Avnet Inc. Reports Third Quarter Fiscal Year 2006 Results.PHOENIX -- Net Income and 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. Up Significantly Year over Year; Operating Margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: Improved Across All Regions at Both Operating Groups E[acute accent acute accent n. A mark (´) indicating: a. that a vowel is close or tense, as é in French été. b. that a vowel or syllable has a high or rising pitch, as in Chinese or Ancient Greek. c. ]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 revenues of $3.61 billion for its third quarter fiscal 2006, which ended April 1, 2006, up 31.1% over third quarter fiscal 2005 revenues of $2.76 billion. The prior year quarter did not include revenues of Memec Group Holdings Inc. ("Memec"), which was acquired on July July: see month. 5, 2005. Revenues were up 9.1% over the prior year third quarter adjusted to include Memec's sales of $556.3 million in the third quarter fiscal 2005. Net income for third quarter fiscal 2006, which includes certain charges that are described below, was $71.2 million, or $0.48 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 $41.1 million, or $0.34 per share on a diluted basis, for third quarter fiscal 2005. Excluding the charges described below, third quarter 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 $79.5 million, or $0.54, respectively, up 93.2% and 58.8% as compared with third quarter fiscal 2005. E[acute accent]The results for the third quarter of fiscal 2006 include charges for the following items, the mention of which management believes is useful to investors when comparing operating performance results with previous periods. More details on these charges and the reasons for their inclusion are set forth in the Non-GAAP Financial Information section, which begins on page 4 of this press release. E[acute accent]--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 resulting primarily from the company's acquisition and integration of Memec into Avnet's existing business. E[acute accent]--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 other 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 items. E[acute accent]--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. E[acute accent]--Incremental 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 the third quarter of fiscal 2006 as a result of the Memec acquisition. E[acute accent]--A one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. net gain on the sale of Technology Solutions' single tier businesses in the Americas.
Gross Operating Pre-tax Net Diluted
Profit Income Income Income EPS
--------- --------- --------- -------- -------
($ in thousands, except per share data)
GAAP results, third
quarter FY06 $472,054 $121,880 $107,422 $71,167 $0.48
Adjustments:
Restructuring and
integration costs
(primarily Memec
acquisition-
related) 1,440 10,040 10,040 6,652 0.05
Restructuring and
other costs related
to business
divestitures and
other actions - 6,930 6,930 4,591 0.03
Stock-based
compensation expense - 3,412 3,412 2,260 0.02
Incremental
amortization expense
for intangible
assets - 3,120 3,120 2,067 0.01
Gain on sale of
businesses - - (10,950) (7,254) (0.05)
--------- --------- --------- -------- -------
Total adjustments 1,440 23,502 12,552 8,316 0.06
--------- --------- --------- -------- -------
Adjusted results $473,494 $145,382 $119,974 $79,483 $0.54
========= ========= ========= ======== =======
E[acute accent]Third quarter fiscal 2006 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. of $121.9 million, including certain charges described in the table above, was up 55.2% as compared with third quarter fiscal 2005 operating income of $78.5 million. Excluding these charges, third quarter fiscal 2006 operating income grew 85.1% to $145.4 million as compared with third quarter fiscal 2005. E[acute accent]The Memec integration continues to proceed well and is approaching completion. The Japan IT conversion and certain real estate consolidations are the primary remaining synergies left to be completed in the fourth quarter fiscal 2006. Actions to remove in excess of $125 million of annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. synergies were completed by the end of third quarter fiscal 2006 and the company continues to expect to have removed the targeted $150 million of annualized synergies by the end of the June June: see month. 2006 quarter. During the third quarter, the company also completed the divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of its remaining Technology Solutions single tier businesses in the Americas, which resulted in a net gain of $10.9 million in the March quarter. E[acute accent]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, "This was another very strong quarter for us as we grew revenue 9.1% year over year, including Memec in the year ago quarter, with commensurate com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. gains in margins and returns. Excluding the charges indicated above, operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. grew more than seven times faster than revenue and operating income margin of 4.0% was up 135 basis points year-over-year on a 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 basis including Memec in the prior year period. Due to a very successful Memec integration and accelerating growth in the components end markets, we have made significant strides toward achieving our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. financial targets of 4.5% to 5.0% operating income margin and 12.5% 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). ." E[acute