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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required)
For the fiscal year ended June 28, 1996 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from to Commission file
number 1-4224
AVNET, INC.
(Exact name of registrant as specified in its charter)
New York 11-1890605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Cutter Mill Road, Great Neck, New York 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange and
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 / x / No /____/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value (approximate) at September 13, 1996 of the
registrant's voting stock held by non-affiliates................$2,029,996,031.
The number of shares of the registrant's Common Stock (net of treasury shares)
outstanding at September 13, 1996...............43,422,375 shares.
DOCUMENTS INCORPORATED BY REFERENCE
___________________________________
Certain portions of the Registrant's definitive proxy statement (to be filed
pursuant to Reg. 14A) relating to the Annual Meeting of Shareholders anticipated
to be held November 20, 1996 are incorporated herein by reference in Part III of
this Report.
PART I
ITEM 1. Business
Avnet, Inc., incorporated in New York in 1955, together with its
subsidiaries (the "Company" or "Avnet"), is a leading distributor of electronic
components and computer products sold principally to industrial customers.
Electronic component distributors are a vital link in the chain that connects
suppliers of semiconductors, interconnect products, passives and
electromechanical devices and computer products to original equipment
manufacturers (OEMs) who design and build the complete spectrum of electronic
equipment that utilizes the components. Avnet's primary customers are OEMs,
including military contractors and the military. Components are shipped either
as received from its suppliers or with assembly or other value added. Avnet
adds value to the components which it sells by customizing them prior to
shipment to meet individual customer specifications. It also provides inventory
management services with respect to the electronic components it sells. Avnet
also produces or distributes other electronic, electrical and video
communications products.
In order to better focus on its core business and to take advantage of the
growing world markets for electronic components and computer products, the
Company has been undergoing a period of growth by acquisitions since 1991. At
the same time, the Company divested those operations deemed outside of its core
business. These acquisitions and dispositions are described below.
The industry segments in which Avnet operates are as follows:
1. The Electronic Marketing Group is engaged in the marketing, assembly,
and/or processing of electronic and electromechanical components and computer
products, principally for industrial and some commercial and military use. It
also offers an array of value-added services to its customers, such as inventory
replenishment systems, kitting, connector and cable assembly and semiconductor
programming.
2. The Video Communications Group, consisting of the Company's Channel
Master companies, is engaged in the manufacture, assembly and/or marketing of TV
signal processing equipment. Channel Master is a leading manufacturer of DBS
(Direct Broadcast Satellite) TV receiving antennas, conventional TV roof
antennas and commercial satellite antenna systems (CATS).
The Electrical and Industrial Group, which was eliminated as of the
beginning of the *1996 fiscal year as described below, was engaged in the
distribution of electrical motors and motor parts, electronic production line
supplies, industrial supplies, maintenance and repair parts and measuring and
control devices. During the first quarter of 1996, the Company completed the
sale of the motor, motor repair shop and OEM business of Brownell Electro. Avnet
Industrial, the remaining business of Brownell which serves the industrial
marketplace primarily in maintenance and repair organizations ("MROs"), together
with Allied Electronics, now make up a new subgroup of the Electronic Marketing
Group known as the Industrial Marketing Group. The results for Brownell (which
were not material), including the business that was sold, were included in the
* References herein to any particular year or quarter generally refer to the
Company's fiscal calendar.
Electronic Marketing Group as of the first quarter of 1996. The Company's
Electrical and Industrial Group was, therefore, eliminated at the beginning of
the 1996 fiscal year. There was no restatement of prior period Group results
due to the immaterial impact of the operations to both the Electronic Marketing
Group and the Company as a whole.
The sales, operating income and indentifiable assets of the Company's
Electronic Marketing Group (its primary segment) and its U.S. domestic and
foreign operations, prepared in accordance with Statement of Financial
Accounting Standards No. 14, are shown in Note 14 to the Company's consolidated
financial statements appearing in Item 14 of this report.
The following tables set forth, for each of Avnet's three fiscal years
ended June 28, 1996, June 30, 1995 and July 1, 1994, the approximate amount of
sales and net income of Avnet which is attributable to each industry segment
shown above (after allocation of Corporate results):
SALES
(Millions) FISCAL YEARS ENDED
June 28, June 30, July 1,
1996 1995 1994
Electronic Marketing $5,004.9 $3,873.0 $3,161.5
Video Communications 202.9 246.0 199.4
Electrical and Industrial - 181.0 186.8
$5,207.8 $4,300.0 $3,547.7
NET INCOME
(Millions) FISCAL YEARS ENDED
June 28, June 30, *July 1,
1996 1995 1994
Electronic Marketing $177.3 $130.6 $ 94.6
Video Communications 11.0 10.1 6.1
Electrical and Industrial - (.4) 1.4
$188.3 $140.3 $102.1
* The 1994 net income shown above for the Electronic Marketing and the
Electrical and Industrial Groups are before special charges of $12.3 million
and $1.7 million after tax, respectively, for restructuring and integration
costs and the impact of the retroactive change in U.S. federal income tax
rates. The consolidated net income shown above for 1994 also does not
include the $2.8 million after-tax charge for the cumulative effect of the
change in method of accounting for income taxes.
In 1994, Avnet recorded a special charge of $22.7 million ($13.5 million
after-tax) primarily for restructuring and integration costs associated with the
acquisition of Hall-Mark Electronics Corporation ("Hall-Mark"). See Note 13 to
the Company's consolidated financial statements in Item 14 of this report. As
is typical in an acquisition of this type, there were many duplicate costs at
the acquisition date related to excess personnel performing essentially the same
functions, multiple sales offices in close proximity to one another, excess
warehouse and administrative office capacity, excess furniture, fixtures,
machinery and equipment, redundant computer hardware and software and other
items. In addition, many Avnet and Hall-Mark vendors supplied substantially
the same products, resulting in additional costs of inventorying redundant
parts. Consequently, the Company terminated a number of supplier
relationships even though this caused the value of some inventory to be
non-realizable in the ordinary course of business. In eliminating some of
these duplicate costs, and in order to most effectively adopt and assimilate
the two companies' best operating and administrative practices, a number of
employee terminations and relocations were also required. Accordingly, the
special charge recorded by the Company in 1994 included accruals for severance,
real and personal property lease terminations, relocation of employees,
inventory adjustments related to supplier terminations and other items.
Electronic Marketing Group
The Electronic Marketing Group continues to be the dominant group in
Avnet, accounting for 96% of Avnet's sales and 94% of its earnings in 1996. The
Electronic Marketing Group is comprised of four subgroups known as the Original
Equipment Manufacturer Marketing Group ("OMG"), the Computer Marketing Group,
("CMG") the Industrial Marketing Group ("IMG") and Avnet EMG International.
On July 1, 1993 Avnet acquired Hall-Mark Electronics Corporation which,
together with its subsidiary Allied Electronics, Inc., was the third largest
electronic components distributor in North America. The acquisition added about
25,000 customers and additional distribution franchises to Avnet's Electronic
Marketing Group.
The OMG, which was formed at the end of 1996, consists of Hamilton
Hallmark (including Hamilton Hallmark Technologies), Time Electronics (including
Avnet Cable Technologies) and Penstock (including Sertek). The Hamilton
Hallmark and Time Electronics (including Avnet Cable Technologies) units of
the OMG and Avnet's Computer Marketing Group are the dominant North American
operations in the Electronic Marketing Group, accounting for approximately
70% of the Group's 1996 worldwide sales. The remaining 30% of sales was
accounted for by Allied Electronics, Penstock, Avnet Industrial and Avnet
EMG International.
Hamilton Hallmark is a distributor of semiconductors, computer products,
connectors, passives and electromechanical products for industrial, commercial
and military use. It also offers an array of value-added services to its
customers, such as inventory replenishment systems, kitting and semiconductor
programming. It is franchised by the top five United States semiconductor
manufacturers: Advanced Micro Devices, Intel, Motorola, National Semiconductor
and Texas Instruments. Hamilton Hallmark's customers are principally computer,
telecommunications and aerospace OEMs. The percentage of total revenue
contributed by each product line appears on page eight of this Report. Hamilton
Hallmark's sales for 1996 totaled $2.357 billion, accounting for approximately
47% of Electronic Marketing Group sales.
Time Electronics is the world's leading distributor of interconnect
products including value-added connectors, electromechanical and passive
components and cable assembly services. Time Electronics also distributes
semiconductors. Its customers are principally industrial and military/aerospace
OEMs. Time's Avnet Cable Technologies unit provides cable assemblies to major
computer and medical equipment manufacturers as well as to other users of
complex cable assemblies. Time's consolidated sales for 1996 totaled $348
million,accounting for approximately 7% of Electronic Marketing Group sales
in 1996.
Penstock, which includes Sertek, is the leading technical specialist
distributor of microwave and radio frequency products and value-added services
in the United States. Penstock's fiscal 1996 sales of $92 million represented
approximately 2% of Electronic Marketing Group Sales.
Avnet's CMG is an international distributor of computer products to value-
added resellers and end users. As a result of the acquisition of Hall-Mark, two
independent business units, Avnet Computer and Hall-Mark Computer Products, now
operate together as Avnet's CMG. Avnet Computer sells computer systems and
products primarily to end users. Hall-Mark Computer Products concentrates on
sales of computer systems, peripherals and components to the reseller channel.
The CMG's sales for 1996 totaled $832 million, accounting for approximately 17%
of Electronic Marketing Group sales.
The IMG is comprised of Allied Electronics, Inc. ("Allied") and Avnet
Industrial. Allied is a broad line industrial distributor of active and passive
electronic components, test equipment and electronic equipment which it sells by
means of its catalog and telesales operations. Allied's principal customers
are MROs as well as research and development and engineering departments of
OEMs. Allied's 1996 sales of $117 million represented approximately 2% of
Electronic Marketing Group sales. Avnet Industrial supplies the industrial,
commercial, institutional, agricultural, governmental, mining and utility
markets with a broad line of industrial maintenance and factory supplies.
