SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 6, 1994
AVNET, INC.
(Exact Name of Registrant as Specified in its Charter)
New York
(State or Other Jurisdiction of Incorporation)
1-4224 11-1890605
(Commission File Number) (I.R.S. Employer Identification No.)
80 Cutter Mill Road, Great Neck, New York 11021
(Address of Principal Executive Offices) (Zip Code)
(516) 466-7000
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address if Changed Since Last Report)
[ITEMS]
Item 5. Other Events.
In connection with a Registration Statement on Form S-3 to be filed
by Avnet, Inc. ("Avnet"), the
following financial statements of Hall-Mark Electronics Corporation
("Hall-Mark") and proforma financial
information relating to the acquisition by Avnet of Hall-Mark on July 1, 1993
(the "Acquisition"), are filed
herewith. The Acquisition was previously reported in a Form 8-K of Avnet
bearing cover date of July 1, 1993.
[ITEMS]
Item 7. Financial Statements and Exhibits.
Pages
(a) Hall-Mark Consolidated Financial Statements:
Consolidated statements of income 3
for the six months ended June 30, 1993
and July 3, 1992.
General notes to the statements of 4
income for the six months ended
June 30, 1993 and July 3, 1992.
Annual Financial Statements:
Consolidated statements of operations 5
for the years ended December 31, 1992,
1991 and 1990.
Consolidated balance sheets at 6
December 31, 1992 and 1991.
Consolidated statements of cash 7
flows for the years ended
December 31, 1992, 1991 and 1990.
Consolidated statements of shareholders' 8
equity for the years ended
December 31, 1992, 1991 and 1990.
Notes to consolidated financial statements 9-14
Report of independent accountants 15
Hall-Mark Electronics Corporation
Consolidated Statements of Income
(Thousands except per share data)
(unaudited)
Six Months Ended
June 30, 1993 July 3, 1992
Sales $389,235 $340,018
Costs and expenses:
Cost of sales 303,473 265,711
Selling, shipping, general
& administrative 63,162 57,226
Interest 3,259 8,368
369,894 331,305
Income before income taxes,
cumulative effect of change
in accounting for income
taxes and extraordinary gain 19,341 8,713
Income taxes 8,531 811
Income before cumulative effect
of accounting change and
extraordinary gain 10,810 7,902
Cumulative effect of change in method
of accounting for income taxes 890
Extraordinary gain on early
extinguishment of debt (net of
income taxes of $1,225) - 2,408
Net income 11,700 10,310
Preferred dividend requirement - (1,803)
Net income applicable to
common stock $11,700 $8,507
Earnings per common share:
Income before cumulative
effect of accounting change
and extraordinary gain $1.01 $0.96
Cumulative effect of change
in method of accounting for
income taxes 0.08 -
Extraordinary gain - 0.34
Net income $1.30 $1.09
Weighted average shares outstanding 10,709 7,037
General notes to the Hall-Mark consolidated statements of income for the
six months ended June 30, 1993 and July 3, 1992.
The preceding unaudited consolidated statements of income cover the six
month period subsequent to Hall-Mark's 1992 fiscal year end and prior to its
acquisition by Avnet on July 1, 1993, and the comparable prior year period.
The statement of income for the six month period ended June 30, 1993
includes a net after tax charge of $1,190,000, or $0.11 per share, relating to a
tax benefit reflected in the income statement of Hall-Mark for the year ended
December 31, 1992 arising from the the then expected utilization of $3,500,000
of tax net operating loss carryforwards. Avnet believes that it will be unable
to derive a tax benefit from such tax loss carryforwards and, therefore, has
reflected an appropriate charge to the statement of income for the period
ended June 30,1993. The statement of income of Hall-Mark for the year ended
December 31, 1992 (included on page 5) has not been retroactively adjusted
because the impact of this adjustment is not material to Hall-Mark's results of
operations for that period or its financial position at December 31, 1992.
HALL-MARK ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1992 1991 1990
(In thousands, except per share data)
Net sales $ 695,000 $ 560,144 $ 589,894
Cost of sales 541,643 430,594 457,742
Gross profit 153,357 129,550 132,152
Selling, general and administrative expenses 107,653 98,934 102,158
Depreciation and amortization 7,802 11,612 13,098
Operating income 37,902 19,004 16,896
Gain on sale of facility ---- 1,414 ----
Interest expense 12,207 20,241 24,435
Income (loss) before income taxes and extraordinary
items 25,695 177 (7,539)
Provision for income taxes 4,168 520 152
Income (loss) before extraordinary items 21,527 (343) (7,691)
Extraordinary gain (loss) on early extinguishment
of debt (net of income tax effects) 4,254 (1,133) 8,140
Net income (loss) 25,781 (1,476) 449
Preferred dividend requirements (1,924) (2,085) (2,645)
Net income (loss) applicable to common stock $ 23,857 $ (3,561) $ (2,196)
Income (loss) per common share:
Income (loss) before extraordinary items $ 2.30 $ (0.51) $ (2.16)
Extraordinary gain (loss) 0.48 (0.24) 1.70
Net income (loss) $ 2.78 $ (0.75) $ (0.46)
Weighted average common shares and dilutive
equivalents outstanding 8,803 4,762 4,777
See accompanying notes.
