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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 29, 1995 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 . . . . . 43,287,624 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 Condensed Balance Sheets -
September 29, 1995 and June 30, 1995 3
Consolidated Condensed Statements of Income -
First Quarters Ended September 29, 1995 and
September 30, 1994 4
Consolidated Condensed Statements of Cash Flows -
First Quarters Ended September 29, 1995 and
September 30, 1994 5
Notes to Consolidated Condensed Financial
Statements 6 - 7
Item 2. Management's Discussion and Analysis 8 - 10
Part II.Other Information
Item 6. Exhibits and Reports from Form 8-K:
a. The following documents are filed as
part of this report:
*Exhibit 11.1 Computation of Earnings per
share - Primary 11
*Exhibit 11.2 Computation of Earnings per
share - Fully Diluted 12
Signature Page 13
* Filed herewith
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
September 29, June 30,
1995 1995
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 58,898 $ 49,332
Receivables, less allowances of $24,901
and $23,421, respectively 783,427 713,644
Inventories (Note 3) 827,045 747,477
Other 17,324 13,838
Total current assets 1,686,694 1,524,291
Property, plant & equipment, at cost, net 147,784 145,611
Goodwill, net of accumulated amortization of
$27,276 and $24,481, respectively 481,527 419,479
Other assets 36,213 36,214
Total assets $2,352,218 $2,125,595
Liabilities:
Current liabilities:
Borrowings due within one year $ 224 $ 493
Accounts payable 348,065 314,887
Accrued expenses and other 181,848 151,820
Total current liabilities 530,137 467,200
Long-term debt, less due within one year 437,929 419,016
Commitments and contingencies (Note 4)
Total liabilities 968,066 886,216
Shareholders' equity (Note 5):
Common stock $1.00 par, authorized
60,000,000 shares, issued 43,708,000
shares and 41,204,000 shares, respectively 43,708 41,204
Additional paid-in capital 414,925 310,843
Retained earnings 934,526 896,102
Cumulative translation adjustments 1,012 814
Common stock held in treasury at cost,
420,000 shares and 412,000 shares,
respectively (10,019) (9,584)
Total shareholders' equity 1,384,152 1,239,379
Total liabilities and shareholders'
equity $2,352,218 $2,125,595
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(thousands except per share data)
First Quarter Ended
September 29, September 30,
1995 1994
(unaudited)
Sales $1,189,102 $ 953,115
Cost of sales 960,401 767,110
Gross Profit 228,701 186,005
Operating expenses:
Selling, shipping, general and
administrative 139,856 124,567
Depreciation and amortization 8,386 6,530
Operating income 80,459 54,908
Investment and other income, net 871 700
Interest expense (4,602) (5,122)
Income before income taxes 76,728 50,486
Income taxes 32,184 21,559
Net income $ 44,544 $ 28,927
Earnings per share $1.02 $0.69
Shares used to compute earnings per share 43,720 43,332
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Quarter Ended
September 29, September 30,
1995 1994
(unaudited)
Cash flows from operating activities:
Net income $ 44,544 $ 28,927
Add non-cash and other reconciling items:
Depreciation and amortization 9,800 8,168
Deferred taxes (425) (365)
Other, net (Note 6) 4,478 4,061
58,397 40,791
Receivables (52,343) (25,747)
Inventories (77,648) (36,063)
Payables, accruals and other, net 35,717 35,002
Net cash flows (used for) provided from
operations (35,877) 13,983
Cash flows from financing activities:
Issuance of bank debt and commercial paper,
net of issuance costs 123,653 38,500
Payment of other debt (7,001) (2,600)
Cash dividends (Note 6) (6,121) --
Other, net 1,000 620
Net cash flows provided from financing 111,531 36,520
Cash flows from investing activities:
Purchases of property, plant and equipment (6,431) (8,311)
Acquisition of operations, net (Note 6) (59,730) (32,472)
Net cash flows used for investing (66,161) (40,783)
Effect of exchange rates on cash and cash
equivalents 73 567
Cash and cash equivalents:
- - increase 9,566 10,287
- - at beginning of year 49,332 53,876
- - at end of period $ 58,898 $ 64,163
Additional cash flow information (Note 6)
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1.In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position as of September 29, 1995 and June 30, 1995; the results of
operations for the first quarters ended September 29, 1995 and September
30, 1994; and the cash flows for the first quarters ended September 29,
1995 and September 30, 1994.
2.The results of operations for the first quarter ended September 29, 1995
are not necessarily indicative of the results to be expected for the
full year.
3.Inventories:
(Thousands)
September 29, June 30,
1995 1995
Finished goods $700,601 $651,939
Work in process 16,463 3,242
Purchased parts and raw materials 109,981 92,296
$827,045 $747,477
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 including shares
to be reserved in connection with stock programs to be
voted on at the November 15, 1995 Annual Meeting of
Shareholders: 4,161,113
6.Additional cash flow information:
Other non-cash and reconciling items primarily include the provision for
doubtful accounts.
