Avnet Inc. Reports Second Quarter Fiscal 2005 Results; Significant Yea

    Business Editors

    PHOENIX--(BUSINESS WIRE)--Jan. 27, 2005--Avnet Inc. (NYSE:AVT) today reported results for second quarter fiscal year 2005, which ended Jan. 1, 2005. Revenue was $2.88 billion for the quarter, representing an increase of 13% over second quarter fiscal 2004 and an increase of 11% sequentially. Net income for second quarter fiscal 2005 was $43.5 million, or $0.36 per share on a diluted basis, as compared with net income of $8.9 million, or $0.07 per share on a diluted basis, in the same quarter in fiscal 2004 including certain charges (which are further discussed in the accompanying financial statements). Excluding certain charges in the prior year second quarter, net income was $25.3 million, or $0.21 per share on a diluted basis, representing an increase of $18.2 million, or 72%, year over year.
    Operating income for second quarter fiscal 2005 was $84.0 million, an improvement of $49.8 million, or 145%, over operating income of $34.2 million, including certain charges, in second quarter fiscal 2004. Excluding these charges, operating income increased $26.3 million, or 46%, over the prior year quarter. Operating income as a percent of sales increased 65 basis points from 2.3% in second quarter fiscal 2004, excluding certain charges, to 2.9% in the current year quarter. This represents the 10th consecutive quarter of year-over-year improvement in operating income dollars and margin, excluding certain charges.
    Roy Vallee, chairman and chief executive officer, commented, "In the second quarter of fiscal 2005, Avnet continued its trend of improving performance with the fourth straight quarter of year-over-year double-digit operating income growth. Leading the growth in the current quarter was the Technology Solutions group where strong year-over-year and sequential growth resulted in record sales of $1.40 billion and record operating income of $51.2 million."
    The company generated nearly $255 million of free cash flow (as defined later in this release) during the second quarter of fiscal 2005 due to improved working capital management and earnings. As a result, the company ended the quarter with $547 million of cash and cash equivalents; bringing net debt (total debt less cash and cash equivalents) to $797 million, the lowest it has been since the first quarter of fiscal 2000.
    Ray Sadowski, chief financial officer, stated: "Our cash generation this quarter further demonstrates the impact our value-based management initiatives have had on our business operations. We saw improvements in both our operating income margin and our working capital velocity aided by these initiatives. As a result, our balance sheet and liquidity continue to strengthen."

    Operating Groups

    Technology Solutions (TS) sales of $1.40 billion were up 15% year over year and 36% sequentially. Sales in the Americas and EMEA regions increased 14% and 17%, respectively, on a year-over-year basis. TS operating income was $51.2 million, a 69% increase as compared with second quarter fiscal 2004 operating income of $30.4 million, and its operating income margin of 3.7% increased 116 basis points over the prior year second quarter. The operating income for TS is the highest on record and was driven by strength in all three regions.
    Electronics Marketing (EM) sales of $1.48 billion were up 11% over the prior year second quarter and were down 6% sequentially. Sales in the Americas, EMEA and Asia increased 6%, 21% and 5%, respectively, on a year-over-year basis. EM operating income of $47.4 million for second quarter fiscal 2005 was 18% higher than the year-ago quarter operating income of $40.2 million.
    Vallee added, "Technology Solutions year-over-year revenue growth across all geographies is further evidence that our emphasis on solutions selling is contributing to the success of both our customers and suppliers. This, combined with record operating income, exceeded our expectations on all fronts. Sequential growth at Technology Solutions of 88% on the operating income line driven by a 36% increase in revenue is further proof of the leverage we have in our business model. Although the results for Electronics Marketing were below our expectations, we are pleased that EM delivered a meaningful sequential reduction in inventory while slightly improving their gross profit margin in the face of softer market conditions. We continue to believe most of the softness is due to the mid-cycle inventory correction and expect our broad customer base across multiple vertical segments to drive improved performance in upcoming quarters."

    Outlook

    Looking forward to Avnet's third quarter fiscal 2005, Vallee stated, "We expect revenues for Electronics Marketing to be up 8% to 12% sequentially and we anticipate sales for Technology Solutions to decline 20% to 24% sequentially. Therefore, Avnet's consolidated sales should be in the range of $2.67 billion to $2.77 billion in the third quarter fiscal 2005, and we expect earnings to be in the range of $0.33 to $0.37 per share."