accent]The company used approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $11.6 million of free cash flow (as defined later in this release) during the third quarter of fiscal 2006, which includes approximately $26.3 million of cash used for 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). , integration and other costs primarily incurred in connection with the acquisition of Memec, including cash outflows associated with charges recorded through purchase accounting. Strong growth in earnings combined with a fourth straight quarter of record setting asset velocity at EM drove another significant improvement in Avnet's Return on Capital Employed ("ROCE ROCE See: Return on capital employed ") and Return on Working Capital ("ROWC"). Excluding the charges described herein, ROCE of 10.2% and ROWC of 25.2% for third quarter fiscal 2006 were up 55 and 77 basis points, respectively, over second quarter fiscal 2006. These key operating 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. are defined in the Non-GAAP Financial Information section, which begins on page 4 of this release. E[acute accent]Ray Sadowski, chief financial officer, stated: "This quarter's performance is further proof that our value-based management initiatives are having the desired impact. Even though we have experienced better than expected growth this fiscal year, our team worldwide has maintained focus on expense control and asset management while quickly and effectively integrating the Memec organization. This ability to improve productivity and efficiency demonstrates the leverage in our business model. With ROCE greater than 10%, we are generating positive economic profit at the enterprise level. With TS currently exceeding our return targets and EM making progress every quarter, we expect to expand our economic profit quarterly as we continue to progress toward our 12.5% ROCE goal." E[acute accent]Operating Groups E[acute accent]Electronics Marketing ("EM") sales of $2.45 billion in the third quarter fiscal 2006 were up 53.3% on a year-over-year basis and 8.4% sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen . On a pro forma basis, including sales of Memec in the prior year period, third quarter fiscal 2006 sales were up 13.7% on a year-over-year basis. Excluding the impact of foreign currency translation, EM sales for third quarter fiscal 2006 were up 17.5% year-over-year, including sales of Memec in the prior year period, and 8.0% sequentially as the impact of foreign currency translation was minimal on a sequential One after the other in some consecutive order such as by name or number. basis. Including Memec's sales in the prior year period, EM sales in the Americas, EMEA and Asia (including Japan) increased 11.4%, 9.6% and 23.8%, respectively. Excluding the impact of foreign currency translation, EM EMEA's pro forma sales, including Memec's sales in the prior year period, were up 19.8% year over year. EM operating income of $122.8 million for third quarter fiscal 2006 was double the prior year third quarter operating income of $61.5 million and was up 34.1% sequentially as compared with the December December: see month. 2005 quarter operating income of $91.6 million. E[acute accent]Vallee added, "Electronics Marketing had another strong quarter of accelerating revenue and earnings growth. Excluding the impact of foreign currency translation, EM's pro forma year-over-year revenue growth was 17.5% with all three regions experiencing double digit Noun 1. double digit - a two-digit integer; from 10 to 99 integer, whole number - any of the natural numbers (positive or negative) or zero; "an integer is a number that is not a fraction" growth. Year-over-year, operating income, including Memec in the prior period, grew five times faster than revenue, which resulted in a 170 basis point improvement and drove operating income margin to 5.0% in third quarter fiscal 2006. This profit performance, when combined with a fourth straight quarter of record inventory turns, established new post bubble A bit in bubble memory or a symbol in a bubble chart. records at EM for working capital velocity, return on working capital and return on capital employed. As we exited the third quarter, we continued to see positive book to bill ratios in all three regions which, when combined with another quarter of anticipated operating expense synergies, should allow EM to continue its accelerated progress toward achieving our margin and return targets." E[acute accent]Technology Solutions ("TS") sales of $1.17 billion in the third quarter fiscal 2006 were essentially flat on a year-over-year basis and down 22.2% sequentially, as the computer business exited its typical seasonally strong second fiscal quarter. Excluding the impact of foreign currency translation, TS sales for third quarter fiscal 2006 were up 2.8% on a year-over-year basis. Foreign currency translation had no material impact on sequential comparisons. On a year-over-year basis, TS third quarter sales in the Americas increased 2.7%, while sales in EMEA and Asia were down 2.3% and 11.0%, respectively. Excluding the impact of foreign currency translation, TS EMEA's sales were up 6.2% year over year. TS operating income for the third quarter fiscal 2006 was $37.6 million, an increase of 18.6% as compared with third quarter fiscal 2005 operating income of $31.7 million, and its operating income margin of 3.2% increased 49 basis points over the prior year third quarter. E[acute accent]Vallee further commented, "Technology Solutions experienced its seasonally down March quarter but was still able to drive improvements in