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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 1-4224

Registrant’s telephone number, including area code (480) 643-2000

Securities registered pursuant to Section 12(g) of the Act:

     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 þ          No o

     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 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.     o

     Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

The aggregate market value (approximate) of the registrant’s common equity held by non-affiliates based on the closing price of a share of the registrant’s common stock for New York Stock Exchange composite transactions on August 28, 2004		$	1,927,680,848
The number of shares of the registrant’s Common Stock (net of treasury shares) outstanding at August 28, 2004			120,480,053

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 on November 11, 2004 are incorporated herein by reference in Part III of this Report.

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FORWARD-LOOKING STATEMENTS

      This Report contains forward-looking statements with respect to the financial condition, results of operations and business of Avnet, Inc. and subsidiaries (“Avnet” or the “Company”). You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates” or similar expressions in this Report or in documents incorporated by reference in this Report.

      These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include the following:

	•	A technology industry down-cycle, particularly in the semiconductor sector, would adversely affect Avnet’s expected operating results.
	•	Competitive pressures among distributors of electronic components and computer products may increase significantly through entry of new competitors or otherwise.
	•	General economic or business conditions, domestic and foreign, may be less favorable than management expected, resulting in lower sales and declining profitability which can, in turn, impact the Company’s credit ratings, debt covenant compliance and liquidity, as well as the Company’s ability to maintain existing unsecured financing or to obtain new financing.
	•	Legislative or regulatory changes may adversely affect the businesses in which Avnet is engaged.
	•	Adverse changes may occur in the securities markets.
	•	Changes in interest rates and currency fluctuations may reduce Avnet’s profit margins.
	•	Avnet may be adversely affected by the allocation of products by suppliers.

      Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by them. Management cautions you not to place undue reliance on these statements, which speak only as of the date of this Report.

      Avnet does not undertake any obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I

      Avnet, Inc., incorporated in New York in 1955, together with its subsidiaries, (the “Company” or “Avnet”) is one of the world’s largest industrial distributors, based on sales, of electronic components, enterprise network and computer equipment and embedded subsystems with sales in fiscal 2004 of $10.24 billion. Avnet creates a vital link in the technology supply chain that connects over 250 of the world’s leading electronic component and computer product manufacturers and software developers as a single source for multiple products for a global customer base of over 100,000 original equipment manufacturers (“OEMs”), contract manufacturers, original design manufacturers, value-added resellers (“VARs”) and end-users. Avnet distributes electronic components, computer products and software as received from its suppliers or with assembly or other value added by Avnet. Additionally, Avnet provides engineering design, materials management and logistics services, system integration and configuration, and supply chain advisory services.

Organizational Structure

      During the first quarter of fiscal 2004, the Company combined its Avnet Computer Marketing (“CM”) and Avnet Applied Computing (“AC”) operating groups into one computer products and services business called Avnet Technology Solutions (“TS”). This combination was part of the Company’s continued efforts to strengthen its market leadership position, streamline its business and further leverage cost synergies resulting from the combination. In light of the similarities of the logistics operations and related functions of CM and AC, the consolidation of certain of the units’ operating facilities, equipment and processes has yielded cost savings while also stimulating new market opportunities for the combined group.

      As a result of the formation of TS, Avnet Electronics Marketing (“EM”) and TS represented the Company’s two operating groups beginning in fiscal 2004, both having operations in each of the three major economic regions of the world: the Americas; Europe, the Middle East and Africa (“EMEA”); and Asia. Each operating group has its own management team that is led by a group president and includes senior executives within the operating group that manage the accounting and finance, facilities, warehousing and other administrative tasks for each operating group as a whole. Each operating group also has distinct financial reporting that is evaluated at the corporate level and on which operating decisions and strategic planning for the Company as a whole are made. Divisions exist within each operating group that serve primarily as sales and marketing units to further streamline the sales and marketing efforts within each operating group and to enhance each operating group’s ability to work with its customers and suppliers, generally along more specific product lines or based upon geography. However, each division relies heavily on the support services that are provided centrally within each operating group and centralized support at the corporate level.

      A summary of each operating group, and the divisions included in each group, is discussed below. Further financial information by operating group and geography are also contained in Note 16 to the consolidated financial statements appearing in Item 15 of this Report.

Avnet Electronics Marketing (“EM”)

      EM markets and sells semiconductors and interconnect, passive and electromechanical devices (“IP&E”), and also offers an array of value-added services to its customers, such as supply-chain management, engineering design, inventory replenishment systems, connector and cable assembly and semiconductor programming. EM markets and sells its products and services to a diverse customer base spread across end-markets including communications, computer hardware and peripheral, industrial and manufacturing, medical equipment, military and aerospace.

      EM markets and sells products on behalf of over 250 of the world’s leading electronic component manufacturers. Suppliers of components to EM include Analog Devices, Freescale Semiconductor, Infineon Technologies, Intel, Maxim/ Dallas, National Semiconductor, ON Semiconductor, Philips Components, Texas Instruments and Xilinx. EM sells to multinational, regional and local OEMs and contract manufacturers including Alcatel, Benchmark, Celestica, General Electric, Hon Hai Precision, Jabil, Plexus, Sanmina-SCI, Siemens and Solectron.

