Avnet Reports Second Quarter Fiscal 2019 Financial Results

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the United States (“GAAP”), the Company also discloses certain non-GAAP financial information including (i) adjusted operating income, (ii) adjusted other income (expense), (iii) adjusted income tax expense, (iv) adjusted income from continuing operations, (v) adjusted diluted earnings per share, and (vi) sales adjusted for the impact of acquisitions and other items (as defined in the Organic Sales section of this document).

There are also references to the impact of foreign currency in the discussion of the Company’s results of operations. When the U.S. Dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in U.S. Dollars of reported results. In the discussion of the Company’s results of operations, results excluding this impact are referred to as “constant currency.” Management believes organic sales and sales in constant currency are useful measures for evaluating current period performance as compared with prior periods and for understanding underlying trends. In order to determine the translation impact of changes in foreign currency exchange rates on sales, income or expense items for subsidiaries reporting in currencies other than the U.S. Dollar, the Company adjusts the average exchange rates used in current periods to be consistent with the average exchange rates in effect during the comparative period.

Management believes that operating income adjusted for restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other, are useful measures to help investors better assess and understand the Company’s operating performance. This is especially the case 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 or non-cash in nature. Management analyzes operating income without the impact of these items as well as other income (expense) excluding certain amounts as an indicator of ongoing margin performance and underlying trends in the business. Management also uses these non-GAAP measures to establish operational goals and, in many cases, for measuring performance for compensation purposes. Management measures operating income for our reportable segments excluding restructuring, integration and other expenses, goodwill impairment expense and amortization of acquired intangible assets and other.

Additional non-GAAP metrics management uses is adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales.

Management also believes income tax expense, income from continuing operations and diluted earnings per share from continuing operations adjusted for the impact of the items described above and certain items impacting other expense and income tax expense are useful to investors because they provide a measure of the Company’s net profitability on a more comparable basis to historical periods and provide a more meaningful basis for forecasting future performance. Adjustments to income tax expense and the effective income tax rate include the effect of changes in tax laws including recent tax law changes in the U.S., changes in valuation allowances and unrecognized tax benefits, income tax audit settlements and adjustments to the adjusted interim effective tax rate based upon the expected annual adjusted effective tax rate. Additionally, because of management’s focus on generating shareholder value, of which net profitability is a primary driver, management believes income from continuing operations and diluted earnings per share from continuing operations excluding the impact of these items provides an important measure of the Company’s net profitability for the investing public.

Any analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP. All amounts below relate to Avnet’s continuing operations.

  Fiscal Year to Date   Quarters Ended
2019* December 29, 2018*   September 29, 2018
($ in thousands, except per share amounts)
GAAP selling, general and administrative expenses - continuing operations $ 946,868 $ 471,723 $ 475,146
Amortization of intangible assets and other - continuing operations   (41,440 )   (20,513 )   (20,927 )
Adjusted operating expenses - continuing operations 905,429 451,210 454,219
 
GAAP operating income - continuing operations $ 242,866 $ 96,050 $ 146,816
Restructuring, integration and other expenses - continuing operations 77,048 62,260 14,788
Amortization of intangible assets and other - continuing operations   41,440     20,513     20,927  
Adjusted operating income - continuing operations 361,354 178,823 182,531
 
GAAP income before income taxes- continuing operations $ 179,747 $ 64,916 $ 114,831
Restructuring, integration and other expenses - continuing operations 77,048 62,260 14,788
Amortization of intangible assets and other - continuing operations   41,440     20,513     20,927  
Adjusted income before income taxes - continuing operations 298,235 147,689 150,546
 
GAAP income tax expense - continuing operations $ 59,443 $ 28,141 $ 31,302
Restructuring, integration and other expenses - continuing operations 18,985 15,665 3,320
Amortization of intangible assets and other - continuing operations 8,857 4,379 4,478
Income tax expense items, net - continuing operations   (24,980 )   (16,742 )   (8,238 )
Adjusted income tax expense - continuing operations 62,305 31,443 30,862
 
GAAP income - continuing operations $ 120,304 $ 36,775 $ 83,529
Restructuring, integration and other expenses (net of tax) - continuing operations 58,063 46,595 11,468
Amortization of intangible assets and other (net of tax) - continuing operations 32,583 16,134 16,449
Income tax expense items, net - continuing operations   24,980     16,742     8,238  
Adjusted income - continuing operations 235,930 116,246 119,684
 
GAAP diluted earnings per share - continuing operations $ 1.06 $ 0.33 $ 0.72
Restructuring, integration and other expenses (net of tax) - continuing operations 0.51 0.42 0.10
Amortization of intangible assets and other (net of tax) - continuing operations 0.29 0.14 0.14
Income tax expense items, net - continuing operations   0.21     0.15     0.07  
Adjusted diluted EPS - continuing operations 2.07 1.04 1.03

