Avnet, Inc. Reports Fourth Quarter and Fiscal Year 2006 Results; Memec Integration Successfully Completed; Fiscal Year 2006 Sets Record for Revenue and Asset Velocity.PHOENIX -- Avnet Avnet, Inc. (NYSE: AVT) is a technology B2B distributor headquartered in Phoenix, Arizona. The company states on their website that:
See: New York Stock Exchange :AVT AVT avian arginine vasotocin. See vasotocin. ) today reported revenue of $3.61 billion for fourth quarter fiscal 2006, ended July July: see month. 1, 2006, representing an increase of 27.8% over fourth quarter fiscal 2005. The prior year quarter did not include revenue of Memec Group Holdings, Inc. ("Memec"), which was acquired on July 5, 2005. Revenue was up 5.6% over the prior year quarter adjusted to include Memec's sales of $596.1 million in the same period. Excluding the impact of recent divestitures, fourth quarter pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma revenue grew 8.2% over the year-ago quarter. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). net income for fourth quarter fiscal 2006 was $58.8 million, or $0.40 per share on a diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. basis, as compared with net income of $47.3 million, or $0.39 per share on a diluted basis, for the fourth quarter last year. Excluding certain charges noted below, net income was $91.0 million, or $0.62 per share on a diluted basis, representing a 93% and 59% increase, respectively, over the year-ago period. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for fourth quarter fiscal 2006 was $131.5 million, up 53% as compared with operating income of $85.7 million in the year ago quarter. Excluding certain charges in fourth quarter fiscal 2006, operating income increased 85% over the prior-year quarter to $158.3 million. Operating income as a percent of sales, excluding certain charges, was 4.4%, up 135 basis points from last year's fourth quarter with both operating groups contributing to the improvement. Roy Roy, city (1990 pop. 24,603), Weber co., N Utah, near Great Salt Lake; settled by Mormons 1877, inc. 1937. Computer equipment is manufactured, and many residents work at nearby Hill Air Force Base. Vallee, Chairman and Chief Executive Officer, commented, "We are very pleased with our performance in the fourth quarter. These results represent new post-bubble highs for operating income, operating income margin, earnings per share, return on working capital, and return on capital employed Return on capital employed (ROCE) Indicator of profitability of the firm's capital investments. Determined by dividing Earnings Before Interest and Taxes by (capital employed plus short-term loans minus intangible assets). excluding certain items. We are consistently improving returns on capital and are committed to growing shareholder value as we drive to become the premier technology distributor in the world." Revenue of $14.25 billion for fiscal 2006 was up 28.8% over fiscal 2005 revenues of $11.07 billion. Revenue was up 6.8% over the prior year adjusted to include Memec's sales of $2.28 billion in fiscal year 2005. GAAP net income for fiscal 2006, which included certain charges that are described below, was $204.5 million, or $1.39 per share on a diluted basis, as compared with net income of $168.2 million, or $1.39 per share on a diluted basis, in fiscal 2005. Excluding certain charges in fiscal 2006, net income and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of were up 71% and 41% to $288.4 million and $1.96, respectively, as compared with fiscal 2005. Including charges described in the table below, fiscal 2006 operating income grew 34.0% to $430.5 million as compared with fiscal 2005 operating income of $321.3 million. Excluding these charges in fiscal 2006, operating income grew 63.0% year over year to $523.8 million and operating income as a percent of sales was 3.7%, an increase of 78 basis points over fiscal year 2005 operating income margin of 2.9%. This represents the fourth consecutive year of growth in both operating income and operating income margin. Mr. Vallee further commented, "I am proud of what our team accomplished during fiscal year 2006. Our pro forma revenue