both gross profit and operating income margins on a year-over-year basis. Operating income margin of 3.2% was 49 basis points above the year ago quarter and represented a record for a March quarter. While revenues for proprietary servers and software were slightly below our expectations this quarter, we are encouraged by the growth in sales of industry standard servers and storage products. While the divestiture of our remaining single tier businesses in America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. had a minor negative impact on TS revenue for the third quarter fiscal 2006, we expect the continued ramp-up of the Logicalis business to accelerate growth going forward." E[acute accent]Outlook E[acute accent]For Avnet's fiscal fourth quarter, management expects sales at Electronics Marketing to be in the range of $2.47 billion to $2.55 billion and anticipates sales for Technology Solutions to be in the range of $1.20 billion to $1.25 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 $3.67 billion to $3.80 billion for the fourth quarter ending on July 1, 2006. E[acute accent]Management expects the fourth quarter earnings to be in the range of $0.57 to $0.61 per share, excluding the expensing of stock-based compensation and the amortization of intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. related to the acquisition of Memec amounting to approximately $0.02 per share. The earnings per share guidance also does not include the additional future charges associated with continuing restructuring activities and the integration of Memec or the costs associated with the planned exit of two small, non-core EM business units, which management expects will amount to between $0.05 and $0.10 per share. E[acute accent]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. E[acute accent]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 "anticipate," "expect," believe," and "should." Actual results may vary materially from the expectations contained in the forward-looking statements. E[acute accent]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. E[acute accent]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. and Form 10-Q Form 10-Q See 10-Q. . Avnet is under no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. E[acute accent]Non-GAAP Financial Information E[acute accent]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 GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). "), the company also discloses in this press release certain non-GAAP financial information including adjusted gross profit, adjusted operating income, adjusted pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta 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 activities and other items in the periods presented. E[acute accent]Management believes that gross profit and 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 gross profit and 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 option grants 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 first recorded during third quarter 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. E[acute accent]Management similarly believes pre-tax income, net income and diluted earnings per share adjusted for the impact of the items discussed above as well as the third quarter one-time gain on sale of businesses 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 pre-tax income, net income and diluted EPS excluding the impact of these items provides an important measure of the company's net results of operations for the investing public. E[acute accent]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. E[acute accent]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. E[acute accent]The results for the quarter ended April 1, 2006, included the impacts of certain items detailed below, the impacts of which are also portrayed por·tray tr.v. por·trayed, por·tray·ing, por·trays 1. To depict or represent pictorially; make a picture of. 2. To depict or describe in words. 3. To represent dramatically, as on the stage. in the table on page 2 of this press release. E[acute accent]--Restructuring and other charges, amounting to $5.4 million pre-tax ($1.4 million of which is included in cost of sales), $3.6 million after tax and $0.03 per share on a diluted basis, and integration costs, amounting to $4.6 million pre-tax, $3.0 million after tax and $0.02 per share on a diluted basis. These pre-tax restructuring and other charges included inventory writedowns for terminated lines, recorded through cost of sales ($1.4 million), severance ($3.4 million) and other charges ($0.6 million). These charges resulted primarily from the company's acquisition of Memec, which closed during the first quarter of fiscal 2006, as the company took certain actions with respect to the company's existing Electronics Marketing operations in all three regions as part of its efforts to integrate the operations of Memec. Of the $5.4 million of restructuring and other charges discussed above, $4.0 million required or will require a use of cash, and the remaining $1.4 million represented non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. . Approximately $4.3 million of cash was paid during the third quarter of fiscal 2006 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc these restructuring and other charges as well as restructuring and other charges recorded in prior fiscal periods. Integration costs, all of which required the use of cash, related entirely to the company's integration of Memec in all three regions, consisting primarily of incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. salaries and