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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, 1995
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.)
7433 Harwin Drive 77036-2015
Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 780-7770
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, without par value New York Stock Exchange, Inc.
(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. /X/
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 9, 1995 was approximately $280,564,096.
As of May 9, 1995 there were outstanding 9,804,743 shares of Common
Stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the 1995 Annual Meeting of Shareholders of the
Registrant (Sections entitled "Common Stock Outstanding and Principal Holders
Thereof," "Proposal No. 1 - Election of Directors" and "Executive Officers") is
incorporated by reference in Part III of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Kent Electronics Corporation (the "Company") is a leading national
specialty distributor of electronic products and a manufacturer of custom-made
electronic assemblies. The Company, through its Kent Components Distribution
division ("Components"), distributes electronic connectors, electronic wire and
cable, and other passive and electromechanical products and interconnect
assemblies used in assembling and manufacturing electronic equipment. The
Company, through its wholly owned subsidiary K*TEC Electronics Corporation
("K*TEC"), also manufactures custom-made electronic interconnect assemblies,
battery power packs and other sub-assemblies that are built to customers'
specifications. Through Kent Datacomm ("Datacomm"), the Company offers a broad
range of premise wiring products directly to commercial end-users and
professionals who install and service voice and data communications networks,
including local area networks (LANs).
The Company's customers are primarily industrial users and original
equipment manufacturers, or "OEMs," served by the Company's 21 sales offices
and distribution facilities in Texas, California, Minnesota and 14 other
states, and by its manufacturing facilities in Houston and Dallas, Texas and
the San Jose, California area. In 1987, the Company made its first substantial
expansion out of Texas by entering the southern California market through the
acquisition of Electro-Sonic Components ("Electro- Sonic"). In 1990, the
Company's West Coast operations were further expanded with the purchase of
Pyramid Electronics Supply, Inc. ("Pyramid"), thereby adding a manufacturing
facility in the San Jose area and distribution facilities in California and
Washington. In January 1992, the Company acquired Shelley-Ragon, Inc.
("Shelley-Ragon"), a privately-held specialty distributor of connectors,
capacitors, resistors and electromechanical components based in St. Paul,
Minnesota. The Company's OEM customers serve many industries, including the
computer and data processing, telecommunications, medical instrumentation,
aerospace systems and energy industries.
The Company has chosen not to participate in the semiconductor
products and computer hardware segments of the electronics distribution
industry. The market for the Company's products has historically remained more
stable than that for semiconductors and computer hardware and has not been
affected to the same degree by technological changes or price fluctuations. A
majority of the products distributed by the Company are readily adaptable to
various end-users in a wide range of industries.
The Company has concentrated its efforts on certain market niches and
has not attempted to be a broad-line distributor. Moreover, it has followed a
strategy of distributing the products of a relatively small group of leading
suppliers. The Company believes that these factors provide its marketing
personnel with the advantage of greater familiarity with the products they
sell.
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Unless the context indicates otherwise, all references to the
"Company" include Kent Electronics Corporation and all of its subsidiaries.
DISTRIBUTION
GENERAL. The principal focus of the Company's distribution business,
conducted through its Components division, is to provide its industrial and OEM
customers with rapid and reliable deliveries of specialty wiring and connector
products and other electronic components and assembled parts as well as a wide
variety of materials management services. The Company utilizes a computerized
system of inventory control to assist in the marketing of its products and
coordinate purchases from suppliers with sales to customers. The Company's
computer system provides detailed on-line information regarding the
availability of the Company's entire stock of inventory located at its stocking
facilities and also on-line access to the inventories of most of the Company's
major suppliers. Through the Company's integrated real-time information
system, customers' orders can readily be tracked 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. The Company is thus able to provide the type of distributor service
required by its OEM customers that have adopted the "just-in-time" method of
inventory procurement. The "just-in-time" method is utilized in an effort to
operate more efficiently and profitably by relying on scheduled deliveries of
such components at the time they are needed in the production process and
thereby reducing inventories of components.
The principal products the Company distributes consist of connectors,
receptacles and sockets, which collectively accounted for approximately 19%,
20% and 20% of the Company's total sales in its fiscal years ended in 1995,
1994 and 1993, respectively, and other electronic connecting components, such
as cable and wiring products, which accounted for approximately 8%, 8% and 9%
of the Company's total sales in such years. In addition, the Company
distributes capacitors, resistors and electromechanical parts.
As is customary in the electronic distribution industry, the Company
has no long-term contracts with its suppliers, and instead operates under
short-term contracts. In the Company's past experience, such contracts have
typically been renewed from year to year. In the year ended April 1, 1995, the
Company's purchases from AMP represented approximately 24% of its 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 supplier could have an adverse impact on the Company's operations.
AFTERMARKET OPERATIONS. Datacomm serves the voice and data
communications after-market. Through a focused sales effort, Datacomm offers a
broad range of premise wiring products to commercial end-users and
professionals who install or service voice and data communications networks.
Through such a marketing approach, the Company believes it is able to
participate directly in the large and rapidly growing market for connection
devices, reflecting the increasing use of microcomputers in LANs and the
continued growth in networking and
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cabling needs of minicomputer and mainframe users. Datacomm can provide
customers with immediate off-the-shelf delivery of voice and data
communications wiring products. The Company, through Datacomm, is an
authorized distributor of AMP, AT&T, Belden, Cabletron and other LAN systems.
Datacomm serves numerous industries, including those in the manufacturing,
airline, government, food, medical, media, financial and aerospace areas.
MANUFACTURING
K*TEC manufactures a wide variety of wiring harnesses, cable
assemblies, other subassemblies and custom battery power packs, all of which
are built to the specifications of individual customers. The Company has
developed innovative material requirements planning (MRP) relationships with a
select group of OEMs in the data processing, telecommunications, medical
instrumentation and energy 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 the latest 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 OEMs engineer when developing
and changing product designs.
K*TEC's quality control standards provide another means of serving the
needs of the Company's just-in-time customers, since an important aspect of the
just-in-time method is that 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.
Substantially all of the Company's manufacturing business is contract
manufacturing. The contract manufacturing business is generally characterized
by close working relationships with a relatively small number of customers.
Sales of K*TEC's products represented approximately 38%, 34%, and 33% of the
Company's total sales for the fiscal years ended in 1995, 1994 and 1993,
respectively. The Company believes that its profit margins from sales of
manufactured products is generally greater than its profit margin on sales of
distributed products.
