UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

---

FORM 10-Q

---

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2015 

---

Commission File #1-4224

AVNET, INC.

Incorporated in New York

---

IRS Employer Identification No. 11-1890605

2211 South 47th Street, Phoenix, Arizona 85034

(480) 643-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of October 22, 2015, the total number of shares outstanding of the registrant’s Common Stock was 132,007,717 shares, net of treasury shares.

 

 

 

AVNET, INC. AND SUBSIDIARIES

INDEX

 

 

 

 

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

See notes to consolidated financial statements.    

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

See notes to consolidated financial statements.

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

See notes to consolidated financial statements.

AVNET, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

See notes to consolidated financial statements.

 

 

1. Basis of presentation and new accounting pronouncements

 

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary to present fairly Avnet, Inc.'s and its consolidated subsidiaries' (the “Company” or “Avnet”) financial position, results of operations, comprehensive income and cash flows. All such adjustments are of a normal recurring nature.

 

The preparation of financial statements in accordance with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results may differ from these estimates.

 

Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year. The information included in this Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2015.

 

Fiscal year

 

The Company operates on a “52/53 week” fiscal year, and fiscal 2016 contains 53 weeks compared to fiscal 2015, which contained 52 weeks. As a result, the first quarter of fiscal 2016 ended October 3, 2015 contained 14 weeks compared to the first quarter of fiscal 2015 ended September 27, 2014, which contained 13 weeks.

 

New accounting pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), to supersede nearly all existing revenue recognition guidance under GAAP. The core principles of ASU 2014-09 are to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Application of the requirements of ASU 2014-09 may require more judgment and estimates within the revenue recognition process compared to existing GAAP. In July 2015, the FASB approved a one-year delay in the effective date of ASU 2014-09, which makes the effective date for the Company the first quarter of fiscal 2019. The Company may adopt the requirements of ASU 2014-09 using either of two acceptable adoption methods: (i) retrospective adoption to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) adoption with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined within ASU 2014-09. The Company is currently evaluating the impact of the future adoption of ASU 2014-09 on its consolidated financial statements, including the method of adoption to be used.

 

Recently adopted accounting pronouncements

 

In September 2015, the FASB issued Accounting Standards Update 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The update requires than an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The Company early adopted this update during the three months ended October 3, 2015, with no impact to its consolidated financial statements. 

 

During the three months ended October 3, 2015, there have been no additional new accounting pronouncements that are expected to significantly impact the Company’s consolidated financial statements.

 

2. Acquisitions and divestitures

There were no acquisitions in the first quarter of fiscal 2016 or during fiscal 2015.  

 

3. Goodwill and intangible assets

 

Goodwill

 

The following table presents the change in goodwill by reportable segment for the three months ended October 3, 2015. All of the accumulated impairment was recognized in fiscal 2009.

 

 

 

Intangible Assets

 

The following table presents the Company’s acquired intangible assets at October 3, 2015, and June 27, 2015, respectively. These intangible assets have a weighted average remaining useful life of approximately 5 years.

 

 

 

Intangible asset amortization expense was $6.9 million and $11.6 million for the first quarters of fiscal 2016 and 2015, respectively. The following table presents the estimated future amortization expense for the remainder of fiscal 2016, the next five fiscal years and thereafter (in thousands):

 

 

 

 

 

 

4. Debt

 

Short-term debt consists of the following (in thousands):

 

 

 

Bank credit facilities and other consists of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the working capital requirements of the Company including its foreign operations.

 

In August 2014, the Company amended and extended its accounts receivable securitization program (the “Program”) with a group of financial institutions to allow the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of accounts receivable, to provide security or collateral for borrowings up to a maximum of $900.0 million. The Program does not qualify for off balance sheet accounting treatment and, as a result, any borrowings under the Program are recorded as debt on the consolidated balance sheets. Under the Program, the Company legally sells and isolates certain U.S. trade receivables into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are recorded within “Receivables” in the consolidated balance sheets, totaled $1.40 billion and $1.41 billion at October 3, 2015, and June 27, 2015, respectively. The Program contains certain covenants relating to the quality of the receivables sold. The Program also requires the Company to maintain certain minimum interest coverage and leverage ratios, which the Company was in compliance with as of October 3, 2015, and June 27, 2015. The Program has a two-year term that expires in August 2016 and as a result is considered short-term debt as of October 3, 2015. Interest on borrowings is calculated using a base rate or a commercial paper rate plus a spread of 0.38%. The facility fee is 0.38%.

