<PAGE>
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 31, 1993 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 . . . . . 40,562,330 shs.
The number of units then outstanding of other publicly-traded securities of
the registrant:
6% Conv. Sub. Debs. Due 2012 . . . . . . . . . . . . . . . $105,285,000
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AVNET, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements.
Consolidated Condensed Balance Sheets -
December 31, 1993 and June 30, 1993 3
Consolidated Condensed Statements of Income -
First Halves Ended December 31, 1993 and
January 1, 1993 4
Consolidated Condensed Statements of Income - 5
Second Quarters Ended December 31, 1993 and
January 1, 1993
Consolidated Condensed Statements of Cash Flows -
First Halves Ended December 31, 1993 and
January 1, 1993 6
Notes to Consolidated Condensed Financial
Statements 7-8
Item 2. Management's Discussion and Analysis 9-11
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 12 - 13
*Exhibit 11.2 Computation of Earnings per
share - Fully Diluted 14 - 15
Signature Page 16
* Filed herewith
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PART I - FINANCIAL INFORMATION
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
Item I. Financial Statements
December 31, June 30,
1993 1993
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 52,797 $ 219,827
Receivables, less allowances of $19,653
and $14,736, respectively 496,837 359,200
Inventories (Note 3) 598,578 491,769
Other 8,019 4,797
Total current assets 1,156,231 1,075,593
Property, plant & equipment, at cost, net 110,240 102,539
Intangibles and other assets 406,192 69,181
Total assets $1,672,663 $1,247,313
Liabilities:
Current liabilities:
Borrowings due within one year $ 75,608 $ 107
Accounts payable 188,113 182,227
Accrued expenses and other 106,299 90,196
Total current liabilities 370,020 272,530
Long-term debt, less due within one year 244,075 106,623
Contingencies (Note 4)
Total liabilities 614,095 379,153
Shareholders' equity (Note 5):
Common stock $1.00 par, authorized
60,000,000 shares, issued 41,047,000
shares and 36,131,000 shares,
respectively 41,047 36,131
Additional paid-in capital 306,272 138,230
Retained earnings 738,065 719,308
Cumulative translation adjustments ( 15,554) ( 14,313)
Common stock held in treasury at cost,
485,000 shares and 483,000 shares,
respectively ( 11,262) ( 11,196)
Total shareholders' equity 1,058,568 868,160
Total liabilities and shareholders'
equity $1,672,663 $1,247,313
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
First Half Ended
December 31, January 1,
1993 1993
(unaudited)
Revenues:
Sales $1,728,464 $1,059,997
Investment and other income, net 966 13,656
1,729,430 1,073,653
Costs and expenses:
Cost of sales 1,390,515 826,330
Selling, shipping, general
and administrative 235,902 179,583
Depreciation and amortization 12,720 8,145
Restructuring and integration 22,702 --
Interest 6,612 5,393
1,668,451 1,019,451
Income before income taxes and cumulative
effect of change in accounting for
income taxes 60,979 54,202
Income taxes 27,267 21,838
Income before cumulative effect of
accounting change 33,712 32,364
Cumulative effect of change in method of
accounting for income taxes (2,791) --
Net income $ 30,921 $ 32,364
Earnings per share: (Note 6)
Income before cumulative effect of
accounting change $ 0.83 $ 0.90
Cumulative effect of change in method
of accounting for income taxes (0.07) --
Net income $ 0.76 $ 0.90
Shares used to compute earnings per
share (Note 6) 40,814 38,201
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(amounts in thousands except per share amounts)
Second Quarter Ended
December 31, January 1,
1993 1993
(unaudited)
Revenues:
Sales $ 850,462 $526,846
Investment and other income, net 388 5,387
850,850 532,233
Costs and expenses:
Cost of sales 685,465 410,970
Selling, shipping, general
and administrative 114,132 89,936
Depreciation and amortization 6,687 3,895
Interest 3,411 1,974
809,695 506,775
Income before income taxes 41,155 25,458
Income taxes 17,553 9,958
Net income $ 23,602 $ 15,500
Earnings per share (Note 6) $ 0.58 $ 0.43
Shares used to compute earnings per
share (Note 6) 40,836 38,227
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Half Ended
