-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QFKssTLETEXLI6DM9doGVcmZ0x+mR5eNFdw5GfH7nvkARh+0DiTzfT0RO7wL8rOz 9vE7kpJmGIrZLOf8IXjaaQ== 0000899243-97-001203.txt : 19970627 0000899243-97-001203.hdr.sgml : 19970627 ACCESSION NUMBER: 0000899243-97-001203 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970626 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENT ELECTRONICS CORP CENTRAL INDEX KEY: 0000793024 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 741763541 STATE OF INCORPORATION: TX FISCAL YEAR END: 0328 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09520 FILM NUMBER: 97630216 BUSINESS ADDRESS: STREET 1: 7433 HARWIN DR CITY: HOUSTON STATE: TX ZIP: 77036-2015 BUSINESS PHONE: 7137807770 MAIL ADDRESS: STREET 1: 7433 HARWIN DRIVE CITY: HOUSTON STATE: TX ZIP: 77036-2015 10-K 1 FORM 10-K ================================================================================ 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 March 29, 1997 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. ( ) The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 20, 1997 was approximately $900,536,920. As of June 20, 1997, there were outstanding 26,263,966 shares of Common Stock, without par value. DOCUMENTS INCORPORATED BY REFERENCE The Proxy Statement for the 1997 Annual Meeting of Shareholders of the Registrant (Sections entitled "Common Stock Outstanding and Principal Holders Thereof" and "Proposal No. 1 - Election of Directors") is incorporated by reference in Part III of this Report. ================================================================================ PART I ITEM 1. BUSINESS GENERAL Kent Electronics Corporation (the "Company") is a national specialty distributor of electronic products and a manufacturer of custom-made electronic assemblies. The Company, through its Kent Components division, distributes electronic connectors, electronic wire and cable, and other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing electronic products. The Company, through its wholly owned subsidiary K*TEC Electronics Corporation ("K*TEC"), also manufactures custom- made electronic interconnect assemblies, printed circuit board assemblies, sheet metal, plastic injection molding, specially fabricated battery power packs, and other sub-assemblies that are built to customers' specifications, and provides a wide variety of other fully integrated electronic manufacturing services. Through Kent Datacomm ("Datacomm"), the Company distributes a broad range of premise wiring products, such as fiber optic cables, patch panels and enclosures, and local area network ("LAN") and wide area network ("WAN") equipment, such as modems, hubs, bridges and routers, directly to commercial end-users and professionals who install and service voice and data communications networks. The Company, through its wholly owned subsidiary Futronix Corporation, has become a national master distributor, redistributing specialty wire and cable to electrical distributors nationwide. 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 selected 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. The Company is increasingly focused on providing materials management services, such as bar code auto replenishment, in-plant stores, and electronic data interchange capabilities, that reduce its customers' total acquisition costs. In response to customer needs and market opportunities, the Company regularly reviews the possibility of adding other products and services to its distribution network to provide customers with an entire materials management solution. K*TEC concentrates on developing long-term relationships with a select group of original equipment manufacturers ("OEMs") desiring to lower their total production cost through outsourcing. The Company's customers are primarily industrial users and OEMs involved in a wide range of industries, including the data communication/collection, computer, industrial/capital goods and medical industries. No customer accounted for 10% or more of net sales in 1997. Sales to Compaq Computer Corporation represented 10.6% and 10.1% of net sales in 1996 and 1995, respectively. Sales to Applied Materials, Inc. represented 11.3% of net sales in 1995. As is customary in the electronics distribution industry, the Company primarily operates under short-term contracts with its suppliers. In the Company's past experience, such contracts have typically been renewed from year to year. In the year ended March 29, 1997, the Company's 2 purchases from AMP Incorporated and Belden each represented approximately 14% 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 suppliers could have a material adverse impact on the Company's operations. The Company maintains its primary distribution facilities in Houston, Texas, with sales offices in 25 states, some of which maintain a limited amount of local inventory and provide selected services to support specific customer needs. The Company operates manufacturing facilities in Sugar Land and Richardson, Texas and Milpitas, California. DISTRIBUTION COMPONENTS DISTRIBUTION. The Company's Components division focuses primarily on providing its industrial and OEM customers with rapid and reliable deliveries of interconnect, passive and electromechanical products as well as a wide variety of materials management services. The division also provides value- added services such as cable assembly, fan assembly, taping and reeling, and component modification. The Company utilizes a computerized inventory control system to assist in the marketing of its products and to 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 as well as 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 Components distribution division serves numerous markets, including computer, networking systems, telecommunications, medical and instrumentation markets. 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 and LAN and WAN equipment 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 WANs and the continued growth in networking and cabling needs of minicomputer and mainframe users. Datacomm can provide customers with immediate off-the-shelf delivery of voice and data communications wiring products. Datacomm serves numerous industries, including financial, government, airline, medical, media, food, manufacturing and aerospace. 3 REDISTRIBUTION OPERATIONS. In January 1997, the Company acquired Futronix Corporation and Wire & Cable Specialties Corporation, and the businesses of both Futronix Corporation and Wire & Cable Specialties Corporation are now conducted through Futronix Corporation ("Futronix"), a wholly owned subsidiary of the Company./1/ Futronix is a national master distributor of specialty wire and cable, serving more than 1,000 electrical distributors throughout the United States. Futronix seeks to serve as an efficient single source of supply and as the distributor of choice for electrical distributors by maintaining for immediate delivery large quantities of over 10,000 specialty wire and cable products purchased from more than 50 manufacturers worldwide, as well as limited quantities of complementary products. The products of Futronix typically are used in industrial applications, including factory automation, "intelligent" buildings and computer systems. Futronix generally does not sell commodity wire and cable, such as that used in commercial and residential construction. MANUFACTURING K*TEC provides fully integrated electronic manufacturing services, including printed circuit board assembly and test, electronic interconnect assemblies, specially fabricated battery power packs, subassemblies, sheet metal, plastic injection molding and system integration (box build). 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 OEM's 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 - ------------ /1/ Both Futronix Corporation and Wire & Cable Specialties Corporation were merged with and into Futronix Acquisition Company, a wholly owned subsidiary of the Company, and the name of Futronix Acquisition Company was changed to "Futronix Corporation." In the narrative portion of this Form 10-K, references to "Futronix" mean the Company's wholly owned subsidiary that is the successor to Futronix Corporation and Wire & Cable Specialities Corporation, and references to "Futronix Corporation" mean the entity by that name before it was acquired by the Company. 4 select group of customers. Sales of K*TEC's products represented approximately 34%, 39% and 34% of the Company's total sales for the fiscal years ended in 1997, 1996 and 1995, respectively. 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 has concentrated its efforts in certain market niches in which it only distributes the products of a select group 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 costs than the Company. According to industry publications, the Company ranked in 1996 calendar year sales as the ninth largest electronics distributor in the United States. The Company estimates that approximately eighteen distributors had 1996 calendar year North American sales in excess of $200 million. The Company's manufacturing operations encounter competition from both domestic and foreign manufacturers. Foreign-manufactured products are often sold at prices below the Company's prices for comparable products. The Company's products are not protected from competition by any proprietary or intellectual property rights such as trade secrets or patents. The Company competes by providing its customers with reliable, rapid delivery of products that are priced at competitive levels and meet strict quality control standards. BACKLOG Since an increasing amount of the Company's business is being conducted through "just-in-time" and other materials management program methods, traditional backlog (consisting of orders the Company believes to be firm) is becoming a less meaningful indicator of future sales. Many of these programs require that the Company provide materials in accordance with a continually changing forecast. Although historically the Company's backlog figures have provided an indication of sales in the short term, due to the changing nature of the Company's business, backlog may no longer be a reliable indicator of future sales. Based upon the Company's internal backlog tracking system, and including verbal orders from customers as well as written purchase orders (which may be modified, rescheduled or canceled without penalty), the Company believes its backlog, exclusive of "just-in-time" materials 5 management programs and forecasts, was approximately $68 million and $52 million at March 29, 1997 and March 30, 1996, respectively. EMPLOYEES At March 29, 1997, the Company employed approximately 1,480 persons, all on a full time basis. The Company's employees are not subject to any collective bargaining agreement. In addition to its employees, the Company uses other workers on a contract basis, as its needs require. TRADEMARKS The Company has registered a number of trademarks and service marks relating to the operation of its business. These have been of value to the Company in the past and are expected to be of value in the future. The loss of a single trademark or service mark other than "KE Kent Electronics" or "K*TEC Electronics," in the opinion of management, would not have a material adverse effect on the conduct of its business. ITEM 2. PROPERTIES The Company's headquarters are located in a 66,000 square foot office facility in Houston, Texas. The Company also owns a 2.7 acre tract of vacant land adjacent to the office facility. In nearby owned facilities, the Company uses approximately 10,000 square feet of space for office purposes and approximately 118,000 square feet for distribution operations. The Company owns a 10.8 acre tract of vacant land adjoining these facilities. The Company owns a 66 acre parcel of land in Sugar Land, Texas and is currently evaluating the purchase of an adjacent 30 acres. In January 1996, the Company completed phase one of a K*TEC facility at its Sugar Land location, consisting of approximately 210,000 square feet for manufacturing and warehouse operations and approximately 40,000 square feet for office purposes. The second phase of this project, consisting of approximately 210,000 square feet, was completed during the first quarter of fiscal 1998. In addition to the K*TEC manufacturing facility, the Company is currently completing a new distribution facility of approximately 215,000 square feet at its Sugar Land location. The Company estimates that the distribution facility will be placed in service in spring 1998. The following table summarizes the principal properties leased by the Company: APPROXIMATE LEASE LOCATION SQUARE FOOTAGE EXPIRES -------- -------------- ------- Charlotte, North Carolina 32,000 1998 Columbus, Ohio 28,000 1998 6 APPROXIMATE LEASE LOCATION SQUARE FOOTAGE EXPIRES -------- -------------- ------- Exton, Pennsylvania 25,000 1998 