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EXHIBIT 99.1
RESTATED CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA OF KENT ELECTRONICS CORPORATION
2
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
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 30, April 1, April 3,
ASSETS 2000 2000 1999
--------- --------- ---------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $228,744 at December 30, 2000, $105,164
at April 1, 2000 and $206,919 at April 3, 1999) ............... $ 212,753 $ 101,052 $ 207,942
Accounts receivable, net ......................................... 197,036 149,161 72,956
Notes receivable ................................................. 63,256 -- --
Inventories
Materials and purchased products .............................. 118,486 124,939 80,052
Work in process ............................................... 3,045 1,002 --
--------- --------- ---------
121,531 125,941 80,052
Net assets of discontinued operations ............................ -- 143,795 131,886
Other ............................................................ 9,593 12,594 17,210
--------- --------- ---------
Total current assets ......................................... 604,169 532,543 510,046
PROPERTY AND EQUIPMENT
Land ............................................................. 4,990 4,990 4,990
Buildings ........................................................ 20,025 19,627 20,017
Equipment, furniture and fixtures ................................ 59,076 58,808 52,651
Leasehold improvements ........................................... 1,052 1,541 1,296
--------- --------- ---------
85,143 84,966 78,954
Less accumulated depreciation and amortization ................ (30,080) (29,209) (23,744)
--------- --------- ---------
55,063 55,757 55,210
OTHER ASSETS ........................................................ 16,125 10,429 7,095
COST IN EXCESS OF NET ASSETS ACQUIRED, less
accumulated amortization of $7,269 at December 30, 2000,
$5,176 at April 1, 2000 and $3,130 at April 3, 1999 .............. 101,071 103,164 14,864
--------- --------- ---------
$ 776,428 $ 701,893 $ 587,215
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................. $ 72,347 $ 82,782 $ 33,171
Accrued compensation ............................................. 27,281 23,877 11,775
Other accrued liabilities ........................................ 34,402 16,202 5,589
Income taxes ..................................................... 10,213 589 --
Current maturities of long-term debt ............................. 4,000 4,000 --
--------- --------- ---------
Total current liabilities .................................... 148,243 127,450 50,535
LONG-TERM DEBT, less current maturities ............................. 212,000 212,000 207,000
DEFERRED INCOME TAXES ............................................... 11,899 11,824 8,511
LONG-TERM LIABILITIES ............................................... 7,061 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;
28,677,737 shares issued and 28,627,737 shares
outstanding at December 30, 2000; 28,375,032 shares
issued and 28,325,032 shares outstanding at April 1,
2000 and 28,013,375 shares issued and 27,963,375 shares
outstanding at April 3, 1999 .................................. 74,690 68,579 63,553
Additional paid-in capital ....................................... 118,464 117,797 117,511
Retained earnings ................................................ 205,048 159,333 141,082
--------- --------- ---------
398,202 345,709 322,146
Less common stock in treasury - at cost, 50,000 shares ........... (977) (977) (977)
--------- --------- ---------
397,225 344,732 321,169
--------- --------- ---------
$ 776,428 $ 701,893 $ 587,215
========= ========= =========
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Thirty-Nine Weeks Ended Fiscal Years Ended
-------------------------- -------------------------------------
December 30, January 1, April 1, April 3, March 28,
2000 2000 2000 1999 1998
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales .................................................... $ 693,768 $ 522,001 $ 742,837 $ 455,694 $ 418,301
Cost of sales ................................................ 549,585 412,643 586,538 356,237 317,577
--------- --------- --------- --------- ---------
Gross profit ............................................. 144,183 109,358 156,299 99,457 100,724
Selling, general and administrative expenses ................. 106,427 86,893 122,293 90,240 78,390
--------- --------- --------- --------- ---------
Operating profit .......................................... 37,756 22,465 34,006 9,217 22,334
Other income (expense)
Interest expense .......................................... (8,060) (7,727) (10,470) (10,495) (5,272)
Other - net (principally interest and dividend
income) ................................................ 7,632 4,386 5,579 11,127 7,040
--------- --------- --------- --------- ---------
Earnings from continuing operations before income
taxes ..................................................... 37,328 19,124 29,115 9,849 24,102
Income taxes ................................................. 14,930 7,680 11,692 3,984 9,648