grew 7% and pro forma operating income, excluding certain charges, grew nearly six times faster than revenue. We completed the Memec integration on schedule, exceeded our original synergy The enhanced result of two or more people, groups or organizations working together. In other words, one and one equals three! It comes from the Greek "synergia," which means joint work and cooperative action. target by approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $30 million, and have substantially retained all of the revenues of the combined businesses. As a result, in fiscal year 2006 we established many new records including revenue, net income (excluding certain items) and asset velocity. In addition, we took actions to reduce and refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. some high interest rate debt which allowed us to exit the year with our balance sheet in the best condition in years." The results for the fourth quarter and fiscal year 2006 include charges for the following items, the mention of which management believes is useful to investors when comparing operating performance results with prior periods. More discussion of the reasons for highlighting these items are set forth in the Non-GAAP Financial Information section. --Restructuring and other charges, including inventory writedowns for terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: lines (recorded in cost of sales), severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when , integration costs and other charges, including in the fourth quarter tax impacts of overseas legal entity reorganizations, resulting primarily from the Company's acquisition and integration of Memec into Avnet's existing business. --Restructuring charges, including severance and reserves for non-cancelable lease commitments, and other charges resulting primarily from actions taken following the divestitures of certain end user business lines of Technology Solutions in the Americas A·mer·i·cas , the See America. , certain cost-cutting initiatives in the Technology Solutions business in the EMEA (Europe, Middle East, Africa) Refers to that region of the world. For example, one might see products packaged differently for the UK, EMEA and Asia Pacific markets. region and other charges, including impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges of an owned but vacant building and charges associated with a reassessment Reassessment The process of re-determining the value of property or land for tax purposes. Notes: Property is usually reassessed on an annual basis. You may request a "reassessment" if you disagree with your assessment. of an existing environmental liability. --Incremental stock-based compensation expense resulting from the Company's adoption of SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123R and modifications to stock-based compensation plans in fiscal 2006. --Amortization expense associated with amortizable am·or·tize tr.v. am·or·tized, am·or·tiz·ing, am·or·tiz·es 1. To liquidate (a debt, such as a mortgage) by installment payments or payment into a sinking fund. 2. intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. recorded in fiscal 2006 as a result of the Memec acquisition. --Recent divestitures resulted in a net loss consisting of a net gain on the sale of Technology Solutions' single tier businesses in the Americas recorded in the third quarter of fiscal 2006 and a loss on the sale of two small, non-core Electronics Marketing specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. businesses in the EMEA region recorded in the fourth quarter of fiscal 2006 for which no tax benefit is available. --Debt extinguishment The destruction or cancellation of a right, a power, a contract, or an estate. Extinguishment is sometimes confused with merger, though there is a clear distinction between them. costs associated with the early repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. of $254.1 million of the Company's 8% Notes due November November: see month. 15, 2006 in the first quarter of fiscal 2006 and $113.6 million of the Company's 9 3/4% Notes due February February: see month. 15, 2008 in the fourth quarter of fiscal 2006.
