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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 30, 1994 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 . . . . . 40,650,465 shs.
The number of units then outstanding of other publicly-traded securities of
the registrant:
6% Conv. Sub. Debs. Due April 15, 2012 . . . . . . . . . . $105,285,000
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 30, 1994 and July 1, 1994 3
Consolidated Condensed Statements of Income -
First Quarters Ended September 30, 1994 and
October 1, 1993 4
Consolidated Condensed Statements of Cash Flows -
First Quarters Ended September 30, 1994 and
October 1, 1993 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
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
Item I. Financial Statements
September 30, July 1,
1994 1994
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 64,163 $ 53,876
Receivables, less allowances of $21,244
and $21,975, respectively 601,762 573,569
Inventories (Note 3) 672,116 627,022
Other 10,494 9,614
Total current assets 1,348,535 1,264,081
Property, plant & equipment, at cost, net 118,330 115,146
Intangibles and other assets 431,554 408,460
Total assets $1,898,419 $1,787,687
Liabilities:
Current liabilities:
Borrowings due within one year $ 101 $ 47
Accounts payable 263,889 252,915
Accrued expenses and other 157,162 123,135
Total current liabilities 421,152 376,097
Long-term debt, less due within one year 341,278 303,075
Commitments and Contingencies (Note 4)
Total liabilities 762,430 679,172
Shareholders' equity (Note 5):
Common stock $1.00 par, authorized
60,000,000 shares, issued 41,130,000
shares and 41,104,000 shares, respectively 41,130 41,104
Additional paid-in capital 308,187 307,149
Retained earnings 803,094 780,266
Cumulative translation adjustments ( 6,110) ( 9,692)
Common stock held in treasury at cost,
445,000 shares and 445,000 shares,
respectively ( 10,312) ( 10,312)
Total shareholders' equity 1,135,989 1,108,515
Total liabilities and shareholders'
equity $1,898,419 $1,787,687
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 30, October 1,
1994 1993
(unaudited)
Revenues:
Sales $ 953,115 $ 878,002
Investment and other income, net 700 578
953,815 878,580
Costs and expenses:
Cost of sales 767,110 705,050
Selling, shipping, general
and administrative 124,567 121,770
Depreciation and amortization 6,530 6,033
Restructuring and integration -- 22,702
Interest 5,122 3,201
903,329 858,756
Income before income taxes and cumulative
effect of a change in accounting
principle 50,486 19,824
Income taxes 21,559 9,714
Income before cumulative effect of a
change in accounting principle 28,927 10,110
Cumulative effect of a change in the
method of accounting for income taxes -- ( 2,791)
Net income $ 28,927 $ 7,319
Earnings per share: (Note 6)
Income before cumulative effect of a
change in accounting principle $0.69 $0.25
Cumulative effect of a change in the
method of accounting for income taxes -- (0.07)
Net income $0.69 $0.18
Shares used to compute earnings per
share (Note 6) 43,332 40,793
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Quarter Ended
September 30, October 1,
1994 1993
(unaudited)
Cash flows from operating activities:
Net income $ 28,927 $ 7,319
Add non-cash and other reconciling items:
Depreciation and amortization 8,168 7,473
Deferred taxes ( 365) ( 498)
Cumulative effect of change in accounting
for income taxes -- 2,791
Other, net (Note 7) 4,061 3,970
40,791 21,055
Receivables ( 25,747) ( 49,395)
Inventories ( 36,063) 10,882
Payables, accruals and other, net 35,569 29,172
Net cash flows provided from operations 14,550 11,714
Cash flows from financing activities:
Issuance of bank debt 38,500 166,900
Payment of other debt ( 2,600) ( 126)
Cash dividends (Note 7) -- ( 11,426)
Other, net 620 5,800
Net cash flows provided from financing 36,520 161,148
Cash flows from investing activities:
Purchases of property, plant and equipment ( 8,311) ( 4,808)
Acquisition of operations (Note 7) ( 32,472) ( 330,959)
Other, net -- ( 51)
Net cash flows used for investing ( 40,783) ( 335,818)
Cash and cash equivalents:
- increase (decrease) 10,287 ( 162,956)
- at beginning of year 53,876 219,827
- at end of period $ 64,163 $ 56,871
Additional cash flow information (Note 7)
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 30, 1994 and July 1, 1994; the results of
operations for the first quarters ended September 30, 1994 and October
1, 1993; and the cash flows for the first quarters ended September 30,
1994 and October 1, 1993.