It also distributes industrial display and control instruments and measuring
devices and it maintains laboratories and service stations for their repair and
recalibration. During 1996, inventory comprising the Mechanics Choice
product line was sold to a third party.
The Electronic Marketing Group's international activities outside of North
America are conducted by Avnet EMG International, with operations in Europe,
South Africa and the Asia/Pacific region. Avnet EMG International's sales for
1996 of $1.183 billion accounted for approximately 24% of Electronic Marketing
Group sales. Avnet created its international operations through a series of
acquisitions beginning in June 1991 with Avnet Access (formerly known as The
Access Group), a United Kingdom electronics distributor based in Letchworth,
England. Since the acquisition of Avnet Access, the Company has completed 13
additional acquisitions for its Avnet EMG International group including those
completed in fiscal 1996 as described below. Avnet EMG International has
locations throughout Western Europe and Eastern Europe, and has begun to
penetrate the Asia/Pacific and South African markets. In addition to the
various acquisitions, the Company has created Avnet Time operations in
certain locations which specialize in interconnect products including
value-added connectors, electromechanical and passive components and cable
assembly services. There are currently Avnet Time locations in the U.K.,
France and Germany.
During 1996 and 1995, the Company added eight new operations to Avnet EMG
International - four in Europe, three in the Asia/Pacific region and one in
South Africa.
In July 1995, the Company completed the acquisition of VSI Electronics
consisting of VSI Electronics (Australia) PTY Ltd., an Australian electronics
components distributor and VSI Electronics (NZ) Ltd., a New Zealand-based
electronic components distributor. In September 1995, the Company completed the
acquisition of Setron Schiffer-Electronik GmbH & Co., KG, a limited partnership
engaged in electronic distribution (primarily marketing its products through a
catalog) which operates in Germany and 20 other countries in Europe including
Eastern Europe. In December 1995, the Company completed the acquisition of a
70% interest in the Science and Technology Division of Mercuries and Associates,
Ltd., a Tawian-based electronic components distributor, and in February 1996,
the Company completed the acquisition of an 80% interest in Kopp Electronics
Limited, a South African electronic components distributor.
In January 1995, the Company acquired Lyco Limited, an Ireland-based
electronics components distributor and provider of programming services, and
also acquired a 70% interest in WKK Semiconductors, Ltd., a Hong Kong-based
electronic components distributor with operations in Hong Kong and the
Peoples Republic of China. In March 1995, the Company acquired CK
Electronique, the largest independent programming company in France, which
provides various services including component programming, testing and taping.
In April 1995, the Company completed the acquisition of BFI-IBEXSA
International, Inc., the leading pan-European technical specialist
distributor of microwave and radio frequency components, magnetic sensors,
connecting devices and other specialty components.
Avnet EMG International currently consists of the operations listed below.
Unless otherwise noted, each of the operations is primarily a distributor of
semiconductors, computer products, connectors and passives and electromechanical
devices for industrial and commercial use. Each operation also provides a
variety of value-added services to its customers.
- Avnet EMG Limited, located in the United Kingdom, does business
through its Avnet Access and Avnet Time operations.
- Avnet EMG France does business through its Avnet Composants, Avnet
Time and CK Electronique operations.
- Avnet Nortec, the leading Scandinavian electronics distributor, has
operations in Sweden, Norway, Denmark, Finland and Estonia.
- Avnet E2000 and its Avnet Time unit have operations in Germany,
Austria and Switzerland.
- Avnet EMG SrL, located in Italy, does business through its Avnet
Adelsy and Avnet DeMico operations.
- Avnet Lyco is located in Ireland.
- Avnet WKK Components, a joint venture, has operations in Hong Kong
and the Peoples' Republic of China.
- BFI-IBEXSA, the leading European technical distributor of microwave
and radio frequency components, magnetic sensors, connecting
devices and other specialty components, has operations in eight
European countries.
- VSI Electronics has operations in Australia and New Zealand.
- Avnet Setron is engaged in electronic distribution, primarily
marketing its products through a catalog, with operations in
Germany and 20 other countries in Europe.
- Avnet Mercuries is a joint venture located in Taiwan.
- Avnet Kopp is a joint venture located in South Africa.
As of June 28, 1996, the Electronic Marketing Group had about 258
locations in the United States, Canada, Europe, South Africa and the
Asia/Pacific region, many of which contain sales, warehousing and
administrative functions for multiple business units. In addition,
the Group has a small number of stores in customers' facilities.
Most of the Electronic Marketing Group's product lines are covered by
nonexclusive distributor agreements with suppliers, cancelable upon 30 to 180
days notice. Most of these agreements provide for the periodic return to the
supplier of obsolete inventory and the return of all standard inventory upon
termination of the contract.
The Electronic Marketing Group accounted for 96%, 90% and 89% of Avnet's
consolidated sales in 1996, 1995 and 1994, respectively. The Electronic
Marketing Group's sales by major product class for the last three years is as
follows:
Fiscal Years Ended
June 28, June 30, July 1,
($ in Millions) 1996 1995 1994
Semiconductors $3,037.6 $2,417.2 $2,017.8
Computer products 1,021.1 733.0 561.6
Connectors 386.8 372.3 317.9
Other (primarily
passives and electro-
mechanical devices) 559.4 350.5 264.2
$5,004.9 $3,873.0 $3,161.5
All the items sold by the Group are in highly competitive fields. With
regard to many of its product lines, the Group may be in competition not only
with other distributors but also with its own sources of supply. Central to the
business of Avnet and the distribution industry as a whole is the carrying of a
significant amount of inventory to meet rapid delivery requirements of
customers. Avnet enhances its competitive situation by offering a variety of
value-added services which entails the performance of services and/or
processes tailored to individual customer specifications and business needs
such as point of use replenishment, testing, assembly and material management.
Video Communications Group
The Video Communications Group, which consists of the Channel Master
companies located in the U.S., the United Kingdom and Taiwan, principally
designs, develops and manufactures TV signal processing equipment. Its sales in
1996 were $202.9 million or approximately 4% of Avnet's consolidated revenues.
Channel Master is primarily a manufacturer/distributor of TV antennas, TV
rotators and home satellite TV signal receiving and descrambling systems. Its
products are used by home TV viewers and the SMATV (Satellite Master Antenna TV)
and CATV (Community Antenna TV - also known as cable TV) industries. Channel
Master produces antennas for DBS (Direct Broadcast Satellite) projects
worldwide. Channel Master has two principal manufacturing facilities, one
each in the U.S. and England.
During the 1990 through 1993 fiscal-year period, Avnet closed down its
audio equipment and satellite receiver manufacturing businesses in the Far East.
However, Channel Master continues to manufacture certain proprietary TV signal
amplifying and electronic equipment in Taiwan.
The required materials used in manufacturing Channel Masters' products are
purchased from many suppliers (except for TV rotators, which are purchased from
a single supply source). Channel Master has no long-term supply contracts.
All the items sold by Channel Master are in highly competitive fields.
Electrical and Industrial Group
As described earlier in this report, Avnet's Electrical and Industrial
Group was eliminated as of the beginning of 1996 due to the sale of the motor,
motor repair shop and OEM business of Brownell and the transfer of the Avnet
Industrial business to the Electronic Marketing Group. It had operated
primarily in the electrical and electronic industrial equipment distribution
industry and in the industrial maintenance and repair fields.
Number of Employees
At June 28, 1996, Avnet had approximately 9,500 employees.
ITEM 2. Properties
As of June 28, 1996, Avnet owned or leased approximately 3,786,873 square
feet of space for its principal office, warehouse, distribution, assembly,
manufacturing, engineering and research facilities. Approximately 71% of the
space was used by the Electronic Marketing Group. The Video Communications
Group used approximately 28% of the space, and the Corporate office used
about 1% of the space. Avnet also owned or leased approximately 595,746
square feet of space which was subleased to others. Of the total space owned
or leased, approximately 82% was located in the United States.
ITEM 3. Legal Proceedings
In the opinion of management, based on all known facts, there are no
material pending or threatened legal proceedings which the Company is required
to report. However, as previously reported, the Company is a potentially
responsible party ("PRP") or has received claims for indemnity in several
environmental cleanups under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). In particular, Avnet is one of
approximately 14 PRPs subject to an administrative order issued by the
Environmental Protection Agency ("EPA") pursuant to section 106 of CERCLA in
connection with the cleanup of a National Priorities List site in North
Smithfield, Rhode Island. Avnet's connection with the Rhode Island site arises
from the alleged disposal of hazardous material at the site by its former Miller
Electric and Carol Cable Company divisions which were sold in 1981. Also, real
estate owned by the Video Communications Group in Oxford, North Carolina is
listed on the EPA's National Priorities List, and the Company and the prior
owner of the site have entered into a Consent Decree with the EPA pursuant to
which the parties have agreed to clean up the site. Additional information
about this site and other sites is set forth on pages 18 and 19 of this report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None to be reported.
ITEM 4A. Executive Officers of the Company
The current executive officers of the Company are:
Name Age Office
Leon Machiz 72 Chairman of the Board, Chief Executive Officer and
Director
Roy Vallee 44 President, Chief Operating Officer, Vice Chairman
of the Board and Director
Sylvester D. Herlihy 69 Senior Vice President, Secretary and Director
David R. Birk 49 Senior Vice President and General Counsel
Steven C. Church 47 Senior Vice President
Anthony T. DeLuca 46 Senior Vice President and Chief Information
Officer
Burton Katz 54 Senior Vice President
Raymond Sadowski 42 Senior Vice President, Chief Financial Officer
and Assistant Secretary
Keith Williams 48 Senior Vice President and Director
John A. Carfora 50 Vice President
John T. Clark 42 Vice President
Bruce Evashevski 53 Vice President
Patrick Jewett 51 Vice President
Donald E. Sweet 59 Vice President
Morton M. Vogel 66 Vice President
Richard Ward 56 Vice President
John F. Cole 54 Controller
Stephanie A. Wagoner 37 Treasurer
Mr. Machiz has been Chairman of the Board and Chief Executive Officer
since December 1988.
