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 the Quarterly Period Ended September 26, 1997 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 outstanding of the registrant's Common Stock (net of
treasury shares) as of the close of the period covered by this report -
40,637,346 shs.
<PAGE>
AVNET, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets -
September 26, 1997 and June 27, 1997 3
Consolidated Statements of Income -
First Quarters Ended September 26, 1997 and
September 27, 1996 4
Consolidated Statements of Cash Flows -
First Quarters Ended September 26, 1997 and
September 27, 1996 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis 8 - 10
Item 3. Quantitative and Qualitative Disclosures 11
About Market Risk
Part II. Other Information 11 - 12
Signature Page 13
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 26, June 27,
1997 1997
(unaudited) (audited)
Assets:
Current assets:
Cash and cash equivalents $ 44,392 $ 59,312
Receivables, less allowances of $30,671
and $27,915, respectively 849,793 800,015
Inventories (Note 3) 1,074,756 1,007,074
Other 31,135 30,035
Total current assets 2,000,076 1,896,436
Property, plant & equipment, net 181,112 181,509
Goodwill, net of accumulated amortization of
$53,017 and $49,846, respectively 474,849 476,935
Other assets 41,484 39,191
Total assets $2,697,521 $2,594,071
Liabilities:
Current liabilities:
Borrowings due within one year $ 248 $ 178
Accounts payable 464,118 433,762
Accrued expenses and other 171,823 143,513
Total current liabilities 636,189 577,453
Long-term debt, less due within one year 545,569 514,426
Commitments and contingencies (Note 4)
Total liabilities 1,181,758 1,091,879
Shareholders' equity (Note 5):
Common stock $1.00 par, authorized
60,000,000 shares, issued 44,202,00
shares and 44,032,000 shares, respectively 44,202 44,032
Additional paid-in capital 429,547 425,180
Retained earnings 1,251,519 1,215,550
Cumulative translation adjustments (26,292) (24,767)
Common stock held in treasury at cost,
3,565,000 shares and 2,927,000 shares,
respectively (183,213) (157,803)
Total shareholders' equity 1,515,763 1,502,192
Total liabilities and shareholders'
equity $2,697,521 $2,594,071
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(thousands, except per share data)
First Quarters Ended
September 26, September 27,
1997 1996
(unaudited) (unaudited)
Sales $1,398,832 $1,281,812
Cost of sales 1,156,874 1,049,322
Gross profit 241,958 232,490
Operating expenses:
Selling, shipping, general and
administrative expenses 161,039 152,770
Operating income 80,919 79,720
Other income, net 236 770
Interest expense (8,636) (6,900)
Income before income taxes 72,519 73,590
Income taxes 30,407 31,217
Net income $ 42,112 $ 42,373
Earnings per share $1.02 $0.97
Shares used to compute earnings
per share 41,372 43,709
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
First Quarters Ended
September 26, September 27,
1997 1996
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 42,112 $ 42,373
Add non-cash and other reconciling items:
Depreciation and amortization 13,232 10,960
Deferred taxes (623) (706)
Other, net (Note 6) 5,376 4,974
60,097 57,601
Receivables (57,281) (3,243)
Inventories (70,814) 43,057
Payables, accruals and other, net 64,937 11,373
Net cash flows (used for) provided from
operating activities (3,061) 108,788
Cash flows from financing activities:
Issuance of commercial paper
and bank debt, net 30,778 (73,760)
Issuance (payment) of other debt 1,076 (3,936)
Cash dividends (6,209) (6,513)
Repurchase of common stock (27,420) -
Other, net 2,426 ( 1,744)
Net cash flows provided from (used for)
financing activities 651 (85,953)
Cash flows from investing activities:
Purchases of property, plant and
equipment (10,151) (13,521)
Acquisition of operations, net (Note 6) (2,041) (269)
Net cash flows used for investing
activities (12,192) ( 13,790)
Effect of exchange rate changes on cash
and cash equivalents (318) 15
Cash and cash equivalents:
- increase (decrease) (14,920) 9,060
- at beginning of year 59,312 47,808
- at end of period $ 44,392 $ 56,868
Additional cash flow information (Note 6)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position as
of September 26, 1997 and June 27, 1997; the results of operations for the
first quarters ended September 26, 1997 and September 27, 1996; and the
cash flows for the first quarters ended September 26, 1997 and September
27, 1996. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's annual
report on Form 10-K for the year ended June 27, 1997.
2. The results of operations for the first quarter ended September 26, 1997
are not necessarily indicative of the results to be expected for the full
year.
3. Inventories:
(Thousands)
September 26, June 27,
1997 1997
Finished good $ 962,282 $ 917,751
Work in process 13,654 13,714
Purchased parts and raw materials 98,820 75,609
$1,074,756 $1,007,074
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: 4,161,247
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Additional cash flow information :
Other non-cash and reconciling items primarily include the provision for
doubtful accounts.
Cash expended for the acquisition of operations in the first quarter of
fiscal 1998 includes primarily the cash paid in connection with the
acquisition of ECR Sales Management, Inc., a Northwest U.S. based
distributor of point-of-sale equipment and bar code devices which will be
part of the Company's Penstock business. In the first quarter of fiscal
1997, cash expended for the acquisition of operations includes only the
cash paid for professional and other fees associated with various
acquisitions completed during fiscal 1996.