2. The results of operations for the first quarter ended September 30, 1994
are not necessarily indicative of the results to be expected for the
full year.
3. Inventories:
(Thousands)
September 30, July 1,
1994 1994
Finished goods $569,155 $554,813
Work in process 3,996 2,730
Purchased parts and raw materials 98,965 69,479
$672,116 $627,022
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 conversion, warrants, options and
other rights: 4,928,638
6. Solely for the purpose of calculating earnings per share for the first
quarter ended September 30, 1994, common shares issuable upon conversion
of the 6% Convertible Subordinated Debentures were considered common
equivalent shares and the net interest expense applicable to such
Debentures was eliminated. The dilutive effect on the current quarter's
earnings per share was approximately $.02. In the prior year's first
quarter an adjustment was not made because the impact of including the 6%
Debentures would have been anti-dilutive.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
7. 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 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.
Cash expended for the acquisition of operations in the first quarters of
fiscal 1995 and 1994 include primarily the cash paid for the
acquisitions of Penstock, Inc. and Hall-Mark Electronics (See Note No.
8), respectively.
Interest and income taxes paid in the first quarters were as follows:
(Thousands) Fiscal
1995 1994
Interest $5,101 $2,284
Income taxes $6,625 $5,863
8. On July 1, 1993, the Company completed the acquisition of all of the
stock of Hall-Mark Electronics Corporation, the nation's third largest
distributor of electronic components, pursuant to an Agreement and Plan
of Merger dated April 20, 1993. Each share of Hall-Mark common stock
was exchanged for $20 in cash and 0.45 shares of Avnet common stock,
which had a market value of $34.1875 per share on July 1, 1993. The
total cost of the acquisition including expenses was approximately
$496,559,000, consisting of the cost for the Hall-Mark common stock of
$218,409,000 in cash, $166,093,000 in Avnet stock and $2,532,000 in
Avnet stock options (net of related tax benefits of $1,950,000), and the
cost for the refinancing of Hall-Mark bank debt of $109,525,000. The
$327,934,000 of funding required to complete the transaction was
financed through cash on hand, proceeds from the exercise of Hall-Mark
options and warrants, and borrowings under a credit facility with
NationsBank of North Carolina, N.A. The transaction was accounted for
as a purchase.
Item 2. Management's Discussion and Analysis
Results of Operations
For the first quarter of 1995 ended September 30, 1994, consolidated sales were
a record $953.1 million, up 9% when compared with last year's first quarter
sales
of $878.0 million. The increase in sales came entirely from the Company's
Electronic Marketing Group, as sales of the Video Communications Group were
slightly down and sales of the Electrical and Industrial Group were flat. The
current year's sales include the sales of Penstock, DeMico and Adelsy, which
were
acquired subsequent to the first quarter of 1994. Penstock, the nation's
leading
technical specialist distributor of microwave and radio frequency products and
related value-added services, was acquired in July 1994. Adelsy and DeMico,
electronics component distributors based in Italy, were acquired at the end of
September 1993 and in March 1994, respectively.