    Forward-Looking Statements

    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. 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.
    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 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 the company's reports on Form 10-K and Form 10-Q. Avnet is under no obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

    Non-GAAP Financial Information

    In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles (GAAP), the company also discloses certain non-GAAP financial information including adjusted operating income (loss), income (loss) before income taxes, income tax provision (benefit), net income (loss) and basic and diluted earnings (loss) 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 activities and debt extinguishments in the periods presented. Reconciliations of the company's reported results to the results adjusted for these items are included in the tables that follow. Management believes that providing this additional information is useful to investors to better 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 believes the non-GAAP measures also help indicate underlying trends in the business. Management also uses the non-GAAP measures to establish operational goals and, in some cases, for measuring performance for compensation purposes.
    However, analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.
    The following table summarizes the company's cash flow activity for the second quarter and the first half of fiscal year 2005 ended Jan. 1, 2005 including the company's computation of free cash flow and a reconciliation of this metric to the nearest GAAP measure of net cash flow from operations. 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.

Quarter First Half Ended Ended 1/1/05 1/1/05 ------------------------- (in thousands) Net income excluding non-cash and other reconciling items $99,798 $170,010 Cash flow generated from working capital (excluding cash and cash equivalents) 145,222 67,767 -------- -------- Net cash flow from operations 245,020 237,777 Cash flow generated from (used for): Purchases of property, plant & equipment (9,494) (15,740) Cash proceeds from sales of property, plant & equipment 6,338 6,797 Acquisition of operations, net (60) (1,105) Effect of exchange rates on cash and cash equivalents 12,602 15,767 Other, net financing activities 335 184 -------- --------

Net free cash flow $254,741 $243,680 ======== ========

    Teleconference Webcast and Upcoming Events

    Avnet will host a webcast of its quarterly teleconference today at 5 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, can be accessed through www.ir.avnet.com. Please logon to the site 15 minutes prior to the start of the event to register or download any necessary software. An archive copy of the presentation will also be available after the webcast.
    Avnet will present at the following investor conferences in February and March: The Thomas Weisel Partners Technology Conference 2005 on Feb. 8, 2005, The Goldman Sachs Technology Investment Symposium 2005 on Feb. 24, 2005, The Raymond James Institutional Investors Conference and The Morgan Stanley Semiconductor & Systems Conference both in March 2005, dates to be determined. For a listing of conference details and how to access each available webcast, along with additional upcoming events and other information, please visit Avnet's investor relations Web site at www.ir.avnet.com.

    About Avnet

    Avnet enables success from the center of the technology industry, providing cost-effective 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 subsystems. Through its premier market position, Avnet brings a breadth and depth of capabilities that help its trading partners accelerate growth and realize cost efficiencies. Avnet generated more than $10 billion in revenue in fiscal 2004 (year ended July 3, 2004) through sales in 68 countries. Visit Avnet's Investor Relations Web site at www.ir.avnet.com or contact us at investorrelations@avnet.com.

AVNET INC. (MILLIONS EXCEPT PER SHARE DATA)

INCLUDING RESTRUCTURING SECOND QUARTERS ENDED CHARGES (1) ----------------------

JAN. 1, JAN. 3, 2005 2004 (1) --------- ------------

Sales $2,883.2 $2,554.5

Income before income taxes 62.8 12.9

Net income 43.5 8.9

Net income per share: Basic $0.36 $0.07 Diluted $0.36 $0.07

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EXCLUDING RESTRUCTURING SECOND QUARTERS ENDED CHARGES ----------------------

JAN. 1, JAN. 3, 2005 2004 --------- ------------

Sales $2,883.2 $2,554.5

Income before income taxes 62.8 36.4

Net income 43.5 25.3

Net income per share: Basic $0.36 $0.21 Diluted $0.36 $0.21

    (1) The results for the second quarter of fiscal 2004 shown above include the impact of restructuring charges recorded primarily in connection with cost-cutting initiatives and the combination of the Computer Marketing and Applied Computing operating groups into one operating group called Avnet Technology Solutions. These restructuring charges amounted to $23.5 million pre-tax (all of which is included in operating expenses), $16.4 million after-tax and $0.14 per diluted share. See the Consolidated Statements of Operations included herein for further disclosure of the impacts of these restructuring charges.

AVNET INC. (MILLIONS EXCEPT PER SHARE DATA)

INCLUDING RESTRUCTURING AND FIRST HALVES ENDED OTHER CHARGES (1) ----------------------

JAN. 1, JAN. 3, 2005 (2) 2004 (1) (2) --------- ------------

Sales $5,483.2 $4,962.1

Income (loss) before income taxes 115.3 (3.5)

Net income (loss) 79.8 (2.4)

Net income (loss) per share: Basic $0.66 ($0.02) Diluted $0.66 ($0.02)

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EXCLUDING RESTRUCTURING AND FIRST HALVES ENDED OTHER CHARGES ----------------------