Farmers Branch, Texas 30,000 1999 Houston, Texas 151,000 2003 Milpitas, California 40,000 1998 Norcross, Georgia 26,000 2002 Richardson, Texas 34,000 1999 Santa Fe Springs, California 22,000 2001 Sparks, Nevada 27,000 1997 St. Paul, Minnesota 22,000 2000 Tampa, Florida 30,000 1999 At the end of fiscal 1997, the Company's other facilities, located in Austin, Texas; Baton Rouge, Louisiana; Beaverton, Oregon; Cedar Rapids, Iowa; Columbia, Maryland; Denver, Colorado; Elk Grove Village, Illinois; Englewood, Colorado; Fountain Valley, California; Glasgow, Scotland; Huntsville, Alabama; Indianapolis, Indiana; Livermore, California; Lombard, Illinois; Lowell, Massachusetts; Mt. Laurel, New Jersey; Oneida, New York; Orlando, Florida; Overland Park, Kansas; Pine Brook, New Jersey; Portland, Oregon; Raleigh, North Carolina; Redmond, Washington; Richardson, Texas; Salem, New Hampshire; San Diego, California; San Jose, California; Tempe, Arizona; Wallingford, Connecticut; and Warrensville Heights, Ohio occupied an aggregate of approximately 210,000 square feet subject to leases expiring at various times through the year 2003. Most of these leases are subject to renewal at the option of the Company for a term at least equal to the initial term, but at a newly determined rental rate. ITEM 3. LEGAL PROCEEDINGS The Company is not party to any material pending legal proceedings, other than ordinary routine litigation incidental to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held a special meeting of shareholders on January 17, 1997 (the "Special Meeting"). At the Special Meeting, the Company's shareholders of record at the close of business on November 26, 1996 (the "Record Date") were entitled to vote upon proposals, recommended by the Company's Board of Directors, to (i) approve the Reorganization Agreement dated September 25, 1996 (the "Merger Agreement") among the Company, Futronix Acquisition Company ("Futronix Acquisition"), Futronix Corporation, Wire & Cable Specialties Corporation ("Wire & Cable Specialities") and Certain Shareholders and Affiliates of Futronix 7 Corporation and Wire & Cable Specialties; and (ii) approve an amendment to the Company's articles of incorporation, as amended, to increase the number of authorized shares of the Company's Common Stock from 30 million shares to 60 million shares (the "Amendment"). Under the terms of the Merger Agreement, Futronix Corporation and Wire & Cable Specialties were merged with and into Futronix Acquisition, a wholly owned subsidiary of the Company (the "Merger") (with the name of Futronix Acquisition being changed to "Futronix Corporation"), and approval of the Amendment was a condition to consummation of the Merger. At the Record Date, 23,940,622 shares of the Company's Common Stock were outstanding and entitled to vote on the Merger Agreement and the Amendment, and at the Special Meeting, 18,306,412 shares of Common Stock were represented in person or by proxy. With respect to the Merger Agreement, 17,783,279 shares voted for approval, 179,180 shares voted against approval, 61,901 shares abstained, and there were 282,052 broker non-votes. With respect to the Amendment, 17,990,887 shares voted for approval, 251,668 shares voted against approval, 63,857 shares abstained, and there were no broker non-votes. Accordingly, the Merger Agreement and the Amendment received the approval of the holders of at least two-thirds of the issued and outstanding shares of the Company's Common Stock entitled to vote at the Special Meeting as required by the Texas Business Corporation Act. 8 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 Common Stock for each fiscal quarter of the Company's fiscal years ended 1996 and 1997 and for a portion of the Company's current quarter, as reported by the New York Stock Exchange and as adjusted to reflect a two-for-one stock split to shareholders of record on February 15, 1996, effected on March 1, 1996 as a 100% stock dividend. FISCAL YEAR 1996 HIGH LOW - ---------------- ------ ------ First Quarter $18.94 $14.06 Second Quarter 22.38 18.75 Third Quarter 29.25 19.31 Fourth Quarter 35.38 26.00 FISCAL YEAR 1997 - ---------------- First Quarter $43.25 $26.75 Second Quarter 32.25 17.00 Third Quarter 28.13 21.63 Fourth Quarter 33.00 23.75 FISCAL YEAR 1998 - ---------------- First Quarter (through June 20) $35.63 $22.13 On May 7, 1997, there were 1,378 holders of record of the Company's Common Stock. On January 17, 1997, the Company issued an aggregate of 812,052 shares of Common Stock to the two shareholders of Wire & Cable Specialities in consideration of the merger of Wire & Cable Specialities with and into Futronix Acquisition, a wholly owned subsidiary of the Company. The issuance of such shares of Common Stock was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. DIVIDEND POLICY Historically, the Company has reinvested earnings available for distribution to holders of Common Stock, and accordingly, the Company has not paid any cash dividends on its Common Stock. Although the Company intends to continue to invest future earnings in its business, it may determine at some future date that payment of cash dividends on Common Stock would be desirable. The payment of any such dividends would depend, among other things, upon the earnings and financial condition of the Company. 9 ITEM 6. SELECTED FINANCIAL DATA The following table summarizes selected consolidated financial data of the Company for each fiscal year of the five-year period ended March 29, 1997, 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 Years Ended ---------------------------------------------------------------------- March 29, March 30, April 1, April 2, April 3, 1997/(1)/ 1996/(1)/ 1995/(1)/ 1994/(1)/ 1993/(1)/ ------------- ------------ ------------ ------------ ------------ (In thousands, except per share data) Operating Statement Data: Net sales $ 516,757 $ 425,810 $ 279,676 $ 206,784 $ 164,541 Gross profit 120,703 112,167 72,741 55,150 45,379 Earnings before income taxes 45,100 49,095 23,511 15,902 12,632 Income taxes 17,479 19,303 8,910 5,844 4,439 Net earnings/(2)/ 27,621 29,792 14,601 10,058 8,193 Net earnings as a percentage of sales 5.3% 7.0% 5.2% 4.9% 5.0% Earnings per share $ 1.00 $ 1.21 $ 0.68 $ 0.48 $ 0.40 Weighted average shares 27,551 24,696 21,475 20,804 20,393 Balance Sheet Data: Total assets $ 325,594 $ 305,174 $ 148,276 $ 120,970 $ 102,755 Long-term debt, less current portion -- 1,258 1,269 41 19 Mandatorily redeemable preferred stock of pooled company -- 2,200 2,200 -- -- Stockholders' equity $ 262,367 $ 230,968 $ 112,224 $ 94,345 $ 83,888
(1) As a result of the acquisition of Futronix Corporation and Wire & Cable Specialities in January 1997, accounted for as a pooling of interests, all selected consolidated financial data have been restated to include the results of Futronix Corporation and Wire & Cable Specialities for all periods presented. (2) Includes non-recurring merger and integration charges of $5.5 million ($3.4 million, net of taxes, or $0.12 per share) in 1997. Exclusive of such charges, net earnings were $31.0 million, or $1.12 per share. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS) RESULTS OF OPERATIONS As a result of the acquisition of Futronix Corporation and Wire & Cable Specialities in January 1997, accounted for as a pooling of interests, all financial information has been restated to include the results of Futronix Corporation and Wire & Cable Specialities for all periods presented. The following table presents, as a percentage of sales, certain selected consolidated financial data for each of the three years, as indicated.
Fiscal Years Ended -------------------------------- March 29, March 30, April 1, 1997 1996 1995 --------- --------- --------- Manufacturing 34.4% 38.6% 34.4% Distribution/(a)/ 65.6 61.4 65.6 ----- ----- ----- Net sales 100.0 100.0 100.0 Cost of sales 76.6 73.7 74.0 ----- ----- ----- Gross profit 23.4 26.3 26.0 Selling, general and administrative expenses 14.2 15.5 17.9 Merger/integration costs 1.1 0.0 0.0 ----- ----- ----- Operating profit 8.1 10.8 8.1 Other income (expense) Interest expense (0.2) (0.2) (0.1) Other - net (principally interest and dividend income) 0.9 0.9 0.4 ----- ----- ----- Earnings before income taxes 8.8 11.5 8.4 Income taxes 3.4 4.5 3.2 ----- ----- ----- Net earnings 5.4% 7.0% 5.2% ===== ===== =====
(a) The principal products the Company distributes consist of connectors, receptacles and sockets, which collectively accounted for approximately 17%, 13% and 18% of the Company's total sales in its fiscal years ended in 1997, 1996 and 1995, respectively, and other electronic connecting components, such as cable and wiring products, which accounted for approximately 18%, 17% and 16% of the Company's total sales in such years. In addition, the Company distributes capacitors, resistors and electromechanical parts. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED (IN THOUSANDS) COMPARISON OF FISCAL 1997 WITH FISCAL 1996 Net sales for the fiscal year ended March 29, 1997 were $516,757, an increase of 21.4% over the $425,810 reported for fiscal 1996. The increase in sales was primarily the result of continued gains in market share in the Company's distribution operations, which had a 29.7% increase over fiscal 1996. Distribution sales also benefited from the December acquisition of the EMC Distribution Division of Electronics Marketing Corporation and a full year of operations in geographical markets entered during fiscal 1996 by Futronix Corporation and Wire & Cable Specialties. The Company's contract manufacturing operations posted an 8.2% increase over the prior year despite a significant downturn in the semiconductor capital equipment sector during the September quarter of fiscal 1997. The semiconductor capital equipment sector accounted for approximately 26.7% of the manufacturing division revenue in fiscal 1997 compared to approximately 39.0% in fiscal 1996. Gross profit increased $8,536, or 7.6%, from fiscal 1996 to fiscal 1997 due to an increase in net sales. The decrease in gross profit margin from 26.3% to 23.4% reflects continued pricing pressures and the transitioning of new business services by the Company's contract manufacturing division. Excluding merger and integration charges associated with the acquisition of Futronix Corporation and Wire & Cable Specialties, selling, general and administrative (SG&A) expenses increased $7,501, or 11.3%, compared to the prior year. This increase reflects the costs necessary to support the continued growth in the Company's operations. As a percentage of sales, however, expenses decreased to 14.2% from 15.5% in the prior year. The decrease is the result of the Company's continued focus on cost containment as well as specific cost reduction initiatives taken in response to the difficult business conditions the Company experienced during the year. SG&A expenses do not reflect the cost savings or synergies which may result from the merger of Futronix Corporation and Wire & Cable Specialties. Merger and integration charges of $5,500 include abandoned registration costs associated with the planned business combination of Futronix Corporation and Wire & Cable Specialties, professional expenses associated with the acquisition, an employee bonus and integration costs incurred to consolidate operations. Interest expense increased due to higher short-term borrowing by Futronix Corporation and Wire & Cable Specialties prior to acquisition by the Company. All outstanding debt was retired in the fourth quarter of 1997. Other-net consists principally of interest and dividend income generated by cash, cash equivalents and trading securities. The increase in interest and dividend income was primarily due 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED (IN THOUSANDS) to the net proceeds from the September 1995 public offering invested for approximately four months longer than the prior year. Net earnings for 1997 were $27,621 compared to $29,792 for 1996. Net earnings for 1997 included merger and integration charges of $5,500. Excluding these charges, net earnings increased $1,198, or 4.0%, to $30,990. The improved profitability was primarily due to the incremental profit associated with the increase in sales volume, offset by lower gross profit margins, combined with the Company's continued focus on cost containment. COMPARISON OF FISCAL 1996 WITH FISCAL 1995 Net sales for the fiscal year ended March 30, 1996 increased $146,134, or 52.3%, to $425,810. The sales increase reflected internal growth primarily from increased demand from existing customers, an expanded customer base and expansion into new geographical markets by Futronix Corporation and Wire & Cable Specialties. Gross profit increased $39,426, or 54.2%, compared to the preceding year. Gross profit as a percentage of sales increased to 26.3% from 26.0% in the prior year. The increase in gross profit was primarily due to increased sales and an increase in the gross profit percentage that benefited from the gains in contract manufacturing as a percentage of total sales. The Company believes that its profit margins from sales of manufactured products is generally greater than its profit margins on sales of distributed products. Selling, general and administrative expenses increased $16,078, or 32.1%, compared to the prior fiscal year. However, as a percentage of sales, expenses declined to 15.5% from 17.9% in the preceding year. The decline as a percentage of sales reflects the Company's continued focus on cost containment to reduce such expenses as a percentage of sales. The increase in expenses was primarily due to the expenses necessary to support the growth in the Company's existing operations and expansion into new geographical markets by Futronix Corporation and Wire & Cable Specialties. Interest expense increased due to higher short-term borrowing by Futronix Corporation and Wire & Cable Specialties prior to acquisition by the Company. Other-net consists principally of interest and dividend income generated by cash, cash equivalents and trading securities. The increase in interest and dividend income was primarily due to the invested net proceeds from the September 1995 public offering. Net earnings increased $15,191 or 104.0% when compared to the prior year. The improved profitability was primarily due to the incremental profit associated with the increase in sales volume, the increase in the gross profit percentage and the Company's continued focus on cost containment. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED (IN THOUSANDS) LIQUIDITY AND CAPITAL RESOURCES At March 29, 1997, working capital was $150,884, a decrease of 12.7% since March 30, 1996. The decrease was primarily the result of cash expenditures related to acquisitions and capital projects in conjunction with an increase in accounts receivable in relation to current sales levels and an increase in inventories in anticipation of future sales. Cash, cash equivalents and trading securities decreased $87,128 from March 30, 1996. In December 1996, the Company acquired the EMC Distribution Division for approximately $7,000. In January 1997, the Company retired approximately $22,300 of notes payable, debt and mandatorily redeemable preferred stock associated with the acquisition of Futronix Corporation and Wire & Cable Specialties. During the fiscal year, capital expenditures approximated $51,000 including upgrades to computer systems, completion of phase two of the manufacturing facility, and construction of a new distribution facility. Included in the Company's working capital at March 29, 1997 are investments of $28,728. 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 March 29, 1997, funds were invested primarily in a reverse repurchase agreement and an institutional money market fund consisting primarily of taxable, high quality money market type instruments. Both are compatible with the Company's stated investment strategy. On June 12, 1997, the Company obtained a $25,000 line of credit with a bank. As of June 26, 1997, there was no indebtedness outstanding under the line of credit. 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. Management believes that current resources, including the line of credit, along with funds generated from operations, should be sufficient to meet its current capital requirements. 14 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 March 29, 1997 and March 30, 1996, and the related consolidated statements of earnings, cash flows and stockholders' equity for each of the three years in the period ended March 29, 1997. 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 March 29, 1997 and March 30, 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 29, 1997, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Houston, Texas May 5, 1997 15 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 29, 1997 AND MARCH 30, 1996 (IN THOUSANDS)
ASSETS 1997 1996 --------- --------- CURRENT ASSETS Cash and cash equivalents (including temporary investments of $28,728 in 1997 and $75,552 in 1996) $ 25,050 $ 73,431 Trading securities, net -- 38,747 Accounts receivable, net 88,835 60,210 Inventories Materials and purchased products 91,100 62,177 Work in process 3,394 3,414 -------- -------- 94,494 65,591 Other 4,023 4,551 -------- -------- Total current assets 212,402 242,530 PROPERTY AND EQUIPMENT Land 7,439 7,422 Buildings 38,176 18,590 Equipment, furniture and fixtures 68,247 36,837 Leasehold improvements 2,543 2,392 -------- -------- 116,405 65,241 Less accumulated depreciation and amortization (25,515) (18,358) -------- ------- 90,890 46,883 DEFERRED INCOME TAXES 1,280 1,315 OTHER ASSETS 4,618 1,644 COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated amortization of $2,359 in 1997 and $1,994 in 1996 16,404 12,802 -------- -------- $325,594 $305,174 ======== ========
The accompanying notes are an integral part of these statements. 16 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 29, 1997 AND MARCH 30, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 --------- -------- CURRENT LIABILITIES Notes payable and current portion of long-term debt $ -- $ 9,740 Accounts payable 42,317 38,650 Accrued compensation 8,123 10,342 Other accrued liabilities 8,051 5,750 Income taxes 3,027 5,290 -------- -------- Total current liabilities 61,518 69,772 LONG-TERM DEBT, less current portion -- 1,258 LONG-TERM LIABILITIES 1,709 976 MANDATORILY REDEEMABLE PREFERRED STOCK -- 2,200 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' EQUITY Preferred stock, $1 par value; authorized 2,000,000 shares; none issued -- -- Common stock, no par value; authorized 60,000,000 shares; 26,301,651 shares issued and 26,251,651 shares outstanding in 1997 and 26,026,619 shares issued and outstanding in 1996 41,348 38,357 Additional paid-in capital 116,522 112,702 Retained earnings 105,474 79,909 -------- -------- 263,344 230,968 Less common stock in treasury - at cost, 50,000 shares in 1997 (977) -- -------- -------- 262,367 230,968 -------- -------- $325,594 $305,174 ======== ========
The accompanying notes are an integral part of these statements. 17 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 --------- --------- --------- Net sales $516,757 $425,810 $279,676 Cost of sales 396,054 313,643 206,935 -------- -------- -------- Gross profit 120,703 112,167 72,741 Selling, general and administrative expenses 73,607 66,106 50,028 Merger and integration costs 5,500 -- -- -------- -------- -------- Operating profit 41,596 46,061 22,713 Other income (expense) Interest expense (1,192) (898) (340) Other - net (principally interest and dividend income) 4,696 3,932 1,138 -------- -------- -------- Earnings before income taxes 45,100 49,095 23,511 Income taxes 17,479 19,303 8,910 -------- -------- -------- NET EARNINGS $ 27,621 $ 29,792 $ 14,601 ======== ======== ======== Earnings per share $1.00 $1.21 $0.68 ======== ======== ======== Weighted average shares 27,551 24,696 21,475 ======== ======== ======== The accompanying notes are an integral part of these statements. 18 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS)
1997 1996 1995 --------- --------- --------- Cash flows from operating activities Net earnings $ 27,621 $ 29,792 $ 14,601 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 7,529 4,619 4,070 Provision for losses on accounts receivable 409 249 171 (Gain) loss on sale of property and equipment (2) 40 27 Stock option expense 540 1,116 871 (Gain) loss on sale of trading securities (169) (45) 225 Net sales (purchases) of trading securities 38,916 (21,869) (1,873) Change in assets and liabilities, net of effects from the acquisition accounted for as a purchase Increase in accounts receivable (26,828) (22,474) (10,180) Increase in inventories (23,904) (23,758) (14,878) (Increase) decrease in other 507 (1,635) (748) Increase in other assets (3,013) (585) (467) (Increase) decrease in deferred income taxes 89 (504) 459 Increase in accounts payable 699 19,709 1,623 Increase (decrease) in accrued compensation (2,238) 5,534 2,184 Increase in other accrued liabilities 2,419 2,136 1,444 Increase (decrease) in income taxes (2,230) 3,549 685 Increase in long-term liabilities 733 695 281 -------- -------- -------- Net cash provided (used) by operating activities 21,078 (3,431) (1,505) Cash flows from investing activities Capital expenditures (50,816) (22,125) (11,135) Acquisition accounted for as a purchase (7,000) -- -- Proceeds from related party receivable of pooled company -- -- 124 Proceeds from sale of property and equipment 32 68 33 -------- -------- -------- Net cash used by investing activities (57,784) (22,057) (10,978) Cash flows from financing activities Net (payments) borrowings under line of credit agreements of pooled companies (11,550) 6,606 (147) Proceeds from issuance of long-term debt of pooled company -- -- 1,243 Payment on long-term debt of pooled companies (1,254) (15) (19) Net payments to shareholder of pooled company -- (61) (69) (Redemption of) proceeds from issuance of mandatorily redeemable preferred stock of pooled company (2,200) -- 2,200 Proceeds from issuance of convertible preferred stock of pooled company -- 1,000 --
19 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS)
1997 1996 1995 --------- --------- -------- Proceeds from sale of stock warrants of pooled company $ -- $ -- $ 7 Issuance of common stock 3,458 86,281 2,497 Payment for fractional shares -- -- (16) Purchase of treasury stock (977) -- -- Tax effect of common stock issued upon exercise of employee stock options 1,154 1,137 514 Distribution to shareholder of pooled company (650) (582) (594) -------- ------- ------- Net cash (used) provided by financing activities (12,019) 94,366 5,616 -------- ------- ------- Net (decrease) increase in cash (48,725) 68,878 (6,867) Adjustment for change in pooled companies' fiscal year ends 344 -- -- Cash and cash equivalents at beginning of year 73,431 4,553 11,420 -------- ------- ------- Cash and cash equivalents at end of year $ 25,050 $73,431 $ 4,553 ======== ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 1,285 $ 893 $ 302 Income taxes $ 15,054 $16,537 $ 7,864
The accompanying notes are an integral part of these statements. 20 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FISCAL YEARS ENDED APRIL 1, 1995, MARCH 30, 1996 AND MARCH 29, 1997 (IN THOUSANDS)
Common Stock ----------------- Additional Retained Treasury Shares Amount paid-in capital earnings Stock ------- -------- ---------------- --------- --------- Balance at April 2, 1994, as previously reported 19,375 $32,703 $ 24,359 $ 5,457 $ -- Adjusted for pooling of interests 1,042 10 581 1,235 -- ------ ------- -------- -------- -------- As restated 20,417 32,713 24,940 36,692 -- Issuance of common stock and warrants of pooled company 657 7 970 -- -- Common Stock issued upon exercise of employee stock options, including tax effect 235 2,040 -- -- -- Common stock split for fractional shares (1) -- (16) -- -- Amortization of unearned compensation related to stock option plans -- -- 871 -- -- Distribution to shareholder of pooled company -- -- -- (594) -- Net earnings for the year -- -- -- 14,601 -- ------ ------- -------- -------- -------- Balance at April 1, 1995 21,308 34,760 26,765 50,699 -- Net proceeds from public stock offering 4,000 20 83,826 -- -- Issuance of common stock of pooled company 391 4 996 -- -- Common stock issued upon exercise of employee stock options, including tax effect 328 3,572 -- -- -- Common stock split for fractional shares -- 1 (1) -- -- Amortization of unearned compensation related to stock option plans -- -- 1,116 -- -- Distribution to shareholder of pooled company -- -- -- (582) -- Net earnings for the year -- -- -- 29,792 -- ------ ------- -------- -------- -------- Balance at March 30, 1996 26,027 38,357 112,702 79,909 -- Issuance of common stock of pooled company 19 -- 47 -- -- Common stock issued under employee bonus and upon exercise of employee stock options, including tax effect 256 2,991 1,574 -- -- Amortization of unearned compensation related to stock option plans -- -- 540 -- -- Purchase of treasury stock (50) -- -- -- (977) Reclassification of undistributed subchapter "S" earnings of pooled company -- -- 1,659 (1,659) -- Adjustment for change in fiscal year of pooled company -- -- -- 253 -- Distribution to shareholder of pooled company -- -- -- (650) -- Net earnings for the year -- -- -- 27,621 -- ------ ------- -------- -------- -------- Balance at March 29, 1997 26,252 $41,348 $116,522 $105,474 $(977) ====== ======= ======== ======== ========
