Acquisitions Accelerate Digital Transformation
Avnet, Inc. (NYSE:AVT) today announced results for the second quarter
fiscal year 2017 ended December 31, 2016.
Highlights
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Diluted earnings per share of $0.79
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Adjusted diluted EPS from continuing operations of $0.77 exceeded
the midpoint of expectations
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Premier Farnell sales exceeded expectations and contributed to margin
expansion
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Cash generated from operations in the second quarter of fiscal 2017
was $240 million
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Acquired Hackster.io, strengthening digital platform and reach into
early lifecycle customers
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Second Quarters Ended
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December 31, 2016
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January 2, 2016
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Change
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Continuing Operations
(1)
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$ in millions, except per share data
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Sales
(2)
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$
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4,273.6
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$
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4,161.1
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2.7%
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Constant Currency
(3)
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3.4%
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Operating Income
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124.2
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136.1
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-8.7%
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Adjusted Operating Income
(4)
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164.5
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152.5
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7.9%
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Income
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32.5
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102.1
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-68.2%
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Adjusted Income
(4)
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100.8
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101.3
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-0.4%
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Diluted EPS
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$
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0.25
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$
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0.76
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-67.1%
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Adjusted Diluted EPS
(4)
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$
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0.77
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$
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0.75
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2.7%
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Avnet
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Diluted EPS
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$
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0.79
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$
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1.16
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-31.9%
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Adjusted Diluted EPS
(4)
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$
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1.19
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$
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1.22
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-2.5%
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______________________
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(1)
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The information included under “Continuing Operations” excludes the
Technology Solutions (TS) business as TS is considered a
discontinued operation. See “Discontinued Operations,” below.
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(2)
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Sales in the fiscal quarter-ended December 31, 2016, excludes
approximately $92 million of embedded computing solutions business,
which was included in second quarter sales guidance, but is now part
of discontinued operations.
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(3)
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Year-over-year sales growth rate excludes the impact of changes in
foreign currency exchange rates. A discussion on the impact of
foreign currency on Avnet results of operations, the definition of
organic sales and a reconciliation of non-GAAP financial information
is included in Exhibit 99.2.
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(4)
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Non-GAAP measures. See the reconciliation of non-GAAP financial
information attached as exhibit 99.2 to the Form 8-K filed with the
Securities Exchange Commission on January 26, 2017 (“Exhibit 99.2”).
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“Our December quarter results validate the benefits of our acquisition
of Premier Farnell, which was effective October 17, 2016, as gross
profit and adjusted operating margins increased 158 and 18 basis points,
respectively, year over year. More importantly, as we integrate Premier
Farnell, the team is excited about the opportunities to accelerate
revenue growth as their customer base gains access to the engineering
resources and supply chain services of Avnet,” said Bill Amelio, CEO of
Avnet. “During the quarter, we further enhanced our digital platform
with the acquisition of Hackster.io, which provides over 200,000 makers
a forum to learn how to design, create and program Internet-connected
hardware. Our Electronics Marketing business also performed well as
organic revenue grew approximately 4% in constant currency when you
exclude the impact of Premier Farnell and our decision to exit select
high volume supply chain engagements in Asia.”
Electronics Marketing Results
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Year-over-Year Growth Rates
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Q2 FY17
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Reported
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Organic
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Sales
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Sales
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Sales
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(in millions)
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EM Total
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$
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4,273.6
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2.7
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%
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(3.6
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)
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%
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Constant Currency
(1)
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3.4
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%
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(2.9
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%
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Americas
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$
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1,252.6
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7.5
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%
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(2.1
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EMEA
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$
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1,380.7
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21.0
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%
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8.4
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%
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Constant Currency
(1)
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24.6
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%
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11.6
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%
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Asia
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$
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1,640.3
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(11.5
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%
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(12.9
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%
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Constant Currency
(1)
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(12.2
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%
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(13.5
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%
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Q2 FY17
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Q2 FY16
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Change
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Operating Income
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$
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190.7
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$
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176.3
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8.2
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%
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Operating Income Margin
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4.5
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%
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4.2
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%
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23
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Bps
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______________________
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(1)
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Refer to Exhibit 99.2.