ACQUISITIONS
ACQUISITION OF SHELLEY-RAGON. In January 1992, the Company acquired
Shelley-Ragon, a privately-held specialty distributor of connectors,
capacitors, resistors and electromechanical components based in St. Paul,
Minnesota, by merging Shelley-Ragon into the Company. Shelley-Ragon had sales
of approximately $46 million in its fiscal year ended November 2, 1991. Prior
to the acquisition by the Company, the Company assisted Shelley-Ragon in
achieving improved operating profit. The operations of Shelley- Ragon have
been fully integrated into the Company's operations.
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MARKETING
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.
The Company uses direct mailings of brochures and catalogs as well as
advertising in trade journals in the marketing of its products.
The Company's strategy has been to concentrate its efforts in certain
market niches in which it only distributes the products of a relatively small
number of leading suppliers. In addition, because sales personnel specialize
within related product groupings, they are able to develop a high degree of
technical expertise.
COMPETITION
The Company faces substantial competition from a large number of
distributors, suppliers and manufacturers, some of which are larger, have
greater financial resources, broader name recognition, and may, in some
instances, have lower manufacturing costs than the Company.
The Company's manufacturing operations encounter competition from both
domestically manufactured products and products manufactured outside the United
States. Such 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 virtue of any proprietary 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
Based upon the Company's internal backlog tracking system, and
including verbal orders from customers as well as written purchase orders, the
Company believes its backlog was approximately $39 million and $29 million at
April 1, 1995 and April 2, 1994, respectively. Backlog consists of orders the
Company believes to be firm, a substantial portion of which are scheduled for
shipment within three months. Customers are generally permitted to modify,
reschedule or cancel their orders without penalty. Although historically the
Company's backlog figures have provided an indication of sales in the short
term, due to the nature of the Company's business, backlog may not be a
reliable indicator of future sales.
EMPLOYEES
At April 1, 1995, the Company employed 957 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.
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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.
ITEM 2. PROPERTIES
The Company's headquarters are located in a 66,000 square foot office
facility in Houston, Texas, of which approximately 56,000 square feet are
presently used by the Company. The Company also owns a 2.7 acre tract of
vacant land adjacent to the office facility. In nearby office, sales, stocking
and manufacturing facilities, the Company uses approximately 15,000 square feet
of space for office purposes and approximately 156,000 square feet for
warehousing and manufacturing operations. The Company owns a 10.8 acre tract
of land adjoining these Houston facilities. The distribution and manufacturing
facilities in Dallas, Texas are located in approximately 34,000 square feet of
space and are subject to a lease expiring in May 1999. The Company has a lease
expiring in April 1998 in the San Jose, California area covering approximately
40,000 square feet for manufacturing facilities. The Company's San Jose,
California distribution facility contains approximately 13,000 square feet with
a lease expiring in February 2000. The Company's St. Paul, Minnesota
distribution facilities comprise approximately 22,000 square feet subject to a
lease expiring in October 1997. At the end of fiscal 1995, the Company's other
facilities, located in Austin, Texas; Fountain Valley, California; Seattle,
Washington; Wallingford, Connecticut; Baltimore, Maryland; Rome, New York;
Orlando, Florida; San Diego, California; Phoenix, Arizona; Denver, Colorado;
Kansas City, Kansas; Cedar Rapids, Iowa; Huntsville, Alabama; Chicago,
Illinois; Boston, Massachusetts; Portland, Oregon; and Pine Brook, New Jersey
occupied an aggregate of approximately 87,000 square feet subject to leases
expiring at various times through 1999. Most of the 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.
In March 1995, the Company purchased a 66 acre parcel of land and
acquired a four-year option to purchase an adjacent 30 acres in Sugar Land,
Texas. A 250,000 square foot manufacturing, warehouse and administrative
facility is currently under construction at this site. The Company's
facilities are adequate for its current operations. As the Company's
operations expand, the Company expects to continue to expand its facilities.
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ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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 1994 and 1995 and for a portion of the Company's
current quarter, as reported by the New York Stock Exchange.
HIGH LOW
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FISCAL YEAR ENDED 1994
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $18.17 $13.92
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . 17.25 13.67
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 19.09 17.17
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . 21.17 17.83
FISCAL YEAR ENDED 1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . $21.33 $17.83
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . 24.33 20.33
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . 26.67 22.83
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . 30.75 25.84
FISCAL YEAR ENDED 1996
First Quarter (through May 9) . . . . . . . . . . . . . . . . . $30.38 $28.13
On May 9, 1995, there were approximately 1,057 holders of record of
the Company's Common Stock.
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DIVIDEND POLICY
Historically, the Company has reinvested earnings available to Common
Stock in its business and, accordingly, has not paid any dividends on its
Common Stock. On March 1, 1995, the Company's Common Stock was split
three-for-two to shareholders of record on February 15, 1995, and was effected
as a 50% stock dividend. 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.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data of
the Company and should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements included elsewhere herein.
Fiscal Year Ended
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April 1, April 2, April 3, March 28, March 30,
1995 1994 1993 1992 1991
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(Dollars in thousands, except per share and percentage amounts)
Operating Statement Data:
Net sales . . . . . . . . . . . $ 253,484 $ 192,887 $ 154,677 $ 94,695 $ 71,013
Gross profit . . . . . . . . . 64,877 50,648 42,270 26,489 20,493
Earnings before income taxes. . 22,075 15,379 12,162 9,166 6,026
Income taxes . . . . . . . . . 8,689 5,844 4,439 3,397 2,250
Net earnings . . . . . . . . . $ 13,386 $ 9,535 $ 7,723 $ 5,769 $ 3,776
Net earnings as a percentage
of net sales . . . . . . . . . 5.3% 5.0% 5.0% 6.1% 5.3%
Earnings per share . . . . . . $ 1.32 $ .96 $ .80 $ .69 $ .63
Weighted average shares . . . . 10,138 9,881 9,675 8,420 6,002
April 1 April 2, April 3, March 28, March 30,
1995 1994 1993 1992 1991
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(In thousands)
Balance Sheet Data:
Total assets . . . . . . . . . $ 133,890 $ 114,507 $ 98,390 $ 84,581 $ 35,868
Long-term debt, less current
maturities . . . . . . . . . -- -- -- -- 733
Stockholders' equity . . . . . 108,800 92,519 81,695 71,592 28,106
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, as a percentage of sales, certain
selected consolidated financial data for each of the three years, as indicated.