December 31, January 1,
1993 1993
(unaudited)
Cash flows from operating activities:
Net income $ 30,921 $ 32,364
Add non-cash and other reconciling items:
Depreciation and amortization 15,473 12,630
Deferred taxes ( 1,089) ( 471)
Cumulative effect of change in accounting
for income taxes 2,791 --
Other, net (Note 7) 7,539 ( 2,112)
55,635 42,411
Receivables ( 41,736) ( 121)
Inventories 4,935 14,398
Payables, accruals and other, net ( 52,456) ( 14,795)
Net cash flows (used for) provided from
operations ( 33,622) 41,893
Cash flows from financing activities:
Redemption of debentures -- ( 68,117)
Issuance (payment) of other debt 211,413 ( 3,293)
Cash dividends ( 11,426) ( 10,660)
Other, net 1,278 793
Net cash flows provided from (used for)
financing 201,265 ( 81,277)
Cash flows from investing activities:
Purchases of property, plant and equipment ( 8,362) ( 10,379)
Acquisition of operations (Note 7) ( 326,238) ( 15,256)
Disposition of interest-bearing
investments, net -- 224,675
Other, net ( 73) 49
Net cash flows (used for) provided from
investing ( 334,673) 199,089
Cash and cash equivalents:
- (decrease) increase ( 167,030) 159,705
- at beginning of year 219,827 56,893
- at end of period $ 52,797 $216,598
Additional cash flow information: (Note 7)
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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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 December 31, 1993; the results of operations for the
first halves and second quarters ended December 31, 1993 and January 1,
1993; and the cash flows for the first halves ended December 31, 1993
and January 1, 1993.
2. The results of operations for the first half and second quarter ended
December 31, 1993 are not necessarily indicative of the results to be
expected for the full year.
3. Inventories:
(Thousands)
December 31 June 30,
1993 1993
Finished goods $513,099 $422,823
Work in process 2,881 2,861
Purchased parts and raw materials 82,598 66,085
$598,578 $491,769
4. From time to time, the Company may become liable with respect to pending
and threatened litigation, taxes and environmental and other matters.
During the fourth quarter of 1992, the Environmental Protection Agency
(EPA) issued a remedial investigation and feasibility study in
connection with the environmental clean-up at a Company-owned site in
Oxford, NC for which the company has been designated a potentially
responsible party. The EPA's preliminary estimate of the cost of the
clean-up alternative it has recommended is approximately $6.3 million.
In addition, past costs of the EPA have amounted to approximately $1.5
million. In May 1993, the Company settled its lawsuit against the prior
owners of the site and entered into a Consent Decree and Court Order.
Pursuant to that settlement, the former owners have agreed to bear at
least 70% of the clean-up cost of the site. The Company will be
responsible for not more than 30% of the clean-up costs. In August 1993
the Company and the former owners entered into a Consent Decree with the
EPA pursuant to which the clean-up of the site will proceed. The
Company believes that it has adequately reserved for its share of the
costs of the clean-up and it is not anticipated that any other
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: 5,052,295
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
6. Solely for the purpose of calculating earnings per share for the second
quarter and first half of the prior year ended January 1, 1993, 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. In the current
year's second quarter and first half these adjustments were not made
because the impact of including the 6% Debentures would have been
immaterial.
7. Additional cash flow information:
Other non-cash and reconciling items primarily include the provision for
doubtful accounts and gains and losses on dispositions of marketable
securities. Non-cash financing costs include the issuance of $166.1
million in Avnet stock in connection with the acquisition of Hall-Mark
Electronics Corporation ("Hall-Mark").
Cash expended for the acquisition of operations include primarily the
cash paid for the acquisition of Hall-Mark and Adelsy.