professional fees associated with the integration efforts during the quarter. E[acute accent]--Restructuring and other charges, amounting to $6.9 million pre-tax, $4.6 after tax and $0.03 per share on a diluted basis. These pre-tax restructuring and other charges included severance ($0.9 million), reserves for non-cancelable lease commitments ($1.7 million) and other charges ($0.1 million), related primarily to certain actions taken following the divestitures of Avnet's Enterprise Solutions business in the Americas to Calence LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control and its Hewlett-Packard See HP. Hewlett-Packard - (HP) Hewlett-Packard designs, manufactures and services electronic products and systems for measurement, computation and communications. The company's products and services are used in industry, business, engineering, science, medicine and end-user (job) end-user - The person who uses a computer application, as opposed to those who developed or support it. The end-user may or may not know anything about computers, how they work, or what to do if something goes wrong. business in the Americas to Logicalis Inc. These 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. also included: (i) severance and other termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. benefits ($0.9 million) and reserves for non-cancelable lease commitments and other items ($0.1 million) associated primarily with other cost-cutting measures taken primarily in the company's Technology Solutions business in EMEA; (ii) charges associated with the termination of a UK-based pension plan ($2.6 million); and (iii) other charges ($0.6 million). Of the $6.9 million pre-tax of restructuring and other charges discussed above, $6.7 million required or will require the use of cash, and the remaining $0.2 million represented non-cash charges. Approximately $0.4 million of these charges requiring a use of cash were paid during the third quarter of fiscal 2006. E[acute accent]--Incremental stock compensation expense in the third quarter of fiscal 2006 (recorded in selling, general and administrative expenses) totaled $3.4 million pre-tax, $2.3 million after tax and $0.02 per share on a diluted basis resulting from the company's adoption in the first fiscal quarter of SFAS 123R, which requires the company to record compensation expense associated with stock option grants, and additional expenses associated with increased grants in fiscal 2006 under other stock compensation programs in response to SFAS 123R. E[acute accent]--Incremental amortization expense of $3.1 million pre-tax (recorded in selling, general and administrative expenses), $2.1 million after tax and $0.01 per share on a diluted basis associated with the recognition during the third quarter of $26.4 million in amortizable intangible assets associated with the company's acquisition of Memec. The $3.1 million pre-tax charge reflects the cumulative amortization for the first nine months of fiscal 2006. E[acute accent]--A one-time gain of $10.9 million pre-tax, $7.3 million after tax and $0.05 per share on a diluted basis, associated with the company's divestiture of its remaining Technology Solutions single tier businesses in the Americas E[acute accent]Key Metrics E[acute accent]Two key metrics that the company uses to monitor its business are Return on Capital Employed ("ROCE") and Return on Working Capital ("ROWC"). Management views these metrics as two of the primary indicators of the company's ability to generate shareholder value. As a result, management has established targets with respect to these metrics for both EM and TS as well as for Avnet Inc. on a consolidated basis, and the management team and the overall business performance is evaluated based upon progress in achieving these targets. E[acute accent]ROCE is defined as the annualized, tax-effected operating income excluding restructuring and other charges discussed in this release for the most recent three-month period, divided by the average combined equity and debt balances, net of cash, for the same rolling three month period. ROCE is computed as follows for the periods presented:
Quarter Quarter Quarter
ended ended ended
April 1, Dec. 31, April 2,
2006 2005 2005
----------- ----------- -----------
Avnet Inc. (In thousands, except for
percentages)
3-month tax-effected operating
income, excluding restructuring
and other charges, annualized $384,952 $349,385 $220,421
----------- ----------- -----------
3-month average equity and debt $3,786,583 $3,630,573 $2,983,031
ROCE 10.17% 9.62% 7.39%
E[acute accent]ROWC is defined as operating income for the quarter, excluding the impact of restructuring and other charges, annualized and divided by the average balance for the quarter of trade accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying and inventory, less accounts payable ("Working Capital"). ROWC is computed as follows for the periods presented:
Quarter Quarter Quarter
ended ended ended
April 1, Dec. 31, April 2,
2006 2005 2005
----------- ----------- -----------
Avnet Inc. (In thousands, except for
percentages)
3-month operating income,
excluding restructuring and other
charges, annualized $581,528 $527,772 $314,124
----------- ----------- -----------
3-month average working capital,
as defined above $2,310,343 $2,163,020 $1,922,998
ROWC 25.17% 24.40% 16.34%
E[acute accent]Cash Flow Activity E[acute accent]The following table summarizes the company's cash flow activity for the third quarters and first nine 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. E[acute accent]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.