Mr. Vallee has been Vice Chairman of the Board since November 1992,
President and Chief Operating Officer since March 1992, and a member of Avnet's
Board of Directors since November 1991. Prior to March 1992, he was Senior Vice
President and Director of Avnet's worldwide electronic operations.
For more than five years, (1) Mr. Herlihy has been principally engaged as
an executive of the business operations presently conducted by Avnet's Video
Communications Group, (2) Messrs. Church, Clark, Jewett, Katz, Sweet and Ward
have been principally engaged as executives of certain of the business
operations presently conducted by Avnet's Electronic Marketing Group,
(3) Mr. DeLuca hasbeen Senior Vice President and Chief Information Officer,
(4) Mr. Carfora has been Vice President, Taxes and (5) Mr. Vogel has been
Vice President, Risk Management.
Mr. Birk has been Senior Vice President and General Counsel since November
1992; prior thereto he was Vice President and General Counsel.
Mr. Sadowski became Senior Vice President in November 1992 and Chief
Financial Officer in February 1993. He was previously Avnet's Vice President
and Controller.
Before becoming Avnet's Controller in February 1993, Mr. Cole served as
Controller of Avnet's Brownell Electro, Inc. subsidiary.
Mr. Williams was the Managing Director of The Access Group, Ltd. before
Avnet acquired this U.K. corporation in June 1991. He became President of Avnet
EMG Europe and Vice President of Avnet in November 1992, Director of Avnet's
International Operations in October 1993, Senior Vice President of Avnet in
November 1993, and a member of Avnet's Board of Directors in November 1994.
Before becoming Avnet's Treasurer in February 1993, Ms. Wagoner served as
the Assistant Treasurer.
Mr. Evashevski became a Vice President of Avnet in September 1993. Before
joining Avnet's Electronic Marketing Group on July 1, 1993, Mr. Evashevski was
Vice President, Treasurer and Chief Financial Officer of Hall-Mark Electronics
Corporation and served on its board of directors.
Officers of the Company are generally elected each year at the meeting of
the Board of Directors following the annual meeting of shareholders and hold
office until the next such annual meeting or until their earlier death,
resignation or removal.
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Market price per share.
The Company's common stock is listed on the New York Stock Exchange and the
Pacific Stock Exchange. Quarterly market prices (as reported in the
consolidated reporting system for issues listed on the New York Stock
Exchange) for the last two fiscal years were:
Fiscal 1996 1995
Quarters High Low High Low
1st 55 5/8 47 1/2 38 3/8 31 1/2
2nd 53 1/2 41 1/4 39 33 3/4
3rd 50 7/8 38 42 3/4 35 3/4
4th 54 3/8 41 5/8 49 3/4 39 7/8
Record Holders.
As of September 13, 1996 there were approximately 5,537 record holders of
Avnet's common stock.
Dividends declared per share.
The declared cash dividend on the common stock was 15 cents per share
during each quarter in fiscal 1996 and 1995.
ITEM 6. Selected Financial Data*
(In $ millions except for per share and ratio data)
Fiscal Year Ended
June 28, June 30, July 1, June 30, June 30,
1996 1995 1994 1993 1992
Income:
Sales $5,207.8 $4,300.0 $3,547.7 $2,238.0 $1,759.0
Gross profit 969.1 816.4 696.1 486.8 408.3
Operating income 349.0 261.5 164.8(a) 102.8 69.6
Income taxes 136.8 103.1 66.7 45.1 32.9
Earnings 188.3 140.3 85.3(a) 69.1 50.5
Financial Position:
Working capital 1,293.9 1,057.1 888.0 803.1 848.9
Total assets 2,521.7 2,125.6 1,787.7 1,247.3 1,242.7
Total debt 497.5 419.5 303.1 106.7 175.7
Shareholders'
equity 1,505.2 1,239.4 1,108.5 868.2 837.2
Per Share:
Earnings 4.31 3.32 2.09(a) 1.91 1.42
Dividends .60 .60 .60 .60 .60
Book value 34.67 30.38 27.26 24.35 23.56
Ratios:
Operating income
margin on sales 6.7% 6.1% 4.6%(a) 4.6% 4.0%
Profit margin
on sales 3.6% 3.3% 2.4%(a) 3.1% 2.9%
Return on equity 13.3% 12.0% 8.0%(a) 8.1% 6.2%
Return on capital 11.0% 10.1% 7.0%(a) 7.6% 5.8%
Quick 1.6:1 1.6:1 1.7:1 2.1:1 2.7:1
Working capital 3.5:1 3.3:1 3.4:1 3.9:1 4.7:1
Total debt to
capital 24.8% 25.3% 21.5% 10.9% 17.3%
(a) After special charges of $16.8 ($.41 per share) for (i) restructuring and
integration charges ($13.5 or $.33 per share), (ii) the retroactive
impact of the change in U.S. tax rates ($0.5 or $.01 per share) and
(iii) the cumulative effect of a change in the method of accounting
for income taxes ($2.8 or $.07 per share).
* The selected financial data shown above for fiscal years prior to 1994
does not include data for Hall-Mark.
ITEM 7. Management's Discussion and Analysis
For an understanding of the significant factors that influenced the
Company's performance during the past three years, the following discussion
should be read in conjunction with the consolidated financial statements,
including the related notes, and other information appearing elsewhere in this
report.
The Company operates primarily in one industry segment through its
Electronic Marketing Group, which distributes electronic components and computer
products. The Electronic Marketing Group accounted for 96%, 90% and 89% of
Avnet's consolidated sales in 1996, 1995 and 1994, respectively, and it
accounted for 94%, 93% and 93% of consolidated net income during those
respective periods. Therefore, due to the dominance of the Electronic Marketing
Group and the non-material size of the Video Communications Group and the
Electrical and Industrial Group (which was eliminated at the beginning of 1996
as described below), this discussion and analysis section will focus primarily
on consolidated information.
During the first quarter of 1996, the Company completed the sale of the
motor, motor repair shop and OEM business of Brownell Electro. Avnet
Industrial, the remaining business of Brownell which serves the industrial
marketplace primarily in MRO, together with Allied Electronics, now make up
a new subgroup of the Electronic Marketing Group known as the Industrial
Marketing Group. The results for Brownell prior to the sale described above
(which were not material), including the business that was sold, were
included in the Electronic Marketing Group's results in the first quarter
of 1996. The Company's Electrical andIndustrial Group was, therefore,
eliminated as of the beginning of the 1996 fiscal year.
Since July 1, 1994, the Company has completed eleven acquisitions for the
Electronic Marketing Group - three in the United States, four in Europe, three
in the Asia/Pacific region and one in South Africa. These acquisitions, four of
which were completed during 1996 and seven of which were completed during 1995,
are discussed earlier in this report and in Note 2 of the Notes to Consolidated
Financial Statements.
On July 1, 1993, Avnet completed its acquisition of Hall-Mark Electronics
Corporation, including its wholly-owned subsidiary Allied Electronics, Inc.
(together referred to as "Hall-Mark"). Prior to the acquisition, Hall-Mark was
the nation's third largest distributor of electronic components.
Results of Operations
Consolidated sales were a record $5.208 billion in 1996, or 21% higher
than the $4.300 billion in 1995. This increase was due to strong sales growth
at each operating unit in the Electronic Marketing Group, offset somewhat by
lower sales in the Video Communications Group. The Electronic Marketing
Group's sales in 1996 were $5.005 billion, up 29% as compared with $3.873
billion in 1995, and the Video Communications Group's sales in 1996 were $203
million, or 18% lower than the prior year's sales of $246 million. Of the
$908 million increase in consolidated sales, approximately $212 million was
contributed by operations acquired during 1996. Without such sales,
consolidated sales would have been approximately 16% higher than in 1995.
Each of the operating units in the Electronic Marketing Group posted double
digit sales increases in 1996 as compared with 1995. Sales of Hamilton
Hallmark, Penstock, the Computer Marketing Group, Time Electronics and Allied
were up 16%, 41%, 32%, 10% and 19%,
respectively, in 1996 as compared with 1995. Sales of Avnet EMG
International, which includes all of the Electronic Marketing Group's
operations outside of North America, were up 61% in 1996 as
compared with 1995 and were in excess of $1.183 billion. Excluding the sales
contributed by operations acquired during 1996, Avnet EMG International's
sales would have been approximately 32% higher than in 1995.
Consolidated sales of $4.300 billion in 1995 were 21% higher than the
$3.548 billion in 1994. This increase in consolidated sales was due primarily
to strong sales growth at each operating unit in the Electronic Marketing Group
and in the Video Communications Group. The Electronic Marketing Group's sales
in 1995 were $3.873 billion, up 23% as compared with $3.162 billion in 1994, and
the Video Communications Group's sales in 1995 were $246 million, up 23% as
compared with $199 million in 1994. Of the $752 million increase in
consolidated sales, approximately $119 million was contributed by operations
acquired during 1995. Without such sales, consolidated sales would have
been approximately 18% higher than in 1994. Each of the operating units in the
Electronic Marketing Group posted double digit sales increases in 1995 as
compared with 1994. Sales of Hamilton Hallmark, the Computer Marketing Group,
Time Electronics and Allied Electronics were up 11%, 27%, 10% and 29%,
respectively, as compared with 1994 sales. Avnet EMG International had sales
of $734 million, up approximately 50% as compared with 1994.
In 1996, sales of semiconductors, computer products, connectors and other
products (principally passives and electromechanical devices) were higher than
in 1995, representing 61%, 20%, 8%, and 11%, respectively, of the Electronic
Marketing Group's sales as compared with 62%, 19%, 10% and 9%, respectively, in
1995.