HALL-MARK ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
1992 1991
(In thousands)
ASSETS
Current assets:
Cash $ 18 $ 16
Accounts receivable (less allowance for doubtful accounts
of $2,086,000 and $1,813,000, respectively) 89,894 73,597
Inventories 106,185 96,878
Prepaid expenses 2,121 1,872
Total current assets 198,218 172,363
Property and equipment, net 12,547 13,665
Other assets:
Cost in excess of net assets of businesses acquired 37,690 37,690
Debt issuance costs 3,578 4,937
Other intangibles 2,855 2,855
Less allowance for amortization (7,265) (7,588)
36,858 37,894
Capitalized software development costs (less accumulated
amortization of $4,148,000 and $2,074,000, respectively) 6,380 8,454
Other 835 845
Total other assets 44,073 47,193
$ 254,838 $ 233,221
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,674 $ 31,654
Other accrued liabilities 8,351 7,584
Accrued interest payable 835 3,487
Current maturities of long-term debt 46 42
Total current liabilities 44,906 42,767
Deferred income taxes 890 260
Long-term debt 109,756 148,798
Commitments and contingencies (Notes 9 and 10)
Stockholders' equity:
Series A 14% cumulative preferred stock, $.01 par value;
2,000,000 and 26,300 shares authorized, -0- and 25,657
shares issued and outstanding, respectively (aggregate
liquidation preference of $ -0- and $29,011,000, respectively) ---- ----
Common stock, $.01 par value; 20,000,000 and 7,500,000
shares authorized, 10,180,457 and 3,500,000 shares
issued, respectively 102 35
Paid-in capital 104,026 71,972
Notes receivable from sale of stock (1,520) (1,740)
Accumulated deficit (2,706) (28,487)
99,902 41,780
Less common stock in treasury, at cost, 67,308 and
52,000 shares, respectively (616) (384)
Total stockholders' equity 99,286 41,396
$ 254,838 $ 233,221
See accompanying notes.
HALL-MARK ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
December 31,
1992 1991 1990
(In thousands)
Cash flows provided by (used in) operating activities:
Net income (loss) $ 25,781 $ (1,476) $ 449
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Extraordinary (gain) loss on early extinguishment of debt (7,119) 1,166 (8,140)
Gain on sale of facility ---- (1,414) ----
Depreciation and amortization 7,802 11,612 13,098
Amortization of discount on long-term debt 181 306 2,246
Provision for losses on accounts receivable 3,438 2,666 4,131
Deferred income taxes 630 260 ----
Interest paid with notes 2,701 4,918 4,447
(Increase) decrease in accounts receivable (19,735) 1,384 1,392
(Increase) decrease in inventories (9,307) (4,840) (2,137)
(Increase) decrease in prepaid expenses (249) (133) (468)
Increase (decrease) in accounts payable 4,020 (1,318) 4,321
Increase (decrease) in other accrued liabilities 767 (2,822) 797
Increase (decrease) in accrued interest payable 103 64 (916)
Net cash provided by operating activities 9,013 10,373 19,220
Cash flows provided by (used in) investing activities:
Capitalized software development costs --- --- (661)
Additions to property and equipment (2,713) (2,958) (2,042)
Retirements of property and equipment 128 127 829
Proceeds from sale of facility ---- 1,680 ----
Other 189 629 39
Net cash used in investing activities (2,396) (522) (1,835)
Cash flows provided by (used in) financing activities:
Redemption of senior subordinated notes (44,650) (20,941) (8,583)
Redemption of junior subordinated notes (24,984) ---- (1,104)
Net increase (decrease) in bank borrowings 34,224 4,477 (17,021)
Decrease in other long-term debt (41) (38) (35)
Payment of debt issuance costs (3,273) (349) (500)
Repurchase of preferred stock and common stock warrants (7,863) (6,083) ----
Issuance of preferred stock ---- 13,070 10,000
Issuance of common stock 39,984 ---- ----
Payments received on notes receivable from sale of stock 40 31 224
Repurchase of common stock (52) (80) (304)
Net cash used in financing activities (6,615) (9,913) (17,323)
Net increase (decrease) in cash 2 (62) 62
Cash at beginning of period 16 78 16
Cash at end of period $ 18 $ 16 $ 78
Supplemental disclosure of noncash activities:
Issuance of notes in payment of interest $ 2,701 $ 4,918 $4,447
Issuance of senior subordordinated notes in exchange for
preferred stock ---- 2,000 ----
Issuance of senior subordinated notes in exchange for
reset notes ---- ---- 61,395
Issuance of preferred stock in exchange for reset notes ---- ---- 16,238
Use of preferred stock to exercise warrants for common stock 23,070 ---- ----
Surrender of common stock warrants for common stock 210 ---- ----
Receipt of common stock to treasury as payment of notes
receivable from sale of stock 180 ---- ----
See accompanying notes.