--------- --------- --------- --------- ---------
Earnings from continuing operations .......................... 22,398 11,444 17,423 5,865 14,454
Earnings (loss) from discontinued operations, net of
income taxes .............................................. 5,317 (623) 828 (5,683) 20,972
Gain on disposal of discontinued operations, net
of income taxes of $12,000 ................................ 18,000 -- -- -- --
--------- --------- --------- --------- ---------
NET EARNINGS ......................................... $ 45,715 $ 10,821 $ 18,251 $ 182 $ 35,426
========= ========= ========= ========= =========
Earnings from continuing operations per common share:
Basic .................................................. $ 0.79 $ 0.41 $ 0.62 $ 0.21 $ .54
========= ========= ========= ========= =========
Diluted ................................................ $ 0.76 $ 0.40 $ 0.60 $ 0.21 $ .51
========= ========= ========= ========= =========
Net earnings per common share:
Basic .................................................. $ 1.60 $ 0.39 $ 0.65 $ 0.01 $ 1.33
========= ========= ========= ========= =========
Diluted ................................................ $ 1.55 $ 0.38 $ 0.63 $ 0.01 $ 1.26
========= ========= ========= ========= =========
Weighted average shares:
Basic ..................................................... 28,492 28,008 28,062 27,674 26,598
========= ========= ========= ========= =========
Diluted ................................................... 29,461 28,680 28,888 28,099 28,097
========= ========= ========= ========= =========
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 Fiscal Years Ended
------------------------ -----------------------------------
December 30, January 1, April 1, April 3, March 28,
2000 2000 2000 1999 1998
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities
Earnings from continuing operations ............................ $ 22,398 $ 11,444 $ 17,423 $ 5,865 $ 14,454
Adjustments to reconcile earnings from continuing
operations to net cash used by operating activities
Depreciation and amortization ............................. 7,252 5,525 7,955 5,170 4,906
(Reduction in) provision for allowance for losses
on accounts receivable ................................. (20) (118) 589 98 302
(Gain) loss on disposition of assets ...................... (243) 18 16 (445) 4
Stock option expense ...................................... 167 215 286 322 667
Unrealized loss on trading securities ..................... -- -- -- 327 54
Net sales (purchases) of trading securities ............... -- -- -- 29,619 (30,000)
Tax effect of common stock issued upon
exercise of employee stock options ..................... 2,759 362 308 3,944 7,218
Change in assets and liabilities, net of effects from
business acquisitions and disposition of assets
Accounts receivable .................................... (48,434) (32,966) (50,141) (12,690) (9,055)
Inventories ............................................ (21,546) (25,512) (21,444) (3,105) (6,848)
Notes receivable and other current assets .............. 1,754 3,650 6,639 (12,065) (1,523)
Other assets ........................................... (2,696) 662 2,628 5,098 (7,575)
Accounts payable ....................................... (3,039) 20,564 22,216 (2,720) 10,314
Accrued compensation ................................... 3,510 2,407 9,931 1,904 3,146
Other accrued liabilities .............................. 21 5,171 1,095 753 5
Income taxes ........................................... (2,376) -- 591 (2,946) (81)
Deferred income taxes .................................. 75 75 3,435 8,604 1,187
Long-term liabilities .................................. 1,174 -- -- (1,792) 83
--------- --------- --------- --------- ---------
Total adjustments ............................. (61,642) (19,947) (15,896) 20,076 (27,196)
--------- --------- --------- --------- ---------
Net cash (used) provided by operating
activities of continuing operations ................ (39,244) (8,503) 1,527 25,941 (12,742)
--------- --------- --------- --------- ---------
Cash flows from investing activities
Capital expenditures ........................................... (7,283) (3,918) (5,561) (6,106) (20,418)
Business acquisitions .......................................... -- (71,906) (71,906) -- --
Proceeds from sale of assets ................................... 18,846 14 19 3,051 13
Proceeds from sale of discontinued operations .................. 175,000 -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided (used) by investing
activities of continuing operations ................ 186,563 (75,810) (77,448) (3,055) (20,405)
--------- --------- --------- --------- ---------
Cash flows from financing activities
Issuance of long-term debt ..................................... -- -- -- -- 207,000
Payment on long-term debt of acquired businesses ............... -- (24,605) (24,605) -- --
Issuance of common stock ....................................... 3,352 1,134 4,718 4,152 6,891
--------- --------- --------- --------- ---------
Net cash provided (used) by financing