Gross profit margins were 18.6%, 19.0% and 19.6% in 1996, 1995 and 1994,
respectively. This downward trend is due primarily to increased sales of
microprocessors, which have lower gross margins than other products sold in the
Company's product line and the competitive environment in the electronic
distribution marketplace. However, as described below, decreases in operating
expenses as a percentage of sales more than offset the impact of declining gross
profit margins, resulting in sequentially higher operating income as a
percentage of sales during the last three years.
Although operating expenses in absolute dollars were sequentially higher
during the last three years, they decreased significantly as a percentage of
sales and as a percentage of gross profit. Excluding the 1994 special charge
referred to below, the Company reduced operating expenses as a percentage of
sales to 11.9% in 1996 as compared with 12.9% and 14.3% in 1995 and 1994,
respectively. Operating expenses as a percentage of gross profit were 64.0% in
1996 as compared with 68.0% and 73.1% in 1995 and 1994, respectively. This
improvement was due to the Company's continuing efforts toward improving
operating efficiencies and the economies of scale and synergies resulting from
the acquisition of Hall-Mark. As a result, operating income in 1996 was a
record $349.0 million, up 33% as compared with $261.5 million in 1995 which had
represented a 39% increase over 1994's operating income (before special charges)
of $187.5 million. Operating income as a percentage of sales increased to 6.7%
in 1996 as compared with 6.1% and 5.3% (before special charges) in 1995 and
1994, respectively.
Investment and other income, which has had no material impact on earnings
since the Company liquidated its marketable securities portfolio to partially
fund the July 1, 1993 acquisition of Hall-Mark, was $2.0 million in 1996 as
compared with $5.1 million and $4.8 million in 1995 and 1994, respectively.
Interest expense was $25.9 million in 1996, as compared with $23.2 million
and $14.7 million in 1995 and 1994, respectively. The increase in interest
expense over the last two years is primarily attributable to an increase in
borrowings to fund the additional working capital requirements needed to support
the growth in business and to fund the Company's acquisition program. In 1996,
average debt outstanding was approximately 30% higher than in 1995; however,
interest expense was only 12% higher due to a combination of a lower effective
interest rate and the impact of the reversal in 1996 of interest expense which
was accrued at June 30, 1995 with respect to the Company's 6% Convertible
Subordinated Debentures Due 2012 (the "Debentures"). Following the Company's
call for redemption of the Debentures (see below), almost 100% of the
outstanding Debentures were converted into common stock of the Company in
September 1995, thereby eliminating the requirement to pay interest on the
Debentures subsequent to the interest payment made on April 15, 1995 and
necessitating the reversal of interest accrued at June 30, 1995.
The Company's effective tax rate was 42.1% in 1996 as compared with 42.4%
in 1995 and 43.1% (before taking into account the cumulative effect of the
change in the method of accounting for income taxes) in 1994. The decrease
in the effective tax rate during the three years presented is due primarily
to the significant increase in pre-tax income as compared with the relatively
small increase in the amount of non-deductible goodwill amortization, and,
to a lesser extent, the mix of earnings between the domestic and foreign
operations which are subject to different tax rates.
As a result of the above, net income in 1996 was a record $188.3 million
as compared with the $140.3 million and $102.1 million (before special charges)
in 1995 and 1994, respectively. Net income as a percentage of sales was 3.6% in
1996 as compared with 3.3% and 2.9% (before special charges) in 1995 and 1994,
respectively. The Electronic Marketing Group's net income in 1996 was a record
$177.3 million as compared with $130.6 million and $94.6 million (before special
charges) in 1995 and 1994, respectively, and its net profit margins were 3.5%,
3.4% and 3.0% (before special charges) during those respective periods. The
Video Communications Group's net income in 1996 was almost $11.0 million as
compared with $10.1 million and $6.1 million in 1995 and 1994, respectively, and
its net profit margins were 5.4%, 4.1% and 3.0% during those respective periods.
During the first quarter of 1994, the Company recorded special charges of
$16.8 million after-tax. These charges included $13.5 million after-tax for
restructuring and integration costs associated with the acquisition of Hall-Mark
and the restructuring of the Electrical and Industrial Group, and $0.5 million
for the impact of the retroactive increase in federal income tax rates enacted
in fiscal 1994 as it related to fiscal 1993 income. Additionally, in the first
quarter of 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" and recognized a
charge for the cumulative effect of the change in accounting principle in the
amount of $2.8 million. After those special charges, net income in 1994 was
$85.3 million.
As the Company has continued to increase its investment in foreign
operations, the impact associated with the volatility of foreign currency
exchange rates has become more apparent. The translation into U.S. dollars of
the financial statements of the Company's foreign subsidiaries resulted in a
$5.1 million charge in 1996, a $10.5 million credit in 1995 and a $4.6
million credit in 1994 which were recorded directly to shareholders' equity.
The charge in 1996 was due primarily to the weakening of the U.K., French and
German currencies against the U.S. dollar, and the credits in 1995 and 1994
were due primarily to the strengthening of the French, German, Swedish and U.K.
currencies against the U.S. dollar. The effect of foreign currency exchange
rate fluctuations on the 1996 statement of income was not material. Had the
various average foreign currency exchange rates remained the same during 1996
as compared with 1995, theincrease in Avnet EMG International's 1996 sales
would have been approximately 2% lower and the increase in its net income would
have been approximately 1% higher as compared with 1995.
Liquidity and Capital Resources
Over the last three years, cash generated from income before depreciation,
amortization and other non-cash items amounted to $561.2 million. During that
period, $522.3 million was used for working capital needs resulting in $38.9
million of net cash flows provided from operations. In addition, $197.3
million, net, was needed for other normal business operations including
purchases ofproperty, plant and equipment ($127.8 million) and dividends
($73.6 million), offset by cash generated from other immaterial items
($4.1 million). This resulted in $158.4 million being used for normal business
operations. During that three-year period, the Company also used $501.5
million, net, for acquisitions and the repayment of other debt. This
overall use of cash of $659.9 million was financed by $487.9 million raised
from additional borrowings and the use of $172.0 million of available cash.
In 1996, the Company generated $237.1 million from income before
depreciation, amortization and other non-cash items, and used $234.6 million for
working capital needs resulting in $2.5 million of net cash flows provided from
operations. In addition, the Company used $83.4 million for other normal
business operations including purchases of property, plant and equipment ($55.8
million), dividends ($25.6 million) and other immaterial items ($2.0 million).
This resulted in $80.9 million being used for normal business operations. The
Company also used $108.6 million in connection with acquisitions, offset by cash
received in connection with the sale of the motor, motor repair shop and OEM
business of Brownell Electro, and for the payment of other debt. This overall
use of cash of $ 189.5 million was financed by a $188.0 million increase in bank
debt and commercial paper and by the use of $1.5 million of available cash.
In 1995, the Company generated $200.2 million from income before
depreciation, amortization and other non-cash items, and used $185.8 million for
working capital needs resulting in $14.4 million of net cash flows from
operations. In addition, the Company used $65.5 million for other normal
business operations including purchases of property, plant and equipment ($50.5
million) and dividends ($18.3 million), offset by cash generated from other
immaterial items ($3.3 million). This $51.1 million of cash needed for normal
business operations and the $59.5 million of cash used for acquisitions and the
payment of other debt were funded by $106.1 million of additional borrowings and
$4.5 million of available cash.
The Company's quick assets at June 28, 1996 totaled $850.3 million as
compared with $763.0 million at June 30, 1995. At June 28, 1996, quick assets
exceeded the Company's current liabilities by $331.0 million as compared with a
$295.8 million excess at the end of 1995. Working capital at June 28, 1996 was
$1.294 billion compared with $1.057 billion at June 30, 1995. At June 28, 1996
to support each dollar of current liabilities, the Company had $1.64 of quick
assets and $1.85 of other current assets, for a total of $3.49 as compared with
$3.26 at the end of the prior fiscal year.
In 1995, the Company renegotiated its revolving credit agreement with a
syndicate of banks led by NationsBank of North Carolina, N.A. ("NationsBank").
The previous agreement had been established during 1994 and provided a
three-year facility with a $150.0 million line of credit. The renegotiated
agreement provided a five-year facility with a line of credit of up to $300.0
million (the"Credit Facility"). In 1996, the Company amended the Credit
Facility to increase the line of credit to $400.0 million. The Company may
select from various interest rate options and maturities under this facility.
The facility serves as a primary funding vehicle as well as a backup for the
Company's commercial paper program pursuant to which the Company is authorized
to issue short-term notes for current operational business requirements. During
1996, the Company also put in place an additional credit facility with
NationsBank which provides a line of credit up to $50.0 million.
In August 1995, the Company called for redemption the entire amount of
outstanding Debentures. As a result, holders of $105.2 million of the
Debentures exercised their rights to convert the Debentures into approximately
2.4 million shares of Avnet common stock at a conversion price of $43.00
principal amount per share, thereby increasing shareholders' equity by $105.2
million. The remaining outstanding Debentures, amounting to $0.1 million, were
redeemed on September 15, 1995, at a premium of 1.2% plus accrued interest.
In addition, shareholders'equity was reduced by approximately $0.9 million due
to the write-off of unamortized deferred loan expenses associated with the
Debentures.
At June 28, 1996, the Company had $295.7 million outstanding under its
commercial paper program, $93.6 million (denominated in various foreign
currencies) outstanding under the Credit Facility, $100.0 million of the 6 7/8%
Notes due March 15, 2004, and $8.2 million of other debt. This $497.5 million
of total debt at June 28, 1996 represents an increase of $78.0 million over the
$419.5 million outstanding at June 30, 1995. The Company's debt to capital
(shareholders' equity plus total debt) ratio was 25% at June 28, 1996 and June
30, 1995. In 1996, income was more than ten times greater than fixed charges.
Internally generated cash flow during 1996, represented by net income before
depreciation, amortization and other non-cash items, was $237.1 million or 48%
of total debt at June 28, 1996.
