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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14643
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KENT ELECTRONICS CORPORATION
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Exact name of registrant as specified in its charter)
Texas 74-1763541
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7433 Harwin Drive, Houston, Texas 77036-2015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 780-7770
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Not applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At February 7, 1997, 26,272,475 shares of common stock, no par value,
are issued and outstanding.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, March 30,
1996 1996
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including temporary
investments of $40,625,000 at December 28
and $75,552,000 at March 30) ............... $ 39,417,000 $ 73,191,000
Trading securities, net ...................... 27,002,000 38,747,000
Accounts receivable, less allowance of
$1,235,000 at December 28 and $999,000
at March 30 ................................ 71,526,000 52,469,000
Inventories
Materials and purchased products ........... 55,413,000 44,741,000
Work in process ............................ 1,434,000 3,414,000
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56,847,000 48,155,000
Other ........................................ 4,513,000 4,297,000
------------- -------------
Total current assets ..................... 199,305,000 216,859,000
PROPERTY AND EQUIPMENT
Land ......................................... 7,439,000 7,422,000
Buildings .................................... 33,442,000 18,590,000
Furniture, fixtures and equipment ............ 59,158,000 34,444,000
Leasehold improvements ....................... 1,791,000 1,722,000
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101,830,000 62,178,000
Less accumulated depreciation and amortization (21,782,000) (17,329,000)
------------- -------------
80,048,000 44,849,000
DEFERRED INCOME TAXES ............................. 1,189,000 1,369,000
OTHER ASSETS ...................................... 4,132,000 1,582,000
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $2,268,000
at December 28 and $1,994,000 at March 30 .... 16,495,000 12,802,000
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$ 301,169,000 $ 277,461,000
============= =============
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, March 30,
1996 1996
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .............................. $ 34,071,000 $ 30,924,000
Accrued compensation .......................... 6,281,000 9,904,000
Other accrued liabilities ..................... 6,519,000 5,177,000
Income taxes .................................. 3,743,000 5,172,000
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Total current liabilities ................. 50,614,000 51,177,000
LONG-TERM DEBT ..................................... -- --
LONG-TERM LIABILITIES .............................. 1,596,000 976,000
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; authorized
2,000,000 shares; none issued ............... -- --
Common stock, no par value; authorized
30,000,000 shares; 23,991,455 shares issued
and 23,941,455 shares outstanding at
December 28 and 23,937,176 shares issued and
outstanding at March 30 ..................... 40,413,000 38,336,000
Additional paid-in capital .................... 110,569,000 110,154,000
Retained earnings ............................. 98,954,000 76,818,000
Less common stock in treasury - at cost, 50,000
shares at December 28 ...................... (977,000) --
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248,959,000 225,308,000
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$ 301,169,000 $ 277,461,000
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The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
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December 28, December 30, December 28, December 30,
1996 1995 1996 1995
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Net sales ................................... $ 106,385,000 $ 100,059,000 $ 314,906,000 $ 267,834,000
Cost of sales ............................... 81,954,000 73,179,000 239,013,000 197,178,000
------------- ------------- ------------- -------------
Gross profit ........................... 24,431,000 26,880,000 75,893,000 70,656,000
Selling, general and administrative expenses 14,630,000 14,473,000 43,283,000 41,407,000
------------- ------------- ------------- -------------
Operating profit ............................ 9,801,000 12,407,000 32,610,000 29,249,000
Other income (expense)
Interest expense ....................... (6,000) (5,000) (32,000) (15,000)
Other - net ............................ 1,175,000 1,615,000 4,013,000 2,612,000
------------- ------------- ------------- -------------
Earnings before income taxes ................ 10,970,000 14,017,000 36,591,000 31,846,000
Income taxes ................................ 4,335,000 5,764,000 14,455,000 12,896,000
------------- ------------- ------------- -------------
NET EARNINGS ........................... $ 6,635,000 $ 8,253,000 $ 22,136,000 $ 18,950,000
============= ============= ============= =============
Earnings per share .......................... $ .26 $ .33 $ .87 $ .85
============= ============= ============= =============