 

In September 2015, the Company redeemed the $250.0 million of outstanding 6.00% Notes due September 1, 2015, upon their maturity.

 

Long-term debt consists of the following (in thousands):

 

 

 

The Company has a five-year $1.25 billion senior unsecured revolving credit facility (the “Credit Facility”) with a syndicate of banks, consisting of revolving credit facilities and the issuance of up to $150.0 million of letters of credit, which expires in July 2019. Subject to certain conditions, the Credit Facility may be increased up to $1.5 billion. Under the Credit Facility, the Company may select from various interest rate options, currencies and maturities. The Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures. The Credit Facility also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios, which the Company was in compliance with as of October 3, 2015 and June 27, 2015. At October 3, 2015 and June 27, 2015, there were $1.9 million and $1.9 million, respectively, in letters of credit issued under the Credit Facility.

 

At October 3, 2015, the carrying value and fair value of the Company’s total debt was $2.11 billion and $2.18 billion, respectively. At June 27, 2015, the carrying value and fair value of the Company's total debt was $1.98 billion and $2.04 billion, respectively. Fair value was estimated primarily based upon quoted market prices.

 

5. Derivative financial instruments

 

Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (i.e., offsetting receivables and payables in the same foreign currency) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign exchange contracts typically with maturities of less than sixty days (“economic hedges”). The Company continues to have exposure to foreign currency risks to the extent they are not hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within “other income (expense), net.” Therefore, the changes in valuation of the underlying items being economically hedged are offset by the changes in fair value of the forward foreign exchange contracts. The fair value of forward foreign exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “other current assets” or “accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets as of October 3, 2015, and June 27, 2015 and were not material. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. Avnet’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists. The Company did not have material net gains or losses related to forward foreign exchange contracts in the first quarters of fiscal 2016 and 2015, which are recorded as a component of “other expense, net” in the consolidated statements of operations.

 

The Company generally does not hedge its investments in its foreign operations. The Company does not enter into derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties.

 

6. Commitments and contingencies

 

From time to time, the Company may become a party to, or be otherwise involved in various lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any such matters will have a material adverse effect on the Company’s financial condition, liquidity or results of operations.

 

The Company also is currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations, including import/export, environmental, anticorruption and competition. For certain of these matters it is not possible to determine the ultimate outcome, and the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for such matters due primarily to being in the preliminary stages of the related proceedings and investigations. The Company currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or liquidity, but could possibly be material to our results of operations in any one reporting period.

 

As of October 3, 2015, and June 27, 2015, the Company has aggregate estimated liabilities of $21.3 million and $17.2 million, respectively, classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates. Of this amount, $10.0 million relates to a contingent liability for potential unpaid import duties associated with the acquisition of Bell Microproducts Inc. for estimated duties, interest and penalties that may be imposed from an ongoing compliance audit by Customs and Border Protection.

 

7. Income taxes

 

The Company’s effective tax rate on its income before income taxes was 26.6% in the first quarter of fiscal 2016 as compared with 24.0% in the first quarter of fiscal 2015. During the first quarter of fiscal 2016, the Company's effective tax rate was favorably impacted primarily by the mix of income in lower tax rate jurisdictions.

 

During the first quarter of fiscal 2015, the Company's effective tax rate was favorably impacted by the mix of income in lower tax jurisdictions and the release of reserves, primarily related to the formal deregistration of a foreign branch.

 

The Company applies the guidance in ASC 740, which requires management to use its judgment for the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances. As part of this analysis, the Company examines all available evidence on a jurisdiction by jurisdiction basis and weighs the positive and negative evidence when determining the need for full or partial valuation allowances. The evidence considered for each jurisdiction includes, among other items: (i) the historic levels of income or losses over a range of time periods, which may extend beyond the most recent three fiscal years depending upon the historical volatility of income in an individual jurisdiction; (ii) expectations and risks associated with underlying estimates of future taxable income, including considering the historical trend of down-cycles in the semiconductor and related industries; and (iii) prudent and feasible tax planning strategies.