activities of continuing operations ............... 3,352 (23,471) (19,887) 4,152 213,891
--------- --------- --------- --------- ---------
Net increase (decrease) in cash from continuing
operations ..................................................... 150,671 (107,784) (95,808) 27,038 180,744
Net (decrease) increase in cash from discontinued
operations .................................................... (38,970) (10,027) (11,082) 997 (25,887)
Cash and cash equivalents at beginning of period .................. 101,052 207,942 207,942 179,907 25,050
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period ........................ $ 212,753 $ 90,131 $ 101,052 $ 207,942 $ 179,907
========= ========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest .................................................. $ 4,658 $ 4,658 $ 9,315 $ 9,345 $ 4,118
Income taxes .............................................. 18,016 1,694 (1,823) 787 15,138
Non-cash investing and financing activities:
Receivables from sale of redistribution assets
and discontinued operations ............................ 65,202 -- -- -- --
Issuance of stock warrants ............................... 500 -- -- -- --
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 28, 1998, APRIL 3, 1999 AND APRIL 1, 2000, AND
THIRTY-NINE WEEKS ENDED DECEMBER 30, 2000
(IN THOUSANDS)
Common Stock Additional
-------------------- paid-in Retained Treasury
Shares Amount capital earnings stock
------ ------- -------- -------- -----
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)
Common stock issued upon exercise of
employee stock options, including tax effect
(unaudited) .............................................. 303 6,111 -- -- --
Amortization of unearned compensation related
to stock option plans (unaudited) ........................ -- -- 167 -- --
Stock warrants (unaudited) ................................... -- -- 500 -- --
Net earnings for the thirty-nine weeks (unaudited) ........... -- -- -- 45,715 --
------ ------- -------- -------- -----
BALANCE AT DECEMBER 30, 2000 ................................. 28,628 $74,690 $118,464 $205,048 $(977)
====== ======= ======== ======== =====
The accompanying notes are an integral part of this statement.
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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's customers are primarily
industrial users, original equipment manufacturers, financial institutions,
service organizations, and education and governmental agencies located primarily
throughout the United States.
On October 10, 2000, the Company sold K*TEC Electronics Corporation, its
contract manufacturing operation. The financial data related to K*TEC is
accounted for as a discontinued operation for all periods presented. See
footnote titled Discontinued Operations.
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.
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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:
2000 1999 1998
---- ---- ----
(In thousands)
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
===== ===== ===
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.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost 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.
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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.
UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, the unaudited financial information for the
interim periods presented contain all normal and recurring adjustments necessary
to present fairly the Company's financial position, the results of its
operations and its cash flows for the periods reported. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of
America have been condensed or omitted. It is suggested that these unaudited
interim financial statements be read in conjunction with the financial
statements and footnotes thereto included herein. The results of operations for
the thirty-nine weeks ended December 30, 2000 and January 1, 2000 are not
necessarily indicative of the results expected for a full year.
DISCONTINUED OPERATIONS (UNAUDITED)
On October 10, 2000, the Company sold K*TEC Electronics Corporation, its
contract manufacturing operation, for $237.2 million, consisting of $175.0
million in cash, a $50.0 million senior secured note, which was redeemed on
January 26, 2001, and a $12.2 million unsecured note maturing on October 10,
2001. The unsecured note is subject to a post-closing adjustment based upon
K*TEC's net asset value as of October 7, 2000. A pretax gain on the sale of
K*TEC of approximately $30.0 million, $18.0 million after tax or $0.62 per
diluted share, was recorded in the third quarter of fiscal 2001. The purchaser
is disputing certain items in the closing balance sheet and the ultimate outcome
is not determinable at this time; however, management believes it will not have
a material effect on the financial statements of the Company. The net assets and
operations of K*TEC are reflected as discontinued operations in the accompanying
financial statements. Corporate, and shared general and administrative costs of
the Company were not allocated to discontinued operations.