Fiscal Year Ended
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April 1, April 2, April 3,
1995 1994 1993
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Manufacturing . . . . . . . . . . . . . . . . . . . 38.0% 34.4% 33.2%
Distribution . . . . . . . . . . . . . . . . . . . 62.0 65.6 66.8
----- ----- -----
Net sales . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0
Cost of sales . . . . . . . . . . . . . . . . . . . 74.4 73.7 72.7
----- ----- -----
Gross profit . . . . . . . . . . . . . . . . . . . 25.6 26.3 27.3
Selling, general and administrative expenses . . . 17.3 18.7 19.9
----- ----- -----
Operating profit . . . . . . . . . . . . . . . . . 8.3 7.6 7.4
Other income (expense)
Interest expense . . . . . . . . . . . . . . -- -- --
Other - net (principally interest and
dividend income) . . . . . . . . . . . . . . 0.4 0.4 0.5
----- ----- -----
Earnings before income taxes . . . . . . . . . . . 8.7 8.0 7.9
Income taxes . . . . . . . . . . . . . . . . . . . 3.4 3.0 2.9
----- ----- -----
Net earnings . . . . . . . . . . . . . . . . . . . 5.3% 5.0% 5.0%
===== ===== =====
COMPARISON OF FISCAL YEAR 1995 WITH FISCAL YEAR 1994
Net sales for the fiscal year ending April 1, 1995, increased
$60,596,687, or 31.4%, compared to the prior year. The sales increase
reflected internal growth, primarily from increased demand from existing
customers and an expanded customer base.
Gross profit increased $14,229,197, or 28.1%, when compared to the
prior year. Gross profit as a percentage of sales decreased to 25.6% from
26.3% compared to the previous year. The decline in the gross profit
percentage is primarily due to the highly competitive conditions in the
electronics and personal computer industries, creating downward pressure on
margins. The increase in gross profit was primarily due to increased sales,
partially offset by a slight decline in the gross profit percentage.
Selling, general and administrative expenses increased $7,904,923, or
22.0%, when compared to the preceding year. As a percentage of sales, expenses
decreased to 17.3% from 18.7% when compared to the previous year. The decline
reflects the Company's continued focus on cost containment to reduce expenses
as a percentage of sales. The increase in expense was primarily due to the
expenses necessary to support the growth of the Company's existing operations.
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Other-net consists principally of interest income generated by cash,
cash equivalents and trading securities. The increase in interest income was
due to the Company shifting a portion of available funds into a higher yielding
taxable investment vehicle from a tax-exempt municipal money market fund and
higher interest rates.
The Company's effective tax rate increased due to an increase in
operating income and taxable interest income. The increase in operating
income, along with the increase in taxable interest income, subjected the
Company to a higher graduated federal income tax rate.
Net earnings increased $3,851,048, or 40.4%, when compared to the
prior year. The improved profitability was primarily due to the incremental
profit associated with the increase in sales volume.
COMPARISON OF FISCAL YEAR 1994 WITH FISCAL YEAR 1993
Net sales for the fiscal year ended April 2, 1994 increased
$38,210,145, or 24.7%, when compared to the fiscal year ending April 3, 1993.
The sales increase was attributable to increased demand from existing customers
and an expanding customer base.
Gross profit increased $8,377,901, or 19.8% compared to the preceding
year. Gross profit as a percentage of sales decreased to 26.3% from 27.3% in
the previous year. The decline in gross profit percentage was primarily due to
the highly competitive condition in the electronics and personal computer
industries, creating a downward pressure on margins. The increase in gross
profit was primarily due to increased sales, partially offset by a slight
decline in the gross profit percentage.
Selling, general and administrative expenses increased $5,206,121, or
16.9%, compared to the prior fiscal year. However, as a percentage of sales,
expenses declined to 18.7% from 19.9% the preceding year. The decline as a
percentage of sales reflected the Company's continued focus on cost
containment. The increase in expense was primarily due to the expenses
necessary to support the growth in the Company's existing operations.
Other-net consisted principally of interest income generated by cash,
cash equivalents and short-term investments. The increase in interest and
dividend income was primarily due to the Company shifting a greater portion of
its available funds from a tax-exempt to a taxable investment vehicle which
provided an increased yield. The increase in interest and dividend income was
also due to an increase in funds available for investing.
The Company's effective tax rate increased in fiscal year 1994 due to
an increase in federal income tax rates and a decline in the amount of tax-free
interest income. The decrease in tax-free interest income made a greater
portion of the Company's income subject to income taxes.
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Net earnings increased $1,811,871, or 23.5%, when compared to the
prior year. The additional profit from the increased sales was the primary
factor in the improved profitability.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at April 1, 1995 was $66,318,424, an increase of
$10,431,615 from April 2, 1994.
Included in the Company's working capital at April 1, 1995 are
investments of $23,227,892. 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. The Company's primary investment
vehicle is a managed fund consisting primarily of taxable, high quality
corporate debt instruments and is compatible with the Company's stated
investment strategy.
The Company intends to apply its capital resources to expand its
business by establishing or acquiring similar distribution and manufacturing
operations in geographic areas that are attractive to the Company, by acquiring
new facilities and by enlarging or improving existing facilities. In addition
to the capital required to purchase existing businesses or to fund start-up
operations, the expansion of the Company's operations at both new and existing
locations will require greater levels of capital to finance the purchase of
additional equipment, increased levels of inventory and greater accounts
receivable.
The Company is currently expanding its manufacturing capacity by
building a new facility on a recently purchased 66-acre parcel of land in Sugar
Land, Texas. Facility construction and equipment will require working capital
resources of approximately $13 million. Management believes that current
resources, along with funds generated from operations, should be sufficient to
meet its current capital requirements and those anticipated in the near future.
