Avnet, Inc.
Jan 26, 2012

Avnet, Inc. Reports Second Quarter Fiscal Year 2012 Results

Record Q2 EPS and Strong Cash Flow

PHOENIX--(BUSINESS WIRE)-- Avnet, Inc. (NYSE:AVT) today announced results for the second quarter fiscal year 2012 ended December 31, 2011.

Q2 Fiscal 2012 Results

      Second Quarter Ended
December 31,       January 1,      
2011 2011 Change
  $ in millions, except per share data
Sales $ 6,693.6 $ 6,767.5 -1.1 %
 
GAAP Operating Income $ 230.9 $ 227.6 1.4 %
Adjusted Operating Income (1) $ 265.4 $ 256.7 3.4 %
 
GAAP Net Income $ 147.0 $ 141.0 4.2 %
Adjusted Net Income (1) $ 172.0 $ 164.8 4.4 %
 
GAAP Diluted EPS $ 0.98 $ 0.91 7.7 %
Adjusted Diluted EPS (1) $ 1.15 $ 1.07 7.5 %
  (1)   A reconciliation of non-GAAP financial measures to GAAP financial measures is presented in the Non-GAAP Financial Information section in this press release.

Rick Hamada, Chief Executive Officer, commented, "While the macro environment presented some top line challenges, our team did a good job adjusting to market conditions and delivered another strong quarter with improvements across many parts of our business. Improved profitability at TS, higher prices for hard disk drives and a lower share count helped propel adjusted earnings per share up 28% sequentially and 7% year over year. The improvement at TS and another solid performance at EM drove our return on capital employed back within our target range of 14% to 16% while cash flow from operations for the quarter was strong at $450 million. With EM expected to return to more normalized seasonal growth in the March quarter and an outlook for continued investments in IT data centers, we remain confident we can continue to grow earnings organically and supplement that growth with investments in value-creating M&A and our share repurchase program."

Avnet Electronics Marketing Results

            Year-over-Year Growth Rates
Q2 FY12 Reported       Pro forma
Revenue Revenue Revenue
(in millions)
 
Total

 

$ 3,595.6 1.0 % -3.5 %
Excluding FX (1)

 

1.0 % -3.5 %
Americas

 

$ 1,401.8 14.9 % 5.3 %
EMEA

 

$ 943.3 -12.6 % -12.8 %
Excluding FX (1)

 

-12.1 % -12.3 %
Asia

 

$ 1,250.5 -0.7 % -4.7 %
 
Q2 FY12 Q2 FY11 Change
Operating Income

 

$ 174.9   $ 183.4   $ (8.5 )
Operating Income Margin

 

  4.86 %   5.16 % -30 bps
  (1)   Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.

Mr. Hamada added, "EM revenue came in as expected while the supply chain correction resulted in the second consecutive quarter of below seasonal revenue growth. Despite these challenges, operating income margin came in better than expected due to higher pricing for hard disk drives as a result of supply constraints coupled with expense reductions implemented in light of business conditions. Working capital declined over 9% sequentially with inventory down 5% in reported dollars and 4% after adjusting for acquisitions and currency. With the book to bill ratio approaching parity for the quarter and all three regions showing sequential improvement, we expect revenue growth to return to more seasonal trends in the March quarter, excluding the impact of foreign currency exchange rates. Although the cyclical inventory correction has negatively impacted our results for the past two quarters, on a trailing twelve month basis, EM operating income margin is at the high end of our target range and its ROCE is exceeding our long-range target."

Avnet Technology Solutions Results

            Year-over-Year Growth Rates
Q2 FY12 Reported       Pro forma
Revenue Revenue Revenue
(in millions)
 
Total

 

$ 3,098.0 -3.5 % 2.5 %
Excluding FX (1)

 

-3.0 % 3.0 %
Americas

 

$ 1,648.3 -9.6 % 5.5 %
EMEA

 

$ 1,006.2 -3.8 % -6.1 %
Excluding FX (1)

 

-2.6 % -4.9 %
Asia

 

$ 443.5 30.6 % 14.4 %

 

Q2 FY12 Q2 FY11 Change
Operating Income

 

$ 118.9   $ 105.2   $ 13.7  
Operating Income Margin

 

  3.84 %   3.28 % 56 bps
  (1)  

Year-over-year revenue growth rate excluding the impact of changes in foreign currency exchange rates.