Weighted average shares ..................... 25,404,300 25,098,800 25,343,000 22,225,900
============= ============= ============= =============
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
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December 28, December 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ..................................... $ 22,136,000 $ 18,950,000
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation and amortization ................ 4,833,000 3,021,000
Provision for losses on accounts receivable .. 236,000 150,000
Loss on sale of property, plant and equipment 4,000 5,000
Stock option expense ......................... 415,000 831,000
Unrealized gains on trading securities ....... (50,000) (94,000)
Net sales of trading securities .............. 11,795,000 --
Change in assets and liabilities, net of
effects from purchase of assets and
assumption of certain liabilities of the
EMC Distribution Division of Electronics
Marketing Corporation
Increase in accounts receivable ......... (17,119,000) (11,895,000)
Increase in inventories ................. (5,718,000) (14,938,000)
Increase in other ....................... (216,000) (738,000)
Increase in other assets ................ (2,550,000) (631,000)
Decrease in deferred income taxes ....... 180,000 75,000
Increase in accounts payable ............ 832,000 9,364,000
Increase (decrease) in accrued
compensation .......................... (3,623,000) 3,152,000
Increase in other accrued liabilities ... 1,342,000 4,844,000
Increase (decrease) in income taxes ..... (1,429,000) 960,000
Increase in long-term liabilities ....... 620,000 605,000
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Total adjustments ................. (10,448,000) (5,289,000)
------------ ------------
Net cash provided by operating
activities ..................... $ 11,688,000 $ 13,661,000
(Continued)
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-Nine Weeks Ended
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December 28, December 30,
1996 1995
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ........................ $(39,563,000) $(12,257,000)
Net purchases of trading securities ......... -- (30,605,000)
Purchase of assets and assumption of certain
liabilities of EMC Distribution Division of
Electronics Marketing Corporation ......... (7,000,000) --
Proceeds from sale of property, plant and
equipment ................................. 1,000 8,000
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Net cash used by investing
activities ...................... (46,562,000) (42,854,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock .................... 440,000 85,297,000
Purchase of treasury stock .................. (977,000) --
Tax effect of common stock issued upon
exercise of employee stock options ........ 1,637,000 1,137,000
------------ ------------
Net cash provided by financing
activities ...................... 1,100,000 86,434,000
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NET INCREASE (DECREASE) IN CASH .................. (33,774,000) 57,241,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . 73,191,000 4,434,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....... $ 39,417,000 $ 61,675,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest .................................. $ -- $ --
Income taxes .............................. $ 14,066,000 $ 10,725,000
The accompanying notes are an integral part of these statements.
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KENT ELECTRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
The consolidated balance sheet as of December 28, 1996, and the related
consolidated statements of earnings and cash flows for the thirteen and
thirty-nine week periods ended December 28, 1996 and December 30, 1995, have
been prepared by the Company without audit. In the opinion of management, the
financial statements include all adjustments necessary for a fair presentation.
All adjustments made were of a normal recurring nature. Interim results are not
necessarily indications of results for a full year. For further financial
information, refer to the audited financial statements of the Company and notes
thereto for the fiscal year ended March 30, 1996, included in the Company's
Form 10-K for that period.
Cash and Cash Equivalents
Temporary investments may be greater than the cash and cash equivalents balance
because they may be offset by individual bank accounts with a book overdraft
position within the same bank where multiple accounts are maintained.
Sales To Major Customers
For the thirteen and thirty-nine week periods ended December 28, 1996, sales to
Compaq Computer Corporation represented 12.8% and 12.1% of net sales,
respectively. For the thirteen and thirty-nine week periods ended December 30,
1995, sales to Compaq represented 14.8% and 13.4% of net sales, respectively.
Sales to Applied Materials, Inc. represented 12.4% and 12.8% of net sales,
respectively, for the thirteen and thirty-nine week periods ended December 30,
1995.
Business Combinations
On December 5, 1996, the Company purchased the assets and disclosed
liabilities of the EMC Distribution Division of Electronics Marketing
Corporation, a regional specialty electronics distributor based in Columbus,
Ohio. The aggregate cash consideration for the transaction was approximately $7
million.