During the last three years, the Company's capital rose $1.028 billion to
a total of $2.003 billion at June 28, 1996. Shareholders' equity increased by
$637.0 million to $1.505 billion, $170.6 million due to the issuance of Avnet
common stock and stock options in connection with the acquisition of Hall-Mark,
$339.0 million from earnings, net of dividends, reinvested in the business,
$104.3 million as a result of the conversion of the Debentures and by $23.1
million, net, of other items. Total debt increased by $390.8 million to $497.5
million at June 28, 1996. The Company's favorable balance sheet ratios would
facilitate additional financing if, in the opinion of management, such financing
would enhance the future operations of the Company.
At June 28, 1996 the Company did not have any material commitments for
capital expenditures. The Company and the former owners of a Company-owned site
in Oxford, North Carolina have entered into a Consent Decree and Court Order
with the Environmental Protection Agency (EPA) for the environmental clean-up
of the site, the cost of which, according to the EPA's remedial investigation
and feasibility study, is estimated to be approximately $6.3 million, exclusive
of the $1.5 million in EPA past costs paid by the potentially responsible
parties (PRP's). Pursuant to a Consent Decree and Court Order entered into
between the Company and the former owners of the site, the former owners have
agreed to bear at least 70% of the clean-up costs of the site, and the
Company will be responsible for not more than 30% of those costs. As noted
in Item 3 of this Report, the Company is also a PRP in an environmental
clean-up at a site in North Smithfield, Rhode Island. In addition, the
Company has received notice from a third party of its intention to seek
indemnification for costs it may incur in connection with an environmental
clean-up at a site in Rush, Pennsylvania resulting from the alleged disposal of
wire insulation material at the site by a former unit of the Company. Based
upon the information known to date, the Company believes that it has
appropriately accrued in its financial statements for its share of the costs of
the clean-up at all the above mentioned sites. The Company is also a PRP, or
has been notified of claims made against it, at environmental clean-up sites
in Huguenot, New York and in Hempstead, New York. At this time, the Company
cannot estimate the amount of its potential liability, if any, for clean-up
costs in connection with these sites, but does not anticipate that these
matters or any other contingent matters will have a material adverse impact
on the Company's financial condition, liquidity or results of operations.
The Company is not now aware of any commitments, contingencies or events
within its control which may significantly change its ability to generate
sufficient cash from internal or external sources to meet its needs.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock -
Based Compensation" which establishes a fair value based method of accounting
and reporting for stock-based compensation. Under SFAS 123, companies may
elect to follow the new fair value based method or to continue to report under
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees". The Company is required to adopt SFAS 123 in its
fiscal year 1997 and anticipates continuing to follow the accounting guidance
of APB 25 with pro forma disclosure of the fair value method specified in
SFAS 123.
ITEM 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data are listed under Item 14
in this annual report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None to report.
PART III
ITEM 10. Directors and Executive
Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
The information called for by Items 10, 11, 12 and 13 (except to the
extent set forth in Item 4A above) is incorporated in this Report by reference
to the Company's definitive proxy statement relating to the Annual Meeting of
Shareholders anticipated to be held November 20, 1996.
PART IV
ITEM 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K
a. The following documents are filed as part of this report:
Page
1. Financial Statements and Supplementary Data
Report of Independent Public Accountants 25
Avnet, Inc. and Subsidiaries Consolidated
Financial Statements:
Statements of Income for the years ended
June 28, 1996, June 30, 1995 and July 1, 1994 26
Balance Sheets at June 28, 1996 and June 30, 1995 27
Statements of Shareholders' Equity for the
years ended June 28, 1996, June 30, 1995 and
July 1, 1994. 28
Statements of Cash Flows for the years ended
June 28, 1996, June 30, 1995 and July 1, 1994. 29
Notes to Consolidated Financial Statement 30 - 42
2. Financial Statement Schedules
(i) Schedule II for the years ended June 28,
1996, June 30, 1995 and July 1, 1994. 43
Schedules other than those above have been omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
Exhibit
No. Description
3A. Certificate of Incorporation of the Company as currently in
effect (incorporated by reference).
3B. By-laws of the Company as currently in effect (incorporated
herein by reference to the Company's Current Report on Form 8-
K dated February 12, 1996, Exhibit 3(ii)).
4. Specimen form of the Company's Common Stock Certificate
(incorporated by reference to the Company's Registration
Statement on Form S-2 (Registration No. 33-80932).
Note: The total amount of securities outstanding at the end
of the period covered by this Report under any instrument
which defines the rights of holders of Company's long-term
debt does not exceed 10% of the total assets of the Company
and its subsidiaries on a consolidated basis. Therefore, none
of the instruments defining the rights of the holders of such
long-term debt are required to be filed as exhibits to this
Report. The Company agrees to furnish copies of such
instruments to the Commission upon request.
Executive Compensation Plans and Arrangements
10A. Restated Employment Agreement dated June 29, 1996 between the
Company and Leon Machiz incorporated by reference to the
Company's Current Report on Form 8-K dated September 18, 1996
Exhibit 10.1.
10B. Third Amendment dated June 1, 1995, to
Employment Agreement dated June 1, 1992 between the Company
and Roy Vallee (incorporated by reference to the the Company's
Current Report on Form 8-K dated September 26, 1995 Commission
File No. 1-4224, Exhibit No. 10.2).
10C. Second Amendment, dated July 1, 1993, to Employment Agreement
dated July 1, 1992 between the Company and Roy Vallee
(incorporated by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993, Exhibit No.
10E).
10D. Employment Agreement and amendment to Employment Agreement
dated July 1, 1992 between the Company and Roy Vallee
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 2, 1993, Exhibit No.
10).
10E. Employment Agreement, dated July 22, 1992 between the Company
and Mr. Keith Williams (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1992, Exhibit No. 10F).
10F. Amendment dated July 1, 1996 to Consulting Agreement dated
July 1, 1993 between the Company and Mr. David Shaw
(incorporated by reference to the Company's Current Report on
Form 8-K dated September 18, 1996 Exhibit 10.2
10G. Consulting Agreement dated July 1, 1993 between the Comlpany
and Mr. David Shaw (incorporated by reference to the Company's
Annual Report or Form 10-K for the fiscal year ended June 30,
1993, Exhibit 10G.
10H. Avnet 1984 Stock Option Plan (incorporated herein by reference
to Registration Statement on Form S-8, Registration No. 2-
96800: Exhibit 4-B).
10I. Avnet 1988 Stock Option Plan (incorporated herein by reference
to Registration Statement on Form S-8, Registration No. 33-
29475: Exhibit 4-B).
10J. Avnet 1990 Stock Option Plan (incorporated herein by reference
to Commission File No. 1-4224, Annual Report on Form 10-K for
the fiscal year ended June 30, 1992 Exhibit 10E).
10K. Avnet 1995 Stock Option Plan (incorporated herein by reference
to the Company's Current Report on Form 8-K dated February 12,
1996 Exhibit 10).
10L. Avnet Second Incentive Stock Program (incorporated herein by
reference to Registration Statement on Form S-8, Registration
No. 2-94916; Exhibit 4-B).
10M. 1994 Avnet Incentive Stock Program (incorporated herein by
reference to Registration Statement on Form S-8, Registration
No. 333-00129, Exhibit 99).
10N. Avnet Employee Stock Puchase Plan (incorporated herein by
reference to Registration Statement on Form S-8, Registration
No. 33-62583, Exhibit 99).
100. Outside Director Stock Bonus Plan as extended and amended,
effective July 1, 1992 (incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1992 Exhibit 10H).
10P. Retirement Plan for Outside Directors of Avnet, Inc.,
effective July 1, 1993 (incorporated herein by reference to
Commission File No. 1-4224, Annual Report on Form 10-K for the
fiscal year ended June 30, 1992 Exhibit 10I).
11.* Statement regarding computation of per share earnings.
21.* List of subsidiaries of the Company.
23.* Consent of Arthur Andersen LLP.
24. Powers of Attorney (incorporated herein by reference to the
Company's Current Report on Form 8-K dated September 18,
1996).
*Filed herewith
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AVNET, INC.
(Registrant)
Date: September 19, 1996 By: s/Leon Machiz
Leon Machiz, Chairman of
the Board, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 19, 1996.
Signature Title
s/ Leon Machiz Chairman of the Board,
(Leon Machiz) Chief Executive Officer and
Director
* President, Chief Operating
(Roy Vallee) Officer, Vice Chairman of
the Board and Director
* Director
(Eleanor Baum)
* Director
(Gerald J. Berkman)
* Director
(Joseph F. Caligiuri)
* Director
(Sylvester D. Herlihy)
* Director
(Ehud Houminer)
* Director
(Salvatore J. Nuzzo)
* Director
(Frederic Salerno)
* Director
(David Shaw)
* Director
(Howard Stein)
Signature Title
* Director
(Keith Williams)
* Director
(Frederick S. Wood)
s/Raymond Sadowski Senior Vice President,
(Raymond Sadowski) Chief Financial Officer
and Assistant Secretary
s/John F. Cole Controller and Principal
(John F. Cole) Accounting Officer
* By: s/Raymond Sadowski
(Raymond Sadowski)
Attorney-in-Fact
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Avnet, Inc.