Third quarters Nine months
ended ended
------------------- --------------------
April 1, April 2, April 1, April 2,
2006 2005 2006 2005
--------- --------- ---------- ---------
($ in thousands)
Net income $71,167 $41,148 $145,700 $120,989
Non-cash and other
reconciling items 25,541 22,403 107,213 112,572
Cash flow (used for) provided
by working capital
(excluding cash and cash
equivalents) (94,439) 82,851 (411,644) 150,618
--------- --------- ---------- ---------
Net cash flow provided by
(used for) operations 2,269 146,402 (158,731) 384,179
Purchase of property,
plant and equipment (14,108) (6,517) (38,175) (22,257)
Cash proceeds from sales
of property, plant and
equipment 621 328 2,250 7,125
Acquisitions and
dispositions of
operations and
investments, net (6,625) 7 (310,647) (1,098)
Effect of exchange rates
on cash and cash
Equivalents 2,060 (10,048) (477) 5,719
Other, net financing
activities 4,195 739 27,774 923
--------- --------- ---------- ---------
Net free cash flow $(11,588) $130,911 $(478,006) $374,591
========= ========= ========== =========
E[acute accent]The significant cash outflow associated with working capital includes the cash payments made during the third quarter and first nine months of fiscal 2006 amounting to $26.3 million and $78.5 million, respectively, associated with the restructuring charges, integration costs and charges recorded through purchase accounting from the Memec acquisition. The first nine months of fiscal 2006 cash outflow also includes a $58.6 million accelerated contribution to the company's pension plan made during the first quarter. E[acute accent]Teleconference Webcast and Upcoming Events E[acute accent]Avnet will host a webcast of its quarterly teleconference today at 2 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. E[acute accent]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. Web site at www.ir.avnet.com. E[acute accent]About Avnet E[acute accent]Avnet 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 2, 2005, Avnet and the recently acquired Memec (closed July 5, 2005) generated combined revenue in excess of $13 billion through sales in approximately 70 countries.
AVNET INC.
(MILLIONS EXCEPT PER SHARE DATA)
THIRD QUARTERS ENDED
------------------------
APRIL 1, APRIL 2,
2006 (1) 2005
----------- ---------
Sales $3,614.6 $2,758.3
Income before income taxes 107.4 59.4
Net income 71.2 41.1
Net income per share:
Basic $0.49 $0.34
Diluted $0.48 $0.34
NINE MONTHS ENDED
------------------------
APRIL 1, APRIL 2,
2006 (1) 2005
----------- ---------
Sales $10,642.0 $8,241.4
Income before income taxes 219.9 174.7
Net income 145.7 121.0
Net income per share:
Basic $1.00 $1.00
Diluted $0.99 $1.00
(1) The results for the third quarter and first nine months of
fiscal 2006 shown above includes the impacts of the following
items:
- Stock compensation expense amounting to $3.4 million pre-tax,
$2.3 million after tax and $0.02 per share on a diluted basis
for the third quarter of fiscal 2006, and $11.2 million pre-tax,
$7.2 million after tax and $0.05 per share on a diluted basis in
the first nine months of fiscal 2006. These expense amounts are
associated with 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.