The accompanying notes are an integral part of this statement 21 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS - ----------------------- Kent Electronics Corporation (the "Company") is a leading national specialty distributor of electronic products and a manufacturer of custom-made electronic assemblies. The Company distributes electronic connectors, electronic wire and cable, premise wiring products used in local area networks and wide area networks, and other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing electronic equipment. The Company's contract manufacturing services include printed circuit board assembly, cable and harness assembly, sheet metal fabrication, plastic injection, battery power packs and final system integration. The Company's customers are primarily industrial users and original equipment manufacturers. BASIS OF PRESENTATION - --------------------- In 1997, the Company acquired Futronix Corporation ("Futronix") and Wire & Cable Specialties Corporation ("Wire & Cable Specialties") in a transaction accounted for as a pooling of interests. Accordingly, the consolidated financial statements for 1996 and 1995 have been restated to include the operations of Futronix and Wire & Cable Specialties. 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 March 29, 1997, March 30, 1996 and April 1, 1995 all consisted of 52 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 22 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) 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. 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 March 29, 1997, agreements to resell securities in the amount of $7,365 with a two-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. 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 are reflected in the following table: 1997 1996 ------ ------ Net unrealized loss on trading securities at beginning of year $ 257 $ 302 Decrease in unrealized loss included in earnings during the year (169) (45) Realized loss from sale of trading securities (88) -- ----- ----- Net unrealized loss on trading securities at end of year $ -- $ 257 ===== ===== 23 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) ACCOUNTS RECEIVABLE - ------------------- The Company's allowance for doubtful accounts was $1,256 at March 29, 1997 and $1,048 at March 30, 1996. 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. OTHER ASSETS - ------------ Other assets at March 29, 1997 include $1,804 of receivables from certain officers and directors of the Company. COSTS IN EXCESS OF NET ASSETS ACQUIRED - -------------------------------------- Costs in excess of net assets acquired represents the excess of the purchase price over the value of net assets acquired and is being amortized on a straight-line basis over 40 years. Management evaluates these costs for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Impairment would be recognized if the carrying amounts of such costs cannot be recovered by the net cash flows they will generate. REVENUE RECOGNITION - ------------------- Revenue is recognized upon shipment of merchandise to customers. 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. 24 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) NEW PRONOUNCEMENTS - ------------------ The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which is effective for financial statements issued after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share together with disclosure of how the per share amounts were computed. The effect of adopting this new standard has not been determined. BUSINESS ACQUISITIONS FUTRONIX AND WIRE & CABLE SPECIALTIES - ------------------------------------- In January 1997, the Company acquired all the outstanding equity instruments of Futronix and Wire & Cable Specialties, both privately owned distributors of specialty wire and cable, in exchange for 2,109 shares of the Company's common stock in a merger transaction accounted for as a pooling of interests. Prior to the merger, Futronix and Wire & Cable Specialties used a calendar year end for financial reporting purposes. The Futronix and Wire & Cable Specialties balance sheet and results of operations for the year ended December 31, 1995 and 1994 have been combined with those of the Company for the years ended March 30, 1996 and April 1, 1995, respectively. The Futronix and Wire & Cable Specialties balance sheet and results of operations for the 52 weeks ending March 29, 1997 have been included in the consolidated financial statements for fiscal 1997. During the three-month period ended March 30, 1996, Futronix and Wire & Cable Specialties had net sales of $16,177, net earnings of $372 and shareholder distributions of $119. In order to reflect the change in fiscal year-ends, retained earnings for these amounts has been increased by combined net earnings and decreased by shareholder distributions. 25 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) Combined and separate results of Kent, Futronix and Wire & Cable Specialties during the periods preceding the merger were as follows: FISCAL YEAR THIRTY-NINE WEEKS ENDED FISCAL YEAR ENDED ENDED DECEMBER 28, 1996 MARCH 30, 1996 APRIL 1, 1995 ----------------- -------------- ------------- (UNAUDITED) Net sales - --------- Kent $314,906 $372,019 $253,484 Futronix 40,679 29,280 5,950 Wire & Cable 20,000 24,511 20,242 -------- -------- -------- Combined $375,585 $425,810 $279,676 ======== ======== ======== Net earnings - ------------ Kent $ 22,136 $ 27,975 $ 13,386 Futronix 278 614 301 Wire & Cable 806 1,203 914 -------- -------- -------- Combined $ 23,220 $ 29,792 $ 14,601 ======== ======== ======== In the fourth quarter of 1997, the Company recorded costs of $5,500 associated with the merger and integration of Futronix and Wire & Cable Specialties. OBLIGATIONS OF FUTRONIX AND WIRE & CABLE SPECIALTIES - ---------------------------------------------------- Included in the accompanying balance sheet at March 30, 1996, are notes payable to banks of $9,728 with interest rates approximating prime plus 1/2% and long- term debt payable to shareholders of $1,270 with interest at 7%. MANDATORILY REDEEMABLE PREFERRED STOCK OF FUTRONIX - -------------------------------------------------- Included in the accompanying balance sheet at March 30, 1996, are 2,200 shares of issued and outstanding Futronix non-dividend paying mandatorily redeemable preferred stock having a $1 par value and redemption value per share. The stock was redeemed in 1997 in connection with the merger. 26 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) EMC DISTRIBUTION DIVISION OF ELECTRONICS MARKETING CORPORATION - -------------------------------------------------------------- In December 1996, the Company acquired certain assets of the EMC Distribution Division of Electronics Marketing Corporation, a privately owned Ohio-based specialty distributor of connectors, passive and electromechanical components, for $7,000 and the assumption of certain liabilities. The acquisition has been accounted for as a purchase 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 acquisition are included in the consolidated statements of earnings from the acquisition date. The excess of the purchase price over the value of the assets acquired are classified in the accompanying balance sheet as cost in excess of net assets acquired and is being amortized on a straight-line basis over 40 years. Pro forma financial information is not presented, as the effect of the acquisition was not significant to the financial statements. 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: 1997 1996 1995 ------- -------- -------- Current $16,316 $19,934 $8,510 Tax reduction for exercise stock options credited to stockholders' equity 1,154 1,137 514 Deferred 9 (1,768) (114) ------- ------- ------ $17,479 $19,303 $8,910 ======= ======= ====== 27 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) A reconciliation of income taxes computed at the statutory federal income tax rate and income taxes reported in the consolidated statements of earnings follows: 1997 1996 1995 -------- -------- -------- Tax at statutory rate $15,785 $17,161 $8,214 Increases (reductions) State income taxes, net of federal tax effect 1,377 1,687 748 Pre-acquisition earnings of acquired S (217) (409) (311) corporation Non-deductible merger and integration costs 291 -- -- Other-net 243 864 259 ------- ------- ------ Income taxes as reported $17,479 $19,303 $8,910 ======= ======= ====== Net deferred tax assets at March 29, 1997 and March 30, 1996 consist of the following: 1997 1996 --------- --------- Current deferred asset - ---------------------- Allowance for doubtful accounts $ 493 $ 405 Capitalization of additional inventory costs 805 870 Accrued expenses not currently deductible, net of reversals 641 522 Net operating losses 314 320 Deferred compensation -- 616 Other 399 562 ------- ------- $ 2,652 $ 3,295 ======= ======= Long-term deferred asset - ------------------------ Depreciation $(2,766) $(2,061) Fixed asset bases differences 450 630 Stock compensation 1,495 1,291 Net operating losses 457 770 Deferred compensation 1,644 685 ------- ------- $ 1,280 $ 1,315 ======= ======= Acquired net operating losses of approximately $2,201 at March 29, 1997, expire in various amounts through 2003 and are subject to annual usage limitations. The current deferred asset is included in other current assets in the accompanying balance sheets. 28 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 1997, 1996, and 1995 was approximately $3,512, $2,877 and $2,234, respectively. As of March 29, 1997, the Company's minimum rental commitments under noncancelable operating leases were $3,336 in 1998; $2,581 in 1999; $1,805 in 2000; $1,114 in 2001; $744 in 2002; and $748 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 $50 per employee. The aggregate annual self-insured amount varies based on participant levels and was limited to approximately $3,000 as of March 29, 1997. Claims are accrued as incurred and the total expense under the program was approximately $2,809, $2,103 and $2,121 in 1997, 1996 and 1995, 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. SALES TO MAJOR CUSTOMERS No customer constituted 10% or more of net sales in 1997. Sales to Compaq Computer Corporation represented 10.6% and 10.1% of net sales in 1996 and 1995, respectively. Sales to Applied Materials, Inc. represented 11.3% of net sales in 1995. 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. 29 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) 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 $40, 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. 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. The Company's common stock was split two-for-one to stockholders of record on February 15, 1996, and was effected as a 100% 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 splits. BENEFIT PLANS STOCK OPTIONS - ------------- At March 29, 1997, the Company had nonqualified stock option plans which allow for the grant of 4,060 common shares for options, of which 621 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. Options on 1,553, 450 and 358 shares were exercisable at March 29, 1997, March 30, 1996 and April 1, 1995 with a weighted average exercise price of $7.68, $7.51 and $7.27, respectively. A summary of the Company's stock option activity, and related information follows: 30 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 -------------------------- ------------------------ ------------------------ Weighted Weighted Weighted average average average Options exercise price Options exercise price Options exercise price ---------- -------------- ------- -------------- ------- -------------- Outstanding at beginning of year 2,570 $ 8.44 2,181 $ 5.25 2,316 $5.30 Granted 1,144 19.72 803 17.58 143 7.75 Exercised (208) 8.49 (328) 7.58 (235) 6.96 Lapsed/forfeited 71 17.84 (86) 16.09 (43) 6.96 ----- ------ ----- ------ ----- ----- Outstanding at end of year 3,435 $12.00 2,570 $ 8.44 2,181 $5.25 ===== ====== ===== ====== ===== =====
The following table summarizes the weighted average fair value per share of options granted during the year:
1997 1996 ---------------------------- -------------------------- Weighted Weighted Weighted Weighted average average average average fair value exercise price fair value exercise price ------------ -------------- ---------- -------------- Exercise price equals market price $ 5.00 $19.73 $4.44 $20.73 Exercise price is below market price 26.11 19.31 9.67 7.25
The following table summarizes significant ranges of outstanding and exercisable options at March 29, 1997:
Options Outstanding Options Exercisable ------------------------------------------ ----------------------- Weighted average Weighted Weighted remaining life average average Range of exercise prices Options (in years) exercise price Options exercise price ------- -------------- -------------- ------- -------------- $ 3.63 - $5.45 1,155 10.76 $ 3.63 855 $ 3.63 $ 5.46 - $6.96 467 1.24 6.96 429 6.96 $ 7.25 - $10.88 210 12.49 7.56 23 10.17 $17.00 - $25.63 1,520 4.51 19.55 176 20.18 $28.75 - $32.50 83 4.45 29.86 70 29.36
