Q3' FY15

Q2' FY16

Q3' FY16

Y/Y Chg

Seq. Chg

Sales

$

$

$

$

$

Gross Profit

$

$

$

$

$

GP Margin

%  

%  

%  

 bps  

 bps 

GAAP SG&A Expenses

$

$

$

$

$

Adjusted Operating Expenses (1)

$

$

$

$

$

Adjusted Operating Expenses as % of Sales (1)

%  

%  

%  

 bps  

 bps 

Adjusted Operating Expenses as % of Gross Profit (1)

%  

%  

%  

 bps  

 bps 

GAAP Operating Income

$

$

$

$

$

Adjusted Operating Income (1)

$

$

$

$

$

Adjusted Operating Income Margin (1)

%  

%  

%  

 bps  

 bps 

GAAP Net Income

$

$

$

$

$

Adjusted Net Income (1)

$

$

$

$

$

GAAP Diluted EPS

$

$

$

%  

% 

Adjusted Diluted EPS (1)

$

$

$

%  

% 

Return on Working Capital (ROWC) (1)

%  

%  

%  

 bps  

 bps 

Return on Capital Employed (ROCE) (1)

%  

%  

%  

 bps  

 bps 

Working Capital Velocity (1)

(1)

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

Reported sales for the third quarter of fiscal 2016, decreased 8.3% or 6.9% excluding the translation impact of changes in foreign currency exchange rates (also referred to as “constant currency” or “CC” in the graphs that follow) year over year to $6.2 billion. Organic sales (defined later in this document) decreased 8.6% (7.2% in constant currency) year over year with both operating groups contributing towards this decline.

o

Sequentially, organic sales decreased 10.0% in constant currency, which was below the normal seasonal range of -9% to -5% primarily due to an expected decline in high volume supply chain engagement at Electronic Marketing (EM) Asia and weaker than expected demand in certain legacy technologies at Technology Solutions (TS).

·

Gross profit margin increased 57 basis points sequentially and 44 basis points from the year ago quarter to 11.9%. Both operating groups contributed to the sequential and year-over-year improvement. 

·

Adjusted operating income dollars decreased 10.9% year over year to $205.2 million and adjusted operating income margin decreased 10 basis points to 3.3% due to reduced profitability at both operating groups.

o

Sequentially, adjusted operating income dollars decreased 19.6% and adjusted operating income margin decreased 41 basis points due to the typical seasonal decline at TS.

·

Adjusted diluted earnings per share of $1.01 decreased $0.03, or 2.9% year over year, primarily due to the decline in operating income and was negatively impacted by approximately $0.01, or 1.0%, due to the translation impact of changes in foreign currency exchange rates.

·

Cash generated from operations was $212.9 million in the third quarter of fiscal 2016 and cash generated from operations for the trailing twelve months was $596.5 million.

·

During the third quarter of fiscal 2016, the Company paid a dividend $0.17 per share or $21.9 million, and has paid $66.9 million fiscal year to date.

·

During the third quarter of fiscal 2016, the Company repurchased $145.7 million worth of stock, or 3.7 million shares, and has repurchased $330.8 million worth of stock, or 8.1 million shares fiscal year to date. The Company still has approximately $221.7 million remaining in the authorized share repurchase program through the end of the March quarter.  

o

For the fiscal year, the company has returned approximately $398 million in the form of buybacks and dividends.

Year-over-

Year Growth

Rates

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Reported

Avnet, Inc.

$

$

$

$

$

% 

Constant Currency (1)

% 

Electronics Marketing (EM)

$

$

$

$

$

% 

Constant Currency (1)

% 

Americas

$

$

$

$

$

% 

EMEA

$

$

$

$

$

% 

Constant Currency (1)

% 

Asia

$

$

$

$

$

% 

Constant Currency (1)

% 

Technology Solutions (TS)

$

$

$

$

$

% 

Constant Currency (1)

% 

Americas

$

$

$

$

$

% 

EMEA

$

$

$

$

$

% 

Constant Currency (1)

% 

Asia

$

$

$

$

$

% 

Constant Currency (1)

% 

⁽¹⁾

Year-over-year sales growth rate excluding the impact of changes in foreign currency exchange rates.