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      EM is Avnet’s largest operating group, with sales in fiscal 2004 of $5.89 billion, representing 57.5% of Avnet’s consolidated sales. EM is comprised of three regional operations: EM Americas, which had sales of $2.46 billion in fiscal 2004, or 24.0% of Avnet’s consolidated sales; EM EMEA, which had sales of $2.13 billion in fiscal 2004, or 20.8% of Avnet’s consolidated sales; and EM Asia, which had sales of $1.30 billion in fiscal 2004, or 12.7% of Avnet’s consolidated sales.

      Each of EM’s sales and marketing divisions is generally focused on a specific customer segment, particular product lines provided by a limited group of suppliers or on a specific geography. The various divisions collectively focus on the transactional needs of the traditional global electronic components distribution market, and thereby offer one of the industry’s broadest line cards and convenient one-stop shopping with an emphasis on responsiveness, engineering support, on-time delivery and quality. Certain specialty services are made available to the individual divisions through common support service units.

      EM’s division structure is as follows:

	•	EM Americas distributes semiconductors, electronic connectors, electronic wire and cable, other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing of electronic products. EM Americas addresses the needs of its customers and suppliers through focused channels to service small to medium customers, global customers, defense and aerospace customers, emerging customers and contract manufacturers. EM Americas also provides an array of value-added services including engineering design, supply chain services, hi-reliability processing, parametric assembly, cable assembly, fan assembly, taping, reeling and component modification.

	•	In EMEA, EM goes to market with seven sales and marketing divisions: EBV and WBC, based in Germany, which specialize in demand creation and logistics services for select semiconductor suppliers; Silica, based in the United Kingdom, a semiconductor marketer; Avnet Time, based in the United Kingdom, a marketer of IP&E components; Avnet Integrated Material Services, based in the United Kingdom, a provider of supply chain solutions, material management and warehousing services; BFI-Optilas, based in France, a marketer of specialty components and devices; Avnet Israel, based in Tel Aviv, a value-added electronic components distributor in Israel; and Avnet Kopp, a distributor of electronic components. EM EMEA does business in over 35 western and eastern European countries, South Africa, Turkey, Egypt and Israel.

	•	EM Asia is a value-added distributor of electronic components and services in 15 Asian countries, Australia and New Zealand. All of EM Asia’s operations have access to the products and services provided by EM globally. Avnet goes to market in China with three focused sales and marketing divisions — Sunrise, ChinaTronic and Avnet Technology.

Avnet Technology Solutions (“TS”)

      TS markets and sells mid- to high-end servers, data storage, software and networking solutions, and the services required to implement these solutions, to the VAR channel and enterprise computing customers. TS also focuses on the worldwide OEM market for computing technology, system integrators and non-PC OEMs that require embedded systems and solutions including engineering, product prototyping, integration and other value-added services.

      TS is a leading partner for system vendors such as IBM and HP. Other key suppliers TS serves include Advanced Micro Devices, Cisco Systems, EIZO, EMC, Intel, Micron, Oracle and Storage Technologies. TS markets and sells its products and services to the VAR channel and enterprise computing customers, which include ASAP Software, Blue River Systems, GE Medical Systems, Intel, Key Information Systems, MA

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      Sales for TS were $4.35 billion in fiscal 2004, representing 42.5% of Avnet’s consolidated sales. TS’s fiscal 2004 global sales consisted of the following regional results: TS America sales of $2.95 billion, or 28.8% of Avnet’s consolidated sales; TS EMEA sales of $1.25 billion, or 12.2% of Avnet’s consolidated sales; and TS Asia sales of $156.2 million, or 1.5% of Avnet’s consolidated sales.

      As a global technology sales and marketing organization, TS has dedicated sales and marketing divisions focused on specific customer segments including OEMs, independent software vendors, system builders, system integrators, VARs and end-user customers. TS’s select line card strategy enables an exceptional level of attention to the needs of its suppliers.

      TS consists of the following primary divisions:

	•	Avnet Partner Solutions (formerly named Avnet Hall-Mark) is a value-added distributor of enterprise computer systems, software, storage, networking solutions and services. Avnet Partner Solutions is one of the industry’s leading value-added distributors in the enterprise computing space in support of a limited line card of the foremost systems, storage and software manufacturers. Avnet Partner Solutions provides those manufacturers’ products to VARs, along with complementary value-added services. Avnet Partner Solutions also provides logistics, financial, marketing, sales and technical services, including in-house engineering support, complex systems integration and configuration services. Avnet Partner Solutions has locations in North America in addition to European offices in Austria, Belgium, the Czech Republic, Germany, Hungary, Italy, Poland, Switzerland and the United Kingdom. Avnet Partner Solutions also operates a division in Australia, serving resellers and end-users.
	•	Avnet Enterprise Solutions provides end-user customers with information technology solutions including hardware, software, maintenance, financial and professional services. Avnet Enterprise Solutions is a solutions integrator specializing in network solutions. Avnet Enterprise Solutions leverages its unique suite of technical and financial strategies and services to minimize risk, maximize flexibility and optimize the use of capital on IT infrastructures, and thus bring value to businesses intent on managing their total cost of technology infrastructure — from the data center, through the network, to the desktop. Avnet Enterprise Solutions provides services to customers primarily in North America.
	•	Applied Computing Components serves the needs of manufacturers of general-purpose computers by providing them with the latest technologies such as microprocessors, DRAM modules and motherboards. Applied Computing Components does business in all three of the global geographic regions: Americas, EMEA and Asia.
	•	Applied Computing Solutions focuses on the unique needs of non-PC OEMs and system builders/integrators. Applied Computing Solutions provides technical design, integration, marketing and financing to developers of application specific computer solutions in the non-PC market place. Examples of these types of customers are OEMs in the medical, telecommunications, industrial control and digital creation market segments. Applied Computing Solutions does business in all three of the global geographic regions: Americas, EMEA and Asia.
	•	Applied Visual and Data Solutions concentrates on specialized displays, network products and storage solutions, while targeting primarily VARs and system integrators with its wireless switch and wireless standalone solutions. Applied Visual and Data Solutions does business in eight European countries.