Great Neck, New York
We have audited the accompanying consolidated balance sheets of Avnet,
Inc. (a New York corporation) and Subsidiaries as of June 28, 1996 and
June 30, 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended June
28, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Avnet, Inc. and Subsidiaries
as of June 28, 1996 and June 30, 1995, and the results of their operations and
their cash flows for each of the three years in the period ended June 28, 1996
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
s/ARTHUR ANDERSEN LLP
New York, New York
July 31, 1996
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share data)
Years Ended
June 28, June 30, July 1,
1996 1995 1994
Sales $5,207,797 $4,300,013 $3,547,743
Cost of sales 4,238,743 3,483,649 2,851,681
Gross Profit 969,054 816,364 696,062
Operating expenses:
Selling, shipping, general and
administrative 584,319 526,019 481,448
Depreciation and amortization 35,768 28,862 27,127
Restructuring and integration
(Note 13) -- -- 22,702
Operating income 348,967 261,483 164,785
Investment and other income, net 1,988 5,066 4,786
Interest expense (25,916) (23,175) (14,733)
Income before income taxes and
cumulative effect of a change in
accounting principle 325,039 243,374 154,838
Income taxes (Note 7) 136,783 103,101 66,730
Income before cumulative effect of
a change in accounting principle 188,256 140,273 88,108
Cumulative effect of a change in the
method of accounting for income
taxes (Note 7) -- -- (2,791)
Net income $ 188,256 $ 140,273 $85,317
Earnings per share:
Income before cumulative effect of
a change in accounting principle $ 4.31 $ 3.32 $ 2.16
Cumulative effect of a change in
the method of accounting for
income taxes -- -- (.07)
Net income $ 4.31 $ 3.32 $ 2.09
Shares used to compute earnings
per share (Note 1) 43,710 43,421 40,847
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 28, June 30,
1996 1995
Assets:
Current assets:
Cash and cash equivalents $ 47,808 $ 49,332
Receivables, less allowances of $34,615 and
$23,421, respectively 802,442 713,644
Inventories (Note 3) 935,612 747,477
Other 27,280 13,838
Total current assets 1,813,142 1,524,291
Property, plant and equipment, net (Note 4) 176,929 145,611
Goodwill, net of accumulated amortization of
$36,998 and $24,481, respectively (Note 1) 494,666 419,479
Other assets 36,919 36,214
Total assets $2,521,656 $2,125,595
Liabilities:
Current liabilities:
Borrowings due within one year (Note 5) $ 282 $ 493
Accounts payable 353,918 314,887
Accrued expenses and other (Note 6) 165,022 151,820
Total current liabilities 519,222 467,200
Long-term debt, less due within one year
(Note 5) 497,223 419,016
Commitments and contingencies (Notes 9 and 11)
Total liabilities 1,016,445 886,216
Shareholders' equity (Note 10):
Common stock $1.00 par, authorized 60,000,000
shares, issued 43,842,000 shares and
41,204,000 shares, respectively 43,842 41,204
Additional paid-in capital 418,441 310,843
Retained earnings 1,058,350 896,102
Cumulative translation adjustments (4,243) 814
Treasury stock at cost, 421,000 shares and
412,000 shares, respectively (11,179) (9,584)
Total shareholders' equity 1,505,211 1,239,379
Total liabilities and shareholders' equity $2,521,656 $2,125,595
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended June 28, 1996, June 30, 1995 and July 1, 1994
(Thousands, except per share data)
Additional Cumulative Total
Common Paid-in Retained Translation Treasury Shareholders'
Stock Capital Earnings Adjustments Stock Equity
Balance, June 30, 1993 $36,131 $138,230 $ 719,308 ($14,313) ($11,196) $ 868,160
Net income 85,317 85,317
Dividends, $.60 per share (24,359) (24,359)
Cumulative translation adjustments 4,621 4,621
Acquisition of Hall-Mark Electronics
(Note 2) 4,858 165,717 170,575
Other, net, principally stock option
and incentive programs 115 3,202 884 4,201
Balance, July 1, 1994 41,104 307,149 780,266 (9,692) (10,312) 1,108,515
Net income 140,273 140,273
Dividends, $.60 per share (24,437) (24,437)
Cumulative translation adjustments 10,506 10,506
Other, net, principally stock option
and incentive programs 100 3,694 728 4,522
Balance, June 30, 1995 41,204 310,843 896,102 814 (9,584) 1,239,379
Net income 188,256 188,256
Dividends, $.60 per share (26,008) (26,008)
Cumulative translation adjustments (5,057) (5,057)
Conversion of 6% Subordinated
Debentures (Note 5) 2,445 101,838 104,283
Other, net, principally stock option
and incentive programs 193 5,760 (1,595) 4,358
Balance, June 28, 1996 $43,842 $418,441 $1,058,350 ($ 4,243) ($11,179) $1,505,211
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended
June 28, June 30, July 1,
1996 1995 1994
Cash flows from operating activities:
Net income $188,256 $140,273 $ 85,317
Add non-cash and other reconciling items:
Depreciation and amortization 43,547 36,863 31,822
Deferred taxes (14,490) 5,484 (10,250)
Cumulative effect of change in
accounting for income taxes -- -- 2,791
Other, net (Note 12) 19,744 17,549 14,343
237,057 200,169 124,023
Receivables (81,665) (117,804) (127,979)
Inventories (171,594) (103,550) (27,853)
Payables, accruals and other, net 18,721 35,549 53,826
Net cash flows provided
from operating activities 2,519 14,364 22,017
Cash flows from financing activities:
Issuance of notes in public offering,
net of issuance costs -- -- 98,772
Issuance of commercial paper and bank
debt, net of issuance costs 188,022 106,100 94,964
Payment of other debt (12,274) (4,589) (149)
Cash dividends (Note 12) (25,612) (18,320) (29,706)
Other, net (1,870) 2,282 2,549
Net cash flows provided from financing
activities 148,266 85,473 166,430
Cash flows from investing activities:
Purchases of property, plant and
equipment (55,811) (50,547) (21,441)
Acquisition of operations, net (Note 2) (96,325) (54,911) (333,206)
Other, net -- -- 21
Net cash flows (used for) investing
activities (152,136) (105,458) (354,626)
Effect of exchange rate changes on cash
and cash equivalents (173) 1,077 228
Cash and cash equivalents:
- (decrease) (1,524) (4,544) (165,951)
- at beginning of year 49,332 53,876 219,827
- at end of year $ 47,808 $ 49,332 $ 53,876
Additional cash flow information (Note 12)
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation - The accompanying financial statements include
the accounts of the Company and all of its subsidiaries. All intercompany
accounts and
transactions have been eliminated. The amount of minority interests at the
end of 1996 and 1995, which amounts are not material, are included in the
caption "accrued expenses and other, net".
Inventories - Stated at cost (first-in, first-out) or market, whichever is
lower.
Depreciation and amortization - Depreciation and amortization is generally
provided for by the straight-line method over the estimated useful lives
of the assets.
Income taxes - No provision for U.S. income taxes has been made for
$113,638,000 of cumulative unremitted earnings of foreign subsidiaries at
June 28, 1996 because those earnings are expected to be permanently
reinvested outside the U.S. If such earnings were remitted to the U.S.,
any net U.S. income taxes would not have a material impact on the results
of operations of the Company.
Statement of cash flows - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Goodwill - Goodwill represents the excess of the purchase price over the
fair value of net assets acquired. Except for an immaterial amount of
goodwill applicable to purchases made before October 31, 1970, goodwill is
being amortized on a straight-line basis over 40 years. The Company
continually evaluates the carrying value and the remaining economic useful
life of all goodwill, and will adjust the carrying value and the related
amortization period if and when appropriate.
Earnings per share - In computing earnings per share for 1995 and 1994, the
6% Convertible Subordinated Debentures (which were converted into common
stock in the first quarter of 1996) were not considered common equivalent
shares in 1994 because their effect would have been anti-dilutive.
Management estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Concentration of credit risk - Financial instruments which potentially
subject the Company to a concentration of credit risk principally consist
of cash and cash equivalents and trade accounts receivable. The Company
invests its excess cash primarily in overnight Eurodollar time deposits
with quality financial institutions. The Company sells electronic
components and computer products primarily to original equipment
manufacturers, including military contractors and the military, throughout
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of significant accounting policies (Continued):
North America, Europe and the Asia/Pacific region. To reduce credit risk,
management performs ongoing credit evaluations of its customers' financial
condition. The Company maintains reserves for potential credit losses, but
has not experienced any material losses related to individual customers or
groups of customers in any particular industry or geographic area.
Fiscal year - Effective in fiscal 1994, the Company changed its fiscal year
to end on the Friday closest to June 30th. The impact in fiscal 1994 of
one additional day of operations was not material. Unless otherwise noted,
all references to the "year 1996" or any other "year" shall mean the
Company's fiscal year.
2. Acquisitions:
Since July 1, 1994, the Company has completed eleven acquisitions for the
Electronic Marketing Group - three in the United States, four in Europe,
three in the Asia/Pacific region and one in South Africa. Four of these
acquisitions were completed during 1996 and seven were completed during
1995. All acquisitions have been accounted for as purchases.
In July 1995, the Company completed the acquisition of VSI Electronics
consisting of VSI Electronics (Australia) PTY Ltd., an Australian
electronic components distributor and VSI Electronics (NZ) Ltd., a New
Zealand-based electronic components distributor. In September 1995, the
Company completed the acquisition of Setron Schiffer-Electronik GmbH & Co,
KG, a limited partnership engaged in electronic distribution, (primarily
marketing its products through a catalog) which operates in Germany and 20
other countries in Europe including Eastern Europe. In December 1995, the
Company completed the acquisition of a 70% interest in the Science and
Technology Division of Mercuries and Associates, Ltd., a Taiwan-based
electronic components distributor, and in February 1996, the Company
completed the acquisition of an 80% interest in Kopp Electronics Limited,
a South African electronic components distributor.
In July 1994, the Company acquired Penstock, Inc., the leading technical
specialist distributor of microwave and radio frequency products and value-
added services in the United States. In December 1994, the Company
completed its acquisition of the Flippin, Arkansas cable assembly operation
of LaBarge, Inc. This operation, now known as Avnet Cable Technologies,
provides cable assemblies to major computer and medical equipment
manufacturers as well as to other users of complex cable assemblies.