Interest and income taxes paid were as follows:
(Thousands) Fiscal
1994 1993
Interest $ 7,432 $ 9,074
Income taxes $ 37,063 $ 20,727
8. On July 1, 1993, the Company completed the acquisition of all of the
stock of Hall-Mark, 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 on July 1, 1993. The total cost of the acquisition was
approximately $487.6 million consisting of $212.0 million in cash (after
consideration of Hall-Mark cash on hand, proceeds from the exercise of
Hall-Mark options and warrants, and professional fees incurred in
connection with the acquisition) and $166.1 million in Avnet stock for
the Hall-Mark common stock, and $109.5 million for the refinancing of
Hall-Mark bank debt. The $321.5 million of funding required to complete
the transaction was financed through cash on hand and borrowings under
a credit facility with NationsBank of North Carolina, N.A. The
transaction has been accounted for as a purchase.
<PAGE>
Item 2. Management Discussion and Analysis
Results of Operations
On July 1, 1993, Avnet completed the acquisition of Hall-Mark Electronics
Corporation, including its wholly-owned subsidiary Allied Electronics, Inc.
(together referred to as "Hall-Mark"). Prior to the acquisition, Hall-Mark was
the nation's third largest distributor of electronic components. Immediately
after the acquisition, Hall-Mark was integrated into the Company's Electronic
Marketing Group. Accordingly, the results of operations of the Company for the
second quarter and first half of fiscal 1994 ended December 31, 1993 includes
the results of Hall-Mark.
In the second quarter of this year, consolidated sales were $850.5 million, up
61% as compared with sales of $526.8 million in the prior year's quarter and up
more than 20% when the prior year's sales are adjusted proforma to include Hall-
Mark sales. Gross profit margins of 19.4% for the quarter were lower by 2.6% as
compared with 22.0% during the prior year period as competitive pressures and
sales of lower margin
microprocessors continued to increase. However, operating expenses as a
percentage of sales, excluding depreciation and amortization, decreased by 3.7%
to 13.4% in the second quarter of this year as compared with 17.1% in the prior
year period reflecting the Company's continued emphasis on operating
efficiencies
as well as the impact of synergies achieved through the integration of
Hall-Mark.
Depreciation and amortization were substantially higher in the current year's
second quarter and first half due primarily to the amortization of goodwill
associated with the Hall-Mark acquisition.
Sales in the first half of fiscal 1994 were $1.728 billion or 63% higher than
the
$1.060 billion in the prior year period. If Hall-Mark sales were included in
the
prior year first half, sales during fiscal 1994's first half would be 22%
higher.
Gross profit margins in the first half of this year were 19.6% as compared with
22.0% in the prior year, a decline of 2.4%. Operating expenses as a percentage
of sales, excluding depreciation and amortization, were 13.6% as compared with
16.9% last year.
Investment and other income was down substantially in the second quarter and
first half of fiscal 1994 when compared with the comparable periods last year.
This was due primarily to the liquidation of the Company's marketable securities
portfolio, the proceeds of which were used to partially fund the July 1, 1993
acquisition of Hall-Mark. Interest expense in the second quarter and first half
were both higher than in the prior year periods due primarily to the increase in
total debt outstanding as a result of the Hall-Mark acquisition. The effective
tax rate increased in fiscal 1994 due primarily to the 1% increase in federal
income tax rates and the impact of the non-deductible amortization of goodwill
which arose in connection with the acquisition of Hall-Mark.
As a result of the above, net income for the second quarter and first half
(before one-time special charges recorded in the first quarter) were $23.6
million and $47.7 million, respectively up 52% and 47% when compared with the
comparable prior year periods.
<PAGE>
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 for the first half was $30.9 million or $0.76 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 and the restructuring of the Electrical and Industrial Group.
These costs included accruals for severance, anticipated real and personal
property
lease terminations, relocation of employees, inventory adjustments related to
anticipated supplier terminations and other items. Other non-recurring charges
in the first quarter were the $0.5 million impact of the retroactive increase in
federal income tax rates as it relates to fiscal 1993 income and the $2.8
million cumulative effect of the change in the method of accounting for
income taxes as a result of the Company's adopting Statement of Financial
Accounting Standard (SFAS) No. 109.
