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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 December 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 . . . . . 42,902,186 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 -
December 27, 1996 and June 28, 1996 3
Consolidated Statements of Income -
First Halves Ended December 27, 1996 and
December 29, 1995 4
Consolidated Statements of Income -
Second Quarters Ended December 27, 1996 and
December 29, 1995 5
Consolidated Statements of Cash Flows -
First Halves Ended December 27, 1996 and
December 29, 1995 6
Notes to Consolidated Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis 9 - 11
Part II. Other Information 12 - 14
Signature Page 15
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 27, June 28,
1996 1996
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 65,123 $ 47,808
Receivables, less allowances of $33,224
and $34,615, respectively 790,485 802,442
Inventories (Note 3) 928,137 935,612
Other 25,363 27,280
Total current assets 1,809,108 1,813,142
Property, plant & equipment, at cost, net 181,758 176,929
Goodwill, net of accumulated amortization of
$43,540 and $36,998, respectively 487,639 494,666
Other assets 41,665 36,919
Total assets $2,520,170 $2,521,656
Liabilities:
Current liabilities:
Borrowings due within one year $ 278 $ 282
Accounts payable 433,958 353,918
Accrued expenses and other 156,046 165,022
Total current liabilities 590,282 519,222
Long-term debt, less due within one year 374,906 497,223
Commitments and contingencies (Note 4)
Total liabilities 965,188 1,016,445
Shareholders' equity (Note 5):
Common stock $1.00 par, authorized
60,000,000 shares, issued 43,913,000
shares and 43,842,000 shares, respectively 43,913 43,842
Additional paid-in capital 421,450 418,441
Retained earnings 1,133,379 1,058,350
Cumulative translation adjustments (1,548) (4,243)
Common stock held in treasury at cost,
1,011,000 shares and 421,000 shares,
respectively (42,212) (11,179)
Total shareholders' equity 1,554,982 1,505,211
Total liabilities and shareholders'
equity $2,520,170 $2,521,656
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share data)
First Half Ended
December 27, December 29,
1996 1995
(unaudited)
Sales $2,613,560 $2,490,666
Cost of sales 2,141,019 2,022,174
Gross Profit 472,541 468,492
Operating expenses:
Selling, shipping, general and
administrative 288,548 283,046
Depreciation and amortization 20,305 17,623
Operating income 163,688 167,823
Investment and other income, net 1,049 1,095
Interest expense (12,671) (11,574)
Income before income taxes 152,066 157,344
Income taxes 64,079 66,109
Net income $ 87,987 $ 91,235
Earnings per share $2.02 $2.09
Shares used to compute earnings per share 43,587 43,705
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share data)
Second Quarter Ended
December 27, December 29,
1996 1995
(unaudited)
Sales $1,331,748 $1,301,564
Cost of sales 1,091,697 1,061,773
Gross Profit 240,051 239,791
Operating expenses:
Selling, shipping, general and
administrative 144,931 143,190
Depreciation and amortization 11,152 9,237
Operating income 83,968 87,364
Investment and other income, net 279 224
Interest expense (5,771) (6,972)
Income before income taxes 78,476 80,616
Income taxes 32,862 33,925
Net income $ 45,614 $ 46,691
Earnings per share $1.05 $1.07
Shares used to compute earnings per share 43,466 43,689
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Half Ended
December 27, December 29,
1996 1995
(unaudited)
Cash flows from operating activities:
Net income $ 87,987 $ 91,235
Add non-cash and other reconciling items:
Depreciation and amortization 24,071 20,791
Deferred taxes (1,205) (1,234)
Other, net (Note 6) 10,213 9,403
121,066 120,195
Receivables 3,604 (64,974)
Inventories 7,475 (147,175)
Payables, accruals and other, net 74,425 30,681
Net cash flows provided from (used for)
operating activities 206,570 (61,273)
Cash flows from financing activities:
Issuance (repayment) of bank debt and
commercial paper, net of issuance costs (119,159) 182,228
Payment of other debt (3,173) (9,524)
Cash dividends (13,027) (12,610)
Repurchase of common stock (31,470) -
Other, net 2,183 745
Net cash flows (used for) provided from
financing (164,646) 160,839
Cash flows from investing activities:
Purchases of property, plant and equipment (24,009) (19,175)
Acquisition of operations, net (Note 6) (374) (66,459)
Net cash flows used for investing
activities (24,383) (85,634)
Effect of exchange rates on cash and cash
equivalents (226) 32
Cash and cash equivalents:
- increase 17,315 13,964
- at beginning of year 47,808 49,332
- at end of period $ 65,123 $ 63,296
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 December 27, 1996 and June 28, 1996; the results of operations for
the first halves and second quarters ended December 27, 1996 and
December 29, 1995; and the cash flows for the first halves ended
December 27, 1996 and December 29, 1995.
