-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MwF5BUsTZn2e3PXdDf4dpWb3iwfgprIgABjN/IZUkzLK9J++KwGrDg2KbazpaSp+ EJYlQNbIYGKoTsZEy/VeWg== 0000008858-97-000003.txt : 19970221 0000008858-97-000003.hdr.sgml : 19970221 ACCESSION NUMBER: 0000008858-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961227 FILED AS OF DATE: 19970210 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVNET INC CENTRAL INDEX KEY: 0000008858 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 111890605 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-62583 FILM NUMBER: 97521637 BUSINESS ADDRESS: STREET 1: 80 CUTTER MILL RD - 5TH FL CITY: GREAT NECK STATE: NY ZIP: 11021 BUSINESS PHONE: 5164667000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 27, 1996 Commission File #1-4224 Avnet, Inc. (Exact name of registrant as specified in its charter) New York 11-1890605 (State or other jurisdiction of IRS Employer I.D. Number incorporation or organization) 80 Cutter Mill Road, Great Neck, N.Y. 11021 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code . . . . . . . .516-466-7000 Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No The number of shares of the registrant's Common Stock (net of treasury shares) as of the close of the period covered by this report . . . . . 42,902,186 shs. The number of units then outstanding of other publicly-traded securities of the registrant: 6 7/8% Notes Due March 15, 2004 . . . . . . . . . . . . . . $100,000,000 AVNET, INC. AND SUBSIDIARIES INDEX Part I. Financial Information Page No. Item 1. Financial Statements: Consolidated Balance Sheets - December 27, 1996 and June 28, 1996 3 Consolidated Statements of Income - First Halves Ended December 27, 1996 and December 29, 1995 4 Consolidated Statements of Income - Second Quarters Ended December 27, 1996 and December 29, 1995 5 Consolidated Statements of Cash Flows - First Halves Ended December 27, 1996 and December 29, 1995 6 Notes to Consolidated Financial Statements 7 - 8 Item 2. Management's Discussion and Analysis 9 - 11 Part II. Other Information 12 - 14 Signature Page 15 PART I - FINANCIAL INFORMATION Item 1. Financial Statements AVNET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) December 27, June 28, 1996 1996 (unaudited) (audited) Assets: Current assets: Cash and cash equivalents $ 65,123 $ 47,808 Receivables, less allowances of $33,224 and $34,615, respectively 790,485 802,442 Inventories (Note 3) 928,137 935,612 Other 25,363 27,280 Total current assets 1,809,108 1,813,142 Property, plant & equipment, at cost, net 181,758 176,929 Goodwill, net of accumulated amortization of $43,540 and $36,998, respectively 487,639 494,666 Other assets 41,665 36,919 Total assets $2,520,170 $2,521,656 Liabilities: Current liabilities: Borrowings due within one year $ 278 $ 282 Accounts payable 433,958 353,918 Accrued expenses and other 156,046 165,022 Total current liabilities 590,282 519,222 Long-term debt, less due within one year 374,906 497,223 Commitments and contingencies (Note 4) Total liabilities 965,188 1,016,445 Shareholders' equity (Note 5): Common stock $1.00 par, authorized 60,000,000 shares, issued 43,913,000 shares and 43,842,000 shares, respectively 43,913 43,842 Additional paid-in capital 421,450 418,441 Retained earnings 1,133,379 1,058,350 Cumulative translation adjustments (1,548) (4,243) Common stock held in treasury at cost, 1,011,000 shares and 421,000 shares, respectively (42,212) (11,179) Total shareholders' equity 1,554,982 1,505,211 Total liabilities and shareholders' equity $2,520,170 $2,521,656 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AVNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (thousands, except per share data) First Half Ended December 27, December 29, 1996 1995 (unaudited) Sales $2,613,560 $2,490,666 Cost of sales 2,141,019 2,022,174 Gross Profit 472,541 468,492 Operating expenses: Selling, shipping, general and administrative 288,548 283,046 Depreciation and amortization 20,305 17,623 Operating income 163,688 167,823 Investment and other income, net 1,049 1,095 Interest expense (12,671) (11,574) Income before income taxes 152,066 157,344 Income taxes 64,079 66,109 Net income $ 87,987 $ 91,235 Earnings per share $2.02 $2.09 Shares used to compute earnings per share 43,587 43,705 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AVNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (thousands, except per share data) Second Quarter Ended December 27, December 29, 1996 1995 (unaudited) Sales $1,331,748 $1,301,564 Cost of sales 1,091,697 1,061,773 Gross Profit 240,051 239,791 Operating expenses: Selling, shipping, general and administrative 144,931 143,190 Depreciation and amortization 11,152 9,237 Operating income 83,968 87,364 Investment and other income, net 279 224 Interest expense (5,771) (6,972) Income before income taxes 78,476 80,616 Income taxes 32,862 33,925 Net income $ 45,614 $ 46,691 Earnings per share $1.05 $1.07 Shares used to compute earnings per share 43,466 43,689 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AVNET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) First Half Ended December 27, December 29, 1996 1995 (unaudited) Cash flows from operating activities: Net income $ 87,987 $ 91,235 Add non-cash and other reconciling items: Depreciation and amortization 24,071 20,791 Deferred taxes (1,205) (1,234) Other, net (Note 6) 10,213 9,403 121,066 120,195 Receivables 3,604 (64,974) Inventories 7,475 (147,175) Payables, accruals and other, net 74,425 30,681 Net cash flows provided from (used for) operating activities 206,570 (61,273) Cash flows from financing activities: Issuance (repayment) of bank debt and commercial paper, net of issuance costs (119,159) 182,228 Payment of other debt (3,173) (9,524) Cash dividends (13,027) (12,610) Repurchase of common stock (31,470) - Other, net 2,183 745 Net cash flows (used for) provided from financing (164,646) 160,839 Cash flows from investing activities: Purchases of property, plant and equipment (24,009) (19,175) Acquisition of operations, net (Note 6) (374) (66,459) Net cash flows used for investing activities (24,383) (85,634) Effect of exchange rates on cash and cash equivalents (226) 32 Cash and cash equivalents: - increase 17,315 13,964 - at beginning of year 47,808 49,332 - at end of period $ 65,123 $ 63,296 Additional cash flow information (Note 6) SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of December 27, 1996 and June 28, 1996; the results of operations for the first halves and second quarters ended December 27, 1996 and December 29, 1995; and the cash flows for the first halves ended December 27, 1996 and December 29, 1995. 2. The results of operations for the first half and second quarter ended December 27, 1996 are not necessarily indicative of the results to be expected for the full year. 3. Inventories: (Thousands) December 27, June 28, 1996 1996 Finished goods $823,025 $844,510 Work in process 21,459 13,306 Purchased parts and raw materials 83,653 77,796 $928,137 $935,612 4. From time to time, the Company may become liable with respect to pending and threatened litigation, taxes, and environmental and other matters. The Company has been designated a potentially responsible party or has had other claims made against it in connection with environmental clean- ups at several sites. Based upon the information known to date, the Company believes that it has appropriately reserved for its share of the costs of the clean-ups and it is not anticipated that any contingent matters will have a material adverse impact on the Company's financial condition, liquidity or results of operations. 5. Number of shares of common stock reserved for stock option and stock incentive programs: 3,594,250 6. Additional cash flow information: Other non-cash and reconciling items primarily include the provision for doubtful accounts. AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Additional cash flow information (Continued) Cash expended for the acquisition of operations in the first half of fiscal 1997 includes only the cash paid for professional and other fees associated with various acquisitions completed during fiscal 1996. In the first half of fiscal 1996, cash expended for the acquisition of operations includes the cash paid in connection with the acquisitions of VSI Electronics, Setron Schiffer Electronik GmbH & Co., KG, and the Science and Technology Division of Mercuries and Associates, Ltd., offset by cash received in connection with the sale of the motor, motor repair shop and OEM business of Brownell Electro. Interest and income taxes paid in the first halves were as follows: (Thousands) 1997 1996 Interest $10,350 $12,811 Income taxes $61,747 $57,085 Item 2. Management's Discussion and Analysis Results of Operations For the second quarter of fiscal 1997 ended December 27, 1996, consolidated sales were $1.332 billion, up 2% when compared with last year's second quarter sales of $1.302 billion. This increase was due primarily to stronger sales at the Electronic Marketing Group's North American operations, offset by a decrease in sales at EMG International (which consists of the Electronic Marketing Group's international operations outside of North