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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended September 27, 1996 Commission File #1-4224
Avnet, Inc.
(Exact name of registrant as specified in its charter)
New York 11-1890605
(State or other jurisdiction of IRS Employer I.D. Number
incorporation or organization)
80 Cutter Mill Road, Great Neck, N.Y. 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code . . . . . . . .516-466-7000
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
The number of shares of the registrant's Common Stock (net of treasury shares)
as of the close of the period covered by this report . . . . . 43,423,625 shs.
The number of units then outstanding of other publicly-traded securities of
the registrant:
6 7/8% Notes Due March 15, 2004 . . . . . . . . . . . . . . $100,000,000
AVNET, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 27, 1996 and June 28, 1996 3
Consolidated Statements of Income -
First Quarters Ended September 27, 1996 and
September 29, 1995 4
Consolidated Statements of Cash Flows -
First Quarters Ended September 27, 1996 and
September 29, 1995 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis 8 - 10
Part II. Other Information 11 - 12
Signature Page 13
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 27, June 28,
1996 1996
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 56,868 $ 47,808
Receivables, less allowances of $37,309
and $34,615, respectively 801,612 802,442
Inventories (Note 3) 892,555 935,612
Other 30,091 27,280
Total current assets 1,781,126 1,813,142
Property, plant & equipment, at cost, net 178,804 176,929
Goodwill, net of accumulated amortization of
$40,257 and $36,998, respectively 491,674 494,666
Other assets 38,939 36,919
Total assets $2,490,543 $2,521,656
Liabilities:
Current liabilities:
Borrowings due within one year $ 279 $ 282
Accounts payable 338,911 353,918
Accrued expenses and other 190,708 165,022
Total current liabilities 529,898 519,222
Long-term debt, less due within one year 419,536 497,223
Commitments and contingencies (Note 4)
Total liabilities 949,434 1,016,445
Shareholders' equity (Note 5):
Common stock $1.00 par, authorized
60,000,000 shares, issued 43,845,000
shares and 43,842,000 shares, respectively 43,845 43,842
Additional paid-in capital 418,983 418,441
Retained earnings 1,094,209 1,058,350
Cumulative translation adjustments (4,767) (4,243)
Common stock held in treasury at cost,
421,000 shares and 421,000 shares,
respectively (11,161) (11,179)
Total shareholders' equity 1,541,109 1,505,211
Total liabilities and shareholders'
equity $2,490,543 $2,521,656
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share data)
First Quarter Ended
September 27, September 29,
1996 1995
(unaudited)
Sales $1,281,812 $1,189,102
Cost of sales 1,049,322 960,401
Gross Profit 232,490 228,701
Operating expenses:
Selling, shipping, general and
administrative 143,617 139,856
Depreciation and amortization 9,153 8,386
Operating income 79,720 80,459
Investment and other income, net 770 871
Interest expense (6,900) (4,602)
Income before income taxes 73,590 76,728
Income taxes 31,217 32,184
Net income $ 42,373 $ 44,544
Earnings per share $0.97 $1.02
Shares used to compute earnings per share 43,709 43,720
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Quarter Ended
September 27, September 29,
1996 1995
(unaudited)
Cash flows from operating activities:
Net income $ 42,373 $ 44,544
Add non-cash and other reconciling items:
Depreciation and amortization 10,960 9,800
Deferred taxes (706) (425)
Other, net (Note 6) 4,974 4,478
57,601 58,397
Receivables (3,243) (52,343)
Inventories 43,057 (77,648)
Payables, accruals and other, net 11,373 35,717
Net cash flows provided from (used for)
operating activities 108,788 (35,877)
Cash flows from financing activities:
Issuance (repayment) of bank debt and
commercial paper, net of issuance costs (73,760) 123,653
Payment of other debt (3,936) (7,001)
Cash dividends (6,513) (6,121)
Other, net (1,744) 1,000
Net cash flows (used for) provided from
financing (85,953) 111,531
Cash flows from investing activities:
Purchases of property, plant and equipment (13,521) (6,431)
Acquisition of operations, net (Note 6) (269) (59,730)
Net cash flows used for investing
activities (13,790) (66,161)
Effect of exchange rates on cash and cash
equivalents 15 73
Cash and cash equivalents:
- increase 9,060 9,566
- at beginning of year 47,808 49,332
- at end of period $ 56,868 $ 58,898
Additional cash flow information (Note 6)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
as of September 27, 1996 and June 28, 1996; the results of operations
for the first quarters ended September 27, 1996 and September 29, 1995;
and the cash flows for the first quarters ended September 27, 1996 and
September 29, 1995.
2. The results of operations for the first quarter ended September 27, 1996
are not necessarily indicative of the results to be expected for the
full year.
3. Inventories:
(Thousands)
September 27, June 28,
1996 1996
Finished goods $799,179 $844,510
Work in process 14,077 13,306
Purchased parts and raw materials 79,299 77,796
$892,555 $935,612
4. From time to time, the Company may become liable with respect to pending
and threatened litigation, taxes, and environmental and other matters.