HALL-MARK ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Common Paid-In Notes Accumulated Treasury Total
Preferred Stock Capital Receivable Deficit Stock
Stock from Sale
of Stock
(in
thousands)
Balance as of
January 1, 1990 $ --- $ 35 $ 40,933 $(1,995) $(27,460) $ --- $ 11,513
Issuance of
preferred stock ---- 26,238 --- --- --- 26,238
Repurchase of
common
stock warrants ---- --- (186) --- --- --- (186)
Payments received
on notes receivable ---- --- --- 224 --- --- 224
Repurchase of
common stock --- --- --- --- --- (304) (304)
Net income --- --- --- --- 449 --- 449
Balance as of
December 31, 1990 --- 35 66,985 (1,771) (27,011) (304) 37,934
Issuance of
preferred stock --- --- 13,070 --- --- --- 13,070
Repurchase of
common stock
warrants --- --- (2,105) --- --- --- (2,105)
Repurchase of
preferred stock --- --- (5,978) --- --- --- (5,978)
Payments received
on notes receivable --- --- --- 31 --- --- 31
Repurchase of
common stock --- --- --- --- --- (80) (80)
Net loss --- --- --- --- (1,476) --- (1,476)
Balance as of
December 31, 1991 --- 35 71,972 (1,740) (28,487) (384) 41,396
Repurchase of
preferred stock --- --- (7,863) --- --- --- (7,863)
Issuance of common
stock --- 40 39,944 --- --- --- 39,984
Exercise of common
stock warrants --- 27 (27) --- --- --- ---
Payments received
on notes receivable --- --- --- 220 --- --- 220
Repurchase of
common stock --- --- --- --- --- (232) (232)
Net income --- --- --- ---- 25.781 --- 25,781
Balance as of
December 31, 1992 $ --- $ 102 $ 104,026 $ (1,520) $ (2,706) $ (616) $99,286
See accompanying notes.
HALL-MARK ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Hall-Mark
Electronics Corporation ("Hall-
Mark" or the "Company"), an industrial distributor of electronic components
and systems products, and the
accounts of Allied Electronics, Inc., a wholly-owned subsidiary. All
significant intercompany balances and
transactions are eliminated in consolidation.
Revenue Recognition
The Company recognizes revenue upon shipment of product to the customer.
Inventories
Inventories, which consist of purchased electronic components and systems
products held for resale,
are stated at the lower of cost or market. Cost is determined on the
first-in, first-out ("FIFO") method.
Incoming goods are recorded when received.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over
the estimated lives of the assets, ranging from three to 20 years.
Cost in Excess of Net Assets of Businesses Acquired
Cost in excess of net assets of businesses acquired is amortized using
the straight-line method over
40 years.
Covenant Not to Compete
The cost of the covenant not to compete, entered into in August 1988,
has been amortized using the
straight-line method over three years. The covenant not to compete was fully
amortized during 1991.
Debt Issuance Costs
Debt issuance costs are amortized over the terms of the related debt.
Other Intangibles
Other intangibles consist principally of customer lists, which are being
amortized using the straight-line
method over seven years.
Capitalized Software Development Costs
Direct expenses related to acquiring or developing new software applications
for the Company's internal
use are capitalized and amortized, upon implementation, using the
straight-line method over the estimated
useful lives of the applications, ranging from five to seven years.
Income Taxes
Deferred income taxes are recorded to reflect the tax consequences on
future years resulting from
differences between the tax bases of assets and liabilities and their reported
amounts in the financial
statements.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting
Standards No. 109 ("SFAS No. 109"), which requires changes in the accounting and
reporting for income
taxes and is effective for fiscal years beginning after December 15, 1992.