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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, 1995 and April 2, 1994, and the
related consolidated statements of earnings, cash flows and stockholders'
equity for each of the three years in the period ended April 1, 1995. 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. 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, 1995 and April 2, 1994,
and the consolidated results of their operations and cash flows for each of the
three years in the period ended April 1, 1995, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Houston, Texas
May 8, 1995
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 1, 1995 AND APRIL 2, 1994
ASSETS 1995 1994
-------------- --------------
CURRENT ASSETS
Cash and cash equivalents (including temporary investments
of $6,395,425 in 1995 and $9,826,122 in 1994) . . . . . . . . $ 4,434,457 $ 11,382,179
Trading securities, net . . . . . . . . . . . . . . . . . . . . 16,832,467 --
Short-term investments, net . . . . . . . . . . . . . . . . . . -- 15,184,179
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 33,963,810 26,038,081
Inventories
Materials and purchased products . . . . . . . . . . . . . . . 30,080,372 19,985,035
Work in process . . . . . . . . . . . . . . . . . . . . . . . 3,039,140 3,214,825
-------------- --------------
33,119,512 23,199,860
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . 2,778,348 2,070,197
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . 91,128,594 77,874,496
PROPERTY AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,089,838 2,558,983
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,697,207 6,558,289
Equipment, furniture and fixtures . . . . . . . . . . . . . . . 26,205,888 21,053,980
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 1,362,806 1,254,485
-------------- --------------
41,355,739 31,425,737
Less accumulated depreciation and amortization . . . . . (13,620,455) (10,284,224)
-------------- --------------
27,735,284 21,141,513
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 838,000 1,270,000
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,022,244 689,339
COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated amortization of
$1,629,122 in 1995 and $1,264,634 in 1994 . . . . . . . . . . . 13,166,859 13,531,347
-------------- --------------
$ 133,890,981 $ 114,506,695
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 15,479,278 $ 16,389,611
Accrued compensation . . . . . . . . . . . . . . . . . . . . . . 4,579,595 2,521,902
Other accrued liabilities . . . . . . . . . . . . . . . . . . . 3,057,149 2,020,416
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,694,148 1,055,758
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . 24,810,170 21,987,687
LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 281,205 --
COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; authorized 2,000,000 shares;
none issued . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, no par value; authorized 30,000,000 shares;
issued and outstanding 9,804,743 shares in 1995
and 9,687,559 shares in 1994 . . . . . . . . . . . . . . 34,742,597 32,702,560
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 25,213,946 24,359,507
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 48,843,063 35,456,941
-------------- --------------
108,799,606 92,519,008
-------------- --------------
$ 133,890,981 $ 114,506,695
============== ==============
The accompanying notes are an integral part of these statements.
- 13 -
14
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED APRIL 1, 1995, APRIL 2, 1994, AND APRIL 3, 1993
1995 1994 1993
-------------- -------------- --------------
Net sales . . . . . . . . . . . . . . . . . . . $ 253,483,742 $ 192,887,055 $ 154,676,910
Cost of sales . . . . . . . . . . . . . . . . . 188,606,215 142,238,725 112,406,481
-------------- -------------- --------------
Gross profit . . . . . . . . . 64,877,527 50,648,330 42,270,429
Selling, general and administrative
expenses . . . . . . . . . . . . . . . 43,917,091 36,012,168 30,806,047
-------------- -------------- --------------
Operating profit . . . . . . . 20,960,436 14,636,162 11,464,382
Other income (expense)
Interest expense . . . . . . . . . . . (18,000) (15,000) (15,000)
Other-net (principally interest and
dividend income) . . . . . . . . . . . 1,132,686 757,912 712,821
-------------- -------------- --------------
Earnings before income taxes . 22,075,122 15,379,074 12,162,203
Income taxes . . . . . . . . . . . . . . . . . 8,689,000 5,844,000 4,439,000
-------------- -------------- --------------
NET EARNINGS . . . . . . . . . $ 13,386,122 $ 9,535,074 $ 7,723,203
============== ============== ==============
Earnings per share . . . . . . . . . . . . . . $ 1.32 $ .96 $ .80
============== ============== ==============
Weighted average shares . . . . . . . . . . . . 10,137,500 9,881,000 9,675,300
============== ============== ==============
The accompanying notes are an integral part of these statements.
- 14 -
15
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 3, 1993, APRIL 2, 1994 AND APRIL 1, 1995
Common Stock Additional
--------------------------- Paid-in Retained
Shares Amount Capital Earnings
---------- ------------ ------------ ------------
Balance at March 28, 1992 . . . . . . . . 9,414,583 $ 30,180,661 $ 23,212,580 $ 18,198,664
Common stock issued upon exercise of
employee stock options, including tax 209,601 1,855,008 -- --
effect . . . . . . . . . . . . . . . .
Amortization of unearned compensation
related to stock option plans . . . . . -- -- 524,473 --
Net earnings for the year . . . . . . . . -- -- -- 7,723,203
---------- ------------ ------------ ------------
Balance at April 3, 1993 . . . . . . . . 9,624,184 32,035,669 23,737,053 25,921,867
Common stock issued upon exercise of
employee stock options, including tax
effect . . . . . . . . . . . . . . . . 63,375 666,891 -- --
Amortization of unearned compensation
related to stock option plans . . . . . -- -- 622,454 --
Net earnings for the year . . . . . . . . -- -- -- 9,535,074
---------- ------------ ------------ ------------
Balance at April 2, 1994 . . . . . . . . 9,687,559 32,702,560 24,359,507 35,456,941
Common stock issued upon exercise of
employee stock options, including tax
effect . . . . . . . . . . . . . . . . 117,601 2,040,037 -- --
Common stock split fractional shares . . (417) -- (16,325) --
Amortization of unearned compensation
related to stock option plans . . . . . -- -- 870,764 --
Net earnings for the year . . . . . . . . -- -- -- 13,386,122
---------- ------------ ------------ ------------
Balance at April 1, 1995 . . . . . . . . 9,804,743 $ 34,742,597 $ 25,213,946 $ 48,843,063
========== ============ ============ ============
The accompanying notes are an integral part of this statement.
- 15 -
16
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 1, 1995, APRIL 2, 1994 AND APRIL 3, 1993
1995 1994 1993
-------------- -------------- --------------
Cash flows from operating activities
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $ 13,386,122 $ 9,535,074 $ 7,723,203
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization . . . . . . . . . . . 3,806,652 3,202,761 2,833,955
Provision for losses on accounts receivable . . . . 163,171 334,691 224,165
(Gain) loss on sale of property, plant
and equipment . . . . . . . . . . . . . . . . . . (268) 6,688 74
Stock option expense . . . . . . . . . . . . . . . . 870,764 622,454 524,473
Provision for unrealized losses on trading 224,684 -- --
securities . . . . . . . . . . . . . . . . . . . .