Due to the change in the Company's fiscal year in fiscal 1994 and its
historical dividend payment dates, the July 1, 1994 dividend payment was
paid in fiscal 1994 and accordingly, no cash was used for dividends in
the first quarter of fiscal 1995.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6. Additional cash flow information (Continued)
Cash expended for the acquisition of operations in the first quarter of
fiscal 1996 includes the cash paid for 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. In the first quarter of fiscal 1995, cash expended for
operations was primarily the cash paid in connection with the acquisition of
Penstock, Inc.
Interest and income taxes paid in the first quarter were as follows:
(Thousands)
1996 1995
Interest $7,105 $5,101
Income taxes $2,492 $6,625
Item 2 Management Discussion and Analysis
Results of Operations
For the first quarter of 1996 ended September 29, 1995, consolidated
sales were a record $1,189.1 million, up 25% when compared with last
year's first quarter sales of $953.1 million. Net income for the
quarter of $44.5 million was also a record, up 54% as compared with
$28.9 million in the comparable period last year. Earnings as a
percentage of sales were up 0.7% of sales to 3.7% as compared with
3.0% in the first quarter of last year. Earnings per share of
$1.02, a record for any first quarter in Avnet's history, were 48%
higher than last year's $.69 per share. The increase in sales came
entirely from the Company's Electronic Marketing Group, which posted
record sales for the quarter, as sales of the Video Communications
Group were down when compared with the same prior year quarter.
Both the Electronic Marketing and Video Communications Groups had
significant increases in net income as compared with the prior year
period. During the first quarter of 1996, the Company completed the
sale of the motor, motor repair shop and OEM business of Brownell
Electro. Avnet Industrial, the remaining business of Brownell which
serves the industrial marketplace primarily in MRO, together with
the newly created Avnet Supply, a catalog business that serves the
OEM/electronic production marketplace, and Allied Electronics now
make up a new subgroup of the Electronic Marketing Group known as
the Industrial Marketing Group. The results (which were not
material) for Brownell, including the business that was sold, are
included in the Electronic Marketing Group as of the first quarter
of 1996, meaning that the Company's Electrical and Industrial Group
has been eliminated as of the beginning of the 1996 fiscal year.
At the beginning of the current fiscal year, in July 1995, the
Company completed the acquisition of VSI Electronics consisting of
VSI Electronics (Australia) PTY Ltd., an Australian electronic
components distributor, and VSI Electronics (NZ) Ltd., a New Zealand
based electronic components distributor. In September 1995, the
Company completed the acquisition of Setron Schiffer - Electronik
GmbH & Co., KG, a limited partnership engaged in electronic
distribution primarily through a catalogue and which operates in
Germany and 20 other countries in Europe. These two acquisitions
follow the seven acquisitions that the Company completed during
fiscal 1995. The 1995 acquisitions were Penstock, Inc., acquired in
the first quarter, Avnet Cable Technologies, acquired in the second
quarter, Lyco Limited and a 70% interest in WKK Semiconductors,
Ltd., acquired in the third quarter, and CK Electronique, BFI-IBEXSA
International, Inc. and Sertek, Inc., acquired in the fourth
quarter. Approximately 7% of the 25% increase in first quarter
sales was derived from units which were acquired subsequent to the
end of last year's first quarter.
Consolidated gross profit margins of 19.2% in the first quarter of
1996 were lower by 0.3% of sales as compared with 19.5% in the first
quarter of last year. However, the Company's operating efficiency
continued to improve as operating expenses as a percentage of sales
fell to approximately 12.4%, down 1.3% of sales as compared with
13.7% in the first quarter of 1995. As a result, operating income
as a percentage of sales increased to 6.8% in the first quarter of
1996 as compared with 5.8% in the first quarter of 1995.
Interest expense was lower in the first quarter of 1996 as compared
with the comparable quarter last year due to the combination of a
number of factors. The increase in interest rates and the increase
in borrowings to fund the additional working capital requirements
needed to support the growth in business and to fund the Company's
acquisition program had the effect of increasing interest expense.
However, this increase was more than offset by the reversal of
interest expense which was accrued at June 30, 1995 on the 6%
Convertible Subordinated Debentures Due 2012 (the "Debentures") as
well as the absence of interest expense associated with the
Debentures in the first quarter of 1996. Following the Company's
call for redemption of the Debentures, almost 100% of the
outstanding Debentures were converted into common stock of the
Company during the first quarter of 1996, thereby eliminating the
requirement to pay interest on the Debentures subsequent to the most
recent interest payment of April 15, 1995 and necessitating the
reversal of interest accrued at June 30, 1995. The Company's
effective tax rate decreased slightly in the first quarter of 1996
as compared with the first quarter of 1995 due primarily to a
significant increase in pre-tax income as compared with the
relatively small increase in the amount of non-deductible goodwill
amortization, and, to a lesser extent, to the mix of earnings
between the domestic and foreign operations to which different tax
rates apply.