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On January 17, 1997, subsequent to the close of the quarter, the Company
completed the acquisitions of Futronix Corporation of Houston, Texas and Wire &
Cable Specialties Corporation of Atlanta, Georgia. The aggregate consideration
for the transaction was approximately $83 million, including the exchange of
approximately 2.2 million shares of Kent common stock for all of the common
stock equivalents of both companies, and the assumption of approximately $20
million in debt, which the Company has since retired. The Company will record
certain one time charges related to the acquisition in the fourth quarter of
fiscal 1997. The acquisitions will be accounted for as a pooling of interests.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the thirteen and thirty-nine weeks ended December 28, 1996
increased $6,326,000, or 6.3%, and $47,072,000, or 17.6%, compared to the same
periods a year ago. The sales increase reflected internal growth primarily from
increased demand from existing customers and an expanded customer base. As
anticipated, the Company reported sequential revenue growth in the thirteen
week period, primarily due to the continued market share gains in the Company's
distribution operations and the contribution of new customers and expanded
relationships with existing customers at the Company's contract manufacturing
operations.
Gross profit decreased $2,449,000, or 9.1%, for the thirteen weeks and
increased $5,237,000, or 7.4%, for the thirty-nine weeks when compared to the
corresponding periods a year ago. Gross profit as a percentage of sales
decreased to 23.0% from 26.9% for the thirteen week period, and to 24.1% from
26.4% for the thirty-nine week period, compared to the same periods last year.
The decrease in gross profit for the thirteen week period and the decrease in
the gross profit percentage for the thirteen and thirty-nine week periods were
the result of continued pricing pressures and the transitioning of new business
services by the Company's contract manufacturing division.
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Selling, general and administrative ("SG&A") expenses increased $157,000, or
1.1%, for the thirteen week period and $1,876,000, or 4.5%, for the thirty-nine
week period, compared to the same periods in the previous year. As a percentage
of sales, SG&A declined to 13.8% from 14.5% for the thirteen weeks and to 13.7%
from 15.5% for the thirty-nine weeks compared to the same prior year periods.
The decline of SG&A as a percentage of sales reflects the Company's continued
focus on cost containment as well as specific steps to reduce SG&A expenses in
light of the current difficult business environment.
Other-net consists principally of interest and dividend income generated by
cash, cash equivalents and trading securities. The decrease in interest and
dividend income for the thirteen week period was primarily due to the decrease
in cash, reflecting the Company's continued investment in property and
equipment, accounts receivable and inventory.
Net earnings decreased $1,618,000, or 19.6%, and increased $3,186,000, or
16.8%, for the thirteen and thirty-nine week periods, respectively, compared to
the same periods a year ago. The decrease in net earnings for the quarter ended
December 28, 1996 reflects the continued pressures on gross margin.
Liquidity and Capital Resources
Working capital at December 28, 1996 was $148,691,000, a decrease of
$16,991,000, or 10.3%, from March 30, 1996.
Included in the Company's working capital at December 28, 1996 are investments
of $67,627,000, a decrease of $46,672,000 since March 30, 1996. The decrease
reflects the Company's continued investment in property and equipment, as well
as the purchase of the EMC Distribution Division of Electronics Marketing
Corporation. The Company's investment strategy is low-risk and short-term,
keeping the funds readily available to meet capital requirements as they arise
in the normal course of business. At December 28, 1996, funds were invested
primarily in a reverse repurchase agreement and a managed fund consisting
primarily of taxable, high quality corporate debt instruments. Both are
compatible with the Company's stated investment strategy. Subsequent to the
close of the quarter, the Company retired approximately $20 million of debt
associated with the acquisitions of Futronix Corporation and Wire & Cable
Specialties Corporation.
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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 constructing the second phase of the K*TEC
manufacturing facility and a new distribution facility at its Sugar Land, Texas
campus which will require aggregate capital expenditures of approximately $22
million through early fiscal 1998. For the thirty-nine week period ended
December 28, 1996, approximately $13 million was spent on these projects.
Management believes that current resources, along with funds generated from
operations, should be sufficient to meet its current capital requirements.
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable and have been omitted.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 Statement re computation of per share earnings.
27 Financial Data Schedule (filed only in electronic
format).
(b) Reports on Form 8-K:
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KENT ELECTRONICS CORPORATION
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(Registrant)
Date: February 11, 1997 By: /s/ Morrie K. Abramson
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Morrie K. Abramson
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Date: February 11, 1997 By: /s/ Stephen J. Chapko
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Stephen J. Chapko
Executive Vice President, Treasurer,
Chief Financial Officer and Secretary
(Principal Financial Officer)
Date: February 11, 1997 By: /s/ David D. Johnson
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David D. Johnson
Vice President, Corporate Controller
(Principal Accounting Officer)
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