31 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) The Company has adopted only the disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). 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 fair value of options at the date of grant was estimated using the Black- Scholes option pricing model with the following weighted average assumptions: 1997 1996 ---------- ---------- Expected life 2.3 years 3.1 years Interest rate... 6.3% 6.0% Volatility...... 34.6% 26.5% Dividend yield.. 0.0% 0.0% Stock-based compensation costs would have reduced net earnings by approximately $1,434 and $488 in 1997 and 1996 and $0.05 and $0.02 per 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. The pro forma disclosures only include the effects of options granted in the fiscal years ended 1997 and 1996. 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 $870, $618 and $639 to the Plan in fiscal years ended March 29, 1997, March 30, 1996 and April 1, 1995, respectively. 32 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) The Company has deferred compensation plans for management and highly compensated associates of the Company. Under one plan, a participant may elect to defer a minimum of 3% of their compensation. The Company has agreed to match the participant's 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. Under another deferred benefit plan, the participant will receive minimum annual payments subsequent to retirement of the participant for the greater of 15 years or life. Under the first plan, the Company has accrued at March 29, 1997 and March 30, 1996 approximately $1,703 and $976, respectively, for participant and Company contributions which are recorded as long term liabilities on the balance sheet. Under the second plan, annual expense will range from $1,200 to $1,600 through March 31, 2001, based on accruing the present value of the minimum benefits through the date the participant vests in the payments. 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. 33 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED FISCAL YEARS ENDED MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA) QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of unaudited quarterly financial data for fiscal years 1997, 1996 and 1995:
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- --------- --------- --------- Year ended March 29, 1997 - ------------------------- Net sales $125,144 $124,034 $126,407 $141,172 Gross profit 31,906 28,018 28,840 31,939 Net earnings 9,431 6,852 6,937 4,401 Earnings per share .34 .25 .25 .16 Year ended March 30, 1996 - --------------------------- Net sales $ 87,255 $102,776 $116,064 $119,715 Gross profit 22,940 27,035 30,673 31,519 Net earnings 5,254 6,346 8,652 9,540 Earnings per share .24 .28 .32 .35 Year ended April 1, 1995 - --------------------------- Net sales $ 61,516 $ 66,117 $ 71,563 $ 80,480 Gross profit 16,004 17,204 18,564 20,969 Net earnings 3,164 3,439 3,774 4,224 Earnings per share .15 .16 .18 .19
34 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III In accordance with paragraph (3) of General Instruction G to Form 10-K, Part III of this Report is omitted because the Company has filed with the Securities and Exchange Commission, not later than 120 days after March 29, 1997, 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" and "Proposal No. 1 --Election of Directors" which sections of such proxy statement are incorporated herein. 35 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) FINANCIAL STATEMENTS AND EXHIBITS: 1. FINANCIAL STATEMENTS: PAGE ---- Report of Independent Certified Public Accountants.................... 15 Consolidated balance sheets at March 29, 1997 and March 30, 1996...... 16 Consolidated statements of earnings for the years ended March 29, 1997, March 30, 1996 and April 1, 1995.................. 18 Consolidated statements of cash flows for the years ended March 29, 1997, March 30, 1996 and April 1, 1995.................. 19 Consolidated statement of stockholders' equity for the years ended April 1, 1995, March 30, 1996 and March 29, 1997.................. 21 Notes to consolidated financial statements............................ 22 2. FINANCIAL STATEMENT SCHEDULE: PAGE ---- Report of Independent Certified Public Accounts on Schedule........... 43 Schedule II--Allowance for Doubtful Receivables for the years ended April 1, 1995, March 30, 1996 and March 29, 1997.................. S-1 3. EXHIBITS: 3.1* -- Amended and Restated Articles of Incorporation of Kent Electronics Corporation. Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-20265) filed with the Securities and Exchange Commission ("SEC") on January 23, 1997. 3.2* -- Certificate of Designation, Preferences and Rights of Series A Preferred Stock. Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 30, 1991 (the "1991 Form 10-K"). 3.3* -- Amended and Restated Bylaws of Kent Electronics Corporation. Incorporated by reference to Exhibit 3.5 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 30, 1996 (the "1996 Form 10-K"). 36 4.1* -- Specimen stock certificate for the Common Stock of Kent Electronics Corporation. Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-2 (Registration No. 33-40066) filed with the SEC on April 19, 1991. 4.2* -- Rights Agreement 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 the Company's Annual Report on Form 10-K for the Fiscal Year Ended March 28, 1992 (the "1992 Form 10-K"). 10.1* -- Chief Executive Officer 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 Officer 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)/ 10.3* -- Amendment to Chief Executive Officer Stock Option Plan and Agreement between Kent Electronics Corporation and Morrie K. Abramson dated June 30, 1994. Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the Fiscal Year Ended April 1, 1995 (the "1995 Form 10-K")./(1)/ 10.4* -- 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)/ 10.5* -- 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)/ 10.6* -- 1991 Non-Employee Director Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.2 to 1992 Form 10-K./(1)/ 37 10.7* -- 1996 Non-Employee Director Stock Option Plan. Incorporated by reference to Exhibit 10.7 to 1996 Form 10-K./(1)/ 10.8* -- Amended and Restated 1987 Stock Option Plan. Incorporated by reference to Exhibit 10.3 to 1992 Form 10-K./(1)/ 10.9* -- Amendments of Amended and Restated 1987 Stock Option Plan. Incorporated by reference to Exhibit 10.8 to 1993 Form 10-K./(1)/ 10.10* -- Stock Option Plan and Agreement for the Company's Executive Vice President Sales-Distribution between Kent Electronics Corporation and Larry D. Olson dated May 8, 1995. Incorporated by reference to Exhibit 10.11 to 1995 Form 10-K./(1)/ 10.11* -- Stock Option Plan and Agreement for the Company's Executive Vice President Operations-Distribution between Kent Electronics Corporation and Mark A. Zerbe dated May 8, 1995. Incorporated by reference to Exhibit 10.12 to 1995 Form 10-K./(1)/ 10.12* -- Stock Option Plan and Agreement for the Company's Vice President, Secretary and Treasurer between Kent Electronics Corporation and Stephen J. Chapko dated May 8, 1995. Incorporated by reference to Exhibit 10.13 to 1995 Form 10-K./(1)/ 10.13* -- Stock Option Plan and Agreement for the Company's Vice President, Corporate Controller between Kent Electronics Corporation and David D. Johnson dated May 9, 1996. Incorporated by reference to Exhibit 10.13 to 1996 Form 10-K./(1)/ 10.14* -- 1996 Employee Incentive Plan. Incorporated by reference to Exhibit 10.14 to 1996 Form 10-K./(1)/ 10.15* -- Kent Electronics Corporation Tax-Deferred Savings and Retirement Plan and Trust (As Amended and Restated Effective March 26, 1989). Incorporated by reference to Exhibit 10.15 to 1996 Form 10-K./(1)/ 10.16* -- Kent Electronics Corporation Deferred Compensation Plan dated July 28, 1994. Incorporated by reference to Exhibit 10.15 to 1995 Form 10-K./(1)/ 10.17* -- First Amendment to the Kent Electronics Corporation Deferred Compensation Plan. Incorporated by reference to Exhibit 10.17 to 1996 Form 10-K./(1)/ 38 10.18* -- Trust Agreement for Kent Electronics Corporation Deferred Compensation Plan dated July 28, 1994. Incorporated by reference to Exhibit 10.16 to 1995 Form 10-K./(1)/ 10.19* -- Contracts between Kent Electronics Corporation and AMP Products Corporation effective as of July 22, 1988 and July 31, 1986, respectively, and addenda 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. 10.20* -- Form of Agreement by and between Kent Electronics Corporation and Morrie K. Abramson dated March 16, 1993. Incorporated by reference to Exhibit 10.21 to 1993 Form 10-K./(1)/ 10.21* -- Form of Executive Health Care Benefits and Consulting Agreement by and between Kent Electronics Corporation and Morrie K. Abramson dated January 27, 1993. Incorporated by reference to Exhibit 10.22 to 1993 Form 10-K./(1)/ 10.22* -- Employment Agreement dated January 3, 1996 by and between Morrie K. Abramson and Kent Electronics Corporation. Incorporated by reference to Exhibit 10.22 to 1996 Form 10-K./(1)/ 10.23* -- Kent Electronics Corporation Chief Executive Officer Deferred Compensation Plan and Agreement dated January 3, 1996 by and between Kent Electronics Corporation and Morrie K. Abramson. Incorporated by reference to Exhibit 10.23 to 1996 Form 10-K./(1)/ 10.24* -- Trust Agreement for Kent Electronics Corporation Chief Executive Officer Deferred Compensation Plan and Agreement and Employment Agreement dated January 3, 1996 by and between Kent Electronics Corporation and Texas Commerce Bank National Association, as trustee. Incorporated by reference to Exhibit 10.24 to 1996 Form 10-K./(1)/ 10.25* -- Special Warranty Deed from Sugarland Properties Incorporated to Kent Electronics Corporation dated March 7, 1995 for 51 acres of land. Incorporated by reference to Exhibit 10.23 to 1995 Form 10-K. 10.26* -- Special Warranty Deed from Sugarland Properties Incorporated to Kent Electronics Corporation dated March 7, 1995 for 15 acres of land. Incorporated by reference to Exhibit 10.24 to 1995 Form 10-K. 39 10.27 -- Revolving Promissory Note with Agreement between Kent Electronics Corporation and Texas Commerce Bank National Association dated June 12, 1997. 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: None. 40 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 Date: June 26, 1997 41 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 June 26, 1997 - --------------------------- Executive Officer, President Morrie K. Abramson and Director (Principal Executive Officer) /s/ Stephen J. Chapko Executive Vice President, Chief June 26, 1997 - --------------------------- Financial Officer, Treasurer Stephen J. Chapko and Secretary (Principal Financial Officer) /s/ David D. Johnson Vice President, Corporate June 26, 1997 - --------------------------- Controller (Principal Accounting David D. Johnson Officer) /s/ Terrence M. Hunt Director June 26, 1997 - --------------------------- Terrence M. Hunt /s/ Max S. Levit Director June 26, 1997 - --------------------------- Max S. Levit /s/ David Siegel Director June 26, 1997 - --------------------------- David Siegel /s/ Richard C. Webb Director June 26, 1997 - ------------------------ Richard C. Webb /s/ Alvin L. Zimmerman Director June 26, 1997 - --------------------------- Alvin L. Zimmerman 42 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 March 29, 1997, we have also audited Schedule II for each of the three years in the period ended March 29, 1997. 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 5, 1997 43 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED APRIL 1, 1995, MARCH 30, 1996 AND MARCH 29, 1997 (IN THOUSANDS) ALLOWANCE FOR DOUBTFUL RECEIVABLES
Additions Deductions ----------------------------------- ---------- Adjustment for change in pooled Charged Charged Balance at Companies' to costs to other Balance at beginning fiscal year and accounts- Amounts end of Fiscal Years Ended of period ends expenses recoveries written-off period - -------------------- ---------- -------------- -------- ---------- ----------- ---------- April 1, 1995 $ 958 $ -- $ 171 $ -- $ 116 $ 1,013 March 30, 1996 1,013 -- 249 12 226 1,048 March 29, 1997 1,048 30 409 11 242 1,256
S-1 EXHIBIT INDEX ------------- SEQUENTIALLY EXHIBIT NO. ITEM NUMBERED PAGES - ----------- ----- -------------- 10.27 Revolving Promissory Note with Agreement between Kent Electronics Corporation and Texas Commerce Bank National Association dated June 12, 1997. 11 Computation of earnings per share. 21 Subsidiaries of Kent Electronics Corporation. 23.1 Consent of Independent Certified Public Accountants. 27 Financial Data Schedule. EX-10.27 2 EXHIBIT 10_27 EXHIBIT 10.27 REVOLVING PROMISSORY NOTE WITH AGREEMENT (this "Note") I. PROMISSORY NOTE