Gross profit margins of 19.5% on a consolidated basis in the first quarter of
1995 were lower by 2/10 of 1% as compared with 19.7% in the first quarter of
last year. However, operating expenses as a percentage of sales were 13.7%,
down 9/10
of 1% as compared with 14.6% in the first quarter of 1994 (before restructuring
and integration costs described below). This resulted in an increase in
operating income as a percentage of sales to 5.8% in the first quarter of 1995
as compared with 5.1% in the first quarter of 1994. Operating income (income
before interest, other income and taxes) as a percentage of sales has increased
sequentially over the last six quarters.
Investment and other income increased slightly as compared with the first
quarter
of 1994; however, investment and other income, have had no material effect on
earnings since the Company liquidated its marketable securities portfolio to
partially fund the July 1, 1993 acquisition of Hall-Mark Electronics. Interest
expense was substantially higher in the first quarter of 1995 as compared with
the same quarter last year due to the combination of increased interest rates
and
increased borrowings to finance the growth in business. The Company's effective
tax rate decreased slightly in the first quarter of 1995 as compared with the
first quarter of 1994 due primarily to the mix of earnings between the domestic
and foreign operations to which different tax rates apply.
As a result of the above, net income for the first quarter of 1995 was $28.9
million, a record for any first quarter in the Company's history, up 20% when
compared with $24.1 million (before one-time special charges) in the first
quarter of last year. Earnings as a percentage of sales were up 3/10 of 1% to
3.0% as compared with 2.7% in the first quarter of last year. Earnings per
share
were $0.69 as compared with $0.59 (before one-time special charges) in the first
quarter of last year. Earnings per share for the current year's first quarter
were reduced to $0.69 by the approximately $0.02 dilutive effect of the required
inclusion as common stock equivalents of the Company's 6% Convertible
Subordinated Debentures due April 15, 2012. In the first quarter of 1994, the
conversion of such debentures was not taken into account in calculating earnings
per share due to their anti-dilutive effect.
During the first quarter of 1994, the Company recorded one-time special charges
which negatively impacted net income by $16.8 million or $0.41 per share. After
such charges, net income was $7.3 million or $0.18 per share. The one-time
charges included $22.7 million ($13.5 million after tax) of restructuring and
integration costs associated with the July 1, 1993 acquisition of Hall-Mark
Electronics and the restructuring of the Electrical and Industrial Group and
$0.5
million for the impact of the retroactive increase in federal income tax rates
enacted in fiscal 1994 as it related to fiscal 1993 income. Additionally, in
the
first quarter of 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" and
recognized a charge for the cumulative effect of the change in accounting
principle in the amount of $2.8 million.
Subsequent to the end of the first quarter of 1995, incoming orders and actual
shipments (both in the aggregate and average per day) for the fiscal month of
October were higher than in the comparable period last year and were also higher
than in July 1995, the first month of the immediately preceding quarter.
The Company's Electronic Marketing Group's sales in the first quarter of 1995
were $849.8 million, accounting for 89% of consolidated sales, compared with
$773.0 million, or 88% of consolidated sales, in the first quarter of last
year.
Of this $76.8 million or 10% increase in sales, approximately $30 million was
attributable to Penstock, DeMico and Adelsy, which were acquired subsequent to
last year's first quarter. The Group's gross profit margins were lower than in
the prior year, 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 18% and its profit margin on sales increased by 2/10 of 1% compared with last
year's first quarter. The Group's Hamilton Hallmark, Time Electronics, Allied
Electronics and European operations posted improved performance. The three
acquisitions noted above also contributed to the Group's improved
profitability.
The Video Communication Group's first quarter sales, which represented 6% of
consolidated sales compared with 7% in last year's first quarter, were $56.2
million as compared with $57.9 million in the comparable period last year, due
to product transitioning from satellite TV decoders to more profitable DBS
(direct broadcast satellite) business. Group earnings increased by 60% compared
with the prior year period due to this product mix transition.
The Electrical and Industrial Group's first quarter of 1995 sales, which
represented 5% of Avnet's consolidated sales in both the current and prior
year's first quarters, were flat compared with 1994's first quarter. The
Group's
profitability for the first quarter was somewhat improved over the prior year
period.