Mr. Hamada further added, "TS leveraged the typical year-end seasonality into improved profitability, both sequentially and year over year, with all three regions contributing meaningfully. In EMEA, our continuing focus on profitable growth and restructuring initiatives combined to drive operating income up 30% and operating income margin up 92 basis points year over year, even as pro forma revenue declined 5% in constant currency. In Asia, where we have increased our emphasis on returns, pro forma revenue increased 14% over the year ago quarter, while operating income was up over 100% and operating income margin grew more than 60 basis points both sequentially and year over year. In the Americas, operating income margin and return on capital employed remained above our targets as we continued with solid execution in North America and benefitted from our recent investments in Latin America. With a strong position in developed markets and an expanded footprint in higher growth markets, TS remains well positioned to translate continued demand for datacenter solutions into higher earnings and returns across the portfolio."

Cash Flow/Buyback

Ray Sadowski, Chief Financial Officer, stated, "A strong operating income performance and solid working capital management contributed to $450 million of cash being generated from operations during the quarter. We also continued investing in value-creating acquisitions and took advantage of an attractive stock valuation to repurchase 4.6 million shares of our stock in the second quarter."

Outlook For 3rd Quarter of Fiscal 2012 Ending on March 31, 2012

The above adjusted diluted EPS guidance does not include any potential restructuring charges or any charges related to acquisitions and post-closing integration activities. In addition, the above guidance assumes that the average Euro to U.S. Dollar currency exchange rate for the third quarter of fiscal 2012 is $1.30 to €1.00. This compares with an average exchange rate of $1.37 to €1.00 in the third quarter of fiscal 2011 and $1.35 to €1.00 in the second quarter of fiscal 2012.

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on management's current expectations and are subject to uncertainty and changes in facts and circumstances. The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as "will," "anticipate," "expect," believe," and "should," and other words and terms of similar meaning in connection with any discussions of future operating or financial performance, business prospects or market conditions. Actual results may vary materially from the expectations contained in the forward-looking statements.

The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: the Company's ability to retain and grow market share and to generate additional cash flow, risks associated with any acquisition activities and the successful integration of acquired companies, declines in sales, changes in business conditions and the economy in general, changes in market demand and pricing pressures, any material changes in the allocation of product or product rebates by suppliers, allocations of products by suppliers, other competitive and/or regulatory factors affecting the businesses of Avnet generally.

More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission, including the Company's reports on Form 10-K, Form 10-Q and Form 8-K. Except as required by law, Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Information

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States ("GAAP"), the Company also discloses in this press release certain non-GAAP financial information including adjusted operating income, adjusted net income and adjusted diluted earnings per share, as well as revenue adjusted for the impact of acquisitions and other items (as defined in the Pro forma (Organic) Revenue section of this release). Management believes pro forma revenue is a useful measure for evaluating current period performance as compared with prior periods and for understanding underlying trends.

Management believes that operating income adjusted for restructuring, integration and other items is a useful measure to help investors better assess and understand the Company's operating performance, especially when comparing results with previous periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of Avnet's normal operating results. Management analyzes operating income without the impact of these items as an indicator of ongoing margin performance and underlying trends in the business. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.

Management believes net income and EPS adjusted for the impact of the items described above is useful to investors because it provides a measure of the Company's net profitability on a more comparable basis to historical periods and provides a more meaningful basis for forecasting future performance. Additionally, because of management's focus on generating shareholder value, of which net profitability is a primary driver, management believes net income and EPS excluding the impact of these items provides an important measure of the Company's net results of operations for the investing public.

Other metrics management monitors in its assessment of business performance include return on working capital (ROWC), return on capital employed (ROCE) and working capital velocity (WC velocity).