JAN. 1, JAN. 3, 2005 (2) 2004 (2) --------- ------------

Sales $5,483.2 $4,962.1

Income before income taxes 115.3 52.1

Net income 79.8 36.1

Net income per share: Basic $0.66 $0.30 Diluted $0.66 $0.30

    (1) The results for the first half of fiscal 2004 shown above include the impact of restructuring and other charges recorded in both the first and second quarters. These charges were recorded primarily in connection with cost-cutting initiatives and the combination of the Computer Marketing and Applied Computing operating groups into one operating group called Avnet Technology Solutions. These restructuring and other charges in the first half of fiscal 2004 amounted to $55.6 million pre-tax (all of which is included in operating expenses), $38.5 million after-tax and $0.32 per diluted share. See the Consolidated Statements of Operations included herein for further disclosure of the impacts of these restructuring and other charges.
    (2) Due to Avnet's fiscal calendar, the first half ended Jan. 1, 2005 contained 26 weeks while the first half ended Jan. 3, 2004 contained 27 weeks.

AVNET INC. CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS EXCEPT PER SHARE DATA)

SECOND QUARTERS ENDED --------------------------------------------

JAN. 3, 2004 (1) -------------------------------- RESTRUCT- JAN. 1, REPORTED URING ADJUSTED 2005 RESULTS CHARGES RESULTS ----------- ----------- -------- -----------

Sales $2,883,155 $2,554,460 $- $2,554,460 Cost of sales 2,509,275 2,225,301 - 2,225,301 ----------- ----------- -------- -----------

Gross profit 373,880 329,159 - 329,159

Selling, general and administrative expenses 289,902 271,470 - 271,470 Restructuring charges (1) - 23,465 (23,465) - ----------- ----------- -------- -----------

Operating income 83,978 34,224 23,465 57,689 Other income, net 113 1,935 - 1,935 Interest expense (21,254) (23,209) - (23,209) ----------- ----------- -------- -----------

Income before income taxes 62,837 12,950 23,465 36,415

Income tax provision 19,327 4,015 7,114 11,129

----------- ----------- -------- ----------- Net income $43,510 $8,935 $16,351 $25,286 =========== =========== ======== ===========

Net earnings per share: Basic $0.36 $0.07 $0.14 $0.21 =========== =========== ======== =========== Diluted $0.36 $0.07 $0.14 $0.21 =========== =========== ======== ===========

Shares used to compute earnings per share: Basic 120,555 119,909 119,909 119,909 =========== =========== ======== =========== Diluted 121,426 120,898 120,898 120,898 =========== =========== ======== ===========

    (1) The results for the second quarter of fiscal 2004 shown above include the impact of restructuring charges recorded primarily in connection with cost-cutting initiatives and the combination of the Computer Marketing and Applied Computing operating groups into one operating group called Avnet Technology Solutions. These charges included severance costs, charges for consolidation of certain owned and leased facilities, write-offs of certain capitalized IT-related initiatives and the impairment of certain owned assets in the company's European operations. These restructuring charges amounted to $23.5 million pre-tax, $16.4 million after-tax and $0.14 per diluted share.

AVNET INC. CONSOLIDATED STATEMENTS OF OPERATIONS (THOUSANDS EXCEPT PER SHARE DATA)

FIRST HALVES ENDED --------------------------------------------

JAN. 3, 2004 (1) (2) -------------------------------- RESTRUCT- JAN. 1, REPORTED URING ADJUSTED 2005 (2) RESULTS CHARGES RESULTS ----------- ----------- -------- -----------

Sales $5,483,156 $4,962,110 $- $4,962,110 Cost of sales 4,759,666 4,323,854 - 4,323,854 ----------- ----------- -------- -----------

Gross profit 723,490 638,256 - 638,256

Selling, general and administrative expenses 566,441 540,021 - 540,021 Restructuring and other charges (1) - 55,618 (55,618) - ----------- ----------- -------- -----------

Operating income 157,049 42,617 55,618 98,235 Other income, net 386 4,237 - 4,237 Interest expense (42,125) (50,367) - (50,367) ----------- ----------- -------- -----------

Income (loss) before income taxes 115,310 (3,513) 55,618 52,105

Income tax provision (benefit) 35,469 (1,089) 17,081 15,992

----------- ----------- -------- ----------- Net income (loss) $79,841 ($2,424) $38,537 $36,113 =========== =========== ======== ===========

Net earnings (loss) per share: Basic $0.66 ($0.02) $0.32 $0.30 =========== =========== ======== =========== Diluted $0.66 ($0.02) $0.32 $0.30 =========== =========== ======== ===========

Shares used to compute earnings (loss) per share: Basic 120,539 119,753 119,753 119,753 =========== =========== ======== =========== Diluted 121,353 119,753 119,753 119,753 =========== =========== ======== ===========

    (1) The results for the first half of fiscal 2004 shown above include the impact of restructuring and other charges recorded in both the first and second quarters. These charges were recorded in connection with cost-cutting initiatives and the combination of the Computer Marketing and Applied Computing operating groups into one operating group called Avnet Technology Solutions. These charges include severance costs, charges for consolidation of certain owned and leased facilities, write-offs of certain capitalized IT-related initiatives, the impairment in the second quarter of certain owned assets in the company's European operations and the write-off in the first quarter of the remaining unamortized deferred loan costs associated with the company's multi-year credit facility terminated in September 2003. These restructuring and other charges in the first half of fiscal 2004 amounted to $55.6 million pre-tax, $38.5 million after-tax and $0.32 per diluted share.
    (2) Due to Avnet's fiscal calendar, the first half ended Jan. 1, 2005 contained 26 weeks while the first half ended Jan. 3, 2004 contained 27 weeks.