 

The Company continues to evaluate the need for the valuation allowances previously established against its deferred tax assets and will adjust valuation allowances as appropriate, which, if reduced, could result in a significant decrease to the effective tax rate in the period of the adjustment.

 

8. Pension plan

 

The Company has a noncontributory defined benefit pension plan (the “Plan”) for which the components of net periodic pension costs during the first quarters ended October 3, 2015, and September 27, 2014 were as follows:

 

 

 

The Company made contributions to the Plan of $10.0 million during the first quarter of fiscal 2016. The Company expects to make an additional contribution to the Plan of $10.0 million in each of the remaining three quarters of fiscal 2016.

 

The Plan meets the definition of a defined benefit plan and as a result, the Company must apply ASC 715 pension accounting to the Plan. The Plan itself, however, is a cash balance plan that is similar in nature to a defined contribution plan in that a participant's benefit is defined in terms of a stated account balance. A cash balance plan provides the Company with the benefit of applying any earnings on the Plan’s investments beyond the fixed return provided to participants, toward the Company’s future cash funding obligations.

 

Amounts reclassified out of accumulated other comprehensive (loss) income, net of tax, to operating expenses during the first quarters of fiscal 2016 and fiscal 2015 were not material and substantially all related to net periodic pension costs including recognition of actuarial losses and amortization of prior service credits.

 

9. Shareholders' equity

 

Share repurchase program

 

In August 2015, the Company’s Board of Directors authorized a $250.0 million increase in the Company’s existing share repurchase program. With this increase, the Company may repurchase up to $1.25 billion of common stock in the open market or through privately negotiated transactions. The timing and actual number of shares purchased will depend on a variety of factors such as share price, corporate and regulatory requirements, and prevailing market conditions. During the first quarter of fiscal 2016, the Company repurchased 3.5 million shares under this program at an average market price of $41.17 per share for a total cost of $145.1 million. Since the beginning of the repurchase program through the end of the first quarter of fiscal 2016, the Company has repurchased 25.6 million shares at an aggregate cost of $842.6 million, and $407.4 million remains available for future repurchases.

 

Common stock dividend

 

In August 2015, the Company's Board of Directors approved a dividend of $0.17 per common share and dividend payments of $22.6 million were made in September 2015.

 

10. Earnings per share

 

 

 

 

 

 

 

 

 

 

 

11. Additional cash flow information

 

Interest and income taxes paid in the three months ended October 3, 2015, and September 27, 2014 were as follows:

 

 

 

The Company includes book overdrafts as part of accounts payable on its consolidated balance sheets and reflects changes in such balances as part of cash flows from operating activities in its consolidated statements of cash flows.

 

Non-cash investing activities related to purchases of property, plant and equipment that have been accrued, but not paid for, were $18.7 million and $25.0 million as of October 3, 2015, and September 27, 2014, respectively.

 

Included in cash and cash equivalents as of October 3, 2015, was $62.1 million of cash equivalents, which was primarily comprised of overnight time deposits whose fair value was determined using Level 1 measurements under the ASC 820 fair value hierarchy.

 

12. Segment information

 

Electronics Marketing (“EM”) and Technology Solutions (“TS”) are the Company's reportable segments (“operating groups”). EM markets and sells semiconductors and interconnect, passive and electromechanical devices and embedded products to a diverse customer base serving many end-markets. TS focuses on the value-added distribution of enterprise computing servers and systems, software, storage, services and complex solutions from the world’s foremost technology manufacturers. TS also provides the latest hard disk drives, microprocessor, motherboard and DRAM module technologies to manufacturers of general-purpose computers and system builders.

 

 

 

---

(1)Includes sales from the United States of $2.52 billion and $2.37 billion for the quarters ended October 3, 2015, and September 27, 2014, respectively.

 

(2)Includes sales from Germany and the United Kingdom of $800.6 million and $340.6 million, respectively, for the quarter ended October 3, 2015. Includes sales from Germany and the United Kingdom of $744.3 million and $360.5 million, respectively, for the quarter ended September 27, 2014.

 

(3)Includes sales from China (including Hong Kong) and Taiwan of $714.5 million and $822.1 million, respectively, for the quarter ended October 3, 2015. Includes sales from China (including Hong Kong) and Taiwan of $738.0 million and $808.7 million, respectively, for the quarter ended September 27, 2014.