- Incremental amortization expense of $3.1 million pre-tax, $2.1
million after tax and $0.01 per share on a diluted basis in the
third quarter and nine months ended April 1, 2006, associated
with the recognition, during the third quarter of fiscal 2006,
of $26.4 million in amortizable intangible assets associated
with the acquisition of Memec.
- Restructuring and other charges, amounting to $12.4 million
pre-tax, $8.2 million after tax and $0.06 per share on a diluted
basis in the third quarter of fiscal 2006, and $42.9 million
pre-tax, $28.8 million after tax and $0.20 per share on a
diluted basis for the nine months ended April 1, 2006. Also
included are integration costs amounting to $4.6 million
pre-tax, $3.0 million after tax and $0.02 per share on a diluted
basis in the third quarter of fiscal 2006, and $20.3 million
pre-tax, $13.8 million after tax and $0.09 per share on a
diluted basis in the first nine months of fiscal 2006. The
integration costs resulted from the company's efforts to
integrate the Memec business into Avnet following the July 5,
2005 close of the Memec acquisition. The majority of the
restructuring and other charges resulted from certain actions
taken and costs incurred in all three regions resulting from the
acquisition of Memec as well as certain other actions taken by
the company following the divestiture, during the third quarter
of fiscal 2006, of two Technology Solutions businesses in the
Americas, other cost reduction initiatives and other items.
- The third quarter and nine months ended April 1, 2006, include a
gain of $10.9 million pre-tax, $7.3 million after tax and $0.05
per share on a diluted basis resulting from the sale of
Technology Solutions' single tier businesses in the Americas.
- The first nine months of fiscal 2006 also include debt
extinguishment costs amounting to $11.7 million pre-tax, $7.1
million after tax and $0.05 per share on a diluted basis related
to the repurchase of $254.1 million principal amount of the
company's 8.00% Notes due Nov. 15, 2006. The company used the
net proceeds from the issuance during the first quarter of
fiscal 2006 of $250.0 million principal amount of 6.00% Notes
due Sept. 1, 2015, plus cash on hand, to fund this repurchase.
The combined impact of the items discussed above amounted to $12.6
million pre-tax, $8.3 million after tax and $0.06 per share on a
diluted basis for the third quarter of fiscal 2006 and $78.2
million pre-tax, $51.7 million after tax and $0.35 per share on a
diluted basis for the first nine months of fiscal 2006. See
Consolidated Statements of Operations for further discussion of
these items and the related impacts.
AVNET INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS EXCEPT PER SHARE DATA)
THIRD QUARTERS ENDED NINE MONTHS ENDED
----------------------- ------------------------
APRIL 1, APRIL 1,
2006 (1) APRIL 2, 2006 (1) APRIL 2,
(2)(3) 2005 (2)(3)(4) 2005
----------- ----------- ------------ -----------
Sales $3,614,642 $2,758,259 $10,642,020 $8,241,415
Cost of sales (1) 3,142,588 2,393,691 9,284,897 7,153,357
----------- ----------- ------------ -----------
Gross profit 472,054 364,568 1,357,123 1,088,058
Selling, general and
administrative
expenses (2) 334,645 286,037 1,014,867 852,478
Restructuring and
other charges (1) 10,945 - 33,901 -
Integration costs
(1) 4,584 - 20,301 -
----------- ----------- ------------ -----------
Operating income 121,880 78,531 288,054 235,580
Other (expense)
income, net (246) 1,860 4,591 2,247
Interest expense (25,162) (20,963) (72,006) (63,088)
Gain on sale of
business (3) 10,950 - 10,950 -
Debt extinguishment
costs (4) - - (11,665) -
----------- ------------ ------------ -----------
Income before income
taxes 107,422 59,428 219,924 174,739
Income tax provision 36,255 18,280 74,224 53,750
----------- ----------- ------------ -----------
Net income $71,167 $41,148 $145,700 $120,989
=========== =========== ============ ===========
Net earnings per
share:
Basic $0.49 $0.34 $1.00 $1.00
=========== =========== ============ ===========
Diluted $0.48 $0.34 $0.99 $1.00
=========== =========== ============ ===========