U.S. $25,000,000.00 June 12, 1997 (the "Date") Promise to Pay FOR VALUE RECEIVED, KENT ELECTRONICS CORPORATION ("Borrower"), a Texas corporation, promises to pay to the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Bank") on or before June 12, 1999, (the "Termination Date"), at its banking house at 712 Main Street, Houston, Harris County, Texas, or at such other location as Bank may designate, in lawful money of the United States of America, the lesser of: (i) the principal sum of TWENTY-FIVE MILLION AND NO/100 UNITED STATES DOLLARS (U.S. $25,000,000.00)(the "Maximum Loan Total"); or (ii) the aggregate unpaid principal amount of all loans made by Bank (each such loan being a "Loan"), which may be outstanding on the Termination Date. Subject to the terms and conditions of this Note and the Loan Documents, Borrower may borrow, repay and reborrow all or any part of the credit provided for herein at any time before the Termination Date, there being no limitation on the number of Loans made so long as the total unpaid principal amount at any time outstanding does not exceed the Maximum Amount of Note. Payments The unpaid principal balance of this Note at any time will be the total amounts advanced by Bank, less the amount of all payments or prepayments of principal. Absent manifest error, the records of Bank will be conclusive as to amounts owed. Each Loan will be due and payable on the maturity date agreed to by Bank and Borrower with respect to such Loan (the "Maturity Date"). In no event will any Maturity Date fall on a date after the Termination Date. Accrued and unpaid interest on each Prime Rate Loan is due and payable on the last day of each month and at the Maturity Date. Accrued interest on each LIBOR Loan is due on the last day of each Interest Period, and in the case of an Interest Period in excess of three months, on each day which occurs every three months after the initial date of such Interest Period, and on any prepayment (on the amount prepaid). Loan Options Loans may be either Prime Rate Loans or LIBOR Loans. Borrower will pay interest on the unpaid principal amount of each Prime Rate Loan at a rate per annum equal to the lesser of: (i) the Prime Rate in effect from time to time minus one percent (-1.0%)(the "Effective Prime Rate"); or (ii) the Highest Lawful Rate. Borrower will pay interest on the unpaid principal amount of each LIBOR Loan for the applicable Interest Period with respect thereto at a rate per annum equal to the lesser of: (i) the LIBOR Rate plus the Applicable Margin (the "Effective LIBOR Rate"); or (ii) the Highest Lawful Rate. Interest Recapture If at any time the effective rate of interest which would otherwise be payable on any Loan exceeds the Highest Lawful Rate, the rate of interest to accrue on the unpaid principal balance of that Loan during all times will be limited to the Highest Lawful Rate, but any subsequent reductions in the interest rate will not reduce the interest rate below the Highest Lawful Rate until the total amount of interest accrued on the unpaid principal balance of that Loan equals the total amount of interest which would have accrued if the applicable Effective Prime Rate, or Effective LIBOR Rate, had at all times been in effect. Minimum Loan Amounts Each LIBOR Loan will be in an amount not less than $1,000,000.00 and an integral multiple of $1,000,000.00 ("Minimum LIBOR Loan"). Each Prime Rate Loan will be in an amount not less than $1,000,000.00 and an integral multiple of $1,000,000.00. Interest Calculation For Prime Rate Loans, interest will be computed on the basis of a 365 or 366 day year for the actual number Basis of days elapsed. For LIBOR Loans interest will be computed on the basis of a 360 day year, unless such calculation would result in a usurious interest rate, in which case such interest will be calculated on the basis of a 365 or 366 day year, as the case may be. Borrowing Notice Loans will be made on Borrower's irrevocable notice to Bank, given not later than 10:00 A.M. (Houston time) on, in the case of LIBOR Loans, the third Business Day prior to the proposed Borrowing Date or, in the case of Prime Rate Loans, the first Business Day prior to the proposed Borrowing Date. Each notice of a requested borrowing (a "Notice of Requested Borrowing") under this paragraph may be oral or written, and will specify: (i) the requested amount; (ii) proposed Borrowing Date; (iii) whether the requested Loan is to be a Prime Rate Loan or LIBOR Loan; and (iv) Interest Period for the LIBOR Loan. Any oral Notice of Requested Borrowing will be confirmed in writing prior to the Borrowing Date. Prepayments Borrower may on any Business Day prepay the outstanding principal amount of any Prime Rate Loan, in whole or in part. Partial prepayments will be in an aggregate principal amount of $500,000.00 or a greater integral multiple of $500,000.00. Borrower will have no right to prepay any LIBOR Loan. Interest Period Provided that no Event of Default has occurred and is continuing, Borrower may elect to continue all or any Options part of any LIBOR Loan beyond the expiration of the then current Interest Period relating thereto by providing Bank at least three Business Day's written election, specifying the Loan or portion thereof to be continued and the requested Interest Period and whether it is to be a Prime Rate Loan or LIBOR Loan provided that any continuation as a LIBOR Loan will not be the Minimum LIBOR Loan amount. Provided that no Event of Default has occurred and is continuing, Borrower may elect to convert any Prime Rate Loan to a LIBOR Loan by providing a Notice or Requested Borrowing and the converted Prime Rate Loan will be the Minimum LIBOR Loan. Commitment Fee Borrower will pay a commitment fee per annum calculated pursuant to the Funded Indebtedness to Cash Flow Ratio identified on the table below, (computed on the basis of the actual number of days elapsed in a year comprised of 360 days) on the daily average difference between the Maximum Loan Total and the principal balance of the Note. The Commitment fee is due and payable quarterly in arrears.
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=================================================================================== Funded Indebtedness to Cash Flow Ratio Commitment Fee % Per Annum =================================================================================== ----------------------------------------------------------------------------------- Less than 1.0 to 1.0 0.125% ----------------------------------------------------------------------------------- Greater than 1.0 to 1.0 0.20% and Less than 2.0 to 1.00 ----------------------------------------------------------------------------------- Greater than 2.0 to 1.0 0.25% =================================================================================== Definitions "Applicable Margin" shall mean during each period, from and including one Adjustment Date to but excluding the next Adjustment Date (herein a "Calculation Period"), the percent per annum set forth in the table below opposite the Funded Indebtedness to Cash Flow Ratio calculated for the completed Reporting Period which immediately preceded the beginning of the applicable Calculation Period. =================================================================================== Funded Indebtedness to Cash Flow Ratio Applicable Margin =================================================================================== Less than 1.0 to 1.0 0.375% ----------------------------------------------------------------------------------- Greater than 1.0 to 1.0 0.50% and Less than 2.0 to 1.00 ----------------------------------------------------------------------------------- Greater than 2.0 to 1.0 0.625% =================================================================================== Upon delivery of the compliance certificate delivered pursuant to subsection C.1 of the Note in connection with the financial statements required to be delivered pursuant to subsection C.1 commencing with such compliance certificate delivered for the quarter ending June 30, 1997, the Applicable Margin shall automatically be adjusted in accordance with the Funded Indebtedness to Cash Flow Ratio set forth therein and the table set forth above, such automatic adjustment to take effect as of the first Business Day of the first month which begins after the date of the receipt by the Bank of the related compliance certificate pursuant to subsection C.1 (each such Business Day when the Applicable Margin changes pursuant to this sentence or the next following sentence, herein an "Adjustment Date"). If Borrower fails to deliver such compliance certificate which so sets forth the Funded Indebtedness to Cash Flow Ratio within the period of time required by subsection C.1 of the Note, the Applicable Margin shall automatically be adjusted to be equal to 0.625% per annum, such automatic adjustment to take effect as of the first Business Day after the last day on which Borrower was required to deliver the applicable compliance certificate in accordance with subsection C.1 of the Note and to remain in effect until the Applicable Margin is subsequently adjusted in accordance herewith upon the delivery of a compliance certificate. "Funded Indebtedness to Cash Flow Ratio" means as of the end of any quarter, the total Funded Indebtedness to Cash Flow Ratio for the Reporting Period then ending calculated in accordance with Exhibit A, subsection C, number 2 of the Note. "Board" means the Board of Governors of the Federal Reserve System of the United States. "Borrowing Date" means any Business Day on which Bank makes a Loan under this Note. "Business Day" means a day: (i) on which Bank and commercial banks in New York City are generally open for business; and (ii) with respect to LIBOR Loans, on which dealings in United States Dollar deposits are carried out in the interbank markets. "Funded Indebtedness" means and includes (a) all interest bearing debt, in accordance with GAAP, due to Bank or other lenders and (b) all Subordinated Debt. "Highest Lawful Rate" means the maximum nonusurious rate of interest from time to time permitted by applicable law. If Texas law determines the Highest Lawful Rate, Bank has elected the "indicated" (weekly) ceiling as defined in the Texas Credit Code or any successor statute (the "Code"). Bank may from time to time, as to current and future balances, elect and implement any other ceiling under the Code and/or revise the index, formula or provisions of law used to compute the rate on this open-end account by notice to Borrower, if and to the extent permitted by, and in the manner provided in the Code. "Indebtedness" means and includes (a) all items which in accordance with GAAP would be included on the liability side of a balance sheet on the date as of which Indebtedness is to be determined (excluding capital stock, surplus, surplus reserves and deferred credits); (b) all guaranties, endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others, and (c) all indebtedness secured by any Lien existing on any interest of the person with respect to which indebtedness is being determined, in property owned subject to such Lien, whether or not the Indebtedness secured thereby has been assumed. "Interest Period" means the period commencing on the Borrowing Date and ending on the Maturity Date, consistent with the following provisions. The duration of each Interest Period will be: (a) in the case of a Prime Rate Loan, a period of up to the Termination Date unless any portion thereof is converted to a LIBOR Loan; and (b) in the case of a LIBOR Loan, a period of up to one, two, three or six months; in each case as selected by Borrower and agreed to by Bank. Borrower's choice of Interest Period is subject to the following limitations: (i) No Interest Period will end on a date after the Termination Date; (ii) If the last day of an Interest Period would be a day other than a Business Day, the Interest Period will end on the next succeeding Business Day (unless the Interest Period relates to a LIBOR Loan and the next succeeding Business Day is in a different calendar month than the day on which the Interest Period would otherwise end, in which case the Interest Period will end on the next preceding Business Day); and (iii) Borrower understands and agrees that it shall be responsible for electing Loans to be Prime Rate Loans or LIBOR Loans, with appropriate Interest Periods, so as to avoid Breakage Charges; such charges being payable as provided herein if prepayment of a Loan is required to effect an agreed principal installment payment. "LIBOR Loan" means a Loan which bears interest at the Effective LIBOR Rate. "LIBOR Rate" means a per annum interest rate determined by Bank by dividing: (i) the average rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) of the rates per annum at which United States dollar deposits in an amount comparable to the principal amount of the LIBOR Loan to which such LIBOR Rate is applicable for a term equal to or substantially equal to the Interest Period are offered by Bank to prominent banks in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of the applicable Interest Period; by (ii) Statutory Reserves.