In January 1995, the Company acquired Lyco Limited, an Ireland-based
electronic components distributor and provider of programming services, and
also acquired a 70% interest in WKK Semiconductors, Ltd., a Hong Kong-based
electronic components distributor with operations in Hong Kong and the
People's Republic of China. In April 1995, the Company acquired CK
Electronique, the largest independent programming company in France, which
provides various services including component programming, testing and
taping. In April 1995, the Company also completed the acquisition of BFI-
IBEXSA International, Inc., the leading pan-European technical specialist
distributor of microwave and radio frequency components, magnetic sensors,
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Acquisitions (Continued):
connecting devices and other specialty components. In May 1995, the
Company completed the acquisition of Sertek, Inc., a leading technical
specialist distributor of microwave and radio frequency products in the
southwest United States.
Cash expended (net of cash on the books of the companies acquired) in 1996
and 1995 relating to these acquisitions totaled approximately $119,000,000
and $70,000,000, respectively. In the aggregate, the operations acquired
during 1996 and 1995 had sales totaling approximately $240,000,000 and
$170,000,000, respectively, during the fiscal year of each such operation
immediately preceding its acquisition. The historical results of
operations of the companies acquired would not have had a material effect
on the Company's results of operations in 1996 and 1995, on a pro forma
basis.
On July 1, 1993, the Company completed the acquisition of all of the stock
of Hall-Mark Electronics Corporation, the nation's third largest
distributor of electronic components, pursuant to an Agreement and Plan of
Merger dated April 20, 1993. Each share of Hall-Mark common stock was
exchanged for $20 in cash and 0.45 shares of Avnet common stock, which had
a market value of $34.1875 per share on July 1, 1993. The total cost of
the acquisition including expenses was approximately $496,559,000,
consisting of the cost for the Hall-Mark common stock of $218,409,000 in
cash, $166,093,000 in Avnet stock and $2,532,000 in Avnet stock options
(net of related tax benefits of $1,950,000), and the cost for the
refinancing of Hall-Mark bank debt of $109,525,000. The $327,934,000 of
funding required to complete the transaction was financed through cash on
hand, proceeds from the exercise of Hall-Mark options and warrants, and
borrowings under a credit facility with NationsBank of North Carolina, N.A.
The transaction was accounted for as a purchase.
During 1994, the Company also acquired Avnet Adelsey and Avnet DeMico, two
Italy-based electronic component distributors. The total investment for
acquisitions in 1994 was $501,831,000 (net of $8,719,000 of cash on the
books of the companies acquired), of which $333,206,000 was paid in cash,
$166,093,000 in Avnet stock and $2,532,000 in Avnet stock options (net of
related tax benefits of $1,950,000).
3. Inventories:
June 28, June 30,
(Thousands) 1996 1995
Finished goods $844,510 $651,939
Work-in-process 13,306 3,242
Raw materials 77,796 92,296
$935,612 $747,477
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Property, plant and equipment, net:
June 28, June 30,
(Thousands) 1996 1995
Land $ 7,552 $ 7,465
Buildings 78,195 71,908
Machinery, fixtures and equipment 275,911 236,099
Leasehold improvements 7,412 6,887
369,070 322,359
Less accumulated depreciation and amortization 192,141 176,748
$176,929 $145,611
5. External financing:
June 28, June 30,
(Thousands) 1996 1995
6% Convertible Subordinated Debentures
due April 15, 2012, convertible
at $43 per share -- $105,263
6 7/8% Notes due March 15, 2004 $100,000 100,000
Commercial Paper 295,700 --
Bank Syndicated Credit Facility 93,596 201,100
Other 8,209 13,146
497,505 419,509
Less borrowings due within one year 282 493
Long-term debt $497,223 $419,016
In August 1995, the Company notified the holders of its 6% Convertible
Subordinated Debentures due 2012 (the "Debentures") of its decision to
call for redemption on September 15, 1995 the entire amount of outstanding
Debentures. Holders of $105,157,000 of the Debentures exercised their
right to convert the Debentures into approximately 2,445,000 shares of
Avnet common stock at a conversion price of $43.00 principal amount per
share, thereby increasing shareholders' equity by $105,157,000. The
remaining outstanding Debentures, amounting to $106,000, were redeemed on
September 15, 1995, at a premium of 1.2% plus accrued interest. In
addition, shareholders' equity was reduced by approximately $874,000 due
to the write-off of unamortized deferred loan costs associated with the
Debentures.
In June 1995, the Company renegotiated its revolving credit agreement with
a syndicate of banks led by NationsBank of North Carolina, N.A.
("NationsBank"). The previous agreement had been established during 1994
and provided a three-year facility with a $150,000,000 line of credit.
The new agreement provides a five-year facility with a line of credit of
up to $300,000,000 (increased to $400,000,000 in September 1995). This
credit facility is currently being used primarily as a backup facility to
the Company's commercial paper program and for foreign currency
denominated borrowings at floating rates of interest. At June 28, 1996,
the approximate interest rates on outstanding commercial paper and foreign
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. External financing (Continued):
currency denominated borrowings were 5.5% and 4.2%, respectively. The
Company also has in place an additional credit facility with NationsBank
which provides a line of credit of up to $50,000,000. During 1994, the
Company also raised $100,000,000 (before deducting underwriting fees and
other costs) in the public market by issuing the 6 7/8% Notes due March
15, 2004.
Annual payments on external financing in 1997, 1998, 1999, 2000 and 2001
will be $282,000, $308,000, $258,000, $394,266,000 and $308,000,
respectively.
6. Accrued expenses and other:
June 28, June 30,
(Thousands) 1996 1995
Payroll, commissions and related $ 54,324 $ 51,407
Insurance 16,211 16,973
Income taxes 35,993 25,606
Dividends payable (Note 12) 6,513 6,117
Other 51,981 51,717
$165,022 $151,820
7. Income taxes:
Effective July 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
Taxes" and recognized a charge for the cumulative effect of the change in
accounting principle in the amount of $2,791,000 ($.07 per share).
A reconciliation between the federal statutory tax rate and the effective
tax rate is as follows:
Years Ended
June 28, June 30, July 1,
1996 1995 1994
Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal benefit 4.7 4.7 4.9
Amortization of goodwill 1.3 1.5 2.2
Other, net 1.1 1.2 1.0
Effective tax rate 42.1% 42.4% 43.1%
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Income taxes (Continued):
The components of the provision for income taxes are indicated in the next
table. The provision (future tax benefit) for deferred income taxes
results from timing differences arising principally from inventory
valuation, accounts receivable valuation, certain accruals and
depreciation.
(Thousands) Years Ended
June 28, June 30, July 1,
1996 1995 1994
Current:
Federal $101,408 $ 64,279 $53,212
State and local 25,065 16,849 13,749
Foreign 24,800 16,489 10,019
Total current taxes 151,273 97,617 76,980
Deferred:
Federal (12,857) 3,290 (8,609)
State and local (1,773) 861 (2,103)
Foreign 140 1,333 462
Total deferred taxes (14,490) 5,484 (10,250)
Provision for income taxes $136,783 $103,101 $66,730
The 1994 tax provision includes an additional $500,000 federal tax
provision
for the impact of the retroactive increase in federal income tax rates
enacted in 1994 as it related to 1993 income. In addition,
$10,786,000 of income tax benefit, net, was recorded as an adjustment
to goodwill for the tax impact of adjustments to the value of assets and
liabilities acquired in connection with the acquisition of Hall-Mark
Electronics.
The significant components of deferred tax assets and liabilities
included on the balance sheet as of the beginning and end of 1996 were
as follows:
June 28, June 30,
(Thousands) 1996 1995
Deferred tax assets:
Inventory valuation $ 9,607 $ 9,945
Accounts receivable valuation 9,689 5,943
Various accrued liabilities and other 16,725 7,040
36,021 22,928
Deferred tax liabilities:
Depreciation and amortization of
property, plant and equipment 3,877 5,546
Other 6,645 5,948
10,522 11,494
Net deferred tax assets $25,499 $11,434
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Pension and profit sharing plans:
During the three years ended June 28, 1996, the following amounts were
charged (credited) to income under the Company's pension plan, 401(k) plan
and a discretionary profit sharing plan:
Years Ended
June 28, June 30, July 1,
(Thousands) 1996 1995 1994
Pension ($ 416) ($ 289) ($ 796)
401(k) 475 486 851
Profit sharing 1,407 1,396 913
The Company's noncontributory defined benefit pension plan and its 401(k)
plan cover substantially all domestic employees, except for those at one
unit covered by a profit sharing plan. The noncontributory pension plan
was amended as of January 1, 1994 to provide defined benefits pursuant to
a cash balance feature whereby a participant accumulates a benefit based
upon a percentage of current salary, which varies with age, and interest
credits. At June 28, 1996, the market value of the pension plan assets
was $125,277,000 and these assets were comprised of common stocks (51%),
U.S. Government securities (38%), money market funds (4%) and corporate
debt obligations (7%).
The assumed interest rate was 8% in each of the last three years and the
expected return on plan assets was 9% in 1996 and 8% in 1995 and 1994.
Under the cash balance plan adopted during 1994, service costs are based
solely on current year salary levels; therefore, projected salary
increases are not taken into account. The pertinent calculations covering
the pension credits, obligations and prepaid pension cost are summarized
below:
Credits to income:
Years Ended
(Thousands) June 28, June 30, July 1,
1996 1995 1994
Earned:
Return on Plan assets - actual $13,274 $13,285 $ 2,221
Lower (higher) than expected
return - deferred (3,057) (4,570) 6,224
Expected return 10,217 8,715 8,445
Amortization of 7/1/85 excess assets 2,830 2,829 2,830
Amortization of prior service
credits (costs) 321 321 110
13,368 11,865 11,385
Less benefits:
Present value of benefits
earned during year 6,047 5,762 4,854
Interest on projected benefit obligation 6,905 5,814 5,735
12,952 11,576 10,589
Net credit to income $ 416 $ 289 $ 796
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Pension and profit sharing plans (Continued):
Funded status of the Plan:
June 28, June 30, July 1,
(Thousands) 1996 1995 1994
Projected benefit obligation:
Vested benefits $ 95,420 $ 77,161 $ 73,343
Non-vested benefits 3,956 3,120 2,894
Accumulated and projected
benefit obligation 99,376 80,281 76,237
Unamortized 7/1/85 excess assets 13,299 16,129 18,958
Cumulative differences in:
Return on Plan assets 11,850 8,793 4,223
Projected benefit obligation ( 11,891) 273 (1,666)
Unamortized prior service credits 3,256 3,577 3,898
115,890 109,053 101,650
Less market value of Plan assets 125,277 118,024 110,332
Prepaid pension cost $ 9,387 $ 8,971 $ 8,682
The absence of a future salary assumption amount and the large unamortized
prior service credit are due to the adoption of the cash balance plan.