Foreign Operations

      As noted in the operating group discussions, Avnet’s operations are deployed globally with significant operations in the three major regions of the world: the Americas, EMEA, and Asia. Historically, Avnet’s operations in the Americas region (primarily the United States) have contributed the largest percentage of consolidated sales. During fiscal 2004, 2003 and 2002, the percentage of the Company’s sales in the Americas has been 53%, 56% and 60%, respectively. The EMEA region’s contribution to Avnet’s consolidated sales has remained relatively stable in the 32% to 33% range over the same three-year period. The Asia region has been continuously growing as a percentage of consolidated sales with 14%, 11% and 8%, respectively, of

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      Avnet’s foreign operations are subject to a variety of risks including potential restrictions on transfers of funds due to statutory or tax regulations, foreign currency fluctuations, import and export duties and regulations, changing foreign tax laws and regulations, potential military conflicts, less flexible employee contracts in the event of business downturns, and the burden and cost of compliance with foreign laws. The most common of these risks is the Company’s exposure to foreign currency fluctuations, which are hedged regularly as part of Avnet’s treasury and cash management operations. These risks are discussed further at Quantitative and Qualitative Disclosures About Market Risk appearing in Item 7A of this Report. Additionally, the specific impacts of foreign currency fluctuations, most notably the Euro, on the Company’s consolidated financial statements are further discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Item 7 of this Report.

Acquisitions

      Avnet has made no significant acquisitions in the past three fiscal years. Avnet historically pursued a strategic acquisition program to grow its presence in world markets for electronic components and computer products. This program was a significant factor in Avnet becoming one of the largest industrial distributors of electronic components and computer equipment worldwide. While Avnet will continue to pursue strategic acquisitions as part of its overall growth strategy, the limited number of potential acquisition targets has changed the focus of the Company’s acquisition strategy to a relatively smaller scale, likely directed at geographies where the Company is seeking to increase its scale and scope in certain markets where an acquisition may be beneficial. Furthermore, the achievement of the Company’s current scale of operations has allowed management, in recent years, to focus on its existing lines of business and the strategies necessary to grow those businesses organically. This focus also allowed Avnet to expand its business globally coming out of the recent economic and industry downturn and to capitalize on the current industry up-cycle by even further expanding revenue growth globally. With these strategies in place, management currently does not anticipate making any material acquisitions in the near term.

Major Products

      One of Avnet’s competitive strengths is the breadth and quality of the suppliers whose products it distributes. IBM represents the only supplier from which sales of its products exceed 10% of the Company’s consolidated sales. During fiscal 2004, IBM products accounted for approximately 18.7% of the Company’s sales. Listed in the table below are the major product categories and the Company’s approximate sales of each during the past three fiscal years:

      As of July 3, 2004, the Company had over 275 locations worldwide, as well as a limited number of instances where Avnet-owned product is stored in customer facilities. Many of these locations contain sales, warehousing and administrative functions for multiple sales and marketing units. Avnet sells to customers in 68 countries.

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Competition & Markets

      Avnet is one of the world’s largest industrial distributors (based on sales) of electronic components and computer products.

      The electronic component and computer product industry continues to be extremely competitive and is subject to rapid technological advances. The Company’s major competitors are Arrow Electronics, Inc., Future Electronics, Memec, Inc. and Agilysys, Inc. There are also certain smaller, specialized competitors who focus upon one market or product or a particular sector. As a result of these factors, Avnet must remain competitive in its pricing of goods and services.

      Another key competitive factor in the electronic component and computer product distribution industry as a whole is the need to carry a sufficient amount of inventory to meet rapid delivery requirements of customers. However, to minimize its exposure related to valuation of inventory on hand, the majority of the Company’s products are purchased pursuant to non-exclusive distributor agreements. These agreements typically provide certain protections to the Company for product obsolescence and price erosion in the form of rights of return and price protection. Furthermore, these agreements are generally cancelable upon 30 to 180 days notice and, in most cases, provide for inventory return privileges upon cancellation. In addition, the Company enhances its competitive position by offering a variety of value-added services which entail the performance of services and/or processes tailored to individual customer specifications and business needs such as point of use replenishment, testing, assembly, supply chain management and materials management.

      A key strength of the Company is the breadth and quality of the suppliers whose products it distributes. Because of the number of Avnet’s suppliers, many customers can make all of their required purchases with Avnet, rather than purchasing from several different vendors.

