
sections and subsections of such proxy statement are incorporated herein.
29
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND EXHIBITS:
1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants................................... 15
Consolidated balance sheets at April 1, 2000 and April 3, 1999....................... 16
Consolidated statements of earnings for the years ended
April 1, 2000, April 3, 1999 and March 28, 1998.............................. 17
Consolidated statements of cash flows for the years ended
April 1, 2000, April 3, 1999 and March 28, 1998.............................. 18
Consolidated statement of stockholders' equity for the years ended
March 28, 1998, April 3, 1999, and April 1, 2000............................. 19
Notes to consolidated financial statements........................................... 20
</TABLE>
2. 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.
4.1* -- Specimen stock certificate for the Common Stock of Kent
Electronics Corporation. Incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form
S-2 (Registration No. 33-40066) filed with the SEC on April
19, 1991.
4.2* -- Rights Agreement between Kent Electronics Corporation and
ChaseMellon Shareholder Services, L.L.C. dated October 21,
1999. Incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the Fiscal
Quarter ended October 2, 1999.
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 -- Amended and Restated 1996 Non-Employee Director Stock Option
Plan.(1)
30
<PAGE> 31
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)
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 the Company's
Annual Report on Form 10-K for the Fiscal Year Ended March
30, 1996 (the "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 -- First Amendment to Kent Electronics Corporation Tax-Deferred
Savings and Retirement Plan dated November 15, 1995. (1)
10.12 -- Second Amendment to Kent Electronics Corporation
Tax-Deferred Savings and Retirement Plan (As Amended and
Restated Effective March 26, 1989) dated April 1, 1996. (1)
10.13 -- Third Amendment to Kent Electronics Corporation Tax-Deferred
Savings and Plan (As Amended and Restated Effective March
26, 1989) dated April 1, 1996. (1)
10.14* -- 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)
10.15* -- 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)
31
<PAGE> 32
10.16* -- 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)
10.17* -- Kent Electronics Corporation Chief Executive Officer
Deferred Compensation Plan and Agreement dated January 3,
1996 by and between Kent Electronics Corporation and Morrie
K. Abramson. Incorporated by reference to Exhibit 10.23 to
1996 Form 10-K.(1)
10.18* -- 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)
10.19* -- 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)
10.20* -- 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)
10.21* -- 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)
10.22* -- 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)
10.23* -- 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)
10.24* -- 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)
10.25* -- 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)
10.26* -- 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)
10.27* -- 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)
32
<PAGE> 33
10.28* -- 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)
10.29* -- 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)
10.30* -- 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)
10.31* -- 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)
10.32* -- 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)
10.33* -- Amended and Restated 1998 Stock Option Plan. Incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended April 3, 1999 (the "1999
Form 10-K).(1)
10.34* -- 1999 Stock Option Plan. Incorporated by reference to Exhibit
10.35 to the 1999 Form 10-K.(1)
10.35 -- Separation Agreement and General Release by Terrence M. Hunt
effective as of February 29, 2000.(1)
11 -- Computation of Earnings Per Share.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries of Kent Electronics Corporation.
23 -- Consent of Independent Certified Public Accountants.
27 -- Financial Data Schedule.
--------------
* Incorporated by reference.
(1) Management contract or compensatory plan or agreement.
(b) REPORTS ON FORM 8-K:
The Company filed a Current Report on Form 8-K dated June 14, 2000
reporting under "Item 5. Other Events" the announcement of the sale of
certain assets of its specialty wire and redistribution business.
33
<PAGE> 34
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 27, 2000
34
<PAGE> 35
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 27, 2000
----------------------- Officer and Director (Principal Executive Officer)
Morrie K. Abramson
/s/ Larry D. Olson President and Chief Operating Officer and June 27, 2000
----------------------- Director
Larry D. Olson
/s/ Stephen J. Chapko Executive Vice President, Chief Financial Officer, June 27, 2000
----------------------- Treasurer and Secretary (Principal Financial
Stephen J. Chapko Officer)
/s/ David D. Johnson Vice President, Corporate Controller June 27, 2000
----------------------- (Principal Accounting Officer)
David D. Johnson
/s/ Max S. Levit Director June 27, 2000
-----------------------
Max S. Levit
/s/ David Siegel Director June 27, 2000
-----------------------
David Siegel
/s/ Richard C. Webb Director June 27, 2000
-----------------------
Richard C. Webb
/s/ Alvin L. Zimmerman Director June 27, 2000
-----------------------
Alvin L. Zimmerman
</TABLE>
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.2 Amended and Restated 1996 Non-Employee Director Stock
Option Plan.
10.11 First Amendment to Kent Electronics Corporation
Tax-Deferred Savings and Retirement Plan.
10.12 Second Amendment to Kent Electronics Corporation
Tax-Deferred Savings and Retirement Plan (As Amended
and Restated Effective March 26, 1989).
10.13 Third Amendment to Kent Electronics Corporation
Tax-Deferred Savings and Retirement Plan (As Amended
and Restated Effective March 26, 1989).
10.35 Separation Agreement and General Release by Terrence M.
Hunt effective as of February 29, 2000.
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>
