UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14643
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KENT ELECTRONICS CORPORATION
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(Exact name of registrant as specified in its charter)
Texas 74-1763541
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Gillingham Lane, Sugar Land, Texas 77478
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 243-4000
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Not applicable
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At February 9, 2000, 28,153,088 shares of common stock, no par value, were
outstanding.
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 1, April 3,
2000 1999
---------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $91,165 at January 1 and
$206,919 at April 3)............................ $ 90,131 $207,942
Accounts receivable, less allowance of $873
at January 1 and $991 at April 3................ 165,132 103,364
Inventories
Materials and purchased products................ 183,951 118,535
Work in process................................. 4,280 6,349
-------- --------
188,231 124,884
Other............................................. 13,527 17,549
-------- --------
Total current assets.......................... 457,021 453,739
PROPERTY AND EQUIPMENT
Land.............................................. 8,168 8,168
Buildings......................................... 44,226 43,817
Equipment, furniture and fixtures................. 132,548 124,194
Leasehold improvements............................ 2,943 2,681
-------- --------
187,885 178,860
Less accumulated depreciation and amortization.... (63,168) (50,496)
-------- --------
124,717 128,364
OTHER ASSETS........................................... 6,508 7,095
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $4,687 at
January 1 and $3,320 at April 3................... 107,284 15,443
-------- --------
$695,530 $604,641
======== ========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
January 1, April 3,
2000 1999
---------- --------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................................ $ 97,435 $ 47,149
Accrued compensation............................ 18,074 13,862
Other accrued liabilities....................... 22,272 6,950
-------- --------
Total current liabilities................... 137,781 67,961
LONG-TERM DEBT, less current maturities.............. 216,000 207,000
DEFERRED INCOME TAXES................................ 8,048 8,511
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; 28,133,230 shares issued
and 28,083,230 shares outstanding at
January 1 and 28,013,375 shares issued and
27,963,375 shares outstanding at April 3...... 65,049 63,553
Additional paid-in capital...................... 117,726 117,511
Retained earnings............................... 151,903 141,082
-------- --------
334,678 322,146
Less common stock in treasury - at cost,
50,000 shares................................. (977) (977)
-------- --------
333,701 321,169
-------- --------
$695,530 $604,641
======== ========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In thousands, except per share data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------- -------------------------------
January 1, December 26, January 1, December 26,
2000 1998 2000 1998
---------- ----------- ---------- -----------
Net sales....................................... $259,035 $155,424 $700,284 $459,981
Cost of sales................................... 214,077 131,715 583,586 385,833
--------- -------- -------- --------
Gross profit............................... 44,958 23,709 116,698 74,148
Selling, general and administrative expenses.... 35,029 25,434 95,543 75,439
--------- -------- -------- --------
Operating profit (loss).................... 9,929 (1,725) 21,155 (1,291)
Other income (expense)
Interest expense........................... (2,574) (2,575) (7,727) (7,723)
Other - net................................ 1,250 2,754 4,386 8,432
--------- -------- -------- --------
Earnings (loss) before income taxes...... 8,605 (1,546) 17,814 (582)
Income taxes.................................... 3,377 (607) 6,993 (230)
--------- -------- -------- --------
NET EARNINGS (LOSS)...................... $ 5,228 $ (939) $ 10,821 $ (352)
========= ========= ======== ========
Earnings (loss) per common share:
Basic...................................... $.19 $(.03) $.39 $(.01)
======== ======== ======== ========
Diluted.................................... $.18 $(.03) $.38 $(.01)
======== ======== ======== ========
Weighted average shares:
Basic...................................... 28,057 27,916 28,008 27,577
========= ========= ======== ========
Diluted.................................... 28,971 27,916 28,680 27,577
========= ========= ======== ========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Thirty-Nine Weeks Ended
------------------------
January 1, December 26,
2000 1998
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)............................... $ 10,821 $ (352)
Adjustments to reconcile net earnings (loss) to
net cash (used) provided by operating
activities
Depreciation and amortization................... 14,058 10,995
Provision for losses on accounts receivable. (118) 89
Loss (gain) on disposal of property
and equipment.................................. 18 (340)
Stock option expense............................ 215 242
Loss on sale of trading securities.............. --- 327