However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

Second Quarter Fiscal 2012

      Second Quarter Ended Fiscal 2012
                  Diluted
Op Income Pre-tax Net Income EPS
  $ in thousands, except per share data
GAAP results $ 230,889 $ 208,038 $ 147,023 $ 0.98
Restructuring, integration and other charges 34,505 34,505 23,563 0.16
Other - 1,399 854 0.01
Income tax adjustments   -   -   539   -
Total adjustments   34,505   35,904   24,956   0.17
Adjusted results $ 265,394 $ 243,942 $ 171,979 $ 1.15

Items impacting the second quarter of fiscal 2012 consisted of the following:

Second Quarter Fiscal 2011

      Second Quarter Ended Fiscal 2011
                  Diluted
Op Income Pre-tax Net Income EPS
  $ in thousands, except per share data
GAAP results $ 227,602 $ 202,994 $ 141,034 $ 0.91
Restructuring, integration and other charges 29,112 29,112 20,827 0.14
Income tax adjustments   -   -   2,935   0.02
Total adjustments   29,112   29,112   23,762   0.16
Adjusted results $ 256,714 $ 232,106 $ 164,796 $ 1.07

Items impacting the second quarter of fiscal 2011 consisted of the following:

Pro Forma (Organic) Revenue

Pro forma or Organic revenue is defined as reported revenue adjusted for (i) the impact of acquisitions by adjusting Avnet's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of fiscal 2011; (ii) the impact of a fiscal 2011 divestiture by adjusting Avnet's prior periods to exclude the sales of the business divested as if the divestiture had occurred at the beginning of fiscal 2011; and (iii) the impact of a transfer of the Latin America computing components business from TS Americas to EM Americas that occurred in the first quarter of fiscal 2012, which did not have an impact to Avnet on a consolidated basis but did impact the pro forma sales for the groups by $111 million in the second quarter of fiscal 2011. Sales taking into account the combination of these adjustments is referred to as "pro forma sales" or "organic sales."

      Revenue      

Acquisition/
Divested

  Pro forma
as Reported Revenue     Revenue
(in thousands)
Q1 Fiscal 2012

 

$ 6,426,006 $ 21,224 $ 6,447,230
Q2 Fiscal 2012

 

  6,693,573   620     6,694,193
Fiscal year 2012

 

$ 13,119,579 $ 21,844   $ 13,141,423
 
Q1 Fiscal 2011

 

$ 6,182,388 $ 39,832 $ 6,222,220
Q2 Fiscal 2011

 

6,767,495 (20,513 ) 6,746,982
Q3 Fiscal 2011

 

6,672,404 86,802 6,759,206
Q4 Fiscal 2011

 

  6,912,126   91,296     7,003,422
Fiscal year 2011

 

$ 26,534,413 $ 197,417   $ 26,731,830

"Acquisition Revenue" as presented in the preceding table includes the acquisitions listed below. The preceding table also reflects the divestiture of New ProSys Corp. which occurred in January 2011.

Acquired Business

     

Operating Group

     

Acquisition Date

Unidux EM July 2010
Broadband EM October 2010
Eurotone EM October 2010
Center Cell EM November 2010
itX Group Ltd TS January 2011
Amosdec TS July 2011
Prospect Technology EM August 2011
JC Tally Trading & subsidiary EM August 2011
DE2 EM November 2011

ROWC, ROCE and WC Velocity

The following table presents the calculation for ROWC, ROCE and WC velocity.