Not included in the above tabulations are pension plans of certain non-
U.S. subsidiaries which are not material.
9. Long-term leases:
The Company leases many of its operating facilities and is also committed
under lease agreements for transportation and operating equipment. Rent
expense charged to operations for the three years ended June 28, 1996 is
as follows:
Years
Ended June 28, June 30,
July 1,
(Thousands) 1996 1995 1994
Buildings $17,899 $19,065 $17,487
Equipment 4,228 4,857 5,307
$22,127 $23,922 $22,794
At June 28, 1996, aggregate future minimum lease commitments, principally
for buildings, in 1997, 1998, 1999, 2000, 2001 and thereafter (through
2006) are $16,213,000, $13,202,000, $9,807,000, $6,744,000, $4,758,000 and
$8,867,000, respectively.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Stock option and incentive programs:
The Company has three stock option plans with shares still available for
grant:
1990 1988 and 1995
Qualified Plan Non-Qualified Plans
Minimum exercise price as
a percentage of fair market 1988 Plan - 50%
value at date of grant 100% 1995 Plan - 85%
Life of options 10 years 10 years
Exercisable In whole or 25% annually after
installments one year
Plan termination date 11/28/00 1988 Plan 12/31/98
1995 Plan 8/31/05
Shares available for 1988 Plan 2,930
grant at June 28, 1996 271,150 1995 Plan 856,500
Under the non-qualified plans, the excess of the fair market value at the
date of grant over the exercise price is considered deferred compensation
which is amortized and charged against income as it is earned.
Pertinent information covering options is as follows:
Option and market prices
are per share 1996 1995 1994
Outstanding at end of year:
Shares - Total 1,777,061 1,615,122 1,193,334
Exercisable 766,936 683,372 489,637
Option prices $13.50-47.00 $13.50-44.50 $13.50-
38.50 Market prices at
date granted $19.75-51.81 $19.75-44.50 $19.75-38.50
Granted:
Shares 389,500 527,500 821,590
Option prices $28.00-47.00 $28.00-44.50 $17.63-38.50
Exercised:
Shares 192,838 100,139 114,445
Option prices $14.00-38.50 $14.00-38.50 $11.75-34.00
Canceled and expired:
Shares 34,723 5,573 91,374
Option prices $17.63-47.00 $17.63-29.00 $17.63-38.50
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Stock option and incentive programs (Continued):
In November 1994, the shareholders of the Company approved the 1994 Avnet
Incentive Stock Program (the "1994 Program"). The 1994 Program supplements,
will replace, and is substantially similar to the already existing Avnet
Incentive Stock Program (the "Existing Program"), which expired by its
terms on October 31, 1995. Under the 1994 Program, a maximum of 350,000
shares of Avnet common stock may be awarded. As of June 28, 1996, no
shares have been awarded under the 1994 Program. Delivery of incentive
shares under both programs is spread equally over a four-year period and is
subject to the employee's continuance in the Company's employ. As of June
28, 1996, 61,115 shares previously awarded under the Existing Program have
not yet been delivered.
In October 1995, the Company implemented the Avnet Employee Stock Purchase
Plan (the "Stock Purchase Plan"). The Stock Purchase Plan was implemented
subject to shareholder approval, which approval was received in November
1995. Under the terms of the Stock Purchase Plan, eligible employees of
the Company are offered options to purchase shares of Avnet Common Stock at
a price equal to 85% of the fair market value on the first or last day,
whichever is lower, of each monthly offering period. A total of 500,000
shares of Avnet common stock were initially reserved for sale under the
Stock Purchase Plan. At June 28, 1996, employees had purchased 97,373
shares and 402,627 shares were still available for purchase under the Stock
Purchase Plan.
At June 28, 1996, 3,721,383 common shares were reserved for stock option
(including the Stock Purchase Plan) and stock incentive programs.
11. Contingent liabilities:
From time to time, the Company may become liable with respect to pending
and threatened litigation, taxes and environmental and other matters. The
Company has been designated a potentially responsible party or has had
other claims made against it in connection with environmental clean-ups at
several sites. Based upon the information known to date, the Company
believes that it has appropriately reserved for its share of the costs of
the clean-ups and it is not anticipated that any contingent matters will
have a material adverse impact on the Company's financial condition,
liquidity or results of operations.
12. Additional cash flow information:
Other non-cash and reconciling items primarily include provisions for
doubtful accounts.
Due to the change in the Company's fiscal year (see Note 1) and its
historical dividend payment dates, the fiscal year ended July 1, 1994
includes the cash payment of the July 1, 1994 dividend. This results in
the inclusion of three quarterly dividend payments in 1995 and five
quarterly dividend payments in 1994.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Additional cash flow information (Continued):
In the first quarter of 1996, the entire amount of outstanding 6%
Convertible Subordinated Debentures due 2012 ($105,263,000 at June 30,
1995) was converted into common stock or redeemed for cash (See Note 5).
The net cash disbursed in each of the three years in connection with
acquisitions (See Note 2), as well as the net cash collected in those years
from dispositions, are reflected as "cash flows from acquisition of
operations, net".
Interest and income taxes paid were as follows:
Years Ended
June 28, June 30, July 1,
(Thousands) 1996 1995 1994
Interest $28,019 $23,279 $12,622
Income taxes 139,600 94,167 58,128
13. Restructuring and integration charges:
During the first quarter of 1994, the Company recorded a special charge of
$22,702,000 ($13,498,000 after tax or $0.33 per share) for restructuring
and integration costs associated with the July 1, 1993 acquisition of Hall-
Mark and the restructuring of the former Electrical and Industrial Group.
These costs included accruals for severance, real and personal property
lease terminations, relocation of employees, inventory adjustments related
to supplier terminations and other items. As of the end of 1996,
approximately $1,500,000 of the charge has not yet been utilized. The
remaining balance is primarily comprised of long-term real estate lease and
severance commitments.
14. Segment and geographic information:
The Company operates primarily in one industry segment through its
Electronic Marketing Group, which distributes electronic components and
computer products. For each of the last three years, the Electronic
Marketing Group's sales, operating income and identifiable assets were
greater than 88% of the comparable consolidated totals. For the years
presented, the Company's other two industry segments, the Video
Communications Group and the former Electrical and Industrial Group,
individually accounted for less than 10% of the Company's consolidated
sales, operating income and identifiable assets. Geographic information is
as follows:
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Segment and geographic information (Continued):
Years Ended
(Millions) June 28, June 30, July 1,
1996 1995 1994
Sales:
Domestic operations $3,839.9 $3,411.8 $2,938.7
Foreign operations 1,367.9 888.2 609.0
$5,207.8 $4,300.0 $3,547.7
Operating income:
Domestic operations $293.9 $228.3 $157.6
Foreign operations 77.2 53.5 27.3
Corporate (22.1) (20.3) (20.1)
$349.0 $261.5 $164.8
Identifiable assets:
Domestic operations $1,722.1 $1,602.9 $1,432.5
Foreign operations 718.4 466.6 316.8
Corporate 81.2 56.1 38.4
$2,521.7 $2,125.6 $1,787.7
Information for the Company's primary industry segment, the Electronic
Marketing Group (domestic and foreign), is as follows:
Years Ended
June 28, June 30, July 1,
(Millions) 1996 1995 1994
Sales $5,004.9 $3,873.0 $3,161.5
Operating income 353.3 261.9 172.5
Identifiable assets 2,346.3 1,888.8 1,578.1
Property, plant and equipment:
Additions 50.1 43.2 18.1
Depreciation 24.1 18.7 15.8
The segments are described on pages 3 to 9.
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. Summary of quarterly results (unaudited)
(Millions, except per share data):
Gross Income Earnings
Quarter Sales profit Pre-tax After-tax per share
1st - 96 $1,189.1 $228.7 $ 76.7 $ 44.6 $1.02
- 95 953.1 186.0 50.5 28.9 .69
2nd - 96 1,301.6 239.8 80.6 46.7 1.07
- 95 1,040.0 193.8 54.2 31.1 .74
3rd - 96 1,387.5 251.4 84.9 48.9 1.12
- 95 1,129.2 207.9 63.4 36.4 .86
4th - 96 1,329.6 249.2 82.8 48.1 1.10
- 95 1,177.7 228.7 75.3 43.9 1.03
Year - 96 $5,207.8 $969.1 $325.0 $188.3 $4.31
- 95 4,300.0 816.4 243.4 140.3 3.32
SCHEDULE II
AVNET, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 28, 1996, June 30, 1995 and July 1, 1994
(Thousands)
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged to Balance at
Description beginning costs and other accounts - Deductions - end
of period expenses describe describe of period
1996
Allowance for doubtful accounts $23,421 $19,073 $420(a) $ 8,904 (b) $34,615
605(c)
1995
Allowance for doubtful accounts 21,975 14,007 456 (a) 13,990 (b) 23,421
973 (c)
1994
Allowance for doubtful accounts 14,736 12,233 853 (a) 9,453 (b) 21,975
3,606 (c)
(a) Recovery of amounts
previously written off
(b) Uncollectible accounts
written off
(c) Acquisitions
INDEX TO EXHIBITS
Exhibit Numbered
Number Exhibit Page
11. Statement regarding computation of per share earnings 45
21. List of subsidiaries of the Registrant 46
23. Consent of Arthur Andersen LLP 47