Net sales of trading securities................. --- 29,619
Change in assets and liabilities, net of
effects from business acquisitions
Accounts receivable............................ (36,175) (1,915)
Inventories.................................... (38,902) (4,076)
Other current assets........................... 3,313 (8,247)
Other assets................................... 662 (772)
Accounts payable............................... 22,891 (4,260)
Accrued compensation........................... 2,085 130
Other accrued liabilities...................... 6,337 5,920
Income taxes................................... --- (2,946)
Deferred income taxes.......................... 75 75
Long-term liabilities......................... --- 602
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Total adjustments............................ (25,541) 25,443
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Net cash (used) provided by
operating activities........................ (14,720) 25,091
(Continued)
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Thirty-Nine Weeks Ended
-------------------------
January 1, December 26,
2000 1998
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(Unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................... $ (8,090) $(14,948)
Business acquisitions, net of cash acquired........ (71,906) ---
Proceeds from sale of property and equipment....... 14 2,487
--------- --------
Net cash used by investing activities............ (79,982) (12,461)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term debt of acquired businesses (24,605) ---
Issuance of common stock........................... 1,134 4,148
Tax effect of common stock issued upon exercise
of employee stock options......................... 362 5,526
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Net cash (used) provided by financing
activities...................................... (23,109) 9,674
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NET (DECREASE) INCREASE IN CASH...................... (117,811) 22,304
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 207,942 179,907
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 90,131 $202,211
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $ 4,658 $ 4,658
Income taxes...................................... 1,694 5,308
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
The consolidated balance sheet as of January 1, 2000, and the consolidated
statements of earnings and cash flows for the thirteen and thirty-nine week
periods ended January 1, 2000 and December 26, 1998, have been prepared by the
Company without audit. In the opinion of management, the financial statements
include all adjustments necessary for a fair presentation. All adjustments made
were of a normal recurring nature. Interim results are not necessarily
indications of results for a full year. For further financial information,
refer to the audited financial statements of the Company and notes thereto for
the fiscal year ended April 3, 1999, included in the Company's Form 10-K for
that period.
Business Acquisitions
On April 5, 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
with sales of approximately $37.0 million for the year ended December 31, 1998.
On June 3, 1999, the Company acquired certain assets and assumed 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, passive and electromechanical
components which generated approximately $112.0 million in revenue for the year
ended December 31, 1998.
On November 1, 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 the Orange Coast Companies ("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. Orange
Coast, which reported sales of approximately $19.0 million for
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the year ended December 31, 1998, provides comprehensive end-to-end voice and
data network solutions to major corporations from offices in Irvine and Santa
Clara, California.
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 0.9 million and 0.7 million were used in the calculation of diluted
earnings per common share for the thirteen and thirty-nine week periods ended
January 1, 2000, respectively. Incremental shares were not used in the
calculation of diluted earnings per common share for the thirteen and thirty-
nine weeks ended December 26, 1998 since the effect of their inclusion would be
antidilutive. The calculation of earnings per share does not include
approximately 4.2 million shares issuable upon conversion of the 4 1/2%
Convertible Subordinated Notes due 2004 because inclusion of such shares would
be antidilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the thirteen and thirty-nine week periods ended January 1, 2000
increased $103.6 million, or 66.7%, and $240.3 million, or 52.2%, compared to
the same periods a year ago. Distribution and network integration sales
increased 82.8% and 57.2% from the prior year thirteen and thirty-nine week
periods, respectively, primarily as a result the SabreData, Advacom and Orange
Coast acquisitions, an improved demand for networking products and services, and
a strengthening market for certain distribution components. Contract
manufacturing revenues increased 29.4% and 39.4% from the prior year thirteen
and thirty-nine week periods, respectively, primarily as a result of sales of
the division's expanded manufacturing services to customers in the network
systems industry and as a result of increased sales to the semiconductor
capital equipment industry.