·

Avnet’s third quarter fiscal 2016 sales decreased 6.9% in constant currency (8.3% in reported dollars) year over year to $6.2 billion and organic sales, decreased 7.2% in constant currency with both operating groups contributing toward this decline.    

o

On a sequential basis, Avnet organic sales decreased 10.0% in constant currency, which was below the normal seasonal range of -9% to -5% primarily due to an expected decline in high volume supply chain engagements at EM Asia and weaker than expected demand in certain legacy data center at TS. 

·

EM’s third quarter fiscal 2016 sales of $4.0 billion decreased 3.3% year over year in constant currency (4.2% in reported dollars) primarily due to a decrease in the Asia region

o

Americas’ sales declined 3.6% year over year.

o

EMEA’s sales increased 9.4% year over year in constant currency and reported sales increased 6.3%. The year-over-year growth in constant currency marks the twelfth consecutive quarter of growth.

o

Asia’s sales decreased 12.3% year over year in constant currency primarily due to an expected decline in high volume supply chain engagements.  

·

Stronger than typical sequential growth in the western regions was offset by an expected decline in select high volume supply chain engagements in Asia as EM’s sequential sales declined 1.8% (2.1% in constant currency), which is below the low end of the normal seasonal range of -1% to +3%.

·

TS’ third quarter fiscal 2016 reported sales of $2.1 billion decreased 12.9% year over year in constant currency (15.3% in reported dollars) driven by declines in select areas of legacy data center products. Organic sales, declined 13.6% in constant currency.

o

America’s organic sales decreased 14.2% year over year primarily due to declines in servers and storage, coupled with softer demand in Latin America.

o

EMEA’s organic sales decreased 12.6% year over year in constant currency and reported sales declined 14.1% primarily due to weaker demand in the north region (UK and Ireland).

o

Asia’s organic sales decreased 19.2% year over year in constant currency and reported sales declined 23.2% primarily due to a softer demand in the region and the adverse impact of the strengthening of the U.S. Dollar against local currencies.  

·

TS’ organic sales which were at the low end of expectation decreased 21.8% sequentially in constant currency, below the normal seasonal range of -19% to -16% primarily due to the weaker than expect demand in certain legacy data center products.

·

At a product level, year-over-year growth in networking and services was offset by a decline in storage, servers,  and software.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

Gross Profit

$

$

$

$

$

$

Gross Profit Margin

%  

%  

%  

%  

%  

 bps 

·

Gross profit of $736.8 million, decreased 4.9% year over year and 5.3% sequentially. The year-over-year decline was driven by lower sales at both operating groups, while the sequential decline was primarily due to the typical seasonal decline at TS partially offset by an improvement at EM.   

o

Gross profit margin of 11.9%, increased 44 basis points from the year ago quarter primarily driven by improvements at both operating groups. 

o

Gross profit margin improved 57 basis points sequentially primarily due to the seasonal business mix shift as higher gross profit margin EM grew to represent 65.5% of Avnet sales as compared to 60.1% in the December quarter.  

·

EM gross profit margin improved year over year and sequentially.

o

The year-over-year improvement was primarily due to a product mix shift in the Asia region. The sequential increase was due to the seasonal geographic mix shift to the higher margin western regions and the previously mentioned product mix shift in Asia.   

·

TS gross profit margin increased year over year and sequentially. The year-over-year increase was primarily due to improvements across all three regions as a result of portfolio management and product mix difference between years while the sequential increase was due to an improvement in the Americas region.  

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

Selling, General and Administrative Expenses

$

$

$

$

$

$

Amortization of Intangible Assets and Other

Adjusted Operating Expenses (1)

$

$

$

$

$

$

Adjusted Operating Expenses as a % of Gross Profit (1)

%  

%  

%  

%  

%  

 bps 

⁽¹⁾

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

Adjusted operating expenses were $531.6 million in the third quarter of fiscal 2016, a decrease of $12.4 million, or 2.3%, from the third quarter of fiscal 2015. 

o

The year-over-year decrease in adjusted operating expenses was primarily due to the translation impact of changes in foreign currency exchange rates and from the impact of prior restructuring actions and expense efficiencies including from the Avnet Advantage initiative partially offset by an increase in expenses related to acquisitions and other costs including employee merit compensation increases that took effect in January 2016.  

o

Sequentially, adjusted operating expenses increased $8.7 million, or 1.7%, primarily to fund organic growth at EM EMEA and costs related to acquisitions.     