America) and at the Video Communications Group. The Electronic Marketing Group's sales in the second quarter of 1997 were $1.282 billion, up 3% as compared with $1.245 billion in the same quarter of 1996, and the Video Communications Group's sales in the second quarter of 1997 were $50 million, or 11% lower than the prior year quarter's sales of $56 million. Although comparative sales were also positively impacted by the fiscal 1996 acquisitions of Avnet Mercuries and Avnet Kopp, which were acquired in December 1995 and February 1996, respectively, this favorable effect was largely offset by a decrease in sales due to the divestiture of Mechanics Choice. The sales increase in the Electronic Marketing Group's North American operations was primarily due to all-time record sales at the Computer Marketing Group and Penstock, as well as to near record sales at Time Electronics and Allied. Hamilton Hallmark's sales were slightly below last year's second quarter. Consolidated gross profit margins of 18.0% in the second quarter of 1997 were lower by 4/10ths of one percent of sales as compared with 18.4% in the second quarter of last year, while operating expenses as a percentage of sales of 11.7% were the same as in the second quarter of the prior year. As a result, operating income as a percentage of sales was 6.3% in the second quarter of 1997 as compared with 6.7% in the second quarter of last year. Interest expense was substantially lower in the second quarter of 1997 as compared with the prior year like period due to a combination of a decrease in the average amount of borrowings outstanding and a decrease in the Company's effective interest rate. Net income in the second quarter of 1997 was $45.6 million, down 2% when compared with $46.7 million in the prior year's second quarter. Net income as a percentage of sales was 3.4% in the second quarter of 1997 as compared with 3.6% in the prior year period. The Electronic Marketing Group's earnings increased 1% as compared with last year's second quarter earnings. The Electronic Marketing Group's North American operations posted improved income from operations, primarily due to sharply improved results at the Computer Marketing Group, while income from operations at EMG International was down as compared with last year's second quarter. The Video Communications Group's second quarter 1997 net income was down as compared with the prior year period. Consolidated sales in the first half of 1997 were $2.614 billion, up 5% as compared with $2.491 billion in the first half of last year. This increase was due entirely to increased sales at the Company's Electronic Marketing Group, primarily due to record sales at the Computer Marketing Group. The Electronic Marketing Group's sales in the first half of 1997 were $2.516 billion, up 5% as compared with $2.390 billion in last year's first half, and the Video Communication Group's sales in the first half of 1997 were $98 million, down 3% as compared with $101 million in the first half of last year. Consolidated gross profit margins in the first half of 1997 were 18.1% as compared with 18.8% in the prior year period, a decline of 7/10ths of 1% of sales. Even though operating expenses as a percentage of sales decreased to 11.8% in the first half of 1997 from 12.1% in the first half of last year, the decrease was not enough to offset the decline in gross profit margins. As a result, operating income as a percentage of sales decreased to 6.3% in this year's first half as compared with 6.7% in the same period last year. Interest expense in the first half of 1997 of $12.7 million was $1.1 million higher as compared with $11.6 million in the prior year like period due to a combination of factors. Last year's first half interest expense was positively affected by the reversal of $1.3 million of interest expense which was accrued at June 30, 1995 with respect to the Company's 6% Convertible Subordinated Debentures Due 2012. The balance of the change in interest expense, a decrease of $0.2 million, was due to the net effect of an increase in the average amount of borrowings outstanding offset by a decrease in the Company's effective interest rate. Net income for the first half of 1997 was $88.0 million, or 3.4% of sales, down 4% as compared with $91.2 million, or 3.7% of sales, in the first half of last year. The Electronic Marketing Group's earnings for the first half of this year were comparable to the prior year period. The Electronic Marketing Group's North American operating units experienced higher income from operations, primarily due to much improved results