Seasonality

      With the exception of a relatively minor impact on consolidated results from the growth in revenues in the computer-related business (TS) during Avnet’s fiscal quarter ending in December, Avnet’s business is not materially impacted by seasonality.

Number of Employees

      At July 3, 2004, Avnet had approximately 9,900 employees.

Avnet Website

      In addition to the information about Avnet and its subsidiaries contained in this Report, extensive information about the Company can be found through our website located at www.avnet.com, including information about our management team, products and services and our corporate governance practices.

      The corporate governance information on our website includes the Company’s Corporate Governance Guidelines, the Code of Conduct and the charters for each of the committees of our Board of Directors. In addition, amendments to the Code of Conduct, and waivers granted to our directors and executive officers under the Code of Conduct, if any, will be posted in this area of our website. These documents can be accessed at www.avnet.com under the “Investor Relations — Governance” caption. Printed versions of our Corporate Governance Guidelines, our Code of Conduct and the charters for our Board committees can be obtained, free of charge, by writing to the Company at: Avnet, Inc., 2211 South 47th Street, Phoenix, AZ 85034; Attn: Corporate Secretary.

      In addition, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those Reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as Section 16 filings made by any of the Company’s executive officers or directors with respect to Avnet Common Stock, are available on the Company’s website (www.avnet.com under the “Investor Relations — SEC Filings” caption) as soon as reasonably practicable after the report is electronically filed with, or furnished to, the Securities and Exchange Commission.

      This information about Avnet’s website and its content is for information only and the content of the Company’s website is not deemed to be incorporated by reference in this report or filed with the SEC.

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      At July 3, 2004, the Company owned and leased approximately 627,000 and 3,302,000 square feet of space, respectively, of which approximately 52% is located in the United States. The following table summarizes certain of the Company’s key facilities as of July 3, 2004:

      As a result primarily of certain former manufacturing operations, Avnet may have liability under various federal, state and local environmental laws and regulations, including those governing pollution and exposure to and the handling, storage and disposal of hazardous substances. For example, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) and similar state laws, Avnet may be liable for the costs of cleaning up environmental contamination on or from its current or former properties, and at off-site locations where the Company disposed of wastes in the past. Such laws may impose joint and several liability. Typically, however, the costs for cleanup at such sites are allocated among potentially responsible parties (“PRPs”) based upon each party’s relative contribution to the contamination, and other factors.

      In May 1993, the Company and the former owners of a Company-owned site in Oxford, North Carolina entered into a Settlement Agreement in which the former owners agreed to bear 100% of all costs associated with investigation and cleanup of soils and sludges remaining on the site and 70% of all costs associated with investigation and cleanup of groundwater. The Company agreed to be responsible for 30% of the groundwater investigation and cleanup costs. In October 1993, the Company and the former owners entered into a Consent Decree and Court Order with the Environmental Protection Agency (the “EPA”) for the environmental clean-up of the site, the cost of which, according to the EPA’s remedial investigation and feasibility study, was estimated to be approximately $6.3 million, exclusive of the approximately $1.5 million in EPA past costs paid by the PRPs. Based on current information, the Company does not anticipate its liability in the matter will be material to its financial position, cash flow or results of operations.

      In September 2002, the Company’s subsidiary, Sterling Electronics, Inc. (“Sterling”), was added as a defendant in an existing lawsuit filed in the Superior Court of California, County of Los Angeles, by property owners and residents in or near the San Gabriel Valley Superfund Site. This master case is a consolidation of six different matters filed during the period from July 1997 through November 2001. Sterling once owned 92.46% of the capital stock of Phaostron, Inc., which has been named as a PRP for contamination at the site. In March 2003, the court dismissed all six cases on technical grounds, but allowed the plaintiffs the opportunity to properly serve newly-added industrial defendants, including Sterling, in any case not yet outside the mandatory service period. In five of the six cases, the applicable service period has expired. Sterling, therefore, cannot be re-added to those cases as a defendant. In the remaining case, the plaintiffs have until November 30, 2004 to re-add Sterling as a defendant in the master case and properly perfect service of process on Sterling. Those plaintiffs have not indicated a monetary amount sought in this matter. The Company believes that Sterling has meritorious defenses to liability, and, although the ultimate outcome is uncertain, based on current information, the Company does not believe that its liability for this matter, if any, will be material to its financial position, cash flow or results of operations.

      The Company is a PRP at a manufacturing site in Huguenot, New York currently under investigation by the New York State Department of Environmental Conservation (“NYSDEC”), which site the Company owned from the mid-1960s until the early-1970s. The estimated cost of the first phase of the environmental

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      Based on the information known to date, management believes that the Company has appropriately accrued in its consolidated financial statements for its share of the costs associated with these environmental clean-up sites.

      The Company and/or its subsidiaries are also parties to various other legal proceedings arising from time to time in the normal course of business. While litigation is subject to inherent uncertainties, management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flow or results of operations.

      Not applicable.

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PART II

Market Price Per Share

      The Company’s common stock is listed on the New York Stock Exchange and the Pacific Exchange. Quarterly market prices (as reported for the New York Stock Exchange composite transactions) for the last two fiscal years were:

      The Company paid no dividends during fiscal 2004 or 2003 nor are any dividend payments currently contemplated in the future.

Record Holders

      As of August 28, 2004 there were approximately 5,154 holders of record of Avnet’s common stock.