Liquidity and Capital Resources
During the first quarter of 1995, the Company generated $40.8 million from
income
before depreciation and other non-cash items, and used $26.2 million for working
capital needs resulting in $14.6 million of net cash flows from operations. In
addition, the Company used $7.7 million for other normal business operations
including purchases of property, plant and equipment and other items. This
resulted in $6.9 million being generated from normal business operations. The
Company also used $35.1 million in connection with acquisitions, primarily
Penstock, including the payoff of almost $2.6 million of Penstock's outstanding
debt. This overall net use of cash of $28.2 million was financed by a $38.5
million increase in bank debt offset by a $10.3 million increase in cash.
The Company's quick assets at September 30, 1994, totaled $665.9 million
compared
with $627.4 million at July 1, 1994, and exceeded the Company's current
liabilities by $244.8 million compared with a $251.3 million excess at July 1,
1994. Working capital at September 30, 1994 was $927.4 million compared with
$888.0 million at July 1, 1994. At the end of the first quarter, to support
each
dollar of current liabilities, the Company had $1.58 of quick assets and $1.62
of other current assets for a total of $3.20 of current assets compared with
$3.36 at July 1, 1994.
During the first quarter of 1995, shareholders' equity increased by $27.5
million
to $1,136.0 million at September 30, 1994, while long-term debt increased by
$38.2 million to $341.3 million. As a result, the long-term debt to capital
(shareholder's equity plus long-term debt) ratio was 23.1% at September 30, 1994
compared with 21.5% at July 1, 1994.
At September 30, 1994, 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 and has had a claim made
against it by a third party with respect to a clean-up site in Hempstead, New
York. 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 with respect to an
environmental clean-up site in Huguenot, New York. At this time, the Company
cannot estimate the amount of its potential liability, if any, for clean-up
costs
in connection with this site, 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.
AVNET, INC. AND SUBSIDIARIES
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
First Quarter Ended
September 30, October 1,
1994 1993
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 40,675,692 40,529,214
Common equivalent shares:
Conversion of convertible debentures
(weighted average) (Note 6) 2,448,487 --
Contingent shares issuable 103,991 107,076
Exercise of warrants and options
using the treasury method 104,054 156,695
Total common and common equivalent
shares 43,332,224 40,792,985
Income before cumulative effect of a
change in accounting principle $28,927,029 $10,109,935
Interest expense on convertible
debentures - net of taxes (Note 6) 947,158 --
Income used for computing earnings
per share before cumulative effect
of a change in accounting
principle $29,874,187 $10,109,935
Cumulative effect of a change in
the method of accounting for
income taxes -- ( 2,790,839)
Income used for computing earnings
per share $29,874,187 $ 7,319,096
Primary earnings per share:
Income before cumulative effect of
a change in accounting principle $0.69 $0.25
Cumulative effect of change in the
method of accounting for income
taxes -- (0.07)
Net income $0.69 $0.18
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 30, October 1,
1994 1993
(unaudited)
B. Fully diluted earnings per share:
Common and common equivalents (Note 6) 43,332,224 40,792,985
Additional dilution upon exercise
of options and warrants 40,648 89,742
Total fully diluted shares 43,372,872 40,882,727
Income before cumulative effect of a
change in accounting principle $28,927,029 $10,109,935
Interest expense on convertible
debentures - net of taxes (Note 6) 947,158 --
Income used for computing earnings
per share before cumulative effect
of a change in accounting principle $29,874,187 $10,109,935
Cumulative effect of change in the
method of accounting for income
taxes -- ( 2,790,839)
Income used for computing earnings
per share $29,874,187 $ 7,319,096
Fully diluted earnings per share:
Income before cumulative effect of
a change in accounting principle $0.69 $0.25
Cumulative effect of a change in
the method of accounting for
income taxes -- (0.07)
Net income $0.69 $0.18
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 14, 1994
Date