Fourth Quarter Ended Fiscal Year Ended 2006
Fiscal 2006
------------------------- -------------------------
Operating Net Diluted Operating Net Diluted
Income Income EPS Income Income EPS
--------- ------- ------- --------- ------- -------
$ in millions, except per share data
GAAP results $ 131.5 $ 58.8 $ 0.40 $ 430.5 $204.5 $ 1.39
Restructuring,
integration and
other charges 6.8 7.3 0.05 69.9 49.9 0.34
Incremental
stock-based
compensation
expense 5.4 3.4 0.02 16.6 10.6 0.07
Incremental
amortization
expense for
intangible
assets 1.0 0.6 0.01 4.2 2.7 0.02
Loss on sale of
business lines 13.6 14.3 0.10 2.6 7.1 0.05
Debt
extinguishment
costs - 6.6 0.04 - 13.6 0.09
-------- ------ ------ -------- ------ ------
Total
Adjustments 26.8 32.2 0.22 93.3 83.9 0.57
-------- ------ ------ -------- ------ ------
Adjusted results $ 158.3 $ 91.0 $ 0.62 $ 523.8 $288.4 $ 1.96
======== ====== ====== ======== ====== ======
The Company generated $151.5 million of free cash flow (as defined later in this release) during the fourth quarter of fiscal 2006. At the end of the quarter, the Company repurchased $113.6 million of 9-3/4% Notes due February 15, 2008, primarily using cash on hand. As a result, the Company ended the quarter with $276.7 million of cash and cash equivalents and net debt (total debt less cash and cash equivalents) of $958.1 million. Ray Sadowski, Chief Financial Officer, stated: "With the improvement in our operating income margin and asset velocity metrics metrics Managed care A popular term for standards by which the quality of a product, service, or outcome of a particular form of Pt management is evaluated. See TQM. , we are closing in on our 12.5% ROCE ROCE See: Return on capital employed goal. At the same time, we have created a business model that can more consistently generate free cash flow providing greater flexibility to fund growth. With the integration of Memec behind us, we were able to generate free cash flow this quarter and pay down some high interest rate debt which will lower our interest expense in future periods." Operating Groups Electronics Marketing (EM) sales of $2.45 billion in the fourth quarter fiscal 2006 were up 51.0% on a year over year basis. On a pro forma basis, including Memec's sales in the prior year period, fourth quarter fiscal 2006 sales were up 10.4% on a year over year basis and, excluding the divestures that occurred during the current quarter, sales were up 11.5% over the prior year. On a pro forma basis, EM sales in the Americas, EMEA and Asia increased 5.3%, 11.4% and 17.8%, respectively, year over year with the Americas and Asia coming in slightly below expectations although in line with normal seasonality. EM operating income of $134.9 million for fourth quarter fiscal 2006 was more than double the prior year fourth quarter operating income of $65.3 million. Operating income margin for the fourth quarter was 5.5%, up 148 basis points over the prior year quarter. Mr. Vallee added, "EM's performance this quarter is a reflection of the leverage we have created in our model and the excellent job our team did with the integration of Memec. The acquisition of Memec was the largest in the history of Avnet and all indications to date show that it will also be the most profitable. EM increased return on working capital (ROWC), excluding certain charges noted above, by 868 basis points over the prior year quarter with significant improvements coming from all three regions. For the full year, excluding restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and other charges and adjusting to include Memec in fiscal 2005 on a pro forma basis, EM grew revenue 8.4% and operating income grew over five times faster than revenue." Technology Solutions (TS) sales of $1.16 billion in the fourth quarter fiscal 2006 were down 3.4% year over year; however, excluding the impact of divestitures that occurred during the year, sales were up 1.9%. Fourth quarter sales in EMEA increased 4.7% while sales in the Americas and Asia were down 4.5% and 25.3%, respectively, year over year. However, excluding the impact of divestitures, sales in the Americas were up 2.9% year over year. TS operating income was $40.3 million, a 7.6% increase as compared with fourth quarter fiscal 2005 operating income of $37.4 million, and operating income margin of 3.5% increased by 35 basis points over the prior year fourth quarter. Mr. Vallee further added, "TS quarterly revenue was negatively impacted by a slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in sales of microprocessors This is a list of microprocessors. Intel
adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen in all three regions. With the recent addition of the Sun product line and our continued focus on solutions-selling, we are well positioned to continue to grow market share and accelerate shareholder value creation." Outlook For Avnet's fiscal first quarter 2007, management expects sales at EM to be in the range of $2.32 billion to $2.42 billion and anticipates sales for TS to be in the range of $1.18 billion to $1.23 billion. Therefore, Avnet's consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: sales should be in the range of $3.50 billion to $3.65 billion for the first quarter fiscal 2007 ending on September September: see month. 30, 2006. Management expects the first quarter earnings to be in the range of $0.50 to $0.54 per share, including approximately $0.03 per share related to the expensing of stock-based compensation. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on management's current expectations and are subject to uncertainty and changes in factual circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . The forward-looking statements herein include statements addressing future financial and operating results of Avnet and may include words such as "will," "anticipate," "expect," believe," and "should," and other words and terms of similar meaning in connection with any discussions of future operating or financial performance or business prospects. Actual results may vary materially from the expectations contained in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: the Company's ability to retain and grow market share, the Company's ability to generate additional cash flow, any significant and unanticipated sales decline, changes in business conditions and the economy in general, changes in market demand and pricing pressures, allocations of products by suppliers, and other competitive and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. factors affecting the businesses of Avnet generally. More detailed information about these and other factors is set forth in Avnet's filings with the Securities and Exchange Commission, including the Company's reports on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. , Form 10-Q Form 10-Q See 10-Q. and Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. . Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Non-GAAP Financial Information In addition to disclosing financial results that are determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP"), the Company also discloses in this press release certain non-GAAP financial information including adjusted operating income, adjusted net income and adjusted diluted earnings per share. The non-GAAP financial information is used to reflect the Company's results of operations excluding certain items that have arisen from restructuring and integration, stock compensation grants and other items in the periods presented. Management believes that operating income adjusted for restructuring and integration charges is useful to investors to assess and understand operating performance, especially when comparing results with previous periods or forecasting performance for future periods, primarily because management views the excluded items to be outside of Avnet's normal operating results. Management analyzes operating income without the impact of restructuring and integration costs as an indicator Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. of ongoing margin performance and underlying trends in the business. Similarly, management has disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). operating income excluding the impacts of stock compensation expense because the accounting treatment on a year-over-year basis for equity-based awards has changed with the adoption of SFAS 123R. Such new accounting treatment, and certain changes the Company has made to its equity grant practice in response to the new accounting treatment, renders the year-over-year comparison not meaningful without taking this impact into account. Finally, management has also disclosed operating income excluding the impact of amortization expense associated with intangible assets resulting from the acquisition of Memec because such assets were recorded during fiscal 2006 and, therefore, there are no comparable charges in prior periods. Management also uses these non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes. Management similarly believes net income and diluted earnings per share adjusted for the impact of the items discussed above, as well as the loss on sale of business lines and debt extinguishment costs is useful to investors because it provides a measure of the Company's net profitability on a more comparable basis to historical periods and provides a more meaningful basis for forecasting future performance. Additionally, because of management's focus on generating shareholder value, of which net profitability is a primary driver, management believes net income and diluted EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. excluding the impact of these items provides an important measure of the Company's net results of operations for the investing public. Management has also disclosed herein certain historical sales of Avnet combined with the historical sales of Memec for the corresponding period. Management believes such information helps investors relate current year results to historical periods. Management uses similar pro forma data to analyze an·a·lyze v. 1. To examine methodically by separating into parts and studying their interrelations. 2. To separate a chemical substance into its constituent elements to determine their nature or proportions. 3. performance for internal operational goal setting and performance management. However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with, data presented in accordance with GAAP. Cash Flow Activity The following table summarizes the Company's cash flow activity for the fourth quarters and twelve months of fiscal 2006 and 2005, including the Company's computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of free cash flow and a reconciliation of this metric to the nearest GAAP measures of net income and net cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses . Management's computation of free cash flow consists of net cash flow from operations plus cash flows generated from or used for purchases and sales of property, plant and equipment, acquisitions and dispositions of operations and investments, effects of exchange rates on cash and cash equivalents and other financing activities. Management believes that the non-GAAP metric of free cash flow is a useful measure to help management and investors better assess and understand the Company's operating performance and sources and uses of cash. Management also believes the analysis of free cash flow assists in identifying underlying trends in the business. Computations of free cash flow may differ from company to company. Therefore, the analysis of free cash flow should be used as a complement to, and in conjunction with, the Company's consolidated statements of cash flows presented in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. financial statements. Management also analyzes cash flow from operations based upon its three primary components noted in the table below: net income, non-cash and other reconciling items and cash flow generated from working capital. Similar to free cash flow, management believes that this breakout is an important measure to help management and investors understand the trends in the Company's cash flows, including the impact of management's focus on asset utilization utilization, n 1. the extent to which a given group uses a particular service in a specified period. Although usually expressed as the number of services used per year per 100 or per 1000 persons eligible for the service, utilization rates may be and efficiency through its management of the net balance of receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed , inventories and accounts payable.