Issuer Purchases of Equity Securities

      The following table includes the Company’s monthly purchases of common stock during the fourth quarter ended July 3, 2004:

      The purchases of Avnet common stock noted above were made on the open market to obtain shares for purchase under the Company’s Employee Stock Purchase Plan. None of these purchases were made pursuant to a publicly announced repurchase plan and the Company does not currently have a stock repurchase plan in place.

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		write-down certain investments in unconsolidated Internet-related businesses to their fair value and severance charges for workforce reductions announced during the fourth quarter of fiscal 2002. The net restructuring and integration charges amounted to $79.6 million pre-tax ($21.6 million included in cost of sales and $58.0 million included in operating expenses), $62.1 million after- tax and $0.52 per share on a diluted basis.
(d)		The fiscal 2002 selected financial data excludes the impact of the Company’s adoption of the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, on June 30, 2001, the first day of the Company’s fiscal 2002. SFAS 142, which requires that ratable amortization of goodwill be replaced with periodic tests for goodwill impairment, resulted in a transition impairment charge recorded by the Company of $580.5 million, or $4.90 per share on a diluted basis for the year. This charge is reflected as a cumulative change in accounting principle in the consolidated statements of operations.
(e)		Includes the impact of charges related to the acquisition and integration of Kent, which was accounted for as a “pooling-of-interests,” and other integration, reorganization and cost cutting initiatives taken in response to business conditions. The charges amounted to $327.5 million pre-tax ($80.6 million included in cost of sales and $246.9 million included in operating expenses), $236.7 million after-tax and $1.99 per share on a diluted basis.
(f)		Includes the impact of incremental charges associated with: (i) the integration of Marshall Industries, Eurotronics B.V. and the SEI Macro Group into Avnet Electronics Marketing (“EM”), (ii) the integration of JBA Computer Solutions into CM North America, (iii) the reorganization of EM Asia, (iv) the reorganization of EM’s European operations including costs related to the consolidation of EM’s European warehousing operations and (v) costs incurred in connection with certain litigation brought by the Company. The total charges for fiscal 2000 amounted to $49.0 million pre-tax, $30.4 million after-tax and $0.28 per share on a diluted basis.

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      For an understanding of Avnet and the significant factors that influenced the Company’s performance during the past three fiscal years, the following discussion should be read in conjunction with the description of the business appearing in Item 1 of this Report and the consolidated financial statements, including the related notes, and other information appearing in Item 15 of this Report.

      There are numerous references to the impact of foreign currency translation in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). Over the past two years, the U.S. Dollar has weakened significantly in comparison to most foreign currencies, especially the Euro (which strengthened against the U.S. Dollar by approximately 14% from fiscal 2003 to fiscal 2004 and by approximately 16% from fiscal 2002 to fiscal 2003). When the weaker U.S. Dollar exchange rates of fiscal 2004 and 2003 are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase, in U.S. Dollars, of reported results.

      In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company also discloses pro forma or non-GAAP measures that may exclude certain items. Management believes that providing this additional information is useful to the reader to better assess and understand operating performance, especially when comparing results with previous periods or forecasting performance for future periods. Management believes the pro forma measures also help indicate underlying trends in the business. Management also uses pro forma information to establish operational goals and, in some cases, for measuring performance for compensation purposes. However, analysis of results and outlook on a pro forma or non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

Results from Operations

      Fiscal 2004 was the year operating efficiencies, which Avnet has derived from its value-based management initiatives and focus on operating costs over the past several years, combined with sales growth to drive a dramatic increase in the Company’s profitability. The Company’s sales growth of 13.2% from fiscal 2003 to fiscal 2004 resulted from increased sales in each of the Company’s operating groups (Avnet Electronics Marketing, or “EM,” and Avnet Technology Solutions, or “TS”) as well as across all three regions in which Avnet does business (Americas; Europe, the Middle East and Africa, hereafter referred to as “EMEA”; and Asia). Approximately one-third of this year-over-year sales growth is a result of the impact of changes in foreign currency exchange rates.

      During fiscal 2004, the electronic component and computer product industry emerged from the economic and industry downturn that commenced after the Company’s second quarter of fiscal 2001. While the downturn caused rapid sales declines in the second half of fiscal 2001 and in fiscal 2002, the Company’s top line performance largely stabilized from that point forward until the beginning of fiscal 2004 in what remained a relatively weak technology industry and economy as a whole. During the down-cycle, Avnet’s focus on managing its operating costs resulted in the Company eliminating significant expense from its ongoing operations. As a result, selling, general and administrative expenses as a percentage of sales were 10.8% in fiscal 2004 as compared with 13.1% as recently as fiscal 2002. Selling, general and administrative expenses as a percentage of gross profit showed a more significant positive trend by dropping to 81.1% in fiscal 2004 as compared with 95.5% in fiscal 2002. The operating expense reductions resulted primarily from the Company’s ongoing cost reduction initiatives and recent restructuring efforts further discussed in this MD&A. The Company similarly managed its working capital during this period with steady improvement in inventory turns, days’ sales outstanding and payable days. This focus on managing working capital allowed the Company to maximize its operating cash flow despite the downturn and to reduce its outstanding debt and related interest expense substantially since fiscal 2001.