Gross profit increased $21.2 million, or 89.6%, for the thirteen weeks and $42.6
million, or 57.4%, for the thirty-nine weeks compared to the corresponding
periods a year ago primarily due to increased sales. For the thirteen week
period, gross
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profit as a percentage of sales increased to 17.4% and 16.7% in the thirteen and
thirty-nine week periods, respectively, from 15.3% and 16.1% in the comparable
periods of the previous year. The increase in the gross profit percentage for
both periods resulted from improved plant utilization in the Company's contract
manufacturing business, an improved pricing environment for certain products and
services, and the growth in distribution and network integration business
primarily due to the acquisitions of SabreData, Advacom and Orange Coast.
Selling, general and administrative ("SG&A") expenses increased $9.6 million, or
37.7%, and $20.1 million, or 26.6% for the thirteen and thirty-nine week
periods, respectively. The increase in SG&A expenses was primarily due to the
acquisitions of SabreData, Advacom and Orange Coast and the expenses necessary
to support the growth in the Company's operations. As a percentage of sales,
SG&A expenses decreased to 13.5% and 13.6% in the thirteen and thirty-nine week
periods, respectively, from 16.4% in both the thirteen and thirty-nine week
periods of fiscal 1999. The reduction of SG&A expenses as a percentage of sales
is a result of the continued focus on cost containment and leveraging operating
expense on larger sales.
Interest expense consists of interest on the 4 1/2% Convertible Subordinated
Notes due 2004.
Other-net consists principally of interest and dividend income generated by cash
and cash equivalents. The decrease in interest and dividend income for the
thirteen and thirty-nine week periods compared to the corresponding periods a
year ago was primarily due to lower cash balances resulting from the
acquisitions of SabreData, Advacom and Orange Coast in fiscal 2000.
The Company reported net earnings of $5.2 million for the thirteen week period
compared to a net loss of $0.9 million in the corresponding period a year ago.
For the thirty-nine week period, net earnings were $10.8 million compared to a
net loss of $0.4 million last year. The increase in net earnings for both
periods was primarily the result of increased gross profit partially offset by
an increase in SG&A expenses.
Liquidity and Capital Resources
Working capital at January 1, 2000 was $319.2 million, a decrease of $66.5
million, or 17.2%, since April 3, 1999. The decrease was primarily the result
of
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the cash expended for the acquisition of SabreData, Advacom and Orange Coast,
and for the retirement of the acquired companies' debt during fiscal 2000.
Included in the Company's working capital at January 1, 2000 are investments of
$91.2 million, a decrease of $115.8 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 January 1, 2000, funds were invested in institutional money market
funds, which are compatible with the Company's stated investment strategy.
The Company intends to apply its capital resources to expand its business by
establishing or acquiring similar distribution and manufacturing operations in
geographic areas that are attractive to the Company. In addition to the capital
required to purchase existing businesses or to fund start-up operations, the
expansion of the Company's operations at both new and existing locations will
require greater levels of capital to finance the purchase of additional
equipment, increased levels of inventory and greater accounts receivable. The
Company believes that current resources including funds generated from
operations should be sufficient to meet its current capital requirements.
Year 2000 Statement
The Year 2000 Issue results from computer hardware and software systems that
were not designed to distinguish between centuries and may not accommodate some
or all dates beyond the year 1999. Therefore, some computer hardware and
software systems were modified prior to the year 2000 in order to remain
functional.