Interest and income taxes paid in the first quarters were as follows:
(Thousands)
1998 1997
Interest $10,183 $6,081
Income taxes $ 3,078 $4,892
<PAGE>
Item 2. Management's Discussion and Analysis
Results of Operations
For the first quarter of fiscal 1998 ended September 26, 1997, consolidated
sales were a record $1.399 billion, up 9% as compared with last year's first
quarter sales of $1.282 billion. This increase was due primarily to stronger
sales at the Company's North American electronic components and computer
operations. The Electronic Marketing Group's sales in the first quarter of
1998, which represented 98% of consolidated sales, were $1.365 billion, up
almost 11% as compared with $1.234 billion in 1997's first quarter, and the
Video Communications Group's sales in the first quarter of 1998 were $34
million, or 28% lower than the prior year's sales of almost $48 million. Each
of the subgroups within EMG North America - the OEM Marketing Group, the
Computer Marketing Group and the Industrial Marketing Group - recorded double
digit sales growth as compared with the same quarter last year. In addition,
all of the individual units within those subgroups, except Avnet Industrial,
recorded double digit or near double digit sales growth as well. Sales at EMG
International were slightly below last year's level due entirely to foreign
currency translation. Had foreign currency exchange rates remained the same
as in the first quarter of last year, EMG International's first quarter of
1998 sales would have been 10% higher than the prior year period.
Consolidated gross profit margins of 17.3% in the first quarter of 1998 were
lower by 0.8% of sales as compared with 18.1% in the first quarter of last
year. Even though operating expenses as a percentage of sales of 11.5% were
also lower as compared with 11.9% in the prior year period, the decrease was
not enough to offset totally the decline in the consolidated gross profit
margins. As a result, operating income as a percentage of sales was 5.8% in
the first quarter of 1998 as compared with 6.2% in the first quarter of last
year. Interest expense was substantially higher in the first quarter of 1998
as compared with the prior year s quarter due primarily to increased
borrowings to fund the Company's stock repurchase program and to fund the
additional working capital requirements to support the growth in business.
Operating income of $80.9 million in the first quarter of 1998 was up 2% as
compared with $79.7 million in the first quarter of last year. This was due
to higher earnings at the Company's North American components businesses,
offset somewhat by lower earnings at Computer Marketing, EMG International,
and the recently divested Channel Master.
Net income in the first quarter of 1998 was $42.1 million, or $1.02 per share,
as compared with $42.4 million, or $0.97 per share in the prior year's first
quarter. This apparant anomaly of essentially flat net income dollars but
higher earnings per share is a result of the impact of the Company's stock
repurchase program.
Subsequent to the end of the first quarter of 1998, the Company completed the
sale of its Channel Master business to an affiliate of Questor Management
Company. The sale of Channel Master will result in a gain, which is expected
to be in excess of $25 million pre-tax, to be reflected in Avnet's second
fiscal quarter ending December 26, 1997. Channel Master's net
income represented 3% of Avnet's consolidated net income for the first quarter
<PAGE>
of 1998 and its net assets represented about 4% of Avnet's consolidated net
assets at September 26, 1997. Accordingly, the impact of the disposition on
the Company's financial condition, liquidity and future earnings after taking
into account the use of the proceeds received from the sale will not be
material.
Liquidity and Capital Resources
During the first quarter of 1998, the Company generated $60.1 million from
income before depreciation and other non-cash items, and used $63.2 million
for working capital needs resulting in $3.1 million of net cash flows being
used for operations. In addition, the Company used $14.2 million for other
normal business operations including purchases of property, plant and
equipment ($10.1 million ) and dividends ($6.2 million), offset by other items
($2.1 million). This resulted in $17.3 million being used for normal business
operations. The Company also used $28.4 million for other items including the
repurchase of its common stock ($27.4 million including $5.6 million related
to purchases in 1997 which settled during the first quarter of 1998) and the
payment of acquisition related expenditures ($2.0 million), offset by an
increase in other debt ($1.0 million). This overall net use of cash of $45.7
million was funded by an increase in outstanding bank debt and commercial
paper ($30.8 million) and the use of of available cash ($14.9 million).
The Company's quick assets at September 26, 1997 totaled $ 894.2 million as
compared with $859.3 million at June 27, 1997 and exceeded the Company's
current liabilities by $258.0 million as compared with a $281.9 million excess
at June 27, 1997. Working capital at September 26, 1997 was $ 1,363.9 million
as compared with $1,319.0 million at June 27, 1997. At the end of the first
quarter, to support each dollar of current liabilities, the Company had $1.40
of quick assets and $1.74 of other current assets for a total of $3.14 of
current assets as compared with $3.28 at June 27, 1997.
In the first quarter of 1998, the Company renegotiated its revolving credit
agreement with a syndicate of banks led by NationsBank of North Carolina, N.A.