Shares used to
compute earnings
per share:
Basic 146,373 120,694 145,707 120,591
=========== =========== ============ ===========
Diluted 147,413 121,414 147,062 121,373
=========== =========== ============ ===========
(1) The results for the third quarter of fiscal 2006 include
restructuring and other charges amounting to $12.4 million pre-tax
($1.4 million of which is included in cost of sales), $8.2 million
after tax and $0.06 per share on a diluted basis, and the results
for the nine months ended April 1, 2006, include restructuring and
other charges of $42.9 million pre-tax ($9.0 million of which is
included in cost of sales), $28.8 million after tax and $0.20 per
share on a diluted basis. The results for the third quarter of
fiscal 2006 also include integration costs amounting to $4.6
million pre-tax, $3.0 million after tax and $0.02 per share on a
diluted basis, and the results for the nine months ended April 1,
2006, include $20.3 million pre-tax, $13.8 million after tax and
$0.09 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 relate
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 further discussed below.
The restructuring and other charges for the third quarter and nine
months ended April 1, 2006, include severance costs related to
reductions of Avnet headcount 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 third quarter and first nine months of fiscal 2006
were writedowns of certain inventory for terminated lines, with
such charges recorded through cost of sales in the accompanying
consolidated statements of operations. The restructuring and other
charges for the third quarter and nine months ended April 1, 2006,
also include a charge associated with the curtailment of a UK-
based pension plan and other one-time costs. Finally,
restructuring and other charges for the first nine months include
the second fiscal quarter writedown to fair market value of two
owned warehouse and administrative buildings that the company has
vacated.
(2) The results for the third quarter of fiscal 2006 include $3.4
million pre-tax (included entirely in selling, general and
administrative expenses), $2.3 million 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 nine months ended April 1, 2006, these stock-based
compensation impacts amounted to $11.2 million pre-tax, $7.2
million after tax and $0.05 per share on a diluted basis. Also
included in selling, general and administrative expenses for the
third quarter and nine months ended April 1, 2006, is $3.1 million
of incremental amortization expense associated with the
recognition, during the third quarter of fiscal 2006, of $26.4
million in amortizable intangible assets associated with the
acquisition of Memec. The after-tax impact of the incremental
amortization expense was $2.1 million, or $0.01 per share on a
diluted basis, for the three and nine-month periods.
(3) The results for the third quarter and nine months ended April 1,
2006, include a gain of $10.9 million pre-tax resulting from the
sale of Technology Solutions' single tier businesses in the
Americas. After tax, the gain was $7.3 million, or $0.05 per share
on a diluted basis for both the third quarter and nine months
ended April 1, 2006.
(4) During the first nine months of fiscal 2006, the company incurred
debt extinguishment costs amounting to $11.7 million pre-tax, $7.1
million after tax and $0.05 per share on a diluted basis related
to the repurchase in the first quarter of fiscal 2006 of $254.1
million principal amount of the company's 8.00% Notes due Nov. 15,
2006. The company used the net proceeds from the issuance during
the first quarter of fiscal 2006 of $250.0 million principal
amount of 6.00% Notes due Sept. 1, 2015, plus cash on hand, to
fund this repurchase.
(5) The combined impact of the items discussed in Notes 1-4 amounted
to $12.6 million pre-tax, $8.3 million after tax and $0.06 per
share on a diluted basis for the third quarter of fiscal 2006 and
$78.2 million pre-tax, $51.7 million after tax and $0.35 per share
on a diluted basis for the first nine months fiscal 2006.
AVNET INC.