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Certain information with respect to the discontinued operations of K*TEC is as
follows:
Thirty-Nine Weeks Ended Fiscal Years Ended
--------------------------- -----------------------------------------
(In thousands, except per share data) December 30, January 1, April 1, April 3, March 28,
2000 2000 2000 1999 1998
-------- --------- -------- --------- --------
Net sales ...................................... $211,939 $ 178,283 $251,101 $ 181,370 $241,099
-------- --------- -------- --------- --------
Earnings (loss) before
income taxes ................................. 8,861 (1,310) 928 (9,555) 34,065
Income taxes ................................... 3,544 (687) 100 (3,872) 13,093
-------- --------- -------- --------- --------
Earnings (loss) from
discontinued operations ...................... 5,317 (623) 828 (5,683) 20,972
Gain on disposal of discon-
tinued operations, net of
income taxes of $12,000 ...................... 18,000 -- -- -- --
-------- --------- -------- --------- --------
Total discontinued operations,
net of income taxes .......................... $ 23,317 $ (623) $ 828 $ (5,683) $ 20,972
======== ========= ======== ========= ========
Earnings (loss) per common
share from discontinued
operations:
Basic ...................................... $ .81 $ (.02) $ .03 $ (.20) $ .79
======== ========= ======== ========= ========
Diluted .................................... $ .79 $ (.02) $ .03 $ (.20) $ .75
======== ========= ======== ========= ========
As of April 1, 2000 As of April 3, 1999
------------------- -------------------
Current assets ........................... $105,280 $ 75,579
Noncurrent assets ........................ 67,757 73,733
-------- --------
Total assets ............................. 173,037 149,312
-------- --------
Current liabilities ...................... 29,242 17,426
-------- --------
Total liabilities ........................ $ 29,242 17,426
-------- --------
Net assets of K*TEC ...................... $143,795 $131,886
======== ========
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 provided comprehensive end-to-end voice and data
network solutions to major corporations from offices in Irvine and Santa Clara,
California.
In June 1999, the Company acquired certain assets and assumed certain
liabilities of Advacom, Inc. (Advacom) for a cash purchase price of $33.0
million plus the assumption of approximately $21.8 million of interest bearing
obligations which were retired on the day of closing. Advacom was a Pennsylvania
based distributor of electronic connectors, 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 was a Texas based network integrator.
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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.
2000 1999
----------- -----------
(In thousands)
Net sales ........................................... $ 774,190 $ 622,926
Earnings from continuing operations ................. 16,176 3,727
Earnings from continuing operations per common share:
Basic ............................................ $ 0.58 $ 0.13
Diluted .......................................... $ 0.56 $ 0.13
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:
2000 1999 1998
------- ------- -------
(In thousands)
Current ................................... $11,104 $ 2,278 $ 5,921
Tax reduction for exercise of stock options
credited to stockholders' equity ...... 307 3,944 7,218
Deferred .................................. 281 (2,238) (3,491)
------- ------- -------
$11,692 $ 3,984 $ 9,648
======= ======= =======
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A reconciliation of income taxes computed at the statutory federal income tax
rate and income taxes reported in the consolidated statements of earnings
follows:
2000 1999 1998
------- ------ ------
(In thousands)
Tax at statutory rate..................................... $10,190 $3,447 $8,436
Increases (reductions)
State income taxes, net of federal tax effect....... 1,047 245 937
Other-net......................................... 455 292 275
------- ------ ------
Income taxes as reported.................................. $11,692 $3,984 $9,648
======= ====== ======
Net deferred tax liabilities at April 1, 2000 and April 3, 1999 consist of the
following:
2000 1999
-------- --------
(In thousands)
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)
======== ========
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.
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13
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 continuing operations for 2000, 1999 and 1998 was approximately $5.4
million, $3.9 million and $3.5 million, respectively. Including discontinued
operations, total 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 net of amounts assigned to discontinued
operations were $5.9 million in 2001; $5.1 million in 2002; $3.5 million in
2003; $1.9 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 $4.7 million
for continuing operations as of April 1, 2000. Claims are accrued as incurred
and the total expense under the program for continuing operations was
approximately $4.0 million, $3.5 million and $2.3 million in 2000, 1999 and
1998, respectively.
The Company is engaged in litigation occurring in the normal course of business.
In the opinion of management, based upon advice of counsel, the ultimate outcome
of these lawsuits will not have a material impact on the Company's consolidated
financial statements.