AVNET INC. CONSOLIDATED BALANCE SHEETS (THOUSANDS)

JAN. 1, JULY 3, 2005 2004 ----------- -----------

Assets: Current assets: Cash and cash equivalents $547,023 $312,667 Receivables, net 1,925,081 1,743,962 Inventories 1,406,989 1,364,037 Other 46,990 63,320 ----------- ----------- Total current assets 3,926,083 3,483,986 Property, plant and equipment, net 175,977 187,339 Goodwill 897,932 894,882 Other assets 272,821 297,444 ----------- -----------

Total assets 5,272,813 4,863,651 ----------- -----------

Less liabilities: Current liabilities: Borrowings due within one year 152,171 160,660 Accounts payable 1,313,713 1,099,703 Accrued expenses and other 378,611 384,630 ----------- ----------- Total current liabilities 1,844,495 1,644,993 Long-term debt, less due within one year 1,192,176 1,196,160 Other long-term liabilities 67,548 69,072 ----------- -----------

Total liabilities 3,104,219 2,910,225 ----------- -----------

Shareholders' equity $2,168,594 $1,953,426 =========== ===========

AVNET INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (THOUSANDS)

FIRST HALVES ENDED JAN. 1, JAN. 3, 2005 2004 --------- --------- Cash flows from:

Operations: Net income (loss) $79,841 ($2,424)

Add non-cash and other reconciling items: Depreciation and amortization 30,764 35,107 Deferred taxes 37,280 37 Non-cash restructuring and other charges - 31,409 Other, net 22,125 21,810

Receivables (103,456) (254,941) Inventories 21,991 (27,332) Accounts payable 173,420 299,266 Accrued expenses and other, net (24,188) 45,372 --------- ---------

Net cash flows provided from operating activities 237,777 148,304 --------- ---------

Financing: Repayment of notes (2,956) (70,878) (Repayment of) proceeds from bank debt, net (6,223) 2,067 (Repayment of) proceeds from other debt, net (145) 15 Other, net 184 6,497 --------- ---------

Net cash flows used for financing activities (9,140) (62,299) --------- ---------

Investing: Purchases of property, plant, and equipment (15,740) (14,923) Cash proceeds from sales of property, plant and equipment 6,797 1,306 Acquisition of operations, net (1,105) (1,448) --------- ---------

Net cash flows used for investing activities (10,048) (15,065) --------- ---------

Effect of exchange rates on cash and cash equivalents 15,767 13,042

--------- ---------

Cash and cash equivalents: increase 234,356 83,982 at beginning of period 312,667 395,467 --------- ---------

at end of period $547,023 $479,449 ========= =========

AVNET INC. SEGMENT INFORMATION (MILLIONS)

SECOND QUARTERS ENDED FIRST HALVES ENDED --------------------- -----------------------

JAN. 1, JAN. 3, JAN. 1, JAN. 3, SALES 2005 2004 2005 2004 ----------------------- --------- ----------- ------------- ---------

Avnet Electronics Marketing $1,478.2 $1,332.2 $3,042.4 $2,690.2

Avnet Technology Solutions 1,405.0 1,222.3 2,440.8 2,271.9

--------- ----------- ------------- --------- Consolidated $2,883.2 $2,554.5 $5,483.2 $4,962.1 ========= =========== ============= =========

OPERATING INCOME (LOSS) -----------------------

Avnet Electronics Marketing $47.4 $40.2 $106.3 $73.6

Avnet Technology Solutions 51.2 30.4 78.5 48.6

Corporate (14.6) (12.9) (27.8) (24.0) --------- ----------- ------------- ---------

Consolidated Before Restructuring and Other Charges 84.0 57.7 157.0 98.2

Restructuring and Other Charges - (23.5) - (55.6) --------- ----------- ------------- ---------

Consolidated $84.0 $34.2 $157.0 $42.6 ========= =========== ============= =========

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CONTACT: Avnet Inc., Phoenix Vincent Keenan, 480-643-7053 (Investor Relations) investorrelations@avnet.com

KEYWORD: ARIZONA INDUSTRY KEYWORD: HARDWARE EARNINGS SOURCE: Avnet Inc.

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