_______________

* May not foot/crossfoot due to rounding

 
  Fiscal   Quarters Ended
Year to Date June 30,   March 31,   December 30,   September 30,
2018* 2018* 2018* 2017* 2017*
($ in thousands, except per share amounts)
GAAP selling, general and administrative expenses - continuing operations (1) $ 1,991,401 $ 500,257 $ 505,471 $ 484,082 $ 501,593
Amortization of intangible assets and other - continuing operations   (91,923 )   (21,736 )   (22,725 )   (21,877 )   (25,585 )
Adjusted operating expenses - continuing operations (1) 1,899,478 478,521 482,746 462,204 476,007
 
GAAP operating income (loss) - continuing operations (1) $ 209,218 $ 121,527 $ (58,494 ) $ 81,617 $ 64,568
Restructuring, integration and other expenses - continuing operations 145,125 36,848 25,120 36,762 46,394
Goodwill impairment expense - continuing operations 181,440 - 181,440 - -
Amortization of intangible assets and other - continuing operations   91,923     21,736     22,725     21,877     25,585  
Adjusted operating income - continuing operations (1) 627,706 180,111 170,791 140,256 136,547
 
GAAP other income (expense), net - continuing operations (1) $ 28,606 $ (3,526 ) $ 9,862 $ 3,349 $ 18,921

Foreign currency (gain) loss and other expenses- continuing operations

  (9,762 )   (559 )   137     546     (9,886 )
Adjusted other income (expense), net - continuing operations (1) 18,844 (4,085 ) 9,999 3,895 9,035
 
GAAP income (loss) before income taxes- continuing operations $ 145,077 $ 93,526 $ (72,063 ) $ 62,140 $ 61,474
Restructuring, integration and other expenses - continuing operations 145,125 36,848 25,120 36,762 46,394
Goodwill impairment expense - continuing operations 181,440 - 181,440 - -
Amortization of intangible assets and other - continuing operations 91,923 21,736 22,725 21,877 25,585
Foreign currency (gain) loss and other expenses- continuing operations   (9,762 )   (559 )   137     546     (9,886 )
Adjusted income before income taxes - continuing operations 553,803 151,551 157,359 121,325 123,567
 
GAAP income tax expense - continuing operations $ 287,966 $ 35,787 $ 243,541 $ 5,346 $ 3,292
Restructuring, integration and other expenses - continuing operations 41,460 9,921 5,757 9,004 16,778
Amortization of intangible assets and other - continuing operations 18,556 4,376 4,575 4,405 5,200
Foreign currency (gain) loss and other expenses- continuing operations (3,494 ) (180 ) 33 84 (3,431 )
Income tax (expense) benefit items, net - continuing operations   (218,444 )   (14,549 )   (218,810 )   8,017     6,898  
Adjusted income tax expense - continuing operations 126,044 35,355 35,096 26,856 28,737
 
GAAP income (loss) - continuing operations $ (142,889 ) $ 57,739 $ (315,604 ) $ 56,794 $ 58,182
Restructuring, integration and other expenses (net of tax) - continuing operations 103,665 26,927 19,363 27,758 29,616
Goodwill impairment expense (net of tax) - continuing operations 181,440 - 181,440 - -
Amortization of intangible assets and other (net of tax) - continuing operations 73,367 17,360 18,150 17,472 20,385
Foreign currency (gain) loss and other expenses (net of tax) - continuing operations (6,268 ) (379 ) 104 462 (6,455 )
Income tax expense (benefit) items, net - continuing operations   218,444     14,549     218,810     (8,017 )   (6,898 )
Adjusted income - continuing operations 427,759 116,196 122,263 94,469 94,829
 
GAAP diluted earnings (loss) per share - continuing operations $ (1.19 ) $ 0.49 $ (2.64 ) $ 0.47 $ 0.47
Restructuring, integration and other expenses (net of tax) - continuing operations 0.86 0.23 0.16 0.23 0.24
Goodwill impairment expense (net of tax) - continuing operations 1.52 - 1.52 - -
Amortization of intangible assets and other (net of tax) - continuing operations 0.61 0.15 0.15 0.14 0.16
Foreign currency (gain) loss and other expenses (net of tax) - continuing operations (0.05 ) - - - (0.05 )
Income tax expense (benefit) items, net - continuing operations   1.82     0.12     1.83     (0.07 )   (0.06 )
Adjusted diluted EPS - continuing operations 3.57 0.99 1.02 0.78 0.76

_______________

(1) Certain prior year amounts in the Company’s measurement of operating income have been recasted to reflect the adoption of new accounting standards during fiscal 2019.

* May not foot/crossfoot due to rounding


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