·

Adjusted operating expenses as a percentage of gross profit of 72.2%  increased 190 basis points from the year ago quarter.

o

EM operating expenses as a percentage of gross profit increased 145 basis points from the year ago quarter primarily due to the lower gross profit related to the decline in revenue.

o

TS operating expenses as a percentage of gross profit increased 327 basis points from the year ago quarter primarily due to lower gross profit related to the decline in revenue.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

GAAP Operating Income

$

$

$

$

$

$

Adjusted Operating Income (1)

$

$

$

$

$

$

Adjusted Operating Income Margin (1)

%  

%  

%  

%  

%  

 bps 

Electronics Marketing (EM) Total

Operating Income

$

$

$

$

$

$

Operating Income Margin

%  

%  

%  

%  

%  

 bps 

Technology Solutions (TS) Total

Operating Income

$

$

$

$

$

$

Operating Income Margin

%  

%  

%  

%  

%  

 bps 

(1)

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

Avnet’s adjusted operating income of $205.2 million decreased 10.9% year over year primarily due to lower profitability at both operating groups. Adjusted operating income, decreased $50.0 million, or 19.6%  sequentially as an increase at EM was offset by the typical decline at TS coming off its seasonally strong December quarter.

o

Avnet adjusted operating income margin of 3.3%  decreased 10 basis points year over year and 41 basis points sequentially.

·

EM operating income margin of 4.5% decreased 15 basis points from the year ago quarter primarily due to the year-over-year decline in sales. Sequentially, operating income margin increased 30 basis points primarily due to the seasonal mix shift to the higher margin western regions.

·

TS operating income margin of 2.6% decreased 11 basis points from the year ago quarter primarily due to the decline in sales, partially offset by improvements in gross profit margin. Operating income margin decreased 168 basis points sequentially primarily due to the seasonal decline coming off the strong December quarter.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

Interest Expense

$

$

$

$

$

$

Other Income (Expense)

$

$

$

$

$

$

GAAP Income Tax Expense (Benefit)

$

$

$

$

$

$

Adjusted Income Tax Expense (1)

$

$

$

$

$

$

GAAP Effective Tax Rate

%  

%  

%  

%  

%  

 bps 

Adjusted Effective Tax Rate (1)

%  

%  

%  

%  

%  

 bps 

(1)

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

Interest expense of $23.3 million decreased $0.6 million from the year ago quarter primarily due to the repayment at maturity of the $250.0 million 6.0% Notes in September 2015 and a corresponding lower average borrowing rate. 

·

The Company recognized  $2.2 million of other income in the third quarter of fiscal 2016 compared with $8.9 million of other expense in the third quarter of fiscal 2015. The decrease in other expense was primarily due to the strengthening of the U.S. Dollar relative to foreign currencies in the third quarter of fiscal 2015 compared to the third quarter of fiscal 2016 and the corresponding higher costs incurred in the third quarter fiscal 2015 to hedge foreign currency exposures.

·

The GAAP effective tax rate was 23.1% in the third quarter of fiscal 2016 as compared with 28.9% in the third quarter of fiscal 2015.  The Company’s effective tax rate was favorably impacted primarily by (i) the mix of income in lower tax jurisdictions and (ii) the release of reserves related to the expiration of statutes of limitation.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

GAAP Net Income

$

$

$

$

$

$

Adjusted Net Income (1)

$

$

$

$

$

$

GAAP Diluted EPS

$

$

$

$

$

% 

Adjusted Diluted EPS (1)

$

$

$

$

$

% 

(1)

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

GAAP net income increased by 1.6%  year over year to $123.5 million or $0.94 per share on a diluted basis, due to the decrease in the GAAP effective tax rate previously mentioned.