The Company has severance agreements with certain executive officers that become
operative only upon a change in control of the Company. Compensation which may
be payable under these agreements has not been accrued in the consolidated
financial statements as a change in control, as defined, has not occurred.
STOCKHOLDERS' EQUITY
FAIR PRICE PROVISION
The Company has adopted a fair price provision relating to certain business
combinations. The fair price provision provides that, except in certain
circumstances, a business combination between the Company and an interested
shareholder must be approved by the affirmative vote of the holders of 80% of
the outstanding voting stock, unless certain pricing and procedural requirements
regarding the business combination are satisfied.
STOCKHOLDER RIGHTS PLAN
Under the Company's 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.
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14
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:
2000 1999 1998
------------------------ ------------------------- ----------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
(In thousands, except per share data) Options price Options price Options price
-------- ----------- ---------- ---------- ---------- --------
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
====== ====== ====== ====== ====== ======
The following table summarizes the weighted average fair value per share at date
of grant of options granted during the year:
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
------------- ---------------- ------------ ----------------- ------------ -----------------
Exercise price equals
market price......... $ 7.16 $ 14.01 $ 4.98 $9.94 $ 9.54 $ 23.94
The following table summarizes significant ranges of outstanding and exercisable
options at April 1, 2000:
Options Outstanding Options Exercisable
--------------------------------------------------------- ----------------------------
Weighted average
remaining life Weighted average Weighted average
(In thousands, except per share data) Options (in years) exercise price Options exercise price
------------- ---------------------- ----------------- ----------- ---------------
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
======= =====
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15
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:
2000 1999 1998
---------- ---------- -----------
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%
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. As of the effective date of the sale of K*TEC, the warrants were
immediately vested. The estimated fair value of the warrants was recorded in
additional paid-in capital and the related expense was recorded against the gain
on the sale of K*TEC.
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 $1.3 million, $0.9
million and $0.7 million to the Plan in 2000, 1999 and 1998, respectively, net
of amounts attributed to discontinued operations.
The Company has a deferred compensation plan whereby the participant may elect
to defer a maximum of 100% of compensation. 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.
EVENTS SUBSEQUENT TO FISCAL YEAR ENDED APRIL 1, 2000 (UNAUDITED)
On March 21, 2001, Avnet, Inc. and the Company entered into an Agreement and
Plan of Merger, which sets forth the terms and conditions of the proposed merger
of a subsidiary of Avnet with and into the Company (the "Merger") pursuant to
which the Company will survive the Merger and will become a wholly owned
subsidiary of Avnet. The Merger is expected to be accounted for as a pooling of
interests transaction. Consummation of the Merger is subject to various
conditions, including the approval by both Avnet's and the Company's
stockholders and the receipt of required regulatory approvals.
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 $93.2 million, representing 12.5% of the Company's total sales
from continuing operations for the fiscal year ended April 1, 2000.
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16
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data of continuing
operations for fiscal years 2000, 1999 and 1998:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands, except per share data)
Year ended April 1, 2000
Net sales .................................... $150,200 $173,473 $198,328 $220,836
Gross profit ................................. 30,840 34,843 43,675 46,941
Earnings from continuing operations .......... 2,796 2,449 6,199 5,979
Earnings from continuing operations
per common share:
Basic ..................................... .10 .09 .22 .21
Diluted ................................... .10 .09 .21 .20
-------- -------- -------- --------
Year ended April 3, 1999
Net sales .................................... $115,986 $107,575 $108,509 $123,624
Gross profit ................................. 25,428 23,126 24,169 26,734
Earnings from continuing operations .......... 2,290 415 1,005 2,155
Earnings from continuing operations
per common share:
Basic ..................................... .08 .01 .04 .08
Diluted ................................... .08 .01 .04 .08
-------- -------- -------- --------
Year ended March 28, 1998
Net sales .................................... $ 98,949 $102,723 $107,280 $109,349
Gross profit ................................. 23,244 24,476 26,684 26,320
Earnings from continuing operations .......... 3,466 3,373 3,807 3,808
Earnings from continuing operations
per common share:
Basic ..................................... .13 .13 .14 .14
Diluted ................................... .12 .12 .13 .14
-------- -------- -------- --------
15