The Company plans to adopt
SFAS No. 109 on a prospective basis in the first quarter of 1993 and believes
that application of the new
rules will virtually eliminate the Company's existing deferred tax liabilities.
Other
Other consists primarily of long-term investments. Long-term investments
are carried at the lower of
their aggregate cost or market.
HALL-MARK ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Property and Equipment
Property and equipment consists of:
December 31,
1992 1991
(In thousands)
Land $ 1,605 $ 1,605
Buildings and leasehold improvements 12,036 11,815
Machinery and equipment 21,609 19,947
35,250 33,367
Less allowance for depreciation and amortization (22,703) (19,702)
$ 12,547 $13,665
Depreciation and amortization expense was $3,703,000, $3,735,000 and
$4,093,000 for fiscal years
1992, 1991, and 1990, respectively.
In January 1991, the Company sold its Huntsville, Alabama facility for
approximately $1,680,000 in cash
resulting in a pre-tax gain of $1,414,000. The branch previously located in
this facility has relocated to
leased office space.
(3) Other Assets
Allowance for amortization of other assets consists of:
December 31,
1992 1991
(In thousands)
Cost in excess of assets of business acquired $ 4,169 $ 3,232
Debt issuance costs 296 1,973
Other intangibles 2,800 2,383
$ 7,265 $ 7,588
(4) Other Accrued Liabilities
Other accrued liabilities include accrued payroll costs of approximately
$3,586,000 and $2,676,000 as
of December 31, 1992 and 1991, respectively.
(5) Long-Term Debt
Long-term debt consists of:
December 31,
1992 1991
(In thousands)
Revolving bank borrowings pursuant to a senior
credit agreement due July 31, 1997 . . . . . $ 108,240 $ ----
Revolving bank borrowings pursuant to a senior credit agreement
due August 31, 1996. . . . . . . . . . . . . . . . . ---- 74,016
Senior Subordinated Notes due December 1, 1996 . . . . . . . . ---- 44,564
Junior Subordinated Notes due December 1, 1999 . . . . . . . . ---- 28,657
9 1/8% note, due January 31, 2008, payable in monthly installments
of $12,000 including principal and interest, collateralized by
land, buildings and improvements, and callable at the
lender's option in 1998. . . . . . . . . . . . . . . 1,163 1,197
10 3/8% note, due February 1, 2011, payable in monthly installments
of $4,000 including principal and interest, collateralized by
land, buildings and improvements . . . . . . . . . . 399 406
109,802 148,840
Less current maturities . . . . . . . . . . . . (46) (42)
$ 109,756 $148,798
Scheduled maturities of long-term debt are as follows (in thousands):
1993 . . . . . . . . . . . . . . . . . . . $ 46
1994 . . . . . . . . . . . . . . . . . . . 51
1995 . . . . . . . . . . . . . . . . . . . 55
1996 . . . . . . . . . . . . . . . . . . . 61
1997 108,307
Thereafter . . . . . . . . . . . . . . . . 1,282
HALL-MARK ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Long-Term Debt (Continued)
Interest expense paid in cash was $8,775,000, $15,303,000 and $18,712,000
for fiscal years 1992,
1991, and 1990 respectively.
In June 1992, the Company repurchased $36,987,000 face amount of senior
subordinated notes and
$12,190,000 face amount of junior subordinated notes for an aggregate purchase
price of $40,170,000 with
the proceeds from the public stock offering (see Note 7). These repurchases
resulted in an extraordinary
gain of $2,408,000, net of income taxes of $1,225,000.
On July 31, 1992, the Company entered into a five-year $140,000,000 variable
interest rate revolving
credit facility with a syndicate of banks (the "Credit Agreement")
to refinance its existing facility and its
remaining subordinated indebtedness, and to provide the Company with working
capital. The Credit
Agreement permits borrowings up to the lesser of a borrowing base limited
to specified percentages of
eligible assets, or a specified maximum commitment amount, initially
$140,000,000 with reductions in
$5,000,000 increments beginning August 1, 1993. As of December 31, 1992, the
borrowing base under
the Credit Agreement was $125,763,000. All outstanding borrowings are due
July 31, 1997. Borrowings
under the new facility bear interest at one of two rates selected
by Hall-Mark; (i) a defined Alternative
Base Rate (6% at December 31, 1992) plus 1%, or (ii) a defined Eurodollar
rate plus 2%. At December
31, 1992, the weighted average interest rate on borrowings outstanding under
the Credit Agreement was
approximately 5.93%. In September 1992, Hall-Mark entered into an interest
rate swap agreement to
establish a fixed interest rate of 6.68% for a period of three years on
$25,000,000 of borrowings under the
Credit Agreement. At December 31, 1992, the Company had an interest rate
cap agreement in place
whereby the interest rate on an additional $15,000,000 of borrowings will
not exceed 8.5% for a period of
two years.