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Sales increased 3.4% from the year ago quarter in constant currency
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Organic sales declined 2.9% in constant currency
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EMEA sales increased 11.6% year over year in constant currency,
representing the 14th consecutive quarter of organic growth
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Gross profit margin increased 158 basis points from the year ago
quarter primarily due to the addition of Premier Farnell, as well as
improvements in the Asia region
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Operating income margin increased 23 basis points from the year ago
quarter due to the addition of Premier Farnell, as well as
improvements in the EMEA and Asia regions, which were partially offset
by a decline in the Americas region as a result of ERP implementation
costs
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Working capital (defined as receivables plus inventories less accounts
payables) increased 2.3% sequentially due to the addition of Premier
Farnell. Excluding the impact of Premier Farnell, working capital
declined 9.7% sequentially, with approximately two-thirds of the
decline in the Americas region
Cash Flow and Returns to Shareholders
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Trailing twelve months cash flow from operations increased $122
million sequentially to $380 million
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Cash and cash equivalents at the end of the quarter was $1.27 billion;
net debt (total debt less cash and cash equivalents) was $2.36 billion
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Avnet has $174.9 million remaining under the current share repurchase
authorization
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Avnet paid a dividend of $0.17 per share or $21.8 million during the
quarter
“On October 17th we used approximately $180 million of our
offshore cash and $660 million of new debt to fund the acquisition of
Premier Farnell. Subsequent to that event, we issued $300 million of
5-year notes at a rate of 3.75%. A portion of the proceeds was used to
pay down acquired Premier Farnell debt while the remainder was used to
pay down floating-rate debt,” said Kevin Moriarty, CFO of Avnet. “We
intend to use approximately $1.5 billion of the proceeds from the sale
of Technology Solutions to further reduce our floating-rate debt to
ensure our credit statistics solidly support our investment grade credit
rating. With our strong cash flow from operations, which totaled $380
million over the trailing twelve months, and no long-term note
repayments until 2020, we are in a strong position to fund future growth
and consider ways to return additional cash to shareholders.”
Outlook for Third Quarter of Fiscal 2017 Ending
on April 1, 2017
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Avnet outlook only includes the EM business, including Premier Farnell
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Sales are expected to be in the range of $4.3 billion to $4.6 billion
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Adjusted diluted earnings per share is expected to be in the range of
$0.80 to $0.90 per share
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The guidance assumes 130 million average diluted shares outstanding
and an adjusted tax rate of 23% to 27%
The above guidance excludes any additional acquisitions, the
amortization of intangibles, any potential restructuring, integration
and other expenses and certain income tax adjustments. The above
guidance also excludes any results from the TS business. In addition,
the above guidance assumes that the average U.S. Dollar to Euro currency
exchange rate for the third quarter of fiscal 2017 is $1.07 to €1.00.
This compares with an average exchange rate of $1.10 to the Euro in the
third quarter of fiscal 2016.
Refer to Exhibit 99.2 to the Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 26, 2017, for a
reconciliation of non-GAAP guidance.
Discontinued Operations
On September 19, 2016, Avnet announced that it had entered into an
agreement to sell its TS business to Tech Data Corporation. The
transaction is subject to customary closing conditions and regulatory
approvals and is expected to close by the end of fiscal 2017. As a
result of the pending sale and having met applicable accounting
requirements, Avnet began reporting the TS business as a discontinued
operation in the first quarter of fiscal 2017 and prior periods have
been adjusted for comparability.
Forward-Looking Statements
This document contains certain “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements are based on management’s current expectations and are
subject to uncertainty and changes in facts and circumstances. The
forward-looking statements herein include statements addressing future
financial and operating results of Avnet and may include words such as
“will,” “anticipate,” “intend,” “estimate,” “forecast,” “expect,”
“feel,” “believe,” “should,” and other words and terms of similar
meaning in connection with any discussions of future operating or
financial performance, business prospects or market conditions. Actual
results may differ 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: Avnet’s ability to retain and grow market share and to
generate additional cash flow, risks associated with any acquisition
activities and the successful integration of acquired companies, the
separation and pending sale of the TS business, an industry down-cycle
in semiconductors, IT hardware or software products, declines in sales,
changes in business conditions and the economy in general, changes in
market demand and pricing pressures, any material changes in the
allocation of product or product rebates by suppliers, and other
competitive and/or regulatory 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
Avnet’s reports on Form 10-K, Form 10-Q and Form 8-K. Except as required
by law, Avnet is under no obligation to update any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Teleconference and Upcoming Events
Avnet will host a quarterly teleconference today at 10:00 a.m. Eastern
Time. Financial information including financial statement
reconciliations of GAAP to 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 any necessary software. An archive copy of the
teleconference will also be available after the call.