Fourth quarters ended Twelve months ended
--------------------- ---------------------
July 1, July 2, July 1, July 2,
2006 2005 2006 2005
---------- ---------- ---------- ----------
($ in thousands)
Net income $ 58,847 $ 47,250 $ 204,547 $ 168,239
Non-cash and other
reconciling items 92,553 60,023 199,766 172,595
Cash flow (used for)
provided from working
capital (excluding cash
and cash equivalents) (11,783) (29,616) (423,427) 121,002
--------- --------- --------- ---------
Net cash flow provided
by (used for)
operations 139,617 77,657 (19,114) 461,836
Purchase of property,
plant and equipment (13,628) (9,081) (51,803) (31,338)
Cash proceeds from sales
of property, plant and
equipment 2,118 146 4,368 7,271
Acquisitions and
dispositions of
operations and
investments, net 16,312 (2,465) (294,335) (3,563)
Effect of exchange rates
on cash and cash
equivalents 3,830 (16,535) 3,353 (10,816)
Other, net financing
activities 3,217 1,351 30,991 2,274
--------- --------- --------- ---------
Net free cash flow $ 151,466 $ 51,073 $(326,540) $ 425,664
========= ========= ========= =========
The significant cash outflow associated with working capital includes the cash payments made during the fourth quarter and twelve months of fiscal 2006 amounting to $14.4 million and $92.9 million, respectively, associated with the restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , integration costs and charges recorded through purchase accounting from the Memec acquisition. Fiscal 2006 cash outflow also includes a $58.6 million accelerated contribution to the Company's pension plan made during the first quarter and $27.0 million of cash used in connection with the refinancing Refinancing An extension and/or increase in amount of existing debt. activity and early extinguishment of debt during the year. Teleconference Webcast and Upcoming Events Avnet will host a Webcast of its quarterly teleconference today at 2:00 p.m. Eastern Time. The live Webcast event, as well as other financial information including financial statement reconciliations of GAAP and non-GAAP financial measures, will be available through www.ir.avnet.com. Please log onto the site 15 minutes prior to the start of the event to register or download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. any necessary software. An archive (1) A file that contains one or more compressed files. Most archive formats are also capable of storing folders in order to reconstruct the file/folder relationship when decompressed. See archive formats. copy of the presentation will also be available after the Webcast. For a listing of Avnet's upcoming events and other information, please visit Avnet's investor relations Investor relations The process by which the corporation communicates with its investors. website at www.ir.avnet.com. About Avnet Avnet (NYSE:AVT) enables success from the center of the technology industry, providing cost-effective cost-effective, n the minimal expenditure of dollars, time, and other elements necessary to achieve the health care result deemed necessary and appropriate. services and solutions vital to a broad base of more than 100,000 customers and 300 suppliers. The Company markets, distributes and adds value to a wide variety of electronic components, enterprise computer products and embedded Inserted into. See embedded system. subsystems. Through its premier market position, Avnet brings a breadth Breadth The percentage of assets or stocks advancing relative to those unchanged or declining. Also the number of independent forecasts available per year. A stock picker forecasting returns to 100 stocks every quarter exhibits a breadth of 400, assuming each forecast is and depth of capabilities that help its trading partners accelerate growth and realize cost efficiencies. For the fiscal year ended July 1, 2006, Avnet generated revenue in excess of $14 billion through sales in approximately 70 countries.
AVNET, INC.