Provision for unrealized losses on short-term -- 77,300 --
investments . . . . . . . . . . . . . . . . . . .
Net purchases of trading securities . . . . . . . . (1,872,972) -- --
Change in assets and liabilities
Increase in accounts receivable . . . . . . . . . (8,088,900) (4,212,860) (4,846,791)
Increase in inventories . . . . . . . . . . . . . (9,919,652) (5,819,343) (3,407,722)
Increase in prepaid expenses and other . . . . . . (708,151) (375,091) (251,743)
(Increase) decrease in other assets . . . . . . . (421,951) 3,942 25,935
Decrease in deferred income taxes . . . . . . . . 432,000 812,000 488,228
Increase (decrease) in accounts payable . . . . . (910,333) 4,514,425 3,241,812
Increase (decrease) in accrued compensation . . . 2,057,693 288,398 (348,604)
Increase (decrease) in other accrued
liabilities . . . . . . . . . . . . . . . . . . 1,036,733 399,723 (121,368)
Increase in income taxes . . . . . . . . . . . . . 638,390 89,495 682,122
Increase in long-term liabilities . . . . . . . . 281,205 -- --
-------------- -------------- --------------
Net cash provided by operating activities . . 975,187 9,479,657 6,767,739
Cash flows from investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . (9,960,471) (5,751,781) (9,191,249)
Net purchases of short-term investments . . . . . . . . . . -- (15,261,479) --
Proceeds from sale of property and equipment . . . . . . . 13,850 16,223 890
Additional Shelley-Ragon acquisition costs . . . . . . . . -- -- (98,038)
-------------- -------------- --------------
Net cash used by investing activities . . . . (9,946,621) (20,997,037) (9,288,397)
Cash flows from financing activities
Issuance of common stock . . . . . . . . . . . . . . . . . 1,526,037 365,167 1,112,132
Payment for fractional shares . . . . . . . . . . . . . . . (16,325) -- --
Tax effect of common stock issued upon exercise of
employee stock options. . . . . . . . . . . . . . . . . . 514,000 301,724 742,876
-------------- -------------- --------------
Net cash provided by financing activities . . 2,023,712 666,891 1,855,008
-------------- -------------- --------------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . (6,947,722) (10,850,489) (665,650)
Cash and cash equivalents at beginning of year . . . . . . . 11,382,179 22,232,668 22,898,318
-------------- -------------- --------------
Cash and cash equivalents at end of year . . . . . . . . . . $ 4,434,457 $ 11,382,179 $ 22,232,668
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . $ 18,000 $ 15,000 $ 15,000
Income taxes . . . . . . . . . . . . . . . . . $ 7,713,610 $ 4,813,667 $ 1,062,118
In 1993, additional Shelley-Ragon acquisition costs of $98,038 were paid and
non-cash adjustments of $286,131, $155,404, $81,635 and $31,110 were made to
income taxes payable, inventory, property and equipment, and accrued
liabilities, respectively.
The accompanying notes are an integral part of these statements.
- 16 -
17
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 1, 1995, APRIL 2, 1994 AND APRIL 3, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies:
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, 1995 and April 2, 1994 both consisted
of 52 weeks. The fiscal year ended April 3, 1993 consisted of 53 weeks.
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 at April 1, 1995 and April 2, 1994 include
approximately $1,118,000 and $3,874,000, respectively, invested in an
institutional money market fund managed by a company holding approximately 4%
of the Company's common stock.
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 2, 1994,
agreements to resell securities in the amount of $3,552,000 with a four-day
maturity were outstanding.
Trading Securities and Short-Term Investments
In 1995, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. This statement established standards of financial accounting and
reporting for investments in equity securities that have a readily determinable
fair value and for all investments in debt 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. Net
- 17 -
18
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
unrealized holding losses on trading securities of $224,700 are included in net
earnings for 1995 as indicated in the following table:
Net unrealized loss on trading securities at
beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,300
Increase in unrealized loss included in
earnings during year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,700
--------------
Net unrealized loss on trading securities at end of year . . . . . . . . . . . . $ 302,000
==============
In 1994, under the Company's previous policy, short-term investments
were carried at the lower of their aggregate cost or market.
Trading securities include an investment in an institutional mutual
fund managed by a company holding approximately 4% of the Company's common
stock and U.S. Treasury Notes maturing in December 1996.
Accounts Receivable
The Company's allowance for doubtful accounts was $979,000 at April 1,
1995 and $955,000 at April 2, 1994.
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.
- 18 -
19
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 for previous acquisitions,
and is being amortized on a straight-line basis over 40 years. On an ongoing
basis, management reviews the valuation and amortization of the cost in excess
of net assets. As part of this review, the Company considers the current and
future levels of net income generated by the related acquisition to determine
that no impairment has occurred.
Reclassifications
Certain accounts in the fiscal 1994 and 1993 financial statements have
been reclassified to conform with the fiscal 1995 presentation.
2. 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:
FISCAL YEARS ENDED
------------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
Currently payable . . . . . . . . . . . $ 8,308,000 $ 4,978,000 $ 2,115,000
Tax reduction for exercise
of stock options credited to
stockholders' equity . . . . . . . . . 514,000 302,000 743,000
Deferred . . . . . . . . . . . . . . . (133,000) 564,000 1,581,000
----------------- ----------------- -----------------
Total . . . . . . . . . . . . $ 8,689,000 $ 5,844,000 $ 4,439,000
================= ================= =================
- 19 -
20
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of income taxes computed at the statutory Federal income tax
rate and income taxes reported in the consolidated statements of earnings
follows:
FISCAL YEARS ENDED
--------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
Tax at statutory rate . . . . . . . . . . . . . $ 7,726,000 $ 5,229,000 $ 4,135,000
Increases (reductions)
State income taxes, net of
Federal tax effect . . . . . . . . . . . . . 742,000 482,000 374,000
Tax free income . . . . . . . . . . . . . . . (47,000) (119,000) (206,000)
Other - net . . . . . . . . . . . . . . . . . 268,000 252,000 136,000
-------------- -------------- --------------
Income taxes as reported . . . . . . . . . $ 8,689,000 $ 5,844,000 $ 4,439,000
============== ============== ==============
Deferred tax assets and liabilities at April 1, 1995 and April 2, 1994
consist of the following:
1995 1994
---------------- -----------------
CURRENT DEFERRED ASSET
Allowance for doubtful accounts . . . . . . . . $ 392,000 $ 347,000
Capitalization of additional inventory costs. . 672,000 347,000
Accrued expenses not currently deductible,
net of reversals . . . . . . . . . . . . . . . 320,000 179,000
Net operating losses . . . . . . . . . . . . . 330,000 330,000
Other . . . . . . . . . . . . . . . . . . . . . 157,000 59,000
---------------- -----------------
$ 1,871,000 $ 1,262,000
================ =================
- 20 -
21
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995 1994
---------------- -----------------
LONG-TERM DEFERRED ASSET
Depreciation . . . . . . . . . . . . . . . . . $ (1,763,000) $ (1,264,000)
Fixed asset bases difference . . . . . . . . . 697,000 670,000
Deductible acquisition costs . . . . . . . . . (48,000) (50,000)
Stock compensation . . . . . . . . . . . . . . 861,000 494,000
Net operating losses . . . . . . . . . . . . . 1,091,000 1,420,000
---------------- -----------------
$ 838,000 $ 1,270,000
================ =================
Acquired net operating losses are approximately $4,058,000 at April 1,
1995, expire in various amounts through 2003, and are subject to annual usage
limitations.