The Company's Electronic Marketing Group's sales in the first
quarter of 1996 were $1,144.3 million, accounting for 96% of
consolidated sales, compared with $849.8 million, or 89% of
consolidated sales, in the first quarter of last year. Of this
$294.5 million or 35% increase in sales, approximately $106.0
million was attributable to sales by companies which were acquired
subsequent to last year's first quarter and to Brownell which was
part of the Electrical and Industrial Group last year. The Group's
gross profit margins were slightly lower than in the prior year's
comparable quarter, but lower operating expenses as a percentage of
sales more than offset the decrease in gross profit margins. As a
result, Group earnings were up 54% and its net profit margin on
sales increased by 0.4% of sales as compared with last year's first
quarter. Each of the Group's operating units posted improved sales
and, except for one small unit, posted improved income from
operations as compared with last year's first quarter. All of the
acquisitions noted above also contributed to the Group's improved
profitability.
The Video Communication Group's first quarter sales of $44.8
million, which represented 4% of consolidated sales as compared with
6% in last year's first quarter, were down 20% as compared with
$56.2 million in the first quarter of last year, due to product
transitioning from satellite TV decoders to more profitable DBS
(direct broadcast satellite) business. Group earnings increased by
64% compared with the prior year period.
As mentioned above, the Electrical and Industrial Group was
eliminated as of the beginning of fiscal 1996 due to the sale of the
motor, motor repair shop and OEM business of Brownell and the
transfer of the Avnet Industrial business to the Electronic
Marketing Group. Accordingly, its sales and net loss for the
current quarter were included in the Electronic Marketing Group,
while the prior period's results were included in the Electrical and
Industrial Group. There was no restatement of prior period Group
results due to the immaterial impact of the operations to both the
Electronic Marketing Group and the Company as a whole.
Liquidity and Capital Resources
During the first quarter of 1996, the Company generated $58.4
million from income before depreciation and other non-cash items,
and used $94.3 million for working capital needs resulting in $35.9
million of net cash flows being used for operations. In addition,
the Company used $11.5 million for other normal business operations
including purchases of property, plant and equipment ($6.4 million)
and dividends ($6.1 million), offset by cash generated from other
immaterial items ($1.0 million). This resulted in $47.4 million
being used for normal business operations. The Company also used
$66.7 million in connection with acquisitions, primarily VSI
Electronics and Setron Schiffer-Electronik GmbH, KG., offset by cash
received in connection with the sale of the motor, motor
repair shop and OEM business of Brownell Electro, and for the
repayment of other debt. This overall net use of cash of $114.1
million was financed by a $123.7 million increase in bank debt and
commercial paper offset by a $9.6 million increase in cash and cash
equivalents.
The Company's quick assets at September 29, 1995, totaled $842.3
million as compared with $763.0 million at June 30, 1995 and
exceeded the Company's current liabilities by $312.2 million as
compared with a $295.8 million excess at June 30, 1995. Working
capital at September 29, 1995 was $1,156.6 million as compared with
$1,057.1 million at June 30, 1995. At the end of the first quarter,
to support each dollar of current liabilities, the Company had $1.59
of quick assets and $1.59 of other current assets for a total of
$3.18 of current assets as compared with $3.26 at June 30, 1995.
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.
During the first quarter of 1996, taking into account the conversion
of the Debentures, shareholders' equity increased by $144.8 million
to $1,384.2 million at September 29, 1995, while total debt
increased by $18.6 million to $438.2 million. As a result, the
total debt to capital (shareholders' equity plus total debt) ratio
was 24.0% at September 29, 1995 as compared with 25.0% at June 30,
1995.
At September 29, 1995, 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 (PRP's). Pursuant to a Consent
Decree and Court Order entered into between the Company and the
former owners, 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 the financial statements for its
share of the costs of the clean-up at these 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
AVNET, INC. AND SUBSIDIARIES
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
First Quarter Ended
September 29, September 30,
1995 1994
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) *43,280,148 40,675,692
Common equivalent shares:
Conversion of convertible debentures
(weighted average) -- 2,448,487
Contingent shares issuable 111,697 103,991
Exercise of warrants and options
using the treasury method 328,616 104,054
Total common and common equivalent
shares 43,720,461 43,332,224
Income $44,544,269 $28,927,029
Interest expense on convertible
debentures - net of taxes -- 947,158
Income used for computing earnings
per share $44,544,269 $29,874,187
Net income $1.02 $0.69
* The weighted average shares outstanding for the first quarter ended
September 29, 1995 include 2,445,270 shares issued in connection with the
conversion of the Company's 6% Convertible Subordinated Debentures.
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AVNET, INC AND SUBSIDIARIES
EXHIBIT 11.2
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
First Quarter Ended
September 29, September 30,
1995 1994
(unaudited)
B. Fully diluted earnings per share:
Common and common equivalents 43,720,461 43,332,224
Additional dilution upon exercise
of options and warrants 2,732 40,648
Total fully diluted shares 43,723,193 43,372,872
Income $44,544,269 $28,927,029
Interest expense on convertible
debentures - net of taxes -- 947,158
Income used for computing earnings
per share $44,544,269 $29,874,187
Fully diluted earnings per share:
Net income $1.02 $0.69
SEE NOTES TO CONSOLIDATED CONDENSED 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 10, 1995
Date