For a listing of Avnet’s upcoming events and other information, please
visit Avnet’s investor relations website at www.ir.avnet.com.
About Avnet
From components to cloud and from design to disposal, Avnet, Inc. (NYSE:
AVT) accelerates the success of customers who build, sell and use
technology by providing a comprehensive portfolio of innovative
products, services and solutions. For more information, visit www.avnet.com.
(AVT_IR)
Visit the Avnet Investor Relations website at www.ir.avnet.com
or contact us at investorrelations@avnet.com.
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AVNET, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
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(UNAUDITED)
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Second Quarters Ended
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Six Months Ended
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December 31,
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January 2,
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December 31,
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January 2,
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2016
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2016
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2016
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2016
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(Thousands, except per share data)
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Sales
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$
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4,273,559
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$
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4,161,082
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$
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8,391,663
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$
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8,689,667
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Cost of sales
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3,687,374
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3,656,024
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7,282,823
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7,628,440
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Gross profit
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586,185
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505,058
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1,108,840
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1,061,227
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Selling, general and administrative expenses
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431,555
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354,858
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795,227
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731,918
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Restructuring, integration and other expenses
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30,400
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14,083
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59,869
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26,601
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Operating income
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124,230
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136,117
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253,744
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302,708
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Other expense, net
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(36,514)
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(2,052)
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(50,248)
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(1,169)
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Interest expense
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(26,748)
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(20,965)
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(53,984)
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(42,997)
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Income from continuing operations before income taxes
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60,968
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113,100
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149,512
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258,542
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Income tax expense
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28,503
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10,959
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49,359
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47,477
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Income from continuing operations
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32,465
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102,141
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100,153
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211,065
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Income from discontinued operations
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70,753
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53,871
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71,908
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75,201
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Net income
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$
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103,218
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$
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156,012
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$
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172,061
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$
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286,266
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Earnings per share - basic:
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Continuing operations
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$
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0.25
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$
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0.77
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$
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0.78
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$
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1.59
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Discontinued operations
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0.55
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0.41
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0.56
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0.56
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Net income per share - basic
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$
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0.80
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$
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1.18
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$
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1.34
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$
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2.15
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Earnings per share - diluted:
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Continuing operations
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$
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0.25
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$
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0.76
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$
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0.77
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|
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$
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1.56
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Discontinued operations
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|
0.54
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0.40
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|
|
0.55
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|
|
0.55
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Net income per share - diluted
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$
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0.79
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$
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1.16
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$
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1.32
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$
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2.11
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Shares used to compute earnings per share:
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Basic
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|
|
|
127,901
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|
|
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131,909
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|
|
|
127,716
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|
|
|
132,846
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Diluted
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|
|
|
130,347
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|
|
|
134,918
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|
|
|
130,055
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|
|
135,622
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Cash dividends paid per common share
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$
|
0.17
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$
|
0.17
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|
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$
|
0.34
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|
|
$
|
0.34
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AVNET, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(UNAUDITED)
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December 31,
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July 2,
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2016
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2016
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(Thousands)
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ASSETS
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Current assets:
|
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|
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Cash and cash equivalents
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$
|
1,270,142
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|
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$
|
1,031,478
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Receivables, net
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|
|
|
2,996,110
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|
|
|
2,769,906
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Inventories
|
|
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|
2,697,796
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|
|
|
2,559,921
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|
Prepaid and other current assets
|
|
|
|
59,564
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|
|
|
81,197
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|
Assets held for sale
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|
|
4,053,487
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|
|
|
2,561,471
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Total current assets
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|
|
|
11,077,099
|
|
|
|
9,003,973
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Property, plant and equipment, net
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|
|
|
565,108
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|
|
|
453,209
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Goodwill
|
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|
|
1,098,471
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|
|
|
621,852
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Intangible assets, net
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|
|
|
296,058
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|
|
|
22,571
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Other assets
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|
|
219,259
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|
|
|
239,133
|
|
Non-current assets held for sale
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|
|
|
—
|
|
|
|
899,067
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|
Total assets
|
|
|
$
|
13,255,995
|
|
|
$
|
11,239,805
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|
LIABILITIES AND SHAREHOLDERS’ EQUITY
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|
|
|
|
|
|
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|
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Current liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
$
|
246,729
|
|
|
$
|
1,152,599
|
|
Accounts payable
|
|
|
|
1,774,021
|
|
|
|
1,590,777
|
|
Accrued expenses and other
|
|
|
|
456,397
|
|
|
|
394,888
|
|
Liabilities held for sale
|
|
|
|
2,332,646
|
|
|
|
1,804,229
|
|
Total current liabilities
|
|
|
|
4,809,793
|
|
|
|
4,942,493
|
|
Long-term debt
|
|
|
|
3,382,431
|
|
|
|
1,339,204
|
|
Other liabilities
|
|
|
|
351,909
|
|
|
|
223,053
|
|
Non-current liabilities held for sale
|
|
|
|
—
|
|
|
|
43,769
|
|
Total liabilities
|
|
|
|
8,544,133
|
|
|
|
6,548,519
|
|
Shareholders’ equity
|
|
|
|
4,711,862
|
|
|
|
4,691,286
|
|
Total liabilities and shareholders’ equity
|
|
|
$
|
13,255,995
|
|
|
$
|
11,239,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVNET, INC.