Page 2 of 5 Pages
"Lien" means any mortgage, pledge, charge, encumbrance, security interest, collateral assignment or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract. "Loan Documents" means this Note and any document or instrument evidencing, securing, guaranteeing or given in connection with this Note. "Maximum Amount of Note" means the Maximum Loan Total. "Obligations" means all principal, interest and other amounts which are or become owing under this Note or any other Loan Document. "Obligor" means Borrower and any guarantor, surety, co-signer, general partner or other person who may now or hereafter be obligated to pay all or any part of the Obligations. "Prime Rate" means the rate determined from time to time by Bank as its prime rate. The Prime Rate will change automatically from time to time without notice to Borrower or any other person. THE PRIME RATE IS A REFERENCE RATE AND MAY NOT BE BANK'S LOWEST RATE. "Prime Rate Loan" means a Loan which bears interest at the Effective Prime Rate. "Statutory Reserves" means the difference (expressed as a decimal) of the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which Bank is subject to, with respect to the LIBOR Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages will include, without limitation, those imposed under such Regulation D. LIBOR Loans will be deemed to constitute Eurocurrency Liabilities and as such will be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any bank under such Regulation D. Statutory Reserves will be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Debt" means any Indebtedness subordinated to Indebtedness due Bank pursuant to a written subordination agreement in form and substance satisfactory to Bank by and among Bank, subordinated creditor and Borrower which at a minimum must prohibit: (a) any action by subordinated creditor which will result in an occurrence of an Event of Default or default under this Agreement, the subordination agreement or the subordinated Indebtedness; and (b) upon the happening of any Event of Default or default under any Loan Document, the subordination agreement, or any instrument evidencing the subordinated Indebtedness (i) any payment of principal and interest on the subordinated Indebtedness; (ii) any act to compel payment of principal or interest on subordinated Indebtedness; and (iii) any action to realize upon any property securing the subordinated Indebtedness. "Writing" means a written document, telecopy or facsimile message. LIBOR Event If at any time Bank determines in good faith (which determination will be conclusive) that any change in any applicable law, rule or regulation or in the interpretation, application or administration thereof makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for Bank or its foreign branch or branches to maintain any LIBOR Loan by means of dollar deposits obtained in the London interbank market (any of the above being described as a "LIBOR Event"), then, at the option of Bank, the aggregate principal amount of all LIBOR Loans outstanding will be prepaid; however the prepayment may be made at the sole option of the Bank with a Prime Rate Loan. Upon the occurrence of any LIBOR Event, and at any time thereafter so long as such LIBOR Event will continue, the Bank may exercise its aforesaid option by giving written notice to Borrower. Capital Adequacy If Bank determines after the date of this Note that any change in applicable laws, rules or regulations regarding capital adequacy, or any change in the interpretation or administration thereof by any appropriate governmental agency, or compliance with any request or directive to Bank regarding capital adequacy (whether or not having the force of law) of any such agency, increases the capital required to be maintained with respect to any Loan and therefore reduces the rate of return on Bank's capital below the level Bank could have achieved but for such change or compliance (taking into consideration Bank's policies with respect to capital adequacy), then Borrower will pay to Bank from time to time, within 15 days of Bank's request, any additional amount required to compensate Bank for such reduction. Bank will request any additional amount by delivering to Borrower a certificate of Bank setting forth the amount necessary to compensate Bank. The certificate will be conclusive and binding, absent manifest error. Bank may make any assumptions, and may use any allocations of costs and expenses and any averaging and attribution methods, which Bank in good faith finds reasonable. Changes in Law If any domestic or foreign law, treaty, rule or regulation (whether now in effect or hereinafter enacted or Affecting LIBOR promulgated, including Regulation D of the Board) or any interpretation or administration thereof by any Loans governmental authority charged with the interpretation or administration thereof (whether or not having the force of law): (a) changes, imposes, modifies, applies or deems applicable any reserve, special deposit or similar requirements in respect of any LIBOR Loan or against assets of, deposits with or for the account of, or credit extended or committed by, Bank; or (b) imposes on Bank or the interbank eurocurrency deposit and transfer market or the market for domestic bank certificates or deposit any other condition affecting any such LIBOR Loan; and the result of any of the foregoing is to impose a cost to Bank of agreeing to make, funding or maintaining any such LIBOR Loan or to reduce the amount of any sum receivable by Bank in respect of any such LIBOR Loan, then Bank may notify Borrower in writing of the happening of the event and Borrower will upon demand pay to Bank such additional amounts as will compensate Bank for such costs as determined by Bank. Indemnification Borrower will indemnify Bank against, and reimburse Bank on demand for, any loss, cost or expense incurred or For Funding sustained by Bank (including without limitation any loss, cost or expense incurred by reason of the LIBOR Loans liquidation or reemployment of deposits or other funds acquired by Bank to fund or maintain LIBOR Loans) as a result of: (a) any payment or prepayment (whether permitted by Bank or required hereunder or otherwise) of all or a portion of any LIBOR Loan on a day other than the Maturity Date of the LIBOR Loan; (b) any payment or prepayment, whether required hereunder or otherwise, of any LIBOR Loan made after the delivery of a Notice of Requested Borrowing but before the applicable Borrowing Date if the payment prevents the proposed Loan from becoming fully effective; or (c) the failure of any LIBOR Loan to be made by Bank due to any action or inaction of Borrower. Such funding losses and other costs and expenses will be calculated and billed by Bank and the bill will, as to the costs incurred, be conclusive absent manifest error. All past-due principal and interest on this Note, will, at Bank's option, bear interest at the Highest Lawful Rate, or if applicable law does not provide for a maximum nonusurious rate of interest, at a rate per annum equal to the Prime Rate plus five percent (5%).
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Past Due Rate Borrower and Bank intend to conform strictly to applicable usury laws. Therefore, the total amount of interest (as defined under applicable law) contracted for, charged or collected under this Note will never exceed the Highest Lawful Rate. If Bank contracts for, charges or receives any excess interest, it will be deemed a mistake. Bank will automatically reform the contract or charge to conform to applicable law, and if Usury Savings excess interest has been received, Bank will either refund the excess to Borrower or credit the excess on the unpaid principal amount of this Note. All amounts constituting interest will be spread throughout the full term of this Note in determining whether interest exceeds lawful amounts. Collateral This Note is unsecured. II. AGREEMENT Conditions A. Before making any Loan Bank may require satisfaction of the following conditions precedent: (1) Bank Precedent has received the following, each duly executed and in form acceptable to Bank: (a) if requested by Bank, a Notice of Requested Borrowing, substantially in the form of Exhibit B, not later than two (2) Business Day(s) before the date (which will also be a Business Day) of the proposed Loan; (b) such other documents as Bank requires; and (2) no Event of Default has occurred and is continuing; and (3) making the Loan is not prohibited by, and will not subject the Bank to any penalty or onerous condition under any legal requirement. Representations B. To induce Bank to make Loans, Borrower makes the following representations and warranties as of the & Warranties Date of this Note and as of the date of each request for a Loan: (1) All financial statements delivered to Bank are complete, correct and fairly present, in accordance with generally accepted accounting principles, consistently applied ("GAAP"), the financial condition and the results of operations of Borrower as at the dates and for the periods indicated. (2) No material adverse change has occurred in the assets, liabilities, financial condition, business or affairs of Borrower since the dates of such financial statements. (3) All Loans are for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One of the Texas Credit Code and will be for the purpose of financing accounts receivable for working capital. (4) No Loan will be used for the purchase or carrying of any "margin stock" as that term is defined in Regulation "U" of the Board of Governors of the Federal Reserve System. (5) The Loan Documents (i) are legal, valid and binding obligations of Borrower enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other similar laws affecting creditors' rights generally; (ii) have been duly authorized for execution, delivery and performance by all necessary action; (iii) are within the power and authority of Borrower; (iv) do not and will not contravene or violate any material legal requirement affecting Borrower, or Borrower's organizational documents; and (v) will not result in the breach of, or constitute a default under, any material agreement or instrument by which Borrower or any of its respective property may be bound or affected. (6) To the Borrower's knowledge, Borrower has not generated, handled, used, stored or disposed of any hazardous or toxic waste or substance, on or off its premises (whether or not owned by it), except in accordance with applicable legal requirements. (7) To the Borrower's knowledge, Borrower does not have any material contingent liability with respect to non-compliance with environmental, hazardous waste, or other laws and has not received any notice that it or any of its property or operations is not in compliance with, or that any governmental authority is investigating its compliance with, any environmental, hazardous waste, or other laws. Covenants C.1. Until the later of the Termination Date and the date on which Obligations are paid in full: (1) Information & Borrower agrees to provide to Bank (i) the financial statements prepared in conformity with GAAP on Reporting consolidated and consolidating bases and the other information described in, and within the times required by, Exhibit A, Financial Covenants and Compliance Certificate attached hereto and incorporated herein by reference along with the other information required by Exhibit A to be submitted; (ii) within the time Financial Covenants required by Exhibit A, Exhibit A signed and certified by Borrower; (2) and such other information relating to (Exhibit A) the financial condition and affairs of Borrower or any Guarantor as Bank requests from time to time. Affirmative 2. Borrower agrees to: (a) notify Bank immediately upon acquiring knowledge of: (i) the filing or Covenants threatened filing of any lawsuit or administrative proceeding that might adversely affect Borrower; (ii) the occurrence of any Event of Default; or (iii) any reportable event or any prohibited transaction in connection with any employee benefit plan; (b) permit Bank and its affiliates to inspect and photograph its property, to examine its files, books