3. COMMITMENTS
The Company conducts a portion of its operations in leased office,
warehouse, and manufacturing facilities and leases transportation equipment.
Rent expense for 1995, 1994 and 1993 was approximately $1,695,000, $1,472,000
and $1,565,000, respectively.
The following is a schedule by years of minimum future rentals as of
April 1, 1995:
Fiscal years
ending in Amount
------------ ------------
1996 $ 1,543,000
1997 1,231,000
1998 936,000
1999 476,000
2000 184,000
Thereafter 3,000
------------
Total minimum future rentals $ 4,373,000
============
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 $50,000 per employee. The aggregate annual amount
self-insured varies based on participant
- 21 -
22
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
levels and was limited to approximately $2,000,000 as of April 1, 1995. Claims
are accrued as incurred and the total expense under the program was
approximately $2,121,000, $1,258,000 and $1,051,000 in 1995, 1994 and 1993,
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.
4. SALES TO MAJOR CUSTOMERS
Sales to two customers represented 11.2% and 10.3% of net sales in
1995. No customer constituted 10% of net sales in 1994 or 1993.
5. 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
The Company has adopted a stockholder rights plan, declaring a
distribution of one equity purchase right on 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 $26.67, one one-hundredth
of a share of the Company's Series A Preferred Stock. Additionally, under
certain circumstances, the 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.
- 22 -
23
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Split
The Company's Common Stock was split three-for-two to stockholders of
record on February 15, 1995, and was effected as a 50% stock dividend. All
issued and outstanding shares, stock option data and earnings per share amounts
in the consolidated financial statements have been restated to give effect to
the stock split.
6. BENEFIT PLANS
Stock Options
At April 1, 1995, the Company had non-qualified stock option plans
which allow for the grant of 2,887,500 common shares for options, of which
1,079,879 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.
Number of Option price
shares range
under option per share
------------ -----------------
Outstanding at March 28, 1992 . . . . . . . . . 663,450 $ 3.75 - $14.50
Granted . . . . . . . . . . . . . . . 188,625 6.92 - 17.59
Exercised . . . . . . . . . . . . . . (209,601) 3.75 - 10.67
Lapsed/forfeited . . . . . . . . . . . (12,000) 7.33 - 11.33
--------- ----------------
Outstanding at April 3, 1993 . . . . . . . . . 630,474 4.00 - 17.59
Granted . . . . . . . . . . . . . . . 614,250 7.17 - 19.25
Exercised . . . . . . . . . . . . . . (63,375) 4.00 - 14.50
Lapsed/forfeited . . . . . . . . . . . (23,300) 4.09 - 17.17
--------- ----------------
Outstanding at April 2, 1994 . . . . . . . . . 1,158,049 4.67 - 19.25
Granted . . . . . . . . . . . . . . . 71,625 18.25 - 27.75
Exercised . . . . . . . . . . . . . . (117,601) 4.67 - 17.59
Lapsed/forfeited . . . . . . . . . . . (21,751) 13.92 - 13.92
--------- ----------------
Outstanding at April 1, 1995 . . . . . . . . . 1,090,322 $ 6.87 - $27.75
========= ================
At April 1, 1995, options representing 179,072 shares were exercisable.
- 23 -
24
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Tax-Deferred Savings and Retirement Plan and Trust
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 $639,000,
$514,000 and $469,000 to the Plan in fiscal years ended April 1, 1995, April 2,
1994 and April 3, 1993, respectively.
The Company has a deferred compensation plan for a select group of
management or highly compensated employees of the Company. Each year a
participant may elect to defer from 3% to 25% of their compensation. The
Company will match the participant compensation amount, limited to 50% of the
first 6% of compensation deferred. Participants become vested in the Company
matching contributions at the rate of 10% per plan year or vest fully at age
60. At April 1, 1995, the Company has accrued $281,000 for participant and
Company contributions and is recorded as long-term liabilities on the Balance
Sheet.
In fiscal 1995, the Company adopted a spousal salary continuation
plan. In the event of the death of the Chief Executive Officer (CEO), the plan
provides for the payment of 60% of the CEO's monthly base salary for 180
consecutive months to a designated beneficiary. The Company has purchased life
insurance with the intent to fund this obligation.
7. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of
common shares outstanding during each year. Options are included in periods
where they have a dilutive effect.
- 24 -
25
KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for
fiscal years 1995, 1994 and 1993:
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
Year ended April 1, 1995
Net sales . . . . . . . $ 56,527 $ 60,335 $ 64,462 $ 72,160
Gross profit . . . . . . 14,524 15,440 16,480 18,433
Net earnings . . . . . . 2,831 3,215 3,466 3,874
Earnings per share . . . .28 .32 .34 .38
Year ended April 2, 1994
Net sales . . . . . . . $ 43,245 $ 46,914 $ 49,238 $ 53,490
Gross profit . . . . . . 11,532 12,434 12,935 13,747
Net earnings . . . . . . 2,073 2,293 2,509 2,660
Earnings per share . . . .21 .23 .25 .27
Year ended April 3, 1993
Net sales . . . . . . . $ 34,524 $ 37,011 $ 39,216 $ 43,926
Gross profit . . . . . . 9,485 10,134 10,756 11,895
Net earnings . . . . . . 1,846 1,907 1,937 2,033
Earnings per share . . . .19 .20 .20 .21
- 25 -
26
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 Registrant has filed with
the Securities and Exchange Commission, not later than 120 days after April 1,
1995, a definitive proxy statement pursuant to Regulation 14A involving the
election of directors. Reference is made to the sections of such proxy
statement entitled "Common Stock Outstanding and Principal Holders Thereof,"
"Proposal No. 1 -- Election of Directors" and "Executive Officers," which
sections of such proxy statement are incorporated herein.