 

 

 

---

(1)Includes property, plant and equipment, net, of $362.1 million and $352.2 million as of October 3, 2015, and June 27, 2015, respectively, in the United States.

 

(2)Includes property, plant and equipment, net, of $74.2 million and $74.0 million in Germany and Belgium, respectively, as of October 3, 2015, and $74.2 million and $74.7 million in Germany and Belgium, respectively, as of June 27, 2015.

 

 

13. Restructuring, integration and other expenses

 

Fiscal 2016

 

During the first quarter of fiscal 2016, the Company took certain actions in an effort to reduce future operating expenses, including the continuation of the restructuring activities started in the fourth quarter of fiscal 2015. In addition, the Company incurred integration and other costs primarily associated with the integration of certain global and regional businesses and the closure or divestiture of certain businesses. The following table presents the restructuring, integration and other expenses recorded during the first quarter of fiscal 2016:

 

 

 

The activity related to the restructuring liabilities established and other associated expenses incurred during fiscal 2016 is presented in the following table:

 

 

 

Severance expense recorded in the first quarter of fiscal 2016 related to the reduction of over 250 employees, primarily in operations, sales and business support functions, in connection with cost reduction actions taken in both operating groups including the initiation of a voluntary retirement program in the United States. Facility exit costs primarily consist of liabilities for remaining lease obligations for exited facilities. Asset impairments relate to the impairment of property, plant and equipment as a result of the underlying restructuring actions taken in fiscal 2016. Other restructuring costs related primarily to other miscellaneous restructuring and exit costs. Of the $14.5 million in restructuring expenses recorded during the first quarter of fiscal 2016, $4.2 million related to EM and $10.3 million related to TS. As of October 3, 2015, the Company expects the majority of the remaining severance and facility exit costs to be paid by the end of fiscal 2016.

 

Integration costs are primarily related to the integration of acquired businesses, integration of regional and global business units and incremental costs incurred as part of the consolidation, relocation and closure of warehouse and office facilities. Integration costs include consulting costs for information technology system and business operation integration assistance, facility moving costs, legal fees, travel, meeting, marketing and communication costs that are incrementally incurred as a result of such integration activities. Also included in integration costs are incremental salary costs specific to integration, consolidation and closure activities. Other costs consists primarily of professional fees incurred for acquisitions, additional costs incurred for businesses divested or closed in current or prior periods, any ongoing facilities operating costs associated with the consolidation, relocation and closure of facilities once such facilities have been vacated or substantially vacated, and other miscellaneous costs that relate to restructuring, integration and other expenses. Included in other costs during the first quarter of fiscal 2016 was $4.3 million of expense associated with a liability established for Avnet’s estimated environmental remediation obligations related to legacy manufacturing operations that were divested several decades ago. The remaining, integration and other costs in the first quarter of fiscal 2016 were comprised of many different costs, none of which were individually material.

Fiscal 2015

 

During fiscal 2015, the Company incurred restructuring expenses related to various restructuring actions intended to achieve planned synergies from acquired businesses and to reduce future operating expenses. The following table presents the activity during the first three months of fiscal 2016 related to the remaining restructuring liabilities established during fiscal 2015:

 

 

 

As of October 3, 2015, the Company expects the majority of the remaining severance and facility exit cost liabilities to be paid by the end of fiscal 2016.

 

Fiscal 2014 and prior

 

As of June 27, 2015, there were $11.8 million of restructuring liabilities remaining related to restructuring actions taken in fiscal years 2014 and prior, the majority of which relates to facility exit costs. The remaining balance for such historical restructuring actions as of October 3, 2015, was $8.3 million, which is expected to be paid by the end of fiscal 2016.

 

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

For a description of the Company’s critical accounting policies and an understanding of the significant factors that influenced the Company’s performance during the quarter ended October 3, 2015, this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the consolidated financial statements, including the related notes, appearing in Item 1 of this Report, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2015. The Company operates on a “52/53 week” fiscal year and fiscal 2016 contains 53 weeks compared to 52 weeks in fiscal 2015. As a result, the first quarter of fiscal 2016 ended October 3, 2015, contained 14 weeks and the first quarter of fiscal 2015 ended September 27, 2014 contained 13 weeks. This extra week in the first quarter of fiscal 2016 impacts the year-over-year analysis in this MD&A.