Sales per day during January, the first month of the third quarter, were higher
than in the comparable period last year when adjusted to include the sales of
Hall-Mark on a proforma basis, and were about the same as in October, the
first month of the immediately preceding quarter.
The Electronic Marketing Group's fiscal 1994 second quarter and first half sales
accounted for 88% of consolidated sales as compared with 85% in the prior year
periods. Group sales were up by 68% and 69% respectively in the second quarter
and first half as compared with the comparable periods last year, due
principally to the Hall-Mark acquisition, a strong sales performance at
Hamilton Hallmark and the Avnet Computer Group and a significant increase in
the Group's European volume. Gross profit margins in both the second quarter
and first half of this year were lower than in the prior year periods, but
lower operating expenses as a percentage of sales more than offset the
decrease in gross profit margins. Although the decrease in investment and
other income and the increase in the effective tax rate resulted in a
slightly lower net income margin this year as compared with last year, net
income (before special charges) increased more than 40% in both the second
quarter and first half.
The Video Communications Group's second quarter sales of $58.4 million, which
represented 7% of consolidated sales, were up 51% as compared with the prior
year's quarter, while first half sales of $116.3 million were up almost 75% over
the prior year period. This sales increase was due primarily to the sales
volume of replacement satellite TV signal decoding mechanisms. Net income
was up substantially compared with the prior year's first half (which
included the losses incurred by the Far East operations that have since been
closed).
The Electrical and Industrial Group, with 5% of consolidated sales, posted
slightly lower revenues and a small loss for the second quarter and first half
due principally to continued sluggishness in the Group's factory maintenance and
repair parts businesses.
Liquidity and Capital Resources
During the first half of fiscal 1994, the Company used $326.2 million for the
acquisition of Hall-Mark and Adelsy. Additionally, the Company used $33.6
million for operations and $18.6 million, net for the purchases of property,
plant and equipment, cash dividends and other items. Of the $378.4 million use
of funds, $211.4 million was obtained by the Company from short-term bank
borrowings and $167.0 million came from the Company's available cash.
The Company's quick assets at December 31, 1993 totaled $549.6 million compared
with $579.0 million at June 30, 1993, and exceeded the Company's current
liabilities by $179.6 million compared with a $306.5 million excess at June 30,
1993. Working capital at December 31, 1993 was $786.2 million compared with
$803.1 million at June 30, 1993. At the end of the second quarter, to support
each dollar of current liabilities, the Company had $1.48 of quick assets and
$1.64 of other current assets for a total of $3.12 of current assets compared
with $3.95 at June 30, 1993.
In order to fund the acquisition of Hall-Mark, the Company established a credit
arrangement with NationsBank of North Carolina, N.A. ("NationsBank").
That credit arrangement has been restructured and
currently consists of a $75 million revolving bridge loan facility with
NationsBank and a three-year revolving credit facility with a syndication of
banks which provides a line of credit up to $150.0 million. The Company may
select from various interest rate options and maturities under both facilities.
In January 1994 the Company filed a "shelf" registration statement with the
Securities and Exchange Commission which provides for borrowings of up to $200
million in public debt over the next two years. The Company anticipates that it
will complete a public debt offering in the near future, and use the proceeds to
pay down a portion of its outstanding bank debt. At this time the Company
anticipates an initial borrowing under the registration statement in the range
of $100 to $125 million.
During the first half of fiscal 1994, shareholders' equity increased by $190.4
million, principally as a result of the issuance of common stock in connection
with the acquisition of Hall-Mark. Long-term debt increased by $137.5 million
due primarily to borrowings under the newly established three-year revolving
credit facility described above. Short-term borrowings consist mainly of the
balance due under the NationsBank revolving bridge loan facility. At December
31, 1993 the Company's long-term debt amounted to $244.1 million or 18.7% of
capital. If the NationsBank loan was included as long-term debt, the ratio of
debt to capital would be 23.2%. 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.