With the exceptions noted below, by the end of the third calendar quarter of
1999, the Company had completed its Year 2000 program. That program consisted
of a comprehensive inventory of its critical systems, prioritization of such
systems based upon a risk analysis of the Company's business processes,
communication from vendors regarding the Year 2000 readiness of computer
hardware, software and equipment with embedded chips, testing of the most
critical systems regardless of vendor representations, and the monitoring of
third-party readiness for the Company's critical business partners. The only
exceptions to the readiness of the Company's systems by September 30, 1999 were
the systems of Orange Coast which were tested and determined to be compliant or
were replaced by the end of calendar 1999. As of the date of this report, the
Company has experienced no known
Page 10 of 14
disruptions to its systems or business operations as a result of Year 2000
events nor have any such disruptions been reported to us by our critical
business partners. The Company estimates that the costs to be incurred in
calendar 1999 and 2000 associated with assessing, remediating and testing its IT
and non-IT systems will not exceed $0.5 million. This estimate assumes that the
Company will not incur significant Year 2000 related costs on behalf of its
suppliers, customers or third parties.
Throughout the early part of the year 2000, the Company will continue to assess
its Year 2000 Issues related to its physical plant and equipment, products,
suppliers, and customers. As a part of its Year 2000 program, the Company
engaged in a contingency planning process integral to its Year 2000 program. The
contingency planning phase consisted of developing a risk profile of the
Company's critical business processes, and then establishing a plan of action
that the Company may pursue to keep such processes operational in the event that
either the Company or critical third parties suffer Year 2000 disruptions. While
the Company experienced no known disruptions with respect to systems under its
control, the Company will continue to monitor the reporting of third parties and
public infrastructure with respect to the Year 2000, and may modify and adjust
its contingency plan throughout the year as additional information becomes
available.
The above disclosure is a "Year 2000 Readiness Disclosure" made with the
intention to comply fully with the Year 2000 Information and Readiness
Disclosure Act of 1998, Pub. L. No. 105-271, 112 Stat. 2386, signed into law
October 19, 1998. All statements made herein shall be construed within the
confines of that Act. To the extent that any reader of the above Year 2000
Readiness Disclosure is other than an investor or potential investor in the
Company's -- or any affiliate's -- equity or debt securities, this disclosure is
made for the sole purpose of communicating or disclosing information aimed at
correcting, helping to correct and/or avoid Year 2000 failures.
Risks Relating to Forward-Looking Statements
The Company is including the following cautionary statements to secure the
protection of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for all forward-looking statements made by the Company in
this Quarterly Report on Form 10-Q. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate or imply future
results, performance or trends, and may contain the words "expect," "should,"
"will" or words or phrases of similar meaning. In addition, the forward-looking
Page 11 of 14
statements speak only of the Company's view as of the date the statement was
made, and the Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
Forward-looking statements involve risks and uncertainties which could cause
actual results, performance or trends to differ materially from those expressed
in the forward-looking statements. The Company believes that all forward-
looking statements made by it have a reasonable basis, but there can be no
assurance that management's expectations, beliefs or projections as expressed in
the forward-looking statements will actually occur or prove to be correct.
Factors that could cause actual results to differ materially from those
discussed in the forward-looking statements include, but are not limited to, the
factors discussed in the Company's Annual Report on Form 10-K for the fiscal
year ended April 3, 1999.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, the Company could be exposed to market risk
from changes in interest rates. The Company continually monitors exposure to
market risk and, when appropriate, develops strategies to manage this risk.
Management does not use derivative financial instruments for trading or to
speculate on changes in interest rates. Currently, the Company's interest rate
risk, if any, relates to its 4 1/2% Convertible Subordinated Notes Due 2004.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 - Computation of Earnings Per Share.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
Not applicable
Page 12 of 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KENT ELECTRONICS CORPORATION
--------------------------------------
(Registrant)
Date: February 14, 2000 By: /s/ Morrie K. Abramson
-------------------------------- ----------------------------
Morrie K. Abramson
Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer)
Date: February 14, 2000 By: /s/ Stephen J. Chapko
-------------------------------- ----------------------------
Stephen J. Chapko
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
Officer)
Date: February 14, 2000 By: /s/ David D. Johnson
-------------------------------- ----------------------------
David D. Johnson
Vice President, Corporate
Controller (Principal Accounting
Officer)
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