Borrowings under the Credit Agreement are collateralized by substantially
all assets of the Company.
Under the terms of the Credit Agreement, Hall-Mark is subject to customary
covenants, such as restrictions
on dividend payments and limitations on indebtedness, as well as financial
covenants. The financial
covenants require the maintenance of specified inventory turnover, interest
coverage and leverage ratios.
The rates and other terms of the Credit Agreement and the related interest
rate swap and cap agreements
reflect current market conditions and, accordingly, their carrying values
represent a reasonable estimate
of fair value.
Concurrent with closing of the Credit Agreement, the Company completed the
redemption of the
remaining junior subordinated notes with borrowings under the Credit Agreement.
Pursuant to an
agreement between the Company and the holders of these notes, the notes were
redeemed at 56.44%
of the $32,071,000 principal amount through the payment of $18,103,000. The
repurchase resulted in an
extraordinary gain of $3,220,000, net of income taxes of $1,640,000 and the
write-off of deferred financing
costs related to the former credit facility.
In December, 1992, the Company redeemed the remaining $10,668,000 face
amount of its senior
subordinated notes at a specified call price equal to 106.5% of the face amount
of the notes. The
$11,361,000 redemption price was financed with borrowings under the Credit
Agreement. An extraordinary
loss of $1,374,000 resulted from this transaction.
In December 1991, the Company repurchased $21,233,000 face amount of
senior subordinated notes,
13,651 shares of the Company's Series A Preferred Stock and warrants to purchase
856,352 shares of
the Company's common stock (351,448 warrants exercisable without payment of
additional consideration
and 504,904 warrants with an exercise price of $7.50 per share) and obtained the
right to purchase an
additional $36,987,000 principal amount of senior subordinated notes from one of
the sellers at scheduled
redemption prices for an aggregate purchase price of approximately $29,200,000
(the "1991
Repurchases"). The purchase price was financed through the issuance for
$13,070,000 (to the Company's
majority stockholder) of preferred stock (see Note 6) and warrants to purchase
1,307,000 shares of the
Company's common stock (with an exercise price of $10.00 per share), borrowings
under the former credit
facility of approximately $14,130,000 and the issuance of $2,000,000 face amount
of senior subordinated
notes. In connection with these transactions, an extraordinary loss of
$1,133,000 was realized, net of
income tax benefit of $33,000. Approximately $1,100,000 of brokerage and
transaction fees were incurred
to consummate these transactions.
(6) Preferred Stock
The Company is authorized to issue up to 2,000,000 shares of preferred
stock, 26,300 of which have
been designated Series A Preferred Stock, and 10 shares of which were initially
designated as Series B
Preferred Stock. In connection with the 1991 Repurchases, 10 shares of
Series B Preferred Stock were
issued. These shares of Series B Preferred Stock were converted into 13,070
shares of Series A
Preferred Stock in December 1991. At December 31, 1992, no shares of
Preferred Stock remain
outstanding (see Notes 5 and 7).
(7) Equity Offering
Pursuant to a registration statement declared effective on May 22, 1992, the
Company sold 4,000,000
shares of common stock to the public market. The net proceeds of this offering,
which approximated
$40,000,000, were used to retire subordinated indebtedness (see Note 5).
Concurrent with the public stock offering, 19,777 shares of Series A
Preferred Stock were surrendered
as payment of the exercise price of warrants to purchase 2,640,333 shares of the
Company's common
stock.
Additionally, the Company redeemed the remaining shares of its Series A
Preferred Stock on August
10, 1992 through payment of approximately $7,900,000 provided by borrowings
under the Credit
Agreement.
HALL-MARK ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) Notes Receivable From Sale of Stock
Notes receivable from sale of stock represent notes receivable for common
stock issued to certain
members of the Company's management in August 1988. The notes bear interest at a
defined rate (6.0%
and 6.5% at December 31, 1992 and 1991, respectively), payable quarterly, and
are due and payable in
full on July 29, 1993.
(9) Income Taxes
The provision for income taxes consists of the following:
1992 1991 1990
(In thousands)
Current:
Federal . . . . . . . . . . .$ 2,298 $ 177 $ ----
State. . . . . . . . . . . 1,240 83 152
3,538 260 152
Deferred:
Federal.. . . . . . . . . . 310 185 ----
State. . . . . . . . . . 320 75 ----
630 260 ----
$ 4,168 $ 520 $ 152
Income taxes paid in cash were $7,073,000, $422,000 and $88,000 for
fiscal years 1992, 1991 and
1990, respectively.