CONSOLIDATED BALANCE SHEETS
(THOUSANDS)
APRIL 1, JULY 2,
2006 2005
----------- -----------
Assets:
Current assets:
Cash and cash equivalents $199,846 $637,867
Receivables, net 2,448,664 1,888,627
Inventories 1,553,903 1,224,698
Other 58,866 31,775
----------- -----------
Total current assets 4,261,279 3,782,967
Property, plant and equipment, net 163,946 157,428
Goodwill 1,297,831 895,300
Other assets, including intangible
assets other than goodwill 325,715 262,520
----------- -----------
Total assets 6,048,771 5,098,215
----------- -----------
Less liabilities:
Current liabilities:
Borrowings due within one year 278,929 61,298
Accounts payable 1,542,467 1,296,713
Accrued expenses and other 440,721 359,507
----------- -----------
Total current liabilities 2,262,117 1,717,518
Long-term debt, less due within one
year 1,022,503 1,183,195
Other long-term liabilities 59,837 100,469
----------- -----------
Total liabilities 3,344,457 3,001,182
----------- -----------
Shareholders' equity $2,704,314 $2,097,033
=========== ===========
AVNET INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS)
NINE MONTHS ENDED
APRIL 1, APRIL 2,
2006 2005
--------- ---------
Cash flows from:
Operations:
Net income $145,700 $120,989
Add non-cash and other reconciling items:
Depreciation and amortization 51,158 46,398
Deferred income taxes 4,715 32,100
Non-cash restructuring and other charges 14,607 -
Other, net 36,733 34,074
Receivables (219,211) (11,538)
Inventories (89,774) 96,691
Accounts payable (7,934) 93,731
Accrued expenses and other, net (94,725) (28,266)
--------- ---------
Net cash flows (used for) provided from
operating activities (158,731) 384,179
--------- ---------
Financing:
Issuance of notes in public offering, net
of issuance costs 246,483 -
Repayment of notes (256,325) (89,589)
Proceeds from (repayment of) bank debt, net 50,410 (3,152)
Repayment of other debt, net (583) (169)
Other, net 27,774 923
--------- ---------
Net cash flows provided from (used for)
financing activities 67,759 (91,987)
--------- ---------
Investing:
Purchases of property, plant, and equipment (38,175) (22,257)
Cash proceeds from sales of property, plant
and equipment 2,250 7,125
Acquisitions and dispositions of operations
and investments, net (310,647) (1,098)
--------- ---------
Net cash flows used for investing
activities (346,572) (16,230)
--------- ---------
Effect of exchange rates on cash and cash
equivalents (477) 5,719
--------- ---------
Cash and cash equivalents:
(decrease) increase (438,021) 281,681
at beginning of period 637,867 312,667
--------- ---------
at end of period $199,846 $594,348
========= =========
AVNET INC.
SEGMENT INFORMATION
(MILLIONS)
THIRD QUARTERS ENDED NINE MONTHS ENDED
-------------------- --------------------
APRIL 1, APRIL 2, APRIL 1, APRIL 2,
SALES 2006 2005 2006 2005
--------------------------- ---------- --------- ---------- ---------
Electronics Marketing $2,446.6 $1,596.1 $6,815.1 $4,638.5
Technology Solutions 1,168.0 1,162.2 3,826.9 3,602.9
---------- --------- ---------- ---------
Consolidated $3,614.6 $2,758.3 $10,642.0 $8,241.4
========== ========= ========== =========
OPERATING INCOME (LOSS)
---------------------------
Electronics Marketing $122.8 $61.5 $284.3 $167.8
Technology Solutions 37.6 31.7 125.5 110.3
Corporate (15.0) (14.7) (44.2) (42.5)
---------- --------- ---------- ---------
Consolidated before
restructuring and other
charges, incremental
stock compensation and
amortization expense 145.4 78.5 365.6 235.6
Restructuring and
integration charges (17.0) - (63.2) -
Incremental stock
compensation and
amortization expense (6.5) - (14.3) -
---------- --------- ---------- ---------
Consolidated $121.9 $78.5 $288.1 $235.6
========== ========= ========== =========
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