Business Context and Reporting Period
Company: Avnet, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: December 22, 1999
Event: Submission of unaudited pro forma financial information regarding the acquisition of Marshall Industries ("Marshall"), consummated on October 20, 1999. The pro forma data assumes the merger occurred on July 3, 1999 (for income statement) and October 1, 1999 (for balance sheet).
Key Financial Metrics (Pro Forma)
The following metrics reflect the combined entity for the first quarter ended October 1, 1999, assuming the merger was completed at the beginning of the period.
| Metric | Pro Forma Amount (in thousands) |
|---|---|
| Sales | $2,101,260 |
| Gross Profit | $298,112 |
| Gross Margin | 14.2% |
| Operating Income | $65,432 |
| Net Income | $27,136 |
| Earnings Per Share (Basic) | $0.65 |
| Earnings Per Share (Diluted) | $0.64 |
| Total Assets | $3,982,019 |
| Total Liabilities | $2,280,750 |
| Shareholders' Equity | $1,701,269 |
| Goodwill | $707,904 |
Material Changes and Acquisition Details
- Acquisition Consideration: The total estimated aggregate amount allocated to assets acquired is $614,592,000, comprised of:
- Avnet common stock issued: $269,309,000
- Cash paid: $326,798,000
- Stock options (net of tax): $6,985,000
- Merger costs and expenses: $11,500,000
- Debt Restructuring: The pro forma balance sheet reflects the repayment of Marshall's debt ($18,750,000 short-term and $141,000,000 long-term) and the proposed issuance of new debt by Avnet ($450,000,000) to fund the transaction.
- Pro Forma Long-term debt increased to $1,268,791,000.
- Pro Forma Interest expense increased by $3,322,000 for the quarter due to new borrowings.
- Goodwill: The transaction resulted in a total recorded goodwill of $316,596,000 (including $125,930,000 existing on Marshall's books). This results in incremental amortization of $1,142,000 for the quarter.
- Historical Context: Avnet's historical Q1 1999 results included special charges of $6,112,000 pre-tax related to the reorganization of European operations.
Guidance, Outlook, and Risks
- Pro Forma Limitations: The financial statements exclude potential synergies, cost savings from integration (warehousing, sales facilities, administration), and sales attrition. They also do not reflect one-time integration costs expected in fiscal 2000.
- Estimates: Purchase accounting adjustments are based on preliminary estimates. Final allocations may differ significantly from the pro forma figures presented.
- Interest Rate Sensitivity: A 1/8% change in interest rates would result in a $375,000 annual change in interest expense.
- Future Charges: The filing notes that restructuring, integration, and asset abandonment costs could result in significant future charges not reflected in the pro forma data.
Investor Verification Checklist
- Verify the final purchase price allocation and goodwill amount once the acquisition accounting is finalized, as current figures are preliminary.
- Review the actual integration costs and restructuring charges incurred in fiscal 2000, which are excluded from the pro forma income statement.
- Monitor the realization of anticipated operating efficiencies and cost savings in warehousing and administration.
- Assess the impact of the increased debt load ($450M new issuance) on future interest coverage ratios.
- Confirm the actual share count and dilution impact following the issuance of 6,818,000 shares from treasury.