FINANCIAL HIGHLIGHTS
(MILLIONS EXCEPT PER SHARE DATA)
FOURTH QUARTERS ENDED
---------------------
JULY 1, JULY 2,
2006 (a) 2005
---------- ----------
Sales $3,611.6 $2,825.4
Income before income taxes 96.2 65.0
Net income 58.8 47.3
Net income per share:
Basic $0.40 $0.39
Diluted $0.40 $0.39
FISCAL YEARS ENDED
---------------------
JULY 1, JULY 2,
2006 (a) 2005
---------- ----------
Sales $14,253.6 $11,066.8
Income before income taxes 316.1 239.8
Net income 204.5 168.2
Net income per share:
Basic $1.40 $1.39
Diluted $1.39 $1.39
(a) See Notes to Consolidated Financial Statements.
AVNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS EXCEPT PER SHARE DATA)
FOURTH QUARTERS ENDED FISCAL YEARS ENDED
----------------------- -------------------------
JULY 1, JULY 2, JULY 1, JULY 2,
2006 (a) 2005 2006 (a) 2005
----------- ----------- ------------ ------------
Sales $3,611,611 $2,825,401 $14,253,630 $11,066,816
Cost of sales (Note
1) 3,129,750 2,454,476 12,414,647 9,607,833
----------- ----------- ------------ ------------
Gross profit 481,861 370,925 1,838,983 1,458,983
Selling, general
and administrative
expenses (Note 2) 330,055 285,189 1,344,922 1,137,667
Restructuring,
integration and
other charges
(Note 1) 6,781 - 60,983 -
Loss on sale of
business lines
(Note 3) 13,551 - 2,601 -
----------- ----------- ------------ ------------
Operating income 131,474 85,736 430,477 321,316
Other income, net 167 1,253 4,760 3,499
Interest expense (24,499) (21,968) (96,505) (85,056)
Debt extinguishment
costs (Note 4) (10,919) - (22,585) -
----------- ----------- ------------ ------------
Income before
income taxes 96,223 65,021 316,147 239,759
Income tax
provision 37,376 17,771 111,600 71,520
----------- ----------- ------------ ------------
Net income $58,847 $47,250 $204,547 $168,239
=========== =========== ============ ============
Net earnings per
share:
Basic $0.40 $0.39 $1.40 $1.39
=========== =========== ============ ============
Diluted $0.40 $0.39 $1.39 $1.39
=========== =========== ============ ============
Shares used to
compute earnings
per share:
Basic 146,649 120,746 145,942 120,629
=========== =========== ============ ============
Diluted 147,415 121,755 147,150 121,469
=========== =========== ============ ============
(a) See Notes to Consolidated Financial Statements.
AVNET, INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
JULY 1, JULY 2,
2006 2005
----------- -----------
Assets:
Current assets:
Cash and cash equivalents $276,713 $637,867
Receivables, net 2,477,043 1,888,627
Inventories 1,616,580 1,224,698
Other 97,126 31,775
----------- -----------
Total current assets 4,467,462 3,782,967
Property, plant and equipment, net 159,433 157,428
Goodwill 1,296,597 895,300
Other assets 292,201 262,520
----------- -----------
Total assets 6,215,693 5,098,215
----------- -----------
Less liabilities:
Current liabilities:
Borrowings due within one year 316,016 61,298
Accounts payable 1,654,154 1,296,713
Accrued expenses and other 468,154 359,507
----------- -----------
Total current liabilities 2,438,324 1,717,518
Long-term debt, less due within one year 918,810 1,183,195
Other long-term liabilities 27,376 100,469
----------- -----------
Total liabilities 3,384,510 3,001,182
----------- -----------
Shareholders' equity $2,831,183 $2,097,033
=========== ===========
AVNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
FISCAL YEARS ENDED
--------------------
JULY 1, JULY 2,
2006 2005
--------- ---------
Cash flows from operating activities:
Net income $204,547 $168,239
Non-cash and other reconciling items:
Depreciation and amortization 66,526 61,746
Deferred income taxes 52,169 63,734
Non-cash restructuring and other charges 15,308 -
Other, net 65,763 47,115
Changes in (net of effects from business acquisitions and
dispositions):
Receivables (254,691) (168,892)
Inventories (142,563) 144,004
Accounts payable 99,670 191,270
Accrued expenses and other, net (125,843) (45,380)
--------- ---------
Net cash flows (used for) provided from
operating activities (19,114) 461,836
--------- ---------
Cash flows from financing activities:
Issuance of notes in public offering, net of
issuance costs 246,483 -
Repayment of notes (369,965) (89,589)
Proceeds from (repayment of) bank debt, net 89,511 (10,789)
Repayment of other debt, net (643) (86)
Other, net 30,991 2,274
--------- ---------
Net cash flows used for financing activities (3,623) (98,190)
--------- ---------
Cash flows from investing activities:
Purchases of property, plant, and equipment (51,803) (31,338)
Cash proceeds from sales of property, plant and
equipment 4,368 7,271
Acquisitions and investments, net (317,114) (3,563)
Cash proceeds from divestitures, net 22,779 -
--------- ---------
Net cash flows used for investing activities (341,770) (27,630)
--------- ---------
Effect of exchange rates on cash and cash
equivalents 3,353 (10,816)
--------- ---------
Cash and cash equivalents:
-- (decrease) increase (361,154) 325,200
-- at beginning of period 637,867 312,667
--------- ---------
-- at end of period $276,713 $637,867
========= =========
AVNET, INC.
SEGMENT INFORMATION
(MILLIONS)
FOURTH QUARTERS ENDED FISCAL YEARS ENDED
--------------------- ---------------------
JULY 1, JULY 2, JULY 1, JULY 2,
SALES: 2006 2005 2006 2005
---------- ---------- ---------- ----------
Electronics Marketing $2,447.3 $1,620.5 $9,262.4 $6,259.0
Technology Solutions 1,164.3 1,204.9 4,991.2 4,807.8
---------- ---------- ---------- ----------
Consolidated $3,611.6 $2,825.4 $14,253.6 $11,066.8
========== ========== ========== ==========
OPERATING INCOME (LOSS):
Electronics Marketing $134.9 $65.3 $419.1 $233.1
Technology Solutions 40.3 37.4 165.7 147.7
Corporate (16.9) (17.0) (61.0) (59.5)
---------- ---------- ---------- ----------
158.3 85.7 523.8 321.3
Restructuring,
integration and other
charges (6.8) - (69.9) -
Loss on sale of business
lines (13.6) - (2.6) -
Incremental stock
compensation and
amortization of
intangibles expense (6.4) - (20.8) -
---------- ---------- ---------- ----------
Consolidated $131.5 $85.7 $430.5 $321.3
========== ========== ========== ==========
AVNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOURTH QUARTER AND FISCAL YEAR 2006
(1) The results for the fourth quarter of fiscal 2006 include
restructuring, integration and other charges amounting to
$6,781,000 pre-tax, $7,262,000 after tax (including Memec related
tax impacts of overseas legal entity reorganizations) and $0.05
per share on a diluted basis, and the results for the twelve
months ended July 1, 2006, include restructuring, integration and
other charges of $69,960,000 pre-tax ($8,977,000 of which is
included in cost of sales), $49,870,000 after tax and $0.34 per
share on a diluted basis. The integration costs and the majority
of the restructuring and other charges resulted from certain
actions taken and costs incurred in all three regions resulting
from the July 5, 2005, acquisition and integration of Memec. The
remainder of the restructuring and other charges related to other
actions taken by the Company as a result of the divestiture of two
businesses and other cost reduction initiatives in addition to
other items discussed below.