Deferred income taxes arise from temporary differences between the
amount of assets and liabilities
recognized for financial reporting purposes and such amounts recognized for
tax purposes. The
Company's temporary differences relate primarily to depreciation methods on
property and equipment,
capitalizing certain items such as software development costs for financial
reporting purposes, recognizing
certain expenses on an allowance method for financial reporting purposes, and
adjustments to asset and
liability amounts for financial reporting purposes.
The difference between the Company's effective income tax rate and the
federal statutory rate of
34% is due primarily to the benefit derived from the utilization of regular and
alternative minimum tax net
operating loss carryforwards, offset by state income taxes. A comparison of
income tax expense at the
federal statutory rate of 34% to the Company's provision for income taxes is as
follows:
1992 1991 1990
(In thousands)
Income tax provision (benefit) based on federal statutory
rate of 34% applied to income (loss) before income taxes
and extraordinary item $ 8,736 $ 60 $ (2,563)
Increases (reductions) resulting from:
State income taxes, net of federal income tax benefit 1,030 148 152
Benefit from NOL carryforward (5,557) (162) ----
Nondeductible amortization of goodwill 321 144 ----
Unrecognized benefit of NOL carryforward ---- ---- 2,563
Excess of AMT over regular tax ---- 362 ----
AMT credit (362) ---- ----
Other, net ---- (32) ----
$4 ,168 $ 520 $ 152
The Company's tax return for the five month period ended December 30,
1988 has been audited
by the Internal Revenue Service ("IRS"). The IRS has questioned certain
positions taken by the Company
with respect to deductions claimed. While the Company believes its positions
will be sustained, there can
be no assurance that it will prevail. The potential maximum tax impact of this
audit is $8,750,000.
HALL-MARK ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Leases
The Company leases certain facilities and computer and other equipment
used in its operations
under noncancellable operating lease agreements having an initial term of more
than one year and
expiring at various dates through 1997. Most leases contain renewal options
and some contain purchase
options. These options are typically for renewal or purchase at fair market
value or at escalated amounts
based on the Consumer Price Index, which approximate the fair market values.
The renewal terms range
from periods of two years to ten years. The leases generally provide that
the Company pay taxes,
maintenance, insurance and certain other operating expenses.
Rent expense was $6,585,000, $7,334,000, and $7,235,000, respectively,
for fiscal years 1992,
1991, and 1990.
Minimum rental payments required under the leases described above are as
follows (in thousands):
1993 . . . . . . . . . . . . . . . . . . . . . . . . $ 5,435
1994 . . . . . . . . . . . . . . . . . . . . . . . . 3,847
1995 . . . . . . . . . . . . . . . . . . . . . . . . 2,672
1996 . . . . . . . . . . . . . . . . . . . . . . . . 1,193
1997 . . . . . . . . . . . . . . . . . . . . . . . . 354
Later years. . . . . . . . . . . . . . . . . . . . . ---
$13,501
(11) Employee Benefit Plans
Hall-Mark provides a savings and investment plan, under which Hall-Mark
contributes an amount,
as determined by its board of directors each year, based upon Hall-Mark's
profits, to match up to 50% of
eligible employee contributions. In addition, when profits during a calendar
year permit and subject to
certain limitations, additional contributions may be made. For fiscal years
1992, 1991, and 1990, the
Company contributed $1,045,000, $873,000, and $825,000, respectively, to the
savings and investment
plan.
The Company currently offers no employee benefits which qualify under the
provisions of Statement
of Financial Accounting Standards No. 106 ("SFAS No. 106"). Therefore, the
impact of the adoption of
SFAS No. 106, if any, would not be material.
(12) Stock Options and Warrants
In October 1992, the Company adopted the 1992 Employee Stock Option Plan
(the "1992 Option
Plan") which provides for the granting of options covering 300,000 shares of
common stock to officers and
key employees of the Company or any of its subsidiaries. Options covering the
entire 300,000 shares
authorized by the 1992 Option Plan were issued in the aggregate prior to and
remained outstanding on
December 31, 1992. All such options have an exercise price of $17.63 per share
and become exercisable
in five equal annual installments beginning one year from the date of grant.
In addition, options covering an aggregate of 250,000 shares of common
stock were issued in 1988
under each of two plans: the 1988 Employee Stock Option Plan (the "1988 Option
Plan") and the 1988
Employee Performance Stock Option Plan (the "Performance Plan"). At December
31, 1992, options with
an exercise price of $10.00 per share covering 217,000 shares were outstanding
under the 1988 Option
Plan. In connection with the adoption of the 1992 Option Plan, the Performance
Plan and all options
outstanding thereunder were terminated.
