AVNET INC - FORM 8-K - EX-99.2

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EX-99.1 - EX-99.1 - AVNET INC	avt-20170401ex991d98020.htm
8-K - 8-K - AVNET INC	avt-20170401x8k.htm

Exhibit 99.2

Supplemental and Non-GAAP Financial Information

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 operating expenses, (iii) adjusted other income (expense), (iv) adjusted income tax expense, (v) adjusted income from continuing operations, (vi) adjusted diluted earnings per share, and (vii) 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 “excluding the impact of changes in foreign currency exchange rates” or “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, operating expenses and other income (expense) adjusted for restructuring, integration and other expenses, including acquisition or divestiture related costs 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, operating expenses and other income (expense) without the impact of these items 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.

Additional non-GAAP metrics management uses are adjusted operating income margin, which is defined as adjusted operating income (as defined above) divided by sales and adjusted operating expense to gross profit ratio, which is defined as adjusted operating expenses (as defined above) divided by gross profit.

Management also believes income tax expense, income from continuing operations and diluted EPS from continuing operations adjusted for the impact of the items described above and certain items impacting 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. 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 EPS from continuing operations excluding the

impact of these items provides an important measure of the Company’s net profitability for the investing public.

Other metrics management monitors in its assessment of business performance include return on working capital (ROWC), return on capital employed (ROCE) and working capital velocity (WC velocity).

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 from both continuing and discontinued operations.

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 from both continuing and discontinued operations.

WC velocity is defined as annualized adjusted sales divided by the sum of the monthly average balances of receivables and inventories less accounts payable from both continuing and discontinued operations.

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.


	Quarters Ended
	April 1,		April 2,
	2017*		2016*
	$ in thousands, except per share amounts

GAAP selling, general and administrative expenses - continuing operations	$	480,190	$	362,064
Amortization of intangible assets and other - continuing operations		22,497		2,442
Adjusted operating expenses - continuing operations		457,693		359,622

GAAP operating income - continuing operations	$	114,283	$	150,024
Restructuring, integration and other expenses- continuing operations		35,513		8,854
Amortization of intangible assets and other - continuing operations		22,497		2,442
Adjusted operating income - continuing operations		172,293		161,320

GAAP other income (expense), net - continuing operations	$	19,439	$	1,453
Unrealized gain on marketable securities and other		(13,859)		-
Adjusted other income (expense), net - continuing operations		5,580		1,453

GAAP income before income taxes- continuing operations		106,188		130,089
Restructuring, integration and other expenses- continuing operations		35,513		8,854
Amortization of intangible assets and other - continuing operations		22,497		2,442
Unrealized gain on marketable securities and other -continuing operations		(13,859)		-
Adjusted income before income taxes- continuing operations		150,339		141,385

GAAP income tax expense - continuing operations	$	16,268	$	22,297
Restructuring, integration and other expenses - continuing operations		12,455		3,057
Amortization of intangible assets and other - continuing operations		5,077		468
Unrealized gain on marketable securities and other - continuing operations		(5,431)		-
Discrete income tax expense items - continuing operations		7,712		8,463
Adjusted income tax expense - continuing operations		36,081		34,285

GAAP income - continuing operations	$	89,920	$	107,792
Restructuring, integration and other expenses (net of tax) - continuing operations		23,058		5,797
Amortization of intangible assets and other (net of tax) - continuing operations		17,420		1,974

Unrealized gain on marketable securities and other (net of tax) - continuing operations		(8,428)		-
Discrete income tax expense items - continuing operations		(7,712)		(8,463)
Adjusted income - continuing operations		114,258		107,100

GAAP diluted EPS - continuing operations	$	0.69	$	0.82
Restructuring, integration and other expenses (net of tax) - continuing operations		0.18		0.04
Amortization of intangible assets and other (net of tax) - continuing operations		0.14		0.01
Unrealized gain on marketable securities and other		(0.07)		-
Discrete income tax expense items - continuing operations		(0.06)		(0.06)
Adjusted diluted EPS - continuing operations		0.88		0.81

* May not foot due to rounding

Organic Sales

Organic sales is defined as sales adjusted for the impact of significant acquisitions, divestitures and other items by adjusting Avnet’s prior and current (if necessary) periods to include the sales of acquired businesses and exclude the sales of divested businesses as if the acquisitions and divestitures had occurred at the beginning of the earliest period presented. Organic sales in constant currency is defined as organic sales (as defined above) excluding the impact of changes in foreign currency exchange rates.

The following tables present the reconciliation of reported sales to organic sales for the third quarters and first nine months of fiscal 2016 and fiscal 2017.