     

Q2 FY 12

      Q2 FY 11
 
Sales

 

6,693,573 6,767,495
Sales, annualized (a) 26,774,293 27,069,978
 
Adjusted operating income (1)

 

265,394 256,714
Adjusted operating income, annualized (b) 1,061,576 1,026,857
Adjusted effective tax rate (2)

 

29.28 % 27.97 %
Adjusted operating income, net after tax (c) 750,747 739,645
 
Average monthly working capital (3)
Accounts receivable

 

4,565,435 4,485,056
Inventory

 

2,622,126 2,567,959
Accounts payable

 

(3,109,372 ) (3,351,858 )
Average working capital (d) 4,078,189   3,701,157  
 
Average monthly total capital (3) (e) 5,246,036   4,650,768  
 
ROWC = (b) / (d)

 

26.03 % 27.74 %
WC Velocity = (a) / (d)

 

6.57 7.31
ROCE = (c ) / (e)

 

14.31 % 15.90 %
 

(1)

 

See reconciliation to GAAP amounts in the preceding tables in this Non-GAAP Financial Information Section.

 

(2)

Adjusted effective tax rate is based upon a year-to-date (full fiscal year rate for FY11) calculation excluding restructuring, integration and other charges and tax adjustments as described in the reconciliation to GAAP amounts in this Non-GAAP Financial Information Section.

 

(3)

For averaging purposes, the working capital and total capital for Bell Micro was included as of the beginning of fiscal 2011.

Teleconference Webcast and Upcoming Events

Avnet will host a Webcast of its quarterly teleconference today at 2:00 p.m. Eastern Time. The live Webcast event, as well as other financial information including financial statement reconciliations of GAAP and non-GAAP financial measures, will be available through www.ir.avnet.com. Please log onto the site 15 minutes prior to the start of the event to register or download any necessary software. An archive copy of the presentation will also be available after the Webcast.

For a listing of Avnet's upcoming events and other information, please visit Avnet's investor relations website at www.ir.avnet.com.

About Avnet

Avnet, Inc. (NYSE:AVT), a Fortune 500 Company, is one of the largest distributors of electronic components, computer products and embedded technology serving customers in more than 70 countries worldwide. Avnet accelerates its partners' success by connecting the world's leading technology suppliers with a broad base of more than 100,000 customers by providing cost-effective, value-added services and solutions. For the fiscal year ended July 2, 2011, Avnet generated revenue of $26.5 billion. For more information, visit www.avnet.com. (AVT_IR)

AVNET, INC.
FINANCIAL HIGHLIGHTS
(MILLIONS EXCEPT PER SHARE DATA)
   
      SECOND QUARTERS ENDED
 

DECEMBER 31,

JANUARY 1,
2011 * 2011 *
 
Sales $ 6,693.6 $ 6,767.5
 
Income before income taxes 208.0 203.0
 
Net income 147.0 141.0
 
Net income per share:
Basic $ 1.00 $ 0.93
Diluted $ 0.98 $ 0.91
 
FIRST HALVES ENDED
 

DECEMBER 31,

JANUARY 1,
2011 * 2011 *
 
Sales $ 13,119.6 $ 12,949.9
 
Income before income taxes 403.9 407.8
 
Net income 286.1 279.2
 
Net income per share:
Basic $ 1.91 $ 1.84
Diluted $ 1.88 $ 1.81
 

* See Notes to Consolidated Statements of Operations.

 
AVNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS EXCEPT PER SHARE DATA)
               
SECOND QUARTERS ENDED FIRST HALVES ENDED
 
DECEMBER 31, JANUARY 1, DECEMBER 31, JANUARY 1,
2011 * 2011 * 2011 * 2011 *
 
Sales $ 6,693,573 $ 6,767,495 $ 13,119,579 $ 12,949,883
Cost of sales   5,909,439     5,994,301     11,581,848     11,453,544  
 
Gross profit 784,134 773,194 1,537,731 1,496,339

 

Selling, general and administrative expenses

518,740 516,480 1,049,273 1,017,096

Restructuring, integration and other charges (Note 1 *)

  34,505     29,112     34,505     57,179  
Operating income 230,889 227,602 453,953 422,064
 
Other income (expense), net 742 (360 ) (4,634 ) 2,979
Interest expense (22,194 ) (24,248 ) (44,065 ) (46,273 )
Gain on bargain purchase and other (Note 2 *)   (1,399 )   -     (1,399 )   29,023  
Income before income taxes 208,038 202,994 403,855 407,793
 
Income tax provision 61,015 61,960 117,802 128,585
       
Net income $ 147,023   $ 141,034   $ 286,053   $ 279,208  
 
Net earnings per share:
Basic $ 1.00   $ 0.93   $ 1.91   $ 1.84  
Diluted $ 0.98   $ 0.91   $ 1.88   $ 1.81  

 

Shares used to compute earnings per share:

Basic   147,188     152,137     149,729     152,071  
Diluted   149,666     154,259     152,086     153,952  
 

* See Notes to Consolidated Statements of Operations.

 
AVNET, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
           
DECEMBER 31, JULY 2,
2011 2011
 
Assets:
Current assets:
Cash and cash equivalents $ 968,520 $ 675,334
Receivables, net 4,755,630 4,764,293
Inventories 2,513,922 2,596,470
Prepaid and other current assets   217,099   191,110
Total current assets 8,455,171 8,227,207
Property, plant and equipment, net 440,445 419,173
Goodwill 945,220 885,072
Other assets   331,966   374,117
 
Total assets   10,172,802   9,905,569
 
Less liabilities:
Current liabilities:
Borrowings due within one year 800,563 243,079
Accounts payable 3,567,762 3,561,633
Accrued expenses and other   654,593   673,016
Total current liabilities 5,022,918 4,477,728
Long-term debt 1,184,688 1,273,509
Other long-term liabilities   110,114   98,262
 
Total liabilities   6,317,720   5,849,499
 
Shareholders' equity $ 3,855,082 $ 4,056,070
 
AVNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
 
      FIRST HALVES ENDED
DECEMBER 31,       JANUARY 1,
2011 2011
Cash flows from operating activities:
 
Net income $ 286,053 $ 279,208
 
Non-cash and other reconciling items:
Depreciation and amortization 44,653 39,490
Deferred income taxes 9,156 (21,696 )
Stock-based compensation 22,395 20,769
Gain on bargain purchase and other 1,399 (29,023 )
Other, net 34,081 31,017
 
Changes in (net of effects from businesses acquired):
Receivables (99,251 ) (545,192 )
Inventories 2,681 (341,101 )
Accounts payable 46,590 295,374
Accrued expenses and other, net   (101,942 )   79,682  
 
Net cash flow provided by (used for) operating activities   245,815     (191,472 )
 
Cash flows from financing activities:
Borrowings under accounts receivable securitization program, net 450,000 450,000
Repayment of notes - (5,205 )
Proceeds from bank debt, net 18,034 62,520
(Repayment of) proceeds from other debt, net (509 ) 13,570
Repurchases of common stock (220,951 ) -
Other, net   776     1,219  
 
Net cash flows provided by financing activities   247,350     522,104  
 
Cash flows from investing activities:
Purchases of property, plant, and equipment (70,850 ) (70,205 )

Cash proceeds from sales of property, plant and equipment

114 1,727
Acquisitions of operations, net of cash acquired   (107,573 )   (626,871 )
 
Net cash flows used for investing activities   (178,309 )   (695,349 )
 
Effect of exchange rates on cash and cash equivalents   (21,670 )   29,546  
 
Cash and cash equivalents:
- increase (decrease ) 293,186 (335,171 )
- at beginning of period   675,334     1,092,102  
 
- at end of period $ 968,520   $ 756,931  
 
AVNET, INC.
SEGMENT INFORMATION
(MILLIONS)
     
  SECOND QUARTERS ENDED     FIRST HALVES ENDED
   
DECEMBER 31, JANUARY 1, DECEMBER 31, JANUARY 1,
SALES: 2011 2011 2011 2011
 
Electronics Marketing $ 3,595.6 $ 3,558.6 $ 7,411.9 $ 7,179.2
 
Technology Solutions 3,098.0 3,208.9 5,707.7 5,770.7
       
Consolidated $ 6,693.6   $ 6,767.5   $ 13,119.6   $ 12,949.9  
 
OPERATING INCOME (LOSS):
 
Electronics Marketing $ 174.9 $ 183.4 $ 366.1 $ 375.5
 
Technology Solutions 118.9 105.2 183.9 161.9
 
Corporate   (28.4 )   (31.9 )   (61.5 )   (58.1 )
 
$ 265.4 $ 256.7 $ 488.5 $ 479.3
 
Restructuring, integration and other charges   (34.5 )   (29.1 )   (34.5 )   (57.2 )
 
Consolidated $ 230.9   $ 227.6   $ 454.0   $ 422.1  
 

AVNET, INC.
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS
SECOND QUARTER AND FIRST HALF OF FISCAL 2012

(1) The results for the second quarter and first half of fiscal 2012 included restructuring, integration and other charges which totaled $34,505,000 pre-tax, $23,563,000 after tax and $0.16 per share on a diluted basis. Restructuring charges included therein were $28,938,000 pre-tax consisting of $19,792,000 for severance, $7,406,000 for facility exit costs and $1,740,000 for other restructuring charges, primarily other onerous lease liabilities. Integration costs and acquisition transaction costs were $3,449,000 pre-tax and $3,066,000 pre-tax, respectively. In addition, the Company recorded the reversal of $948,000 pre-tax to adjust reserves related to prior year restructuring activity which were no longer required.

Severance charges recorded in the second quarter of fiscal 2012 related to over 350 employees in sales, administrative and finance functions in connection with the cost reduction actions taken in all three regions in both operating groups with employee reductions of approximately 250 in EM and 100 in TS. Facility exit costs for vacated facilities related to nine facilities in the Americas, three in EMEA and two in Asia and consisted of reserves for remaining lease liabilities and the write-down of leasehold improvements and other fixed assets.

The results for the second quarter of fiscal 2011 included restructuring, integration and other charges which totaled $29,112,000 pre-tax, $20,827,000 after tax and $0.14 per share on a diluted basis and were incurred primarily in connection with the acquisitions and integrations of acquired businesses. The charges included restructuring charges consisting of severance of $10,655,000 pre-tax and facility exit related costs, fixed asset write downs and related costs of $11,488,000 pre-tax which were incurred primarily as a result of the integration activities associated with the acquisitions. The Company also recognized integration costs of $8,774,000 pre-tax, acquisition transaction costs of $1,307,000 pre-tax, other charges of $373,000 pre-tax and a reversal of $3,485,000 pre-tax, primarily related to the reversal of restructuring reserves established in prior years which were no longer needed.

Results for the first half of fiscal 2011 included restructuring, integration and other charges which totaled $57,179,000 pre-tax, $40,989,000 after tax and $0.27 per share on a diluted basis and consisted of $18,934,000 pre-tax for severance, $13,913,000 pre-tax for facilities related costs, fixed asset write downs and related costs, $16,096,000 pre-tax for integration costs, $12,068,000 pre-tax for transactions costs associated with acquisitions and $373,000 pre-tax for other charges. The Company also recorded a reversal of $4,205,000 pre-tax to adjust reserves related to prior year restructuring activity that were no longer needed.

(2) During the second quarter and first half of fiscal 2012, the Company recognized other charges of $1,399,000 pre-tax, $854,000 after tax and $0.01 per share on a diluted basis, which related to a write-down of an investment in a small technology company and the write-off of certain deferred financing costs associated with the early termination of a credit facility.

During the first half of fiscal 2011, the Company acquired Unidux, Inc., a Japanese publicly traded electronics component distributor, through a tender offer. After evaluating all assets acquired and liabilities assumed, the consideration paid was below the fair value of the acquired net assets and, as a result, the Company recognized a gain on bargain purchase of $30,990,000 pre- and after tax, and $0.20 per share on a diluted basis. In addition, the Company recognized other charges of $1,967,000 pre-tax, $1,413,000 after tax and $0.01 per share on a diluted basis primarily related to the write-down of two buildings in EMEA.

Investor Relations Contact:
Avnet, Inc.
Vincent Keenan
Investor Relations
(480) 643-7053
investorrelations@avnet.com

Source: Avnet, Inc.

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