A summary of changes in outstanding options under the Company's stock
option plans follows:
1992 1988 Performance
Option Plan Option Plan Plan
Options outstanding at January 1, 1990 ---- 237,000 231,000
Options canceled ---- (12,000) (19,000)
Options outstanding at December 31, 1990 ---- 225,000 212,000
Options canceled ---- (8,000) (6,000)
Options outstanding at December 31, 1991 ---- 217,000 206,000
Options granted 300,000 ---- ----
Options canceled ---- ---- (206,000)
Options outstanding at December 31, 1992 300,000 217,000 ----
Options exercisable at December 31, 1992 ---- 173,600 ----
Option price per share $ 17.63 $ 10.00 $ 10.00
HALL-MARK ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) Stock Options and Warrants (Continued)
Outstanding warrants to purchase an equivalent number of shares of the
Company's common stock are as follows:
December 31,
1992 1991
Exercise price:
$10.00 per share (a) . . . . . . . . . . . . . . 324,324 324,324
$10.00 per share (b) . . . . . . . . . . . . . ---- 1,307,000
$7.50 per share (b). . . . . . . . . . . . . . . 67,866 1,429,139
Exercisable without payment of additional
consideration (b). ........................... 110,052 130,552
502,242 3,191,015
___________
(a) warrants are exercisable at any time.
(b) warrants become exercisable on or after December 1, 1995 or upon the
occurrence of certain defined events.
(13) Income (Loss) Per Common Share
Income (loss) per common share is calculated by dividing net income (loss)
applicable to common stock (net income (loss) less preferred stock dividend
requirements) by the weighted average shares of common stock and dilutive
common stock equivalents outstanding (except for warrants to purchase
1,307,000 shares of common stock which are treated as the equivalent of
outstanding shares for the calculation pursuant to Securities and Exchange
Commission regulations). Common stock equivalents consist of common stock
warrants and options.
Income (loss) per common share is calculated as follows:
1992 1991 1990
(In thousands, except per share data)
Net income (loss) as reported . . . $ 25,781 $ (1,476) $ 449
Preferred dividends . . . . . . . (1,924) (2,085) (2,645)
Interest expense adjustment . . . . 596 ---- ----
Adjusted net income (loss). . . . . $ 24,453 $ (3,561) $ (2,196)
Income (loss) per common and dilutive equivalent share:
Income (loss) before extraordinary
item......................... . $ 2.30 $ (0.51) $ (2.16)
Extraordinary gain (loss). . . . .48 (0.24) 1.70
Net income (loss). . . . . . . . $ 2.78 $ (0.75) $ (0.46)
Weighted average common shares and dilutive
equivalents. . . . . . . . . . . 8,803 4,762 4,777
Report of Coopers & Lybrand, Independent Accountants
The Board of Directors and Stockholders
Hall-Mark Electronics Corporation:
We have audited the accompanying consolidated balance sheets of Hall-Mark
Electronics Corporation as of December 31, 1992 and 1991, and the related
consolidated statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1992. 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 audit 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 Hall-Mark
Electronics Corporation as of December 31, 1992 and 1991, and the consolidated
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1992, in conformity with generally
accepted accounting principles.
COOPERS AND LYBRAND
Dallas, Texas
February 15, 1993
[ITEMS]
Item 7.
(b) Proforma Financial Information
The following unaudited proforma consolidated statement of income gives
effect to the conversion of 10,796,000 shares of Hall-Mark Common Stock
into 4,858,000 shares of Avnet Common Stock and $215.9 million cash pursuant
to the Acquisition, as well as the repayment of approximately $108.5 million of
Hall-Mark's existing bank indebtedness.
The proforma condensed consolidated statement of income for the year ended
June 30, 1993 presents
consolidated operating results for Avnet as if the Acquisition had occurred as
of July 1, 1992.
The proforma financial information presented is not necessarily indicative
of the results of operations
that might have occurred had the Acquisition actually taken place at the
beginning of the period specified,
or of future results of operations of Avnet and its subsidiaries. The proforma
statement of income is
based upon the historical consolidated statements of income of Hall-Mark and
Avnet and should be read
in conjunction with such historical financial statements and the notes thereto.
Pages
Proforma condensed consolidated 17
statement of income for the year ended
June 30, 1993.
Notes to unaudited proforma condensed 18
consolidated statement of income.