- 26 -
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
PAGE
----
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . 12
Consolidated balance sheets at April 1, 1995 and April 2, 1994 . . . . . . . . . . . . . 13
Consolidated statements of earnings for the years ended April 1, 1995, April 2, 1994
and April 3, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Consolidated statement of stockholders' equity for the years ended April 3, 1993,
April 2, 1994 and April 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 15
Consolidated statements of cash flows for the years ended April 1, 1995, April 2, 1994
and April 3, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . 17
2. FINANCIAL STATEMENT SCHEDULE:
Schedule II--Allowance for Doubtful Receivables for the years
ended April 3, 1993, April 2, 1994 and April 1, 1995
3. EXHIBITS:
3.1* -- Articles of Incorporation of Kent Electronics
Corporation, including amendments thereto filed
through July 2, 1987. Incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended April 2, 1988.
3.2* -- Articles of Amendment to Articles of Incorporation of
Kent Electronics Corporation. Incorporated by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
33-24018) filed with the Securities and Exchange
Commission ("SEC") on August 26, 1988.
3.3* -- 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 (the
"1991 Form 10-K").
- 27 -
28
3.4* -- Articles of Amendment to Articles of Incorporation of
Kent Electronics Corporation. Incorporated by
reference to Exhibit 3.4 to 1991 Form 10-K.
3.5* -- Bylaws of Kent Electronics Corporation. Incorporated
by reference to Exhibit 3.4 to the Company's
Registration Statement on Form S-1 (Registration No.
33-5371) filed with the SEC on May 2, 1986.
3.6* -- Amendments to Bylaws of Kent Electronics Corporation.
Incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the Fiscal
Year Ended March 31, 1990.
3.7* -- Amendments to Bylaws of Kent Electronics Corporation.
Incorporated by reference to Exhibit 3.7 to 1991 Form
10-K.
3.8* -- Amendments to Bylaws of Kent Electronics Corporation.
Incorporated by reference to Exhibit 3.8 to the
Company's Annual Report on Form 10-K for the Fiscal
Year Ended March 28, 1992 (the "1992 Form 10-K").
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 (the
"1991 Registration Statement").
4.2* -- Rights Agreement dated as of May 14, 1990 between
Kent Electronics Corporation and Ameritrust Company
National Association. Incorporated by reference to
Exhibit 4 to the Company's Current Report on Form 8-K
dated May 14, 1990.
4.3* -- First Amendment to Rights Agreement dated as of May
14, 1990 between Kent Electronics Corporation and
Ameritrust Company National Association.
Incorporated by reference to Exhibit 4.3 to 1992 Form
10-K.
10.1* -- Chief Executive Stock Option Plan and Agreement
between Kent Electronics Corporation and Morrie K.
Abramson dated July 24, 1991. Incorporated by
reference to Exhibit 10.1 to 1992 Form 10-K.(1)
10.2* -- Amendment to Chief Executive Stock Option Plan
between Kent Electronics Corporation and Morrie K.
Abramson dated June 26, 1992. Incorporated by
reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended April
3, 1993 (the "1993 Form 10-K").(1)
- 28 -
29
10.3* -- Chief Operating Officer Stock Option Plan and
Agreement between Kent Electronics Corporation and
James F. Corporron dated May 15, 1992. Incorporated
by reference to Exhibit 10.3 to 1993 Form 10-K.(1)
10.4 -- Amendment to Chief Executive Officer Stock Option
Plan and Agreement between Kent Electronics
Corporation and Morrie K. Abramson dated June 30,
1994.(1)
10.5 -- Amendment to Chief Operating Officer Stock Option
Plan and Agreement between Kent Electronics
Corporation and James F. Corporron dated June 30,
1994.(1)
10.6* -- K*TEC President Stock Option Plan and Agreement
between Kent Electronics Corporation and Randy J.
Corporron dated May 1, 1993. Incorporated by
reference to Exhibit 10.4 to 1993 Form 10-K.(1)
10.7* -- K*TEC General Manager Stock Option Plan and Agreement
between Kent Electronics Corporation and Rodney J.
Corporron dated May 1, 1993. Incorporated by
referenced to Exhibit 10.5 to 1993 Form 10-K.(1)
10.8* -- 1991 Non-Employee Director Stock Option Plan, as
amended. Incorporated by reference to Exhibit 10.2
to 1992 Form 10-K.(1)
10.9* -- Amended and Restated 1987 Stock Option Plan.
Incorporated by reference to Exhibit 10.3 to 1992
Form 10- K.(1)
10.10* -- Amendments of Amended and Restated 1987 Stock Option
Plan. Incorporated by reference to Exhibit 10.8 to
1993 Form 10-K.(1)
10.11 -- Kent Electronics Corporation 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.(1)
10.12 -- Kent Electronics Corporation 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.(1)
10.13 -- Kent Electronics Corporation 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.(1)
10.14* -- Kent Electronics Corporation Tax-Deferred Savings and
Retirement Plan and Trust. Incorporated by reference
to Exhibit 4 to the Company's Registration Statement
on Form S-8 (Registration No. 33-18527) filed with
the SEC on November 16, 1987.(1)
- 29 -
30
10.15 -- Kent Electronics Corporation Deferred Compensation
Plan dated July 28, 1994.(1)
10.16 -- Trust Agreement for Kent Electronics Corporation
Deferred Compensation Plan dated July 28, 1994.(1)
10.17* -- Contracts between Kent Electronics Corporation and
AMP Products Corporation effective as of July 22,
1988 and July 31, 1986, respectively, and addendums
thereto. Incorporated by reference to Exhibit 10.5
to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended April 1, 1989.