·

Adjusted net income for the third quarter of fiscal 2016 was $132.6 million, or $1.01 per share on a diluted basis.

o

Adjusted net income decreased 7.6% from the year ago quarter primarily due to the decline in operating income at both operating groups. Adjusted diluted earnings per share declined $0.03, or 2.9% from the year ago quarter. The year-over-year change was negatively impacted by approximately $0.01 due to the translation impact of changes in foreign currency exchange rates, $0.01 due to the higher tax rate, which were offset by $0.05 benefit from the impact of the Company’s share repurchase program.

o

 Adjusted diluted earnings per share of $1.01 decreased $0.21, or 17.2%, sequentially.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

Accounts Receivable

$

$

$

$

$

$

Inventories

$

$

$

$

$

$

Accounts Payable

$

$

$

$

$

$

Working Capital

$

$

$

$

$

$

Working Capital Velocity (1)

(1)

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

Working capital (accounts receivable plus inventories less accounts payable) increased $205.9 million, or 4.9%, and $167.4 million, or 4.0%, year over year in constant currency, primarily due to an increase in inventory at EM.

o

On a sequential basis, working capital decreased $14.1 million, or 0.3%, and decreased 2.0% when adjusted for the translation impact of changes in foreign currency exchange rates, primarily due to the greater than seasonal sales decline at TS.  

·

Working capital velocity declined 0.45 turns from the year ago quarter and declined 0.54 turns sequentially due to the decrease in sales.

·

Inventories increased $352.5 million, or 14.2%, year over year and 12.6% in constant currency primarily due to: (i) an increase at EM Asia related to high volume supply chain engagements; (ii) an increase in EM EMEA to support the organic revenue growth; and (iii) an increase in EM Americas to support the conversion of the ERP system at the beginning of the fourth quarter and new supplier relationships.

o

On a sequential basis, inventories increased $176.6 million, or 6.7% (4.8%  in constant currency), primarily due to an increase at EM.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

Return on Working Capital (ROWC) (1)

20.6

%  

22.5

%  

20.9

%  

22.8

%  

18.5

%  

(207)

 bps 

Return on Capital Employed (ROCE) (1)

11.1

%  

12.0

%  

11.2

%  

12.3

%  

9.9

%  

(120)

 bps 

(1)

A reconciliation of non-GAAP financial measures is presented in the Non-GAAP Financial Information section of the press release attached as Exhibit 99.1 included in this Current Report on Form 8-K.

·

ROWC for the third quarter of fiscal 2016 was 18.5%, a decrease of 207 basis points year over year and 429 basis points sequentially primarily due to a decline in profitability at both operating groups.  

·

ROCE of 9.9% decreased 120 basis points year over year and 240 basis points sequentially.

Q3' FY15

Q4' FY15

Q1' FY16

Q2' FY16

Q3' FY16

Y/Y Change

Net Income

$

$

$

$

$

$

Non-Cash Items

$

$

$

$

$

$

Working Capital and Other

$

$

$

$

$

$

Cash Flow from Operations

$

$

$

$

$

$

TTM CF from Operations

$

$

$

$

$

$

·

During the third quarter of fiscal 2016, cash flow from operations of $212.9 million increased from the year ago quarter primarily due to working capital and other, which was a source of funds in the current year as compared to a use of funds in the prior year. The trailing twelve month cash flow generated from operations was $596.5 million and over the past four quarters, our trailing twelve month cash flow from operations has averaged $553.6 million.

·

During the third quarter of fiscal 2016, the Company repurchased approximately 3.7 million shares representing an aggregate investment of $145.7 million and has returned approximately $330.8 million in the form of share repurchases to shareholders fiscal year to date.

·

During the third quarter of fiscal 2016, the Company paid a dividend of $0.17 per share, or $21.9 million in total and has paid approximately $67 million fiscal year to date.

·

Cash and cash equivalents at the end of the quarter were $1.0 billion, of which $966.8 million was held outside the United States; net debt (total debt less cash and cash equivalents) was approximately $1.3 billion.

·

ROWC is defined as annualized adjusted operating income (as defined above) divided by the sum of the monthly average balances of receivables and inventories less accounts payable.

·

ROCE is defined as annualized, tax effected adjusted operating income (as defined above) divided by the monthly average balances of interest-bearing debt and equity (including the impact of adjustments to operating income discussed above) less cash and cash equivalents.

·

WC velocity is defined as annualized sales divided by the sum of the monthly average balances of receivables and inventories less accounts payable.