      Within Avnet’s operating groups, EM generated increases in sales in fiscal 2004 of 18.1% over fiscal 2003. EM, which markets and sells semiconductors as well as interconnect, passive and electromechanical devices and radio frequency/microwave components, is the more cyclical of the Company’s two operating groups. Therefore, the previous down-cycle, as well as the industry upturn that commenced in fiscal 2004, had a more

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      Independent of future growth rates, operating efficiency and working capital management will remain a key focus of Avnet’s overall value-based management initiatives and its efforts to continue growing profitability and return on capital at a faster rate than growth in revenues.

      As a distributor, it is difficult to forecast the material trends of the electronic component and computer product industry, aside from some of the normal seasonality discussed herein, because Avnet does not typically have material forward-looking information available from its customers and suppliers beyond approximately three to four months of forecast information. As such, management relies on the publicly available information published by certain industry groups and other related analyses in evaluating its business prospects in the longer term.

      The tables below provide a year-over-year summary of sales for the Company and its operating groups:

Three-Year Analysis of Sales: By Operating Group and Geography

      Consolidated sales for fiscal 2004 of $10.24 billion increased by $1.19 billion, or 13.2%, over fiscal 2003 sales of $9.05 billion. Avnet finished fiscal 2004 with its strongest annual sales results since fiscal 2001. As discussed above, this significant sales growth is largely a result of an electronic component and computer product industry that has emerged from the roughly three-year industry and economic downturn that commenced midway through the Company’s fiscal 2001. Changes in foreign currency exchange rates from fiscal 2003 to 2004 also contributed to this growth in sales year-over-year by roughly $410 million. As the table above shows, the consolidated sales growth was composed of year-over-year increases in sales in both of the Company’s operating groups as well as across all three global regions in which Avnet does business.

      EM’s sales of $5.89 billion in fiscal 2004 were up $904 million, or 18.1%, over EM’s fiscal 2003 sales of $4.99 billion. The Asia/ Pacific region was the largest driver of EM’s growth with fiscal 2004 sales of $1.30 billion, up $430 million, or 49.6%, from sales of $868 million in fiscal 2003, and representing the sixth

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      TS’s sales of $4.35 billion in fiscal 2004 were up $292 million, or 7.2%, over TS’s fiscal 2003 sales of $4.06 billion. The Americas region has traditionally accounted for greater than 65% of TS’s global sales as was the case again in fiscal 2004. As a result, growth in the Americas region drove much of TS’s growth overall with sales of $2.95 billion, up 11.4% over TS Americas’ fiscal 2003 sales of $2.65 billion. The growth in TS’s Americas business was driven primarily by strength of sales in storage, software and networking products and services. TS EMEA’s fiscal 2004 sales of $1.25 billion were down 0.8% from fiscal 2003 sales of $1.26 billion. However, TS EMEA’s sales results in fiscal 2004 were positively impacted by changes in foreign currency exchange rates by an estimated $148 million. The decline in sales on a constant dollar basis in TS EMEA is primarily a function of TS’s strategic decision in the second half of fiscal 2003 to exit certain low-profit, low return-on-capital employed business. The customer engagements exited accounted for estimated annualized sales in excess of $300 million in fiscal 2003. TS Asia’s fiscal 2004 sales of $156 million were up $2 million, or 1.2%, from fiscal 2003 sales of $154 million.

      A combination of the regional and operating group factors discussed above resulted in EM constituting a larger percentage of Avnet’s consolidated sales in fiscal 2004, 58%, as compared with fiscal 2003 and 2002 at 55% and 54%, respectively. This larger contribution from the EM operating group is also typical for an up-cycle in the electronic component and computer product industry. On a consolidated basis, the dispersion of the Company’s sales on a regional basis also continued to shift toward the Asia/ Pacific region with this region now constituting a record 14% of Avnet’s consolidated sales, as compared with less than 8% as recently as fiscal 2002. The EMEA region’s contribution to consolidated sales has remained relatively stable over the past three fiscal years, in the 32-33% range, while the Americas region has declined from nearly 60% in fiscal 2002 to less than 53% in fiscal 2004.

      The Company closed fiscal 2003 with sales of $9.05 billion, up $128 million, or 1.4%, as compared with fiscal 2002 consolidated sales of $8.92 billion. The strengthening of the Euro as compared with the US Dollar drove much of this slight increase in consolidated sales between fiscal 2003 and 2002. The relatively flat sales performance on a constant dollar basis between these two years was indicative of an electronic component and computer product industry that had stabilized but remained relatively weak following the precipitous decline of the industry and the economic downturn that began midway through fiscal 2001. EM’s sales of $4.99 billion in fiscal 2003 were up $147 million, or 3.0%, over fiscal 2002 sales of $4.84 billion, driven by the strength in the Euro and growth in the Asia/ Pacific region. TS’s sales of $4.06 billion in fiscal 2003 were down slightly by $18 million, or 0.4%, from fiscal 2002 sales of $4.08 billion driven primarily by growth in fiscal 2003 in the enterprise computing and storage markets, offset by reduced activity in telecommunications and networking sectors and the early impacts of the strategic decision to exit low-profit, low return-on-capital employed business in fiscal 2003 as discussed above.