at the Computer Marketing Group; however, this was offset by lower income from operations at EMG International. The Video Communication Group's first half of 1997 net income was down as compared with the prior year period. Liquidity and Capital Resources During the first half of 1997, the Company generated $121.1 million from income before depreciation and other non-cash items, and generated another $85.5 million from a reduction in working capital components (partially reflecting the temporary increase in accounts payable due to the timing of certain normal cash payments made later than usual because of the Christmas holiday) resulting in $206.6 million of net cash flows being provided from operations. In addition, the Company used $35.1 million for other normal business operations including purchases of property, plant and equipment ($24.0 million) and the payment of dividends ($13.0 million), offset by other items ($1.9 million). This resulted in $171.5 million being generated from normal business operations. The Company also used $35.0 million for other items including the repurchase of common stock ($31.5 million), the payment of acquisition related expenditures ($0.4 million) and for the repayment of other debt ($3.1 million). This overall net generation of cash of $136.5 million was used to pay down $119.2 million of outstanding bank debt and commercial paper with the remaining $17.3 million being used to increase cash and cash equivalents. The Company's quick assets at December 27, 1996, totaled $855.6 million as compared with $850.3 million at June 28, 1996 and exceeded the Company's current liabilities by $265.3 million as compared with a $331.0 million excess at June 28, 1996. Working capital at December 27, 1996 was $1,218.8 million as compared with $1,293.9 million at June 28, 1996. At the end of the first half of 1997, to support each dollar of current liabilities, the Company had $1.45 of quick assets and $1.61 of other current assets for a total of $3.06 of current assets as compared with $3.49 at June 28,1996. During the first half of 1997, shareholders' equity increased by $49.8 million to $1,555.0 million at December 27, 1996 while total debt decreased by $122.3 million to $375.2 million. As a result, the total debt to capital(shareholders' equity plus total debt) ratio was 19.4% at December 27, 1996 as compared with 24.8% at June 28, 1996. The Company's favorable balance sheet ratios would facilitate additional financing if, in the opinion of management, such financing would enhance the future operations of the Company. On August 1, 1996, the Company's Board of Directors authorized the purchase of up to $200 million of Avnet common stock. The stock is to be purchased in the open market from time to time or in directly negotiated purchases. Through the end of the first half of fiscal 1997 ended December 27, 1996, the Company had repurchased 600,000 shares of its common stock for an aggregate purchase price of $31.5 million. At December 27, 1996, the Company did not have any material commitments for capital expenditures. The Company and the former owners of a Company-owned site in Oxford, North Carolina have entered into a Consent Decree and Court Order with the Environmental Protection Agency (EPA) for the environmental clean-up of the site, the cost of which, according to the EPA's remedial investigation and feasibility study, is estimated to be approximately $6.3 million, exclusive of the $1.5 million in the EPA past costs paid by the potentially responsible parties (PRPs). Pursuant to a Consent Decree and Court Order entered into between the Company and the former owners of the site, the former owners have agreed to bear at least 70% of the clean-up costs of the site, and the Company will be responsible for not more than 30% of those costs. The Company is also a PRP in an environmental clean-up at a site in North Smithfield, Rhode Island. In addition, the Company has received notice from a third party of its intention to seek indemnification for costs it may incur in connection with an environmental clean-up at a site in Rush, Pennsylvania resulting from the alleged disposal of wire insulation material at the site by a former unit of the Company. Based upon the information known to date, the Company believes that it has appropriately accrued in its financial statements for its share of the costs of the clean-up at all of the above mentioned sites. The Company is also a PRP, or has been notified of claims made against it, at environmental clean-up sites in Huguenot, New York and in Hempstead, New York. At this time, the Company cannot estimate the amount of its potential liability, if any, for clean-up costs in connection with these sites, but does not anticipate that these matters or any other contingent matters will have a material adverse impact on the Company's financial condition, liquidity or results of operations. The Company is not now aware of any commitments, contingencies or events within its control which may significantly change its ability to generate sufficient cash from internal or external sources to meet its needs. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Any statements made in this document which are not historical facts are forward looking statements that involve risks and uncertainties. Among the factors which could cause actual results to differ materially are (i) major changes in business conditions and the economy in general, (ii) risks associated with foreign operations, such as currency fluctuations, (iii) allocations of products by suppliers, and (iv) changes in market demand and pricing pressure. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders (a) The 1996 Annual Meeting of Shareholders of the Registrant was held on November 20, 1996. (b) Not required. Proxies were solicited by the Company pursuant to Regulation 14 under the Securities Exchange Act of 1934, and no solicitation in opposition to management's nominees for board of directors was made. All of the nominees were elected. (c) The shareholders of the Registrant were asked to vote upon (I) adoption of the Avnet 1996 Incentive Stock Option Plan (the "Option Plan"), pursuant to which tax-qualified options may be granted to employees of the Registrant, (ii) the Deferred Compensation Plan for Outside Directors (the "Deferred Compensation Plan"), pursuant to which non-employee directors of the Registrant may defer some or all of their annual retainer fees in Common Stock equivalent units or cash, and (ii) ratification of the appointment of Arthur Andersen LLP as independent auditors for the next fiscal year(the "Appointment of Auditors"). All proposals were adopted by the shareholders by the following vote: Matter For Against Abstain Adoption of the Stock Option Plan 34,951,827 1,405,420 137,625 Adoption of the Deferred Compensation Plan 35,759,396 372,807 362,669 Ratification of Appointment of Auditors 36,424,516 22,009 48,347 (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K: A. The following documents are filed as part of this report: 1. Exhibits: Exhibit No. 3A Certificate of Incorporation of the Company as currently in effect (incorporated by reference). 3B By-Laws of the Registrant as currently in effect (incorporated herein by reference to Commission file No. 1-4224, Current Report on Form 8-K dated February 12, 1996 Exhibit 3 (ii)). *11 - Computation of earnings per share *Filed herewith EXHIBIT 11 AVNET, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Thousands, except per share data) First Half Ended December 27, December 29, 1996 1995 (unaudited) A. Primary earnings per share: Common shares outstanding (weighted average) 43,222 43,291 Common equivalent shares: Contingent shares issuable 143 118 Exercise of warrants and options using the treasury method 222 296 Total common and common equivalent shares 43,587 43,705 Income used for computing earnings per share $87,987 $91,235 Earnings per share $2.02 $2.09 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 11 AVNET, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (Thousands, except per share data) Second Quarter Ended December 27, December 29, 1996 1995 (unaudited) A. Primary earnings per share: Common shares outstanding (weighted average) 43,018 43,302 Common equivalent shares: Contingent shares issuable 149 123 Exercise of warrants and options using the treasury method 299 264 Total common and common equivalent shares 43,466 43,689 Income used for computing earnings per share $45,614 $46,691 Earnings per share $1.05 $1.07 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Avnet, Inc. (Registrant) By: s/Raymond Sadowski Raymond Sadowski Senior Vice President, Chief Financial Officer and Assistant Secretary By: s/John F. Cole John F. Cole Controller and Principal Accounting Officer February 10, 1997 Date EX-27 2
5 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. 1000 6-MOS JUN-27-1997 DEC-27-1996 65,123 0 823,709 33,224 928,137 1,809,108 383,819 202,061 2,520,170 590,282 374,906 0 0 43,913 1,511,069 2,520,170 2,613,560 2,614,609 2,141,019 2,429,567 20,305 0 12,671 152,066 64,079 87,987 0 0 0 87,987 2.02 0
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