The restructuring and other charges for the fourth quarter and
twelve months ended July 1, 2006, include severance costs related
to reductions of Avnet personnel and charges related to the
consolidation of certain Avnet leased facilities resulting from
the integration of Memec's personnel and facilities and resulting
from the divestiture in the third quarter of two business lines
within Technology Solutions' Americas business. The restructuring
and other charges also include writedowns of certain owned assets
and capitalized IT-related initiatives that were rendered
redundant as a result of the facilities reductions and other
actions noted above. Also included in the restructuring and other
charges for the twelve months ended July 1, 2006, were writedowns
of certain inventory for terminated lines primarily related to the
integration of Memec, with such charges recorded through cost of
sales in the accompanying consolidated statements of operations, a
charge associated with the curtailment of a UK-based pension plan
recorded in the third quarter, charges associated with a
reassessment of an existing environmental liability recorded in
the fourth quarter, and other items. Finally, restructuring and
other charges for the twelve months ended July 1, 2006, also
include writedowns to fair market value of two owned warehouse and
administrative buildings that the Company has vacated.
(2) The results for the fourth quarter of fiscal 2006 include
$5,431,000 pre-tax (included entirely in selling, general and
administrative expenses), $3,359,000 after tax and $0.02 per share
on a diluted basis of incremental stock compensation expense
resulting from the Company's adoption of SFAS 123R, which requires
the Company to record compensation expense associated with stock
option grants, and additional expenses associated with increased
grants under other stock compensation programs in response to SFAS
123R. For the twelve months ended July 1, 2006, incremental
stock-based compensation expense amounted to $16,645,000 pre-tax,
$10,554,000 after tax and $0.07 per share on a diluted basis. Also
included in selling, general and administrative expenses for the
fourth quarter and twelve months ended July 1, 2006, is $1,040,000
and $4,160,000, respectively, of incremental amortization expense
associated with the recognition of $26,400,000 in amortizable
intangible assets as a result of the acquisition of Memec. The
after-tax impact of the incremental amortization expense was
$629,000 or $0.01 per share on a diluted basis, and $2,696,000, or
$0.02 per share on a diluted basis, for the three and twelve month
periods, respectively.
(3) The results for the fourth quarter and twelve months ended
July 1, 2006, include a loss of $13,551,000 pre-tax, $14,328,000
after tax and $0.10 per share on a diluted basis resulting from
the sale of two small, non-core Electronics Marketing specialty
businesses in the EMEA region, for which no tax benefit is
available. The results for the twelve months ended July 1, 2006,
include a loss of $2,601,000 pre-tax, $7,074,000 after tax and
$0.05 per share on a diluted basis resulting from the loss on the
sale of the specialty businesses in the fourth quarter offset
somewhat by a gain on the sale of Technology Solutions' single
tier businesses in the Americas in the third quarter.
(4) During the fourth quarter, the Company incurred debt
extinguishment costs amounting to $10,919,000 pre-tax, $6,601,000
after tax, and $0.04 per share on a diluted basis, associated with
the repurchase of $113,640,000 principal amount of the Company's
9-3/4% Notes due February 15, 2008. The repurchase was funded
primarily with cash on hand. For the twelve months ended July 1,
2006, the Company incurred debt extinguishment costs amounting to
$22,585,000 pre-tax, $13,653,000 after tax and $0.09 per share on
a diluted basis related to the repurchase of $254,095,000
principal amount of the Company's 8.00% Notes due November 15,
2006 in the first quarter and the $113,640,000 repurchase in the
fourth quarter noted above. The Company used the net proceeds from
the issuance during the first quarter of $250,000,000 principal
amount of 6.00% Notes due September 1, 2015, plus cash on hand, to
fund the $254,095,000 repurchase.
(5) The combined impact of the items discussed in Notes 1-4
amounted to $37,722,000 pre-tax, $32,179,000 after tax and $0.22
per share on a diluted basis for the fourth quarter of fiscal 2006
and $115,951,000 pre-tax, $83,847,000 after tax and $0.57 per
share on a diluted basis for the twelve months ended July 1, 2006.
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