      Consolidated gross profit for fiscal 2004 was $1.36 billion, representing a gross profit margin of 13.3%, as compared with $1.21 billion, and a comparable gross profit margin of 13.4% in fiscal 2003. The mix of business

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      The Company also measures productivity by monitoring its gross profit per average employee and, due in large part to the restructuring efforts in recent years as further discussed in Restructuring and Other Charges, the Company’s gross profit per average employee in fiscal 2004 was approximately $139,000 as compared with approximately $114,000 in fiscal 2003, an increase of 21.9%.

      Consolidated gross profit margins were 13.4% in fiscal 2003, down from 13.7% in fiscal 2002. Additionally, gross profit in fiscal 2002 included $21.6 million of restructuring charges discussed below which reduced the reported gross profit margin in fiscal 2002 by 24 basis points (0.24%). This year-over-year decline was attributable to a larger portion of the Company’s consolidated sales originating from the lower margin computer products operating group, in addition to mix of product sales within the groups, specifically in TS where there was a higher volume of software sales in fiscal 2003, which yield a lower gross profit margin and have a lower capital requirement than most other computer products.

      Selling, general and administrative expenses were $1.11 billion, or 10.8% of sales, in fiscal 2004 as compared with $1.10 billion, or 12.1% of sales in fiscal 2003. In addition to percentage of sales, another important metric that management utilizes to monitor its operating expenses is selling, general and administrative expenses as a percentage of gross profit. This ratio improved to 81.1% in fiscal 2004 as compared with 90.2% in fiscal 2003. This substantial improvement in these key measures of operating leverage resulted from the significant cost reduction efforts that the Company put in place in recent years to manage its overall profitability during the industry downturn and through the up-cycle that has now begun (these efforts are further discussed in Restructuring and Other Charges below). The fiscal 2004 selling, general and administrative expenses were also negatively impacted by foreign exchange rate differences year-over-year which yielded an estimated increase in fiscal 2004 costs of roughly $56 million (0.5% of sales and 4.1% of gross profit). Furthermore, the Company did not realize the majority of the benefit from the restructuring activities of the first and second quarters of fiscal 2004 until the second half of fiscal 2004. As a result of this timing, selling, general and administrative expenses as a percentage of sales and as a percentage of gross profit fell to 10.7% and 76.7%, respectively, in the fourth quarter of fiscal 2004, representing the Company’s best performance in these metrics since fiscal 2001 when the downturn began. The operating leverage ratios discussed above, in addition to return on working capital and return on capital employed, continue to be key metrics that management monitors in its efforts to achieve appropriate levels of profitability.

      Selling, general and administrative expenses of $1.10 billion in fiscal 2003 were 12.1% of sales as compared with $1.17 billion, or 13.1% of sales, in fiscal 2002. The improvement in fiscal 2003 was a function of the Company’s cost reduction efforts in that year and in the previous year to remove expenses from the business in the face of the revenue declines that occurred during the industry and economic downturn. The impacts of these efforts were partially offset by the strengthening of the Euro against the US Dollar in fiscal 2003 as compared with fiscal 2002.

      The Company recorded a number of restructuring and other charges during the last three fiscal years. These charges relate primarily to three items: (1) the reorganization of the Company’s operations in each of

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      During the first and second quarters of fiscal 2004, the Company executed certain restructuring and cost reduction initiatives designed to continue improving the profitability of the Company. These actions can generally be broken into three categories: (1) the combination of CM and AC as discussed in Item 1 of this Report and in Note 16 to the consolidated financial statements appearing in Item 15 of this Report; (2) the reorganization of the Company’s global IT resources, which had previously been administered generally on a separate basis within each of the Company’s operating groups; and (3) various other reductions within EM and certain centralized support functions.

      Restructuring and other charges incurred during the first quarter of fiscal 2004 totaled $32.1 million pre-tax and $22.1 million after-tax, or $0.18 per diluted share. The pre-tax charge consisted of severance costs ($9.4 million), charges related to consolidation of selected facilities ($10.8 million), write-downs of certain capitalized IT-related initiatives ($6.9 million) and other items, consisting primarily of the write-off of the remaining unamortized deferred loan costs associated with the Company’s multi-year credit facility terminated in September 2003 as discussed in Liquidity and Capital Resources — Financing Transactions ($5.0 million).

      Severance costs resulted from workforce reductions of approximately 400 personnel completed during the first quarter, primarily in executive, support and other non-customer facing functions in the Americas and EMEA regions. Management also identified a number of facilities for consolidation primarily in the Americas and EMEA regions. These facilities generally related to certain logistics and warehousing operations as well as certain administrative facilities across both operating groups and at the corporate level. The charges related to reserves for remaining non-cancelable lease obligations and write-downs to fair market value of owned assets located in these facilities that have been vacated. Management also evaluated and elected to discontinue a number of IT-related initiatives that, in light of recent business restructurings, no longer met the Company’s return on investment standards for continued use or deployment. These charges related to write-offs of capitalized hardware and software.

      Restructuring charges incurred during the second quarter of fiscal 2004 totaled $23.5 million pre-tax, $16.4 million after-tax, or $0.14 per diluted share. The charges consisted of severance costs ($5.3 million), charges related to write-downs of owned assets and consolidation of selected facilities ($4.8 million), write-downs of certain capitalized IT-related initiatives ($12.9 million) and other items ($0.5 million).