2. The results of operations for the first half and second quarter ended
December 27, 1996 are not necessarily indicative of the results to be
expected for the full year.
3. Inventories:
(Thousands)
December 27, June 28,
1996 1996
Finished goods $823,025 $844,510
Work in process 21,459 13,306
Purchased parts and raw materials 83,653 77,796
$928,137 $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: 3,594,250
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 half of fiscal
1997 includes only the cash paid for professional and other fees associated
with various acquisitions completed during fiscal 1996. In the first half
of fiscal 1996, cash expended for the acquisition of operations includes
the cash paid in connection with the acquisitions of VSI Electronics,
Setron Schiffer Electronik GmbH & Co., KG, and the Science and Technology
Division of Mercuries and Associates, Ltd., 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 halves were as follows:
(Thousands)
1997 1996
Interest $10,350 $12,811
Income taxes $61,747 $57,085
Item 2. Management's Discussion and Analysis
Results of Operations
For the second quarter of fiscal 1997 ended December 27, 1996, consolidated
sales were $1.332 billion, up 2% when compared with last year's second quarter
sales of $1.302 billion. This increase was due primarily to stronger sales
at the Electronic Marketing Group's North American operations, offset by a
decrease in sales at EMG International (which consists of the Electronic
Marketing Group's international operations outside of North America) and at
the Video Communications Group. The Electronic Marketing Group's sales in the
second quarter of 1997 were $1.282 billion, up 3% as compared with $1.245
billion in the same quarter of 1996, and the Video Communications Group's
sales in the second quarter of 1997 were $50 million, or 11% lower than the
prior year quarter's sales of $56 million. Although comparative sales were
also positively impacted by the fiscal 1996 acquisitions of Avnet Mercuries
and Avnet Kopp, which were acquired in December 1995 and February 1996,
respectively, this favorable effect was largely offset by a decrease in sales
due to the divestiture of Mechanics Choice.
The sales increase in the Electronic Marketing Group's North American
operations was primarily due to all-time record sales at the Computer
Marketing Group and Penstock, as well as to near record sales at Time
Electronics and Allied. Hamilton Hallmark's sales were slightly below last
year's second quarter.
Consolidated gross profit margins of 18.0% in the second quarter of 1997 were
lower by 4/10ths of one percent of sales as compared with 18.4% in the second
quarter of last year, while operating expenses as a percentage of sales of
11.7% were the same as in the second quarter of the prior year. As a result,
operating income as a percentage of sales was 6.3% in the second quarter of
1997 as compared with 6.7% in the second quarter of last year.
Interest expense was substantially lower in the second quarter of 1997 as
compared with the prior year like period due to a combination of a decrease
in the average amount of borrowings outstanding and a decrease in the
Company's effective interest rate.
Net income in the second quarter of 1997 was $45.6 million, down 2% when
compared with $46.7 million in the prior year's second quarter. Net income
as a percentage of sales was 3.4% in the second quarter of 1997 as compared
with 3.6% in the prior year period. The Electronic Marketing Group's earnings
increased 1% as compared with last year's second 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 second quarter. The Video Communications Group's
second quarter 1997 net income was down as compared with the prior year
period.
Consolidated sales in the first half of 1997 were $2.614 billion, up 5% as
compared with $2.491 billion in the first half of last year. This increase
was due entirely to increased sales at the Company's Electronic Marketing
Group, primarily due to record sales at the Computer Marketing Group. The
Electronic Marketing Group's sales in the first half of 1997 were $2.516
billion, up 5% as compared with $2.390 billion in last year's first half, and
the Video Communication Group's sales in the first half of 1997 were $98
million, down 3% as compared with $101 million in the first half of last year.
Consolidated gross profit margins in the first half of 1997 were 18.1% as
compared with 18.8% in the prior year period, a decline of 7/10ths of 1% of
sales. Even though operating expenses as a percentage of sales decreased to
11.8% in the first half of 1997 from 12.1% in the first half of last year, the
decrease was not enough to offset the decline in gross profit margins. As a
result, operating income as a percentage of sales decreased to 6.3% in this
year's first half as compared with 6.7% in the same period last year.
Interest expense in the first half of 1997 of $12.7 million was $1.1 million
higher as compared with $11.6 million in the prior year like period due to a
combination of factors. Last year's first half 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 balance of the change in interest
expense, a decrease of $0.2 million, 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 for the first half of 1997 was $88.0 million, or 3.4% of sales,
down 4% as compared with $91.2 million, or 3.7% of sales, in the first half
of last year. The Electronic Marketing Group's earnings for the first half
of this year were comparable to the prior year period. The Electronic
Marketing Group's North American operating units experienced higher income
from operations, primarily due to much improved results at the Computer
Marketing Group; however, this was offset by lower income from operations at
EMG International. The Video Communication Group's first half of 1997 net
income was down as compared with the prior year period.