("NationsBank"). The new agreement provides a five-year facility with a line
of credit of up to $700.0 million. The Company may select from various
interest rate options and maturities under this facility. The facility will
serve as a primary funding vehicle as well as a backup for the Company's
commercial paper program. At the same time, the Company cancelled its
additional credit facility with NationsBank which was established in 1997 and
which provided a line of credit of up to $100.0 million.
During the first quarter of 1998, shareholders' equity increased by $13.6
million to $1,515.8 million at September 26, 1997, while total debt increased
by $31.2 million to $545.8 million. As a result, the total debt to capital
(shareholders' equity plus total debt) ratio was 26.5% at September 26, 1997
as compared with 25.5% at June 27, 1997. 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 September 26, 1997, the Company had repurchased 2.9 million shares for
an aggregate purchase price of $169.2 million, including approximately 350
thousand shares repurchased during the first quarter of 1998.
Currently, the Company does not have any material commitments for capital
expenditures. The Company and the former owners of a Company-owned site in
Oxford, North Carolina have entered into a Consent Decree and Court Order with
the Environmental Protection Agency (EPA) for the environmental clean-up of
the site, the cost of which, according to the EPA's remedial investigation and
feasibility study, is estimated to be approximately $6.3 million, exclusive
of the $1.5 million in EPA past costs paid by the potentially responsible
parties (PRPs). Pursuant to a Consent Decree and Court Order entered into
between the Company and the former owners of the site, the former owners have
agreed to bear at least 70% of the clean-up costs of the site, and the Company
will be responsible for not more than 30% of those costs. 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 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 this matter 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 soures to meet its needs.
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995: Any statements made in this Report 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.
New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share".
This statement establishes standards for computing and presenting earnings per
share ("EPS"), replacing the presentation of currently required primary EPS
with a presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic EPS and
Diluted EPS on the face of the statement of income. Under this new standard,
Basic EPS is computed based on weighted average shares outstanding and
excludes any potential dilution; Diluted EPS reflects potential dilution from
the exercise or conversion of securities into common stock or from other
contracts to issue common stock and is similar to the currently required fully
diluted EPS. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all prior periods presented. The Company does not
expect the impact of the adoption of this statement to be material to
previously reported EPS amounts.<PAGE>
Item 3. Quantative and Qualitative Disclosures About Market Risk
See Note 1 to the consolidated financial statements included in the
Company's annual report on Form 10-K for the year ended June 27, 1997.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
A. The following documents are filed as part of this report:
1. Exhibits:
Exhibit No.
3A. Certificate of Incorporation of the Company as currently in
effect (incorporated by reference).
3B. By-Laws of the Registrant as currently in effect
(incorporated herein by reference to the Company's Current
Report on Form 8-K dated February 12, 1996, Exhibit 3 (ii)).
4. Note: The total amount of securities authorized under any
instrument which defines the rights of holders of the Company's
long-term debt does not exceed 10% of the total assets of the
Company and its subsidiaries on a consolidated basis.
Therefore, none of such instruments are required to be filed as
exhibits to this Report. The Company agrees to furnish copies
of such instruments to the Commission upon request.
10. Employment Agreement dated September 25, 1997 between the
Company and Roy Vallee (incorporated herein by reference to the
Company's Current report on Form 8-K dated November 5, 1997,
Exhibit 99).
*11. Computation of earnings per share
27. Financial Data Schedule (electronic filing only)
B. Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K on September 23, 1997
whereby it filed Powers of Attorney, the Avnet, Inc. Deferred Compensation
Plan for Outside Directors and the Avnet, Inc. Stock Bonus Plan for
Outside Directors.
*Filed herewith
<PAGE>
EXHIBIT 11
AVNET, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands, except per share data)
First Quarters Ended
September 26, September 27,
1997 1996
(unaudited) (unaudited)
A. Primary earnings per share:
Common shares outstanding
(weighted average) 40,834 43,425
Common equivalent shares:
Contingent shares issuable 124 138
Exercise of warrants and options
using the treasury method 414 146
Total common and common equivalent
shares 41,372 43,709
Income used for computing earnings
per share $42,112 $42,373
Earnings per share $1.02 $0.97
SEE NOTES TO CONSOLIDATED 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
November 7, 1997
Date
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-26-1998
<PERIOD-END> SEP-26-1997
<CASH> 44,392
<SECURITIES> 0
<RECEIVABLES> 880,464
<ALLOWANCES> 30,671
<INVENTORY> 1,074,756
<CURRENT-ASSETS> 2,000,076
<PP&E> 379,298
<DEPRECIATION> 198,186
<TOTAL-ASSETS> 2,697,521
<CURRENT-LIABILITIES> 636,189
<BONDS> 545,569
0
0
<COMMON> 44,202
<OTHER-SE> 1,471,561
<TOTAL-LIABILITY-AND-EQUITY> 2,697,521
<SALES> 1,398,832
<TOTAL-REVENUES> 1,399,068
<CGS> 1,156,874
<TOTAL-COSTS> 1,317,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,636
<INCOME-PRETAX> 72,519
<INCOME-TAX> 30,407
<INCOME-CONTINUING> 42,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,112
<EPS-PRIMARY> $1.02
<EPS-DILUTED> 0
</TABLE>