      Severance charges related to workforce reductions of approximately 120 personnel, the majority of whom staffed warehousing, administrative and support functions primarily for facilities within TS EMEA operations that were identified for consolidation as part of the combination of CM and AC. A smaller portion of these charges also impacted operations in the Americas. The combination of CM and AC in EMEA also led to charges related to reserves for remaining non-cancelable lease obligations and write-downs to fair market value of owned assets located in the facilities that were vacated. The facilities primarily served in warehousing and administrative capacities. Management also evaluated and elected to discontinue a number of IT-related initiatives similar to the decisions also reached in the first quarter of fiscal 2004 as discussed above. These charges related to the write-off of capitalized hardware and software. Lastly, the Company’s efforts to combine CM and AC in EMEA resulted in the decision to merge the former CM EMEA operations onto the computer systems that have historically been used in the AC EMEA business. The change in the use of this significant asset of CM EMEA generated a need to analyze the group of long-lived assets within the former CM EMEA operations for impairment. As a result of this analysis, the Company recorded an impairment charge to write-down certain long-lived assets to their estimated fair market values. This charge, totaling $9.4 million, of which $4.2 million relates to the CM EMEA computer systems, is included in the facilities and IT-related charges discussed above.

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      During the fourth quarter of fiscal 2004, as part of management’s ongoing analysis of the reserves for various restructuring activities, the Company recorded adjustments to certain of its remaining reserves. The adjustments occurred primarily in the Company’s EM and TS operations in EMEA and related to adjustments to reduce excess severance reserves based upon revised estimates of statutorily required payouts and recording of additional charges related to leased facilities due to modifications to sublease and termination assumptions based upon ongoing market conditions. The Company also negotiated a favorable buyout of a hardware and software maintenance contract, which resulted in the reversal of certain IT-related reserves. The net amount of these adjustments was less than $0.1 million.

      The combined charges recorded during fiscal 2004 totaled $55.6 million pre-tax and $38.5 million after-tax, or $0.32 per diluted share.

      During the second quarter of fiscal 2003, the Company executed certain actions as part of its cost reduction initiatives and, accordingly, recorded charges totaling $106.8 million pre-tax, $65.7 million after tax, or $0.55 per diluted share. The charge consisted of severance costs ($21.7 million pre-tax), charges related to the consolidation of selected facilities ($37.4 million pre-tax) and charges related to certain IT-related initiatives ($47.7 million pre-tax).

      These charges included severance costs and charges related to the consolidation of selected facilities, taken in response to the business environment. During the second quarter of fiscal 2003, management identified a number of facilities in each of the Company’s operating groups and its corporate functions, which covered each of the Company’s geographic regions, to be consolidated into other facilities. The facilities were identified in an effort to combine certain logistics and administrative operations wherever possible and eliminate what would otherwise be duplicative costs. The charges related to reserves for remaining non-cancelable lease obligations, write-downs of the carrying value of certain owned facilities to market value and write-downs to fair market value of owned assets located in these leased and owned facilities that were vacated. Additionally, workforce reductions at these and other facilities worldwide resulted in the termination of approximately 750 personnel. The impacted personnel were primarily in non-customer facing positions. The IT-related charges resulted from management’s decision during the second quarter of fiscal 2003 to discontinue a number of IT-related initiatives that represented insufficient benefit to the Company if they were kept in service or continued to be developed. These charges included the write-off of capitalized hardware, software and software licenses.

      During the fourth quarter of fiscal 2003, the Company executed certain additional actions that resulted in charges totaling $6.6 million pre-tax. The incremental impact of these actions was substantially offset by certain adjustments that the Company recorded, also in the fourth quarter of fiscal 2003, primarily relating to certain of the reserves recorded from the restructuring activity in the second quarter of fiscal 2003. The new charge activity, mostly for severance and consolidation of selected facilities, related to each of the Company’s three operating groups and its corporate functions in the Americas and EMEA regions. The additional census reductions totaled approximately 175 and resulted primarily from: (1) EM’s decision to combine its Cilicon and RF and Microwave sales divisions; and (2) TS’s decision to reduce its participation in certain market segments where profitability of the products in question have not yielded acceptable economic returns to the Company. The fourth quarter adjustments to prior restructuring and other charges reflect changes in estimates from the time the charges and applicable reserves were initially recorded, relating to: (1) reserves for severance and for leases and other contractual commitments that were determined to be excessive during the fourth quarter based upon payments made or still to be made and/or based upon more favorable than anticipated sublease or lease buyout arrangements; and (2) an adjustment, based upon estimated sales price net of costs to sell as derived from current market studies and comparable sales, of a portion of a write-down that was recorded in the second quarter of fiscal 2003 related to an owned facility that was vacated and classified as held for sale during that quarter.

      In the fourth quarter of fiscal 2002, the Company recorded charges representing a write-down in value of certain assets acquired in the fiscal 2001 acquisition of Kent and certain other charges taken in response to

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      The Kent-related items resulted from the acquisition of Kent being accounted for using the “pooling-of-interests” method of accounting for the acquisition. These items related specifically to assets or obligations that were on the books of Kent at the acquisition and, therefore, under the “pooling-of-interests” method, these items that normally would have been reflected as adjustments to goodwill if the purchase method of accounting had been used were instead recorded to the Company’s