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
December 31,
|
|
|
January 2,
|
|
|
|
|
2016
|
|
|
2016
|
|
|
|
|
(Thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
$
|
172,061
|
|
|
|
$
|
286,266
|
|
|
Less: Income from discontinued operations, net of tax
|
|
|
|
71,908
|
|
|
|
|
75,201
|
|
|
Income from continuing operations
|
|
|
|
100,153
|
|
|
|
|
211,065
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash and other reconciling items:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
45,616
|
|
|
|
|
33,991
|
|
|
Amortization
|
|
|
|
11,759
|
|
|
|
|
4,034
|
|
|
Deferred income taxes
|
|
|
|
9,312
|
|
|
|
|
(708
|
)
|
|
Stock-based compensation
|
|
|
|
32,525
|
|
|
|
|
38,424
|
|
|
Other, net
|
|
|
|
13,069
|
|
|
|
|
18,240
|
|
|
Changes in (net of effects from businesses acquired):
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
|
(127,153
|
)
|
|
|
|
261,855
|
|
|
Inventories
|
|
|
|
139,672
|
|
|
|
|
(189,595
|
)
|
|
Accounts payable
|
|
|
|
133,698
|
|
|
|
|
(240,474
|
)
|
|
Accrued expenses and other, net
|
|
|
|
(55,437
|
)
|
|
|
|
(66,251
|
)
|
|
Net cash flows provided by operating activities - continuing
operations
|
|
|
|
303,214
|
|
|
|
|
70,581
|
|
|
Net cash flows (used) provided by operating activities -
discontinued operations
|
|
|
|
(63,124
|
)
|
|
|
|
13,661
|
|
|
Net cash flows provided by operating activities
|
|
|
|
240,090
|
|
|
|
|
84,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Issuance of notes, net of issuance costs
|
|
|
|
296,374
|
|
|
|
|
—
|
|
|
Repayments of notes
|
|
|
|
(378,559
|
)
|
|
|
|
(250,000
|
)
|
|
Borrowings (repayments) under accounts receivable securitization, net
|
|
|
|
(264,963
|
)
|
|
|
|
39,972
|
|
|
Borrowings of bank and revolving debt, net
|
|
|
|
752,196
|
|
|
|
|
417,982
|
|
|
Borrowings under term loans
|
|
|
|
530,756
|
|
|
|
|
—
|
|
|
Repurchases of common stock
|
|
|
|
—
|
|
|
|
|
(184,704
|
)
|
|
Dividends paid on common stock
|
|
|
|
(43,426
|
)
|
|
|
|
(45,020
|
)
|
|
Other, net
|
|
|
|
13,825
|
|
|
|
|
(1,080
|
)
|
|
Net cash flows provided (used) for financing activities - continuing
operations
|
|
|
|
906,203
|
|
|
|
|
(22,850
|
)
|
|
Net cash flows provided (used) for financing activities -
discontinued operations
|
|
|
|
(16,505
|
)
|
|
|
|
26,389
|
|
|
Net cash flows provided by financing activities
|
|
|
|
889,698
|
|
|
|
|
3,539
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
|
(70,424
|
)
|
|
|
|
(74,392
|
)
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
(798,366
|
)
|
|
|
|
—
|
|
|
Other, net
|
|
|
|
7,766
|
|
|
|
|
9,111
|
|
|
Net cash flows used for investing activities - continuing operations
|
|
|
|
(861,024
|
)
|
|
|
|
(65,281
|
)
|
|
Net cash flows used for investing activities - discontinued
operations
|
|
|
|
(3,093
|
)
|
|
|
|
(20,988
|
)
|
|
Net cash flows used for investing activities
|
|
|
|
(864,117
|
)
|
|
|
|
(86,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect of currency exchange rate changes on cash and cash equivalents
|
|
|
|
(27,007
|
)
|
|
|
|
(17,977
|
)
|
|
Net change in cash and cash equivalents
|
|
|
|
238,664
|
|
|
|
|
(16,465
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
1,031,478
|
|
|
|
|
932,553
|
|
|
Cash and cash equivalents at end of period
|
|
|
$
|
1,270,142
|
|
|
|
$
|
916,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVNET, INC.