 

There are references to the impact of foreign currency translation 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 that follows, results excluding this impact, primarily for subsidiaries in Europe, the Middle East and Africa (“EMEA”), are referred to as “excluding the translation impact of changes in foreign currency exchange rates” or “constant currency.”

 

In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company also discloses certain non-GAAP financial information, including:

 

 

 

 

The reconciliation of operating income to adjusted operating income is presented in the following table:

 

 

 

Management believes that providing this additional information is useful to financial statement readers to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational

goals and, in many cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP.

 

OVERVIEW

 

Organization

 

Avnet, Inc., incorporated in New York in 1955, together with its consolidated subsidiaries (the “Company” or “Avnet”), is a global value-added distributor of electronic components, enterprise computer and storage products, IT solutions and services and embedded subsystems. Avnet creates a vital link in the technology supply chain that connects the world’s leading electronic component and computer product manufacturers and software developers with a global customer base of original equipment manufacturers, electronic manufacturing services providers, original design manufacturers, systems integrators, independent software vendors and value-added resellers. Avnet distributes electronic components, computer products and software, as received from its suppliers or through a customized solution, and offers assembly and other value-added services. In addition, Avnet provides engineering design, materials management and logistics services, system integration and configuration and supply chain services customized to meet specific requirements of both customers and suppliers.

 

Avnet’s two operating groups, — EM and TS, have operations in each of the three major economic regions of the world: the Americas; EMEA; and Asia/Pacific, consisting of Asia, Australia and New Zealand (“Asia”). A summary of each operating group is provided in Note 12, “Segment information” to the Company's consolidated financial statements included in this Quarterly Report on Form 10-Q.

 

Results of Operations

 

Executive Summary

 

Sales for the first quarter of fiscal 2016 were $6.97  billion, as compared to the first quarter of fiscal 2015 sales of $6.84 billion. Sales increased 8.4% year over year in constant currency primarily due to the impact of an extra week of sales in the first quarter of fiscal 2016. EM and TS sales in constant currency increased 8.7%  and 7.8%  year over year, respectively, primarily due to sales growth in EMEA and from the benefit of the extra week of sales in the first quarter of fiscal 2016. The increase in year-over-year reported sales of $130.1 million was primarily the result of a $97.3 million increase at EM and a $32.8 million increase at TS. 

 

Gross profit margin of 11.4% decreased 27 basis points compared to the first quarter of fiscal 2015 as a result of gross profit margin declines at both EM and TS.

 

Operating income margin was 3.0% in the first quarter of fiscal 2016 as compared with 2.8% in the first quarter of fiscal 2015. Excluding restructuring, integration and other expenses, as well as amortization expense from acquired intangible assets from both periods, adjusted operating income margin was 3.5% in the first quarter of fiscal 2016 as compared to 3.3% in the first quarter of fiscal 2015 resulting from improvements at both EM and TS. EM operating income margin increased 13 basis points year over year to 4.8%. The increase in EM operating income margin was primarily due to an increase in sales and reductions in operating expenses from the impact of restructuring actions, partially offset by a decrease in gross profit margin. TS operating income margin increased 45 basis points year over year to 3.0% primarily due to an increase in sales and the impact of restructuring actions, partially offset by a decrease in gross profit margin.

 

During the first quarter of fiscal 2016, the Company used $33.7 million of cash for operating activities compared to $40.7 million used for operating activities in the first quarter of 2015.

 

Sales

 

The following table presents the reconciliation of reported sales to organic sales for the first quarter of fiscal 2016.

 

 

---

(1)The impact of the additional week of sales in the first quarter of fiscal 2016 is estimated. 

 

The table below provides the year-over-year comparison of reported first quarter sales for Avnet and the EM and TS operating groups to organic sales to allow readers to better understand and assess the Company's sales performance by operating group and region.

 

 

 

 

Avnet sales for the first quarter of fiscal 2016 were $6.97 billion, an increase of 1.9%, or $130.1 million, from the first quarter of fiscal 2015 sales of $6.84 billion with both EM and TS contributing toward this growth. The increase was primarily from the benefit of an additional week of sales partially offset by the strengthening of the U.S. Dollar year over year. Avnet sales in constant currency increased 8.4% year over year. Avnet organic sales in constant currency increased approximately 1.0% year over year.