The Company has been designated a potentially responsible party or has
had other claims made against it in connection with environmental clean-
ups at several sites. Based upon the information known to date, the
Company believes that it has appropriately reserved for its share of the
costs of the clean-ups and it is not anticipated that any contingent
matters will have a material adverse impact on the Company's financial
condition, liquidity or results of operations.
5. Number of shares of common stock reserved for stock
option and stock incentive programs: 3,683,439
6. Additional cash flow information:
Other non-cash and reconciling items primarily include the provision for
doubtful accounts.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Additional cash flow information (Continued)
Cash expended for the acquisition of operations in the first quarter of
fiscal 1997 includes only the cash paid for professional and other fees
associated with various acquisitions completed during fiscal 1996. In the
first quarter of fiscal 1996, cash expended for the acquisition of
operations includes the cash paid in connection with the acquisitions of
VSI Electronics and Setron Schiffer Electronik GmbH & Co., KG offset by
cash received in connection with the sale of the motor, motor repair shop
and OEM business of Brownell Electro.
Interest and income taxes paid in the first quarters were as follows:
(Thousands)
1997 1996
Interest $6,081 $ 7,105
Income taxes $4,892 $ 2,492
Item 2 Management's Discussion and Analysis
Results of Operations
For the first quarter of fiscal 1997 ended September 27, 1996, consolidated
sales were a record $1.282 billion, up 8% when compared with last year's first
quarter sales of $1.189 billion. This increase was due primarily to stronger
sales at the Electronic Marketing Group's Computer Marketing Group. The
Electronic Marketing Group's sales in the first quarter of 1997 were $1.234
billion, up 8% as compared with $1.144 billion in 1996, and the Video
Communications Group's sales in the first quarter of 1997 were almost $48
million, or 6% higher than the prior year's sales of $45 million. Although
comparative sales were also positively impacted by fiscal 1996 acquisitions -
Avnet Setron, Avnet Mercuries and Avnet Kopp which were acquired in September
1995, December 1995 and February 1996, respectively--this favorable effect was
largely offset by decreased sales due to the divestiture in the first quarter
of 1996 of the motor, motor repair shop and OEM business of Brownell Electro.
The first quarter's sales were characterized by mixed results in the various
Electronic Marketing Group operations. First quarter 1997 sales were higher
than the prior year's first quarter at each of the Electronic Marketing
Group's North American operations, most significantly at the Computer
Marketing Group and Allied Electronics. Sales at EMG International, which
includes all of the Electronic Marketing Group's international operations
outside of North America, were higher than the prior year comparative period
due to the impact of acquisitions, and were slightly lower if the impact of
acquisitions were excluded.
Consolidated gross profit margins of 18.1% in the first quarter of 1997 were
lower by 1.1% of sales as compared with 19.2% in the first quarter of last
year. Even though operating expenses as a percentage of sales of 11.9% were
also lower, by 0.5% of sales, as compared with 12.4% in the prior year, the
decrease was not enough to offset totally the decline in the consolidated
gross profit margins. As a result, operating income as a percentage of sales
was 6.2% in the first quarter of 1997 as compared with 6.8% in the first
quarter of last year.
Interest expense was substantially higher in the first quarter of 1997
as compared with the prior year like period due to a combination of factors.
Last year's first quarter interest expense was positively affected by the
reversal of $1.3 million of interest expense which was accrued at
June 30, 1995 with respect to the Company's 6% Convertible Subordinated
Debentures Due 2012 (the "Debentures"). Following the Company's call for
redemption of the Debentures, almost 100% of the outstanding Debentures were
converted into common stock of the Company in September 1995, thereby
eliminating the requirement to pay interest on the Debentures subsequent to
the interest payment made on April 15, 1995 and necessitating the reversal of
interest accrued at June 30, 1995. The balance of the increase in interest
expense was due to the net effect of an increase in the average amount of
borrowings outstanding offset by a decrease in the Company's effective
interest rate.
Net income in the first quarter of 1997 was $42.4 million, down almost 5% when
compared with $44.5 million in the prior year's first quarter. Net income as
a percentage of sales was 3.3% in the first quarter of 1997 as compared with
3.7% in the prior year period. The Electronic Marketing Group's earnings
decreased 2% compared with its last year's first quarter earnings. The
Electronic Marketing Group's North American operations posted improved income
from operations, primarily due to sharply improved results at the Computer
Marketing Group, while income from operations at EMG International was down
as compared with last year's first quarter. The Video Communications Group's
first quarter 1997 net income was down as compared with the prior year period.
Liquidity and Capital Resources
During the first quarter of 1997, the Company generated $57.6 million from
income before depreciation and other non-cash items, and generated another
$51.2 million from a reduction in working capital needs resulting in $108.8
million of net cash flows being provided from operations. In addition, the
Company used $21.8 million for other normal business operations including
purchases of property, plant and equipment ($13.5 million), dividends ($6.5
million) and other items ($1.8 million). This resulted in $87.0 million being
generated from normal business operations. The Company also used $4.2 million
for acquisition related expenditures ($0.3 million) and for the repayment of
other debt ($3.9 million). This overall net generation of cash of $82.8
million was used to pay down $73.7 million of outstanding bank debt and
commercial paper with the remaining $9.1 million being used to increase cash
and cash equivalents.