Currently, the Company does not have any commitments for material capital
expenditures. The Company is not aware of any commitments, contingencies,
trends, events or uncertainties which are anticipated to have a material adverse
impact on the Company's financial condition or which may significantly alter its
ability to generate sufficient cash from internal or external sources to meet
its
needs. However, reference is made to Note 4 of the financial statements, which
Note is incorporated as if fully set forth herein, and which describes an
environmental clean-up of a Company-owned site in Oxford, North Carolina. In
addition, in October 1993, the Company received a notice of claim from the New
York State Department of Environmental Protection in connection with a proposed
remedial investigation at a site formerly owned by the Company's Video
Communications Group in Huguenot, New York. The Company is currently
investigating the nature and extent of its potential liability in connection
with the remedial investigation, which has not yet been determined.
AVNET, INC. AND SUBSIDIARIES
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
First Half Ended
December 31, January 1,
1993 1993
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 40,543,523 35,549,163
Common equivalent shares:
Conversion of convertible debentures
(weighted average) (Note 6) -- 2,448,487
Contingent shares issuable 108,304 109,548
Exercise of warrants and options
using the treasury method 162,643 93,835
Total common and common equivalent
shares 40,814,470 38,201,033
Income before cumulative effect of
change in accounting $33,711,699 $32,364,394
Interest expense on convertible
debentures - net of taxes (Note 6) -- 1,927,630
Income used for computing earnings
per share before cumulative effect
of change in accounting $33,711,699 $34,292,024
Cumulative effect of change in
accounting ( 2,790,839) --
Income used for computing earnings
per share $30,920,860 $34,292,024
Primary earnings per share:
Income before cumulative effect of
accounting change $0.83 $0.90
Cumulative effect of change in
accounting for income taxes ( .07) --
Net income $ .76 $0.90
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
AVNET, INC. AND SUBSIDIARIES
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
Second Quarter Ended
December 31, January 1,
1993 1993
(unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 40,557,831 35,562,495
Common equivalent shares:
Conversion of convertible debentures
(weighted average) (Note 6) -- 2,448,487
Contingent shares issuable 109,529 113,506
Exercise of warrants and options
using the treasury method 168,591 102,788
Total common and common equivalent
shares 40,835,951 38,227,276
Net Income $23,601,764 $15,500,660
Interest expense on convertible
debentures - net of taxes (Note 6) -- 963,815
Income used for computing earnings
per share $23,601,764 $16,464,475
Primary earnings per share $ .58 $ .43
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
AVNET, INC. AND SUBSIDIARIES
EXHIBIT 11.2
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
First Half Ended
December 31, January 1,
1993 1993
(unaudited)
B. Fully diluted earnings per share:
Common and common equivalents (Note 6) 40,814,470 38,201,033
Additional dilution upon exercise
of options and warrants 64,589 22,064
Total fully diluted shares 40,879,059 38,223,097
Income before cumulative effect of
change in accounting $33,711,699 $32,364,394
Interest expense on convertible
debentures - net of taxes (Note 6) -- 1,927,630
Income used for computing earnings
per share before cumulative effect
of change in accounting $33,711,699 $34,292,024
Cumulative effect of change in
accounting ( 2,790,839) --
Income used for computing earnings
per share $30,920,860 $34,292,024
Fully diluted earnings per share:
Income before cumulative effect of
accounting change $0.83 $0.90
Cumulative effect of change in
accounting for income taxes ( 0.07) --
Net income $0.76 $0.90
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
AVNET, INC. AND SUBSIDIARIES
EXHIBIT 11.2
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
Second Quarter Ended
December 31 January 1,
1993 1993
(unaudited)
B. Fully diluted earnings per share:
Common and common equivalents (Note 6) 40,835,951 38,227,276
Additional dilution upon exercise
of options and warrants 39,435 33,712
Total fully diluted shares 40,875,386 38,260,988
Net income $23,601,764 $15,500,660
Interest expense on convertible
debentures - net of taxes (Note 6) -- 963,815
Income used for computing earnings
per share $23,601,764 $16,464,475
Fully diluted earnings per share $0.58 $0.43
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<PAGE>
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 14, 1994
Date