and records and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all at such times and intervals and to such extent as Bank may reasonably desire during normal business hours with prior notice; and (c) comply with and maintain the financial covenants set forth on Exhibit A attached hereto and incorporated herein by reference. Negative 3. Borrower agrees that Borrower WILL NOT: (a) create, incur, suffer or permit to exist, or assume or Covenants guarantee, directly or indirectly, or become or remain liable for, any indebtedness, contingent or otherwise, except: (i) indebtedness to Bank, or secured by liens permitted by this Note, or otherwise approved in writing by Bank, and renewals and extensions (but not increases) thereof; and (ii) current accounts payable and unsecured current liabilities, not the result of borrowing, to vendors, suppliers and persons providing services, for goods and services normally required by it in the ordinary course of business and on ordinary trade terms; (b) create or allow to exist any lien upon any of its property now owned or hereafter acquired, or acquire any property upon any conditional sale or other title retention device or arrangement or any purchase money security agreement; or in any manner directly or indirectly sell, assign, pledge or otherwise transfer any of its accounts or other property, except: (i) liens, not for borrowed money, arising in the ordinary course of business; (ii) liens for taxes not delinquent or being contested in good faith, by appropriate proceedings; (iii) liens disclosed to the Bank in writing prior to the date of this Note, provided that neither the indebtedness secured nor the property covered will increase; and (iv) liens in favor of the Bank; (c) in any single transaction or series of transactions, directly or indirectly: (i) liquidate or dissolve; (ii) be a party to any merger or consolidation in which Borrower is not the surviving entity; or (iii) sell, convey or lease all or any substantial part of its assets, except for sale of inventory in the ordinary course of business; (d) redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock or other equity interest; declare or pay any dividend; or make any other distribution of any property or cash to owners of an equity interest in their capacity as such; (e) change the nature of its business or enter into any business substantially different from the business in which it is presently engaged, or permit any material change in its management; (f) enter into any transaction or agreement with or make any loan to any officer, director of or shareholder of Borrower (or any member of the family of any such person, or any person controlling, controlled by or under common control with Borrower) unless the same is upon terms substantially similar to those obtainable from wholly unrelated sources except as disclosed to the Bank prior to the date of this Note in writing. Other Agreements 4. Other Agreements: (a) No remedy, right or power of Bank is exclusive of any other remedy, right or power and all such remedies, rights and powers are cumulative. (b) No waiver of any default is a waiver of Nonexclusive any other default. No failure to exercise or delay in exercising any right or power under any Loan Document Remedies will operate as a waiver thereof. No single or partial exercise of any right or power will preclude any further or other exercise thereof or the exercise of any other right or power. The making of any Loan during Waivers the existence of any Event of Default or subsequent to the occurrence of an Event of Default will not constitute a waiver of the Event of Default. No amendment, modification or waiver of any Loan Document will be effective unless the same is in writing and signed by the person against whom such
Page 4 of 5 Pages
amendment, modification or waiver is sought to be enforced. No notice to or demand on any person will entitle any person to any other or further notice or demand in similar or other circumstances. (c) Each Obligor severally waives grace, notice, demand, presentment for payment, notice of intent to accelerate, notice of acceleration, protest, notice of protest, and suit on the Note to fix liability and each Obligor that is subject to the Texas Revised Partnership Act (TRPA) waives compliance by Bank with Section 3.05(d) of TRPA and agrees that Bank may proceed directly against one or more partners or their property without first seeking satisfaction from partnership property. (d) Any release or change in any security interest or any failure to perfect or maintain perfection of any security interest will not affect any Obligor's obligations Headings under any Loan Document. (e) Headings are for reference purposes only. (f) Borrower will pay on demand all expenses (including, without limitation, the fees and expenses of counsel for the Bank, and standard Bank Expenses documentation preparation including in-house counsel and processing fees) in connection with the negotiation, preparation, execution, filing, recording, modification, supplementing and waiver of the Loan Documents and the making, servicing and collection of the Loans and other amounts owing under the Loan Documents. (g) This Applicable Law Note is governed by Texas laws and applicable laws of the United States of America. (h) This Note and the Loans are not subject to the provisions of Chapter 15 of the Texas Credit Code. (i) BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD THE BANK HARMLESS FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY, JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES, REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) TO WHICH BANK MAY BECOME SUBJECT ARISING OUT OF OR BASED UPON THE LOAN DOCUMENTS OR ANY LOAN, EXCEPT AND TO THE EXTENT CAUSED BY BANK'S NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. (j) THE COUNTY IN WHICH BANK'S PRINCIPAL OFFICE IS LOCATED IN TEXAS IS PROPER VENUE FOR ANY ACTION OR PROCEEDING BROUGHT BY BORROWER OR BANK, WHETHER IN CONTRACT, TORT, OR OTHERWISE. ANY ACTION OR Venue, Service PROCEEDING AGAINST THE BORROWER MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN SUCH COUNTY. TO THE EXTENT of Process PERMITTED BY APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT OR THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. BORROWER AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED BELOW. BANK MAY ALSO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW AND MAY BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR WITH RESPECT TO ANY OF ITS PROPERTY IN COURTS IN OTHER JURISDICTIONS OR VENUES. Events of Default D. Each of the following events or conditions is an "Event of Default:" (1) any Obligor fails to pay & Remedies any of the Obligations within 3 business days after due date; (2) any warranty, representation or statement now or hereafter contained in or made in connection with any Loan Document was materially false or misleading when made; (3) any Obligor violates any covenant, condition or agreement contained in this Note or any other Loan Document; (4) any event of default occurs under any other Loan Document; (5) any Obligor that is an entity dissolves; (6) a receiver, conservator or similar official is appointed for any Obligor, any subsidiary of Borrower, any Obligor's subsidiary or Borrower's assets; (7) any petition is filed by any Obligor or any subsidiary of Borrower under any bankruptcy, insolvency or similar law; (7A) any petition is filed against any Obligor or any subsidiary of Borrower which is not stayed, withdrawn or released within 90 days; (8) any Obligor or any subsidiary of Borrower makes an assignment for the benefit of creditors; (9) a final judgment in excess of One Million And No/100 United States Dollars (U.S. $1,000,000.00) is entered against any Obligor or any subsidiary of Borrower and remains unsatisfied for 30 days after entry, or a material portion of the property of any Obligor or any subsidiary of Borrower is attached, garnished or otherwise made subject to legal process; (10) any Obligor fails or refuses to submit financial information requested by Bank or to permit Bank to inspect its books and records on request. IF ANY EVENT OF DEFAULT OCCURS, THEN BANK MAY DO ANY OR ALL OF THE FOLLOWING: (1) cease to make Loans hereunder; (2) declare any Obligation to be immediately due and payable, without notice of acceleration or of intention to accelerate, presentment and demand or protest, or notice of any kind, all of which are hereby expressly waived; (3) set off, in any order, against the Obligations any debt owing by Bank to Borrower, including, but not limited to, any deposit account, which right is hereby granted by Borrower to Bank; and (4) exercise any and all other rights under the Loan Documents, at law, in equity or otherwise. No Course of Dealing NO COURSE OF DEALING BETWEEN BORROWER AND BANK, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EXTRINSIC EVIDENCE OF ANY NATURE MAY BE USED TO CONTRADICT OR MODIFY ANY TERM OF THIS NOTE OR ANY OTHER LOAN DOCUMENT. No Oral Agreements THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Note is executed this 12th day of June, 1997 but effective as of the Date. BORROWER: KENT ELECTRONICS CORPORATION By: /s/ STEPHEN J. CHAPKO ------------------------------------ Name: Stephen J. Chapko Title: EVP/CFO ---------------------------------- ---------------------------------- Address: 7433 Harwin Dr. Houston, Texas 77036 --------------------------------------- Acknowledged for purposes of notice pursuant to Section 26.02(a) of the Texas Business and Commerce Code and for the agreement that Bank is not required to comply with Section 3.05(d) of TRPA: BANK: TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ W. MILES MARKS ------------------------------------- Name: W. Miles Marks Title: Vice President ---------------------------------- ----------------------------------
Page 5 of 5 Pages EX-11 3 EXHIBIT 11 EXHIBIT 11 KENT ELECTRONICS CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Fiscal Years Ended ----------------------------------------------------------------------------- March 29, 1997 March 30, 1996 April 1, 1995 ----------------------------------------------------------------------------- Fully Fully Fully Primary Diluted Primary Diluted Primary Diluted ---------- ---------- --------- ---------- ---------- ---------- Net Earnings $ 27,621 $ 27,621 $ 29,792 $ 29,792 $ 14,601 $ 14,601 ========== ========== ========= ========== ========== ========== Weighted average number of common shares outstanding 26,074 26,074 23,469 23,469 20,692 20,692 Excess of shares issuable upon exercise of stock options over shares deemed retired utilizing the treasury stock method 1,477 1,518 1,227 1,404 783 893 ---------- ---------- --------- ---------- ---------- ---------- 27,551 27,592 24,696 24,873 21,475 21,585 ---------- ---------- --------- ---------- ---------- ---------- Earnings per share $ 1.00 $ 1.00 $ 1.21 $ 1.20 $ 0.68 $ 0.68 ========== ========== ========= ========== ========== ==========
EX-21 4 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF KENT ELECTRONICS CORPORATION State of Subsidiary Incorporation ---------- ------------- K*TEC Electronics Corporation Delaware Kent Datacomm Corporation Texas Futronix Corporation Texas EX-23.1 5 EXHIBIT 23_1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated May 5, 1997, accompanying the consolidated financial statements and schedule included in the Annual Report of Kent Electronics Corporation and Subsidiaries on Form 10-K for the year ended March 29, 1997. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Kent Electronics Corporation on Form S-3, File Nos. 33-59108, 333-20265 and 33-48434, and Form S-8, File Nos. 33- 12028, 33-17821, 33-18527, 33-66030, and 333-20367. GRANT THORNTON L.L.P. Houston, Texas June 26, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 0000793024 KENT ELECTRONICS CORPORATION 1,000 YEAR MAR-29-1997 MAR-29-1997 25,050 0 90,091 1,256 94,494 212,402 116,405 25,515 325,594 61,518 0 0 0 40,371 221,996 325,594 516,757 516,757 396,054 396,054 0 409 1,192 45,100 17,479 27,621 0 0 0 27,621 1.00 1.00
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