|
|
SEGMENT INFORMATION
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarters Ended
|
|
|
Six Months Ended
|
|
|
|
|
December 31,
|
|
|
January 2,
|
|
|
December 31,
|
|
|
January 2,
|
|
|
|
|
2016
|
|
|
2016*
|
|
|
2016*
|
|
|
2016
|
|
|
|
|
(Millions)
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics Marketing (continuing operations)
|
|
|
$
|
4,273.6
|
|
|
|
$
|
4,161.1
|
|
|
|
$
|
8,391.7
|
|
|
|
$
|
8,689.7
|
|
|
Technology Solutions (discontinued operations)
|
|
|
|
2,453.3
|
|
|
|
|
2,687.0
|
|
|
|
|
4,375.5
|
|
|
|
|
5,128.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics Marketing (continuing operations)
|
|
|
$
|
190.7
|
|
|
|
$
|
176.3
|
|
|
|
$
|
375.7
|
|
|
|
$
|
389.3
|
|
|
Technology Solutions (discontinued operations)
|
|
|
|
103.2
|
|
|
|
|
115.1
|
|
|
|
|
147.4
|
|
|
|
|
189.6
|
|
|
Corporate - continuing operations
|
|
|
|
(26.2
|
)
|
|
|
|
(23.8
|
)
|
|
|
|
(49.8
|
)
|
|
|
|
(55.9
|
)
|
|
Corporate - discontinued operations
|
|
|
|
(14.4
|
)
|
|
|
|
(12.3
|
)
|
|
|
|
(26.9
|
)
|
|
|
|
(27.4
|
)
|
|
Held for sale depreciation elimination - discontinued operations
|
|
|
|
6.8
|
|
|
|
|
—
|
|
|
|
|
6.8
|
|
|
|
|
—
|
|
|
|
|
|
|
260.1
|
|
|
|
|
255.3
|
|
|
|
|
453.2
|
|
|
|
|
495.7
|
|
|
Restructuring, integration and other expenses - continuing operations
|
|
|
|
(30.4
|
)
|
|
|
|
(14.1
|
)
|
|
|
|
(59.9
|
)
|
|
|
|
(26.6
|
)
|
|
Restructuring, integration and other expenses - discontinued
operations
|
|
|
|
(3.3
|
)
|
|
|
|
(7.1
|
)
|
|
|
|
(7.5
|
)
|
|
|
|
(20.6
|
)
|
|
Amortization of acquired intangible assets and other - continuing
operations
|
|
|
|
(9.8
|
)
|
|
|
|
(2.3
|
)
|
|
|
|
(12.2
|
)
|
|
|
|
(5.1
|
)
|
|
Amortization of acquired intangible assets and other - discontinued
operations
|
|
|
|
—
|
|
|
|
|
(5.6
|
)
|
|
|
|
(4.5
|
)
|
|
|
|
(10.3
|
)
|
|
Less: TS discontinued operations
|
|
|
|
(92.4
|
)
|
|
|
|
(90.0
|
)
|
|
|
|
(115.4
|
)
|
|
|
|
(130.4
|
)
|
|
Operating Income
|
|
|
$
|
124.2
|
|
|
|
$
|
136.1
|
|
|
|
$
|
253.7
|
|
|
|
$
|
302.7
|
|
______________________
|
*
|
|
Sub-totals and totals may not foot due to rounding
|
Avnet, Inc.
Investor Relations
Vincent Keenan, 480-643-7053
Investor Relations
investorrelations@avnet.com
or
Media Relations
Maureen O’Leary, 480-643-7499
Corporate Communications
maureen.oleary@avnet.com