Liquidity and Capital Resources
During the first half of 1997, the Company generated $121.1 million from
income before depreciation and other non-cash items, and generated another
$85.5 million from a reduction in working capital components (partially
reflecting the temporary increase in accounts payable due to the timing of
certain normal cash payments made later than usual because of the Christmas
holiday) resulting in $206.6 million of net cash flows being provided from
operations. In addition, the Company used $35.1 million for other normal
business operations including purchases of property, plant and equipment
($24.0 million) and the payment of dividends ($13.0 million), offset by other
items ($1.9 million). This resulted in $171.5 million being generated from
normal business operations. The Company also used $35.0 million for other
items including the repurchase of common stock ($31.5 million), the payment
of acquisition related expenditures ($0.4 million) and for the repayment of
other debt ($3.1 million). This overall net generation of cash of $136.5
million was used to pay down $119.2 million of outstanding bank debt and
commercial paper with the remaining $17.3 million being used to increase cash
and cash equivalents.
The Company's quick assets at December 27, 1996, totaled $855.6 million as
compared with $850.3 million at June 28, 1996 and exceeded the Company's
current liabilities by $265.3 million as compared with a $331.0 million excess
at June 28, 1996. Working capital at December 27, 1996 was $1,218.8 million
as compared with $1,293.9 million at June 28, 1996. At the end of the first
half of 1997, to support each dollar of current liabilities, the Company had
$1.45 of quick assets and $1.61 of other current assets for a total of $3.06
of current assets as compared with $3.49 at June 28,1996.
During the first half of 1997, shareholders' equity increased by $49.8 million
to $1,555.0 million at December 27, 1996 while total debt decreased by $122.3
million to $375.2 million. As a result, the total debt to
capital(shareholders' equity plus total debt) ratio was 19.4% at December 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.
Through the end of the first half of fiscal 1997 ended December 27, 1996, the
Company had repurchased 600,000 shares of its common stock for an aggregate
purchase price of $31.5 million.
At December 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 the 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.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Any statements made in this document which are not historical facts are
forward looking statements that involve risks and uncertainties. Among the
factors which could cause actual results to differ materially are (i) major
changes in business conditions and the economy in general, (ii) risks
associated with foreign operations, such as currency fluctuations, (iii)
allocations of products by suppliers, and (iv) changes in market demand and
pricing pressure.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
(a) The 1996 Annual Meeting of Shareholders of the Registrant was held on
November 20, 1996.
(b) Not required. Proxies were solicited by the Company pursuant to
Regulation 14 under the Securities Exchange Act of 1934, and no solicitation
in opposition to management's nominees for board of directors was made. All
of the nominees were elected.
(c) The shareholders of the Registrant were asked to vote upon (I) adoption
of the Avnet 1996 Incentive Stock Option Plan (the "Option Plan"), pursuant
to which tax-qualified options may be granted to employees of the Registrant,
(ii) the Deferred Compensation Plan for Outside Directors (the "Deferred
Compensation Plan"), pursuant to which non-employee directors of the
Registrant may defer some or all of their annual retainer fees in Common Stock
equivalent units or cash, and (ii) ratification of the appointment of Arthur
Andersen LLP as independent auditors for the next fiscal year(the "Appointment
of Auditors"). All proposals were adopted by the shareholders by the
following vote:
Matter For Against Abstain
Adoption of the Stock
Option Plan 34,951,827 1,405,420 137,625
Adoption of the Deferred
Compensation Plan 35,759,396 372,807 362,669
Ratification of
Appointment of Auditors 36,424,516 22,009 48,347
(d) Not applicable.
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 Half Ended
December 27, December 29,
1996 1995
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 43,222 43,291
Common equivalent shares:
Contingent shares issuable 143 118
Exercise of warrants and options
using the treasury method 222 296
Total common and common equivalent
shares 43,587 43,705
Income used for computing earnings
per share $87,987 $91,235
Earnings per share $2.02 $2.09
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT 11
AVNET, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands, except per share data)
Second Quarter Ended
December 27, December 29,
1996 1995
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 43,018 43,302
Common equivalent shares:
Contingent shares issuable 149 123
Exercise of warrants and options
using the treasury method 299 264
Total common and common equivalent
shares 43,466 43,689
Income used for computing earnings
per share $45,614 $46,691
Earnings per share $1.05 $1.07
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
February 10, 1997
Date