	Third Quarter Ended						Nine Months Ended
									Acquisitions (1)
	As Reported				Organic Sales		As Reported		& Estimated Extra		Organic Sales
	Fiscal 2016		Acquisitions (1)		Fiscal 2016		Fiscal 2016		Week of Sales		Fiscal 2016
	(in millions)
Avnet	$	4,082.0	$	353.3	$	4,435.2	$	12,771.6	$	715.9	$	13,487.5
Avnet by region
Americas	$	1,227.2	$	139.9	$	1,367.1	$	3,696.3	$	340.2	$	4,036.5
EMEA		1,330.8		174.3		1,505.1		3,810.0		396.2		4,206.2
Asia		1,524.0		39.0		1,563.0		5,265.4		(20.5)		5,244.8

(1)

Includes Premier Farnell acquired on October 17, 2016, which has operations in each Avnet region.


	Third Quarter Ended						Nine Months Ended
	As Reported				Organic Sales		As Reported				Organic Sales
	Fiscal 2017		Acquisitions (1)		Fiscal 2017		Fiscal 2017		Acquisitions (1)		Fiscal 2017
	(in millions)
Avnet	$	4,441.9	$	—	$	4,441.9	$	12,833.6	$	378.4	$	13,211.9
Avnet by region
Americas	$	1,328.6	$	—	$	1,328.6	$	3,831.7	$	154.4	$	3,986.1
EMEA		1,615.9		—		1,615.9		4,261.9		178.9		4,440.8
Asia		1,497.4		—		1,497.4		4,740.0		45.0		4,785.0

(1)

Includes Premier Farnell acquired on October 17, 2016, which has operations in each Avnet region.


							Sales				Organic
							As Reported				Sales
	Sales		Organic		Sales		Year-Year %		Organic		Year-Year %
	As Reported		Sales		As Reported		Change in		Sales		Change in
	Q3-Fiscal		Q3-Fiscal		Year-Year		Constant		Year-Year		Constant
	2017		2017		% Change		Currency		% Change		Currency
	(Dollars in thousands)
Avnet	$	4,441.9	$	4,441.9	8.8	%	10.6	%	0.2	%	1.8	%
Avnet by region
Americas	$	1,328.6	$	1,328.6	8.3	%	—		(2.8)	%	—
EMEA		1,615.9		1,615.9	21.4		27.0	%	7.4		12.3	%
Asia		1,497.4		1,497.4	(1.7)		(1.6)		(4.2)		(4.1)

ROWC, ROCE and WC Velocity

The following table (in thousands) presents the calculations for ROWC, ROCE and WC velocity.


		Q3 FY17			Q3 FY16
Sales			4,441,896			4,081,961

Sales, annualized	(a)	$	17,767,584			16,327,844

Adjusted operating income (1)			172,293			161,320
Adjusted annualized operating income	(b)		689,172			645,280
Adjusted effective tax rate (2)			25.10	%		24.30	%
Adjusted annualized operating income, after tax	(c)		516,397			488,800
Average monthly working capital
Accounts receivable			3,137,494			2,679,366
Inventories			2,842,388			2,463,775
Accounts payable			(1,770,934)			(1,780,407)
Average working capital	(d)	$	4,208,948		$	3,362,734
Average monthly capital employed	(e)	$	5,624,510		$	4,074,858
ROWC = (b) / (d)			16.4	%		19.2	%
WC Velocity = (a) / (d)			4.2			4.9
ROCE = (c) / (e)			9.2	%		12.0	%

(1)

See reconciliation to GAAP amounts in the preceding tables in this supplemental and Non-GAAP Financial Information section.

(2)

Adjusted effective tax rate for each quarterly period in a fiscal year is based upon the currently anticipated annual effective tax rate, excluding the tax effect of the income tax adjustments above in the reconciliation to GAAP amounts in this Non-GAAP Financial Information section.

Guidance Reconciliation

The following table presents the reconciliation of non-GAAP adjusted diluted earnings per share from continuing operations guidance to the expected GAAP diluted earnings per share from continuing operations guidance for the fourth quarter of fiscal 2017.


	Low End of		High End of
	Guidance Range		Guidance Range

Adjusted diluted earnings per share guidance - Continuing operations	$	0.72	$	0.82
Restructuring, integration and other expense (net of tax)		(0.14)		(0.08)
Accelerated depreciation (net of tax)		(0.09)		(0.08)
Amortization of intangibles and other (net of tax)		(0.12)		(0.10)
Unrealized loss on Marketable Securities		(0.07)		(0.06)
Income tax expense adjustments		(0.02)		0.02
GAAP diluted earnings per share guidance - Continuing operations	$	0.28	$	0.51


	Low End of		High End of
	Guidance Range		Guidance Range

Adjusted diluted earnings per share guidance - Continuing operations	$	3.00	$	3.50
Restructuring, integration and other expense (net of tax)		(0.33)		(0.22)
Accelerated depreciation (net of tax)		(0.37)		(0.33)
Amortization of intangibles and other (net of tax)		(0.48)		(0.41)
Income tax expense adjustments		(0.08)		0.08
GAAP diluted earnings per share guidance - Continuing operations	$	1.74	$	2.63

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