AVNET, INC. AND SUBSIDIARIES
Proforma Condensed Consolidated Statement of Income
(in thousands except per share data)
(unaudited)
The following unaudited proforma condensed consolidated statement of income
for the fiscal year ended June 30, 1993 assumes that Avnet, Inc. and
Subsidiaries completed the Acquisition as of July 1,1992.
Year ended June 30, 1993
Proforma
Avnet Hall-Mark adjustments(a) Proforma
Revenues:
Sales $2,237,954 $744,217 $2,982,171
Investment income
and other, net 20,393 - $(9,801)(b) 10,592
2,258,347 744,217 (9,801) 2,992,763
Costs and expenses:
Cost of sales 1,751,195 579,405 2,330,600
Selling, shipping,
general and
administrative 383,997 121,391 3,074 (c) 508,462
Interest 8,972 7,098 994 (d) 17,064
2,144,164 707,894 4,068 2,856,126
Income before
income taxes 114,183 36,323 (13,869) 136,637
Income taxes 45,123 11,888 410 (e) 57,421
Net income $69,060 $24,435(f) $(14,279) $79,216
Earnings per share(g) $1.91 $1.93
Shares used to compute
earnings per share 38,253 43,111
See notes to proforma condensed consolidated statements of income.
NOTES TO UNAUDITED PROFORMA CONDENSED CONSOLIDATED FINANCIAL DATA
Proforma Adjustments--Condensed Consolidated Statement of Income
(a) Avnet expects to achieve operating efficiencies from the acquisition of
Hall-Mark. It is anticipated that cost savings will result principally
from such areas as warehousing, sales facilities and computer systems.
Such anticipated cost savings have not been reflected in the
accompanying proforma condensed statement of income.
In addition, the proforma condensed consolidated statement of income
does not reflect the costs of the integration into Avnet of the Hall-Mark
business which were charged to operations in the first quarter of fiscal
1994. Such one-time costs, amounting to approximately $19.9 million,
represent only those integration expenses related to Avnet. Consolidation
costs related to Hall-Mark as a result of the integration are included
in goodwill. Also excluded from the accompanying proforma data is
amortization of stock option compensation of approximately $4.8 million
related to the issuance of Avnet stock options in consideration of the
cancellation and settlement of the options outstanding under Hall-Mark's
1992 Stock Option Plan, which was also recorded as goodwill.
(b) Adjustment to reflect the elimination of interest income on the cash used
in connection with the Acquisition, including the cash portion of the
purchase price and the repayment of Hall-Mark bank debt, at an estimated
average annual interest rate of 4.50%.
(c) Adjustment to reflect: (1) the amortization of estimated goodwill
determined on a straight-line basis over 40 years resulting from the
purchase accounting related to the Acquisition, (2) the cost of operating
leases associated with the leasing of additional computer hardware,
(3) the reversal of amortization and similar expenses in connection
with the write-off of certain Hall-Mark assets, and (4) the
amortization of deferred financing costs resulting from proposed
borrowings discussed in note (d) below.
(d) Adjustment to reflect the net increase (reduction) in interest expense,
based upon a presumption of, but not a commitment for, the
execution of the two transactions described below:
Year ended
June 30, 1993
(In Thousands)
Proposed issuance of $100.0 million of ten-year
senior notes at an assumed interest rate
of 6.50% and $41.0 million of short-term borrowings
at an assumed interest rate of 3.50% $7,946
Elimination of certain Hall-Mark debt based
on actual interest expense incurred (6,952)
Net increase in interest expense $ 994
(e) Adjustments to reflect: (1) the effect on income taxes related to
proforma adjustments to the condensed consolidated statement of income
described above; and (2) the additional tax provision on Hall-Mark's
historical income before income taxes to reflect Hall-Mark's estimated
recurring income tax rate without utilization of pre-existing net
operating losses.
(f) For the 12 months ended June 30, 1993, Hall-Mark's net income is
before extraordinary items and the cumulative effect of a change
in the method of accounting for income taxes.
(g) Assumes the issuance of 4,858,000 shares of Avnet Common Stock to
consummate the Acquisition. Solely for the purpose of calculating Avnet's
historical earnings per share for the 12 months ended June 30, 1993
and proforma earnings per share for the 12 months ended June 30, 1993,
reflected in the statement above shares of common stock issuable upon
the conversion of Avnet's 6% convertible subordinated debentures were
considered common share equivalents, and the net interest expense
applicable to such debentures was eliminated.
Item 7. (c) Exhibits
none
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVNET, INC.
(Registrant)
By: s/RAYMOND SADOWSKI
Raymond Sadowski
Senior Vice President and
Chief Financial Officer
Date:January 6, 1994