10.18* -- Executive Agreements by and between Kent Electronics
Corporation and each of Messrs. Morrie K. Abramson,
James F. Corporron and Clarence J. Metzger.
Incorporated by reference to Exhibit 10.14 to
Amendment No. 1 to the 1987 Registration Statement.(1)
10.19* -- Form of Amendment to Executive Agreements by and
between Kent Electronics Corporation and each of
Messrs. Morrie K. Abramson, James F. Corporron and
Clarence J. Metzger dated March 16, 1993.
Incorporated by reference to Exhibit 10.20 to 1993
Form 10-K.(1)
10.20* -- Form of Agreement by and between Kent Electronics
Corporation and each of Messrs. Morrie K. Abramson,
James F. Corporron and Clarence J. Metzger dated
March 16, 1993. Incorporated by reference to Exhibit
10.21 to 1993 Form 10-K.(1)
10.21* -- Form of Executive Health Care Benefits and Consulting
Agreement by and between Kent Electronics Corporation
and each of Messrs. Morrie K. Abramson, James F.
Corporron and Clarence J. Metzger dated January 27,
1993. Incorporated by reference to Exhibit 10.22 to
1993 Form 10-K.(1)
10.22 -- Spousal Salary Continuation Plan between Kent
Electronics Corporation and Morrie K. Abramson dated
October 10, 1994.
10.23 -- Special Warranty Deed from Sugarland Properties
Incorporated to Kent Electronics Corporation dated
March 7, 1995 for 51 acres of land.
10.24 -- Special Warranty Deed from Sugarland Properties
Incorporated to Kent Electronics Corporation dated
March 7, 1995 for 15 acres of land.
10.25 -- Development and Construction Management Agreement by
and between Sugarland Properties Incorporated and
Kent Electronics Corporation dated April 21, 1995.
- 30 -
31
10.26 -- Irrevocable Standby Letter of Credit with Texas
Commerce Bank National Association dated May 2, 1995.
10.27 -- Employment Agreement dated April 3, 1995 by and
between Kent Electronics Corporation and James F.
Corporron.(1)
11 -- Computation of earnings per share.
21 -- Subsidiaries of Kent Electronics Corporation.
23.1 -- 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:
1. Current Report on Form 8-K dated March 13, 1995,
reporting the acquisition of land for expansion.
- 31 -
32
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 of the undersigned, thereunto duly authorized.
KENT ELECTRONICS CORPORATION
(Registrant)
By: /s/ Morrie K. Abramson
-------------------------------------
Morrie K. Abramson
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Date: June 13, 1995
-32-
33
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Morrie K. Abramson Chairman of the Board, Chief Executive Officer, June 13, 1995
---------------------------------- President and Director (Principal Executive
Morrie K. Abramson Officer)
/s/ Stephen J. Chapko Vice President, Treasurer and Secretary June 13, 1995
---------------------------------- (Principal Financial Officer and Principal
Stephen J. Chapko Accounting Officer)
/s/ Max S. Levit Director June 13, 1995
----------------------------------
Max S. Levit
/s/ David Siegel Director June 13, 1995
----------------------------------
David Siegel
/s/ Richard C. Webb Director June 13, 1995
----------------------------------
Richard C. Webb
/s/ Alvin L. Zimmerman Director June 13, 1995
----------------------------------
Alvin L. Zimmerman
-33-
34
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Stockholders
Kent Electronics Corporation
In connection with our audit of the consolidated financial statements
of Kent Electronics Corporation and Subsidiaries for the year ended April 1,
1995, we have also audited Schedule II for each of the three years in the
period ended April 1, 1995. In our opinion, this consolidated schedule
presents fairly, in all material respects, the information required to be set
forth therein.
GRANT THORNTON LLP
Houston, Texas
May 8, 1995
S-1
35
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 3, 1993, APRIL 2, 1994 AND APRIL 1, 1995
ALLOWANCE FOR DOUBTFUL RECEIVABLES
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------
Additions Deductions
------------------------- -----------
(1) (2)
Charged Charged
Balance at to costs to other Balance at
beginning and accounts Amounts end of
Description of period expenses recoveries written-off period
------------------------------- ---------- --------- ---------- ----------- ----------
Year ended April 3, 1993 . . $ 679,717 $ 224,165 $ 14,735 $ 119,933 $ 798,684
Year ended April 2, 1994 . . 798,684 334,691 16,199 194,836 954,738
Year ended April 1, 1995 . . 954,738 163,171 0 139,024 978,885
S-2
36
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. ITEM NUMBERED PAGES
- ---------- ---- --------------
10.4 Amendment to Chief Executive Officer Stock Option Plan and
Agreement between Kent Electronics Corporation and Morrie
K. Abramson dated June 30, 1994
10.5 Amendment to Chief Operating Officer Stock Option Plan and
Agreement between Kent Electronics Corporation and James F.
Corporron dated June 30, 1994.
10.11 Kent Electronics Corporation 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
10.12 Kent Electronics Corporation Stock Option Plan and
Agreement for the Company's Executive Vice President
Operation-Distribution between Kent Electronics Corporation
and Mark A. Zerbe dated May 8, 1995
10.13 Kent Electronics Corporation 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
10.15 Kent Electronics Corporation Deferred Compensation Plan
dated July 28, 1994
10.16 Trust Agreement for Kent Electronics Corporation Deferred
Compensation Plan dated July 28, 1994
10.22 Spousal Salary Continuation Plan between Kent Electronics
Corporation and Morrie K. Abramson dated October 10, 1994.
10.23 Special Warranty Deed from Sugarland Properties
Incorporated to Kent Electronics Corporation dated March 7,
1995 for 51 acres of land
10.24 Special Warranty Deed from Sugarland Properties
Incorporated to Kent Electronics Corporation dated March 7,
1995 for 15 acres of land
10.25 Development and Construction Management Agreement by and
between Sugarland Properties Incorporated and Kent
Electronics Corporation dated April 21, 1995
10.26 Irrevocable Standby Letter of Credit with Texas Commerce
Bank National Association dated May 2, 1995
37
10.27 Employment Agreement dated April 3, 1995 by and between Kent
Electronics Corporation and James F. Corporron
11 Computation of earnings per share.
21 Subsidiaries of Kent Electronics Corporation.
23.1 Consent of Independent Certified Public Accountants.
27 Financial Data Schedule