The Company's quick assets at September 27, 1996, totaled $858.5 million as
compared with $850.3 million at June 28, 1996 and exceeded the Company's
current liabilities by $328.6 million as compared with a $331.0 million excess
at June 28, 1996. Working capital at September 27, 1996 was $1,251.2 million
as compared with $1,293.9 million at June 28, 1996. At the end of the first
quarter, to support each dollar of current liabilities, the Company had $1.62
of quick assets and $1.74 of other current assets for a total of $3.36 of
current assets as compared with $3.49 at June 28, 1996.
In August 1995, the Company notified its Debentureholders of its decision to
call for redemption on September 15, 1995 the entire amount of outstanding
Debentures. Holders of $105.2 million of the Debentures exercised their right
to convert the Debentures into approximately 2.4 million shares of Avnet
common stock at a conversion price of $43.00 principal amount per share,
thereby increasing shareholders' equity by $105.2 million. The remaining
outstanding Debentures, amounting to $0.1 million, were redeemed on September
15, 1995, at a premium of 1.2% plus accrued interest. In addition,
shareholders' equity was reduced by approximately $0.9 million due to the
write-off of unamortized deferred loan expenses associated with the
Debentures.
During the first quarter of 1997, shareholders' equity increased by $35.9
million to $1,541.1 million at September 27, 1996, while total debt decreased
by $77.7 million to $419.8 million. As a result, the total debt to capital
(shareholders' equity plus total debt) ratio was 21.4% at September 27, 1996
as compared with 24.8% at June 28, 1996. The Company's favorable balance
sheet ratios would facilitate additional financing if, in the opinion of
management, such financing would enhance the future operations of the Company.
On August 1, 1996, the Company's Board of Directors authorized the purchase
of up to $200 million of Avnet common stock. The stock is to be purchased in
the open market from time to time or in directly negotiated purchases.
However, no shares were purchased until after the end of the first quarter.
At September 27, 1996, the Company did not have any material commitments for
capital expenditures. The Company and the former owners of a Company-owned
site in Oxford, North Carolina have entered into a Consent Decree and Court
Order with the Environmental Protection Agency (EPA) for the environmental
clean-up of the site, the cost of which, according to the EPA's remedial
investigation and feasibility study, is estimated to be approximately $6.3
million, exclusive of the $1.5 million in EPA past costs paid by the
potentially responsible parties (PRPs). Pursuant to a Consent Decree and
Court Order entered into between the Company and the former owners of the
site, the former owners have agreed to bear at least 70% of the clean-up costs
of the site, and the Company will be responsible for not more than 30% of
those costs. The Company is also a PRP in an environmental clean-up at a site
in North Smithfield, Rhode Island. In addition, the Company has received
notice from a third party of its intention to seek indemnification for costs
it may incur in connection with an environmental clean-up at a site in Rush,
Pennsylvania resulting from the alleged disposal of wire insulation material
at the site by a former unit of the Company. Based upon the information known
to date, the Company believes that it has appropriately accrued in its
financial statements for its share of the costs of the clean-up at all of the
above mentioned sites. The Company is also a PRP, or has been notified of
claims made against it, at environmental clean-up sites in Huguenot, New York
and in Hempstead, New York. At this time, the Company cannot estimate the
amount of its potential liability, if any, for clean-up costs in connection
with these sites, but does not anticipate that these matters or any other
contingent matters will have a material adverse impact on the Company's
financial condition, liquidity or results of operations. The Company is not
now aware of any commitments, contingencies or events within its control which
may significantly change its ability to generate sufficient cash from internal
or external sources to meet its needs.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
A. The following documents are filed as part of this report:
1. Exhibits:
Exhibit No.
3A Certificate of Incorporation of the Company as
currently in effect (incorporated by reference).
3B By-Laws of the Registrant as currently in effect
(incorporated herein by reference to Commission
file No. 1-4224, Current Report on Form 8-K dated
February 12, 1996 Exhibit 3 (ii)).
*11 - Computation of earnings per share
*Filed herewith
EXHIBIT 11
AVNET, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands, except per share data)
First Quarter Ended
September 27, September 29,
1996 1995
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 43,425 43,280
Common equivalent shares:
Contingent shares issuable 138 112
Exercise of warrants and options
using the treasury method 146 328
Total common and common equivalent
shares 43,709 43,720
Income used for computing earnings
per share $42,373 $44,544
Earnings per share $0.97 $1.02
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S I G N A T U R E
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,
Chief Financial Officer
and Assistant Secretary
By: s/John F. Cole
John F. Cole
Controller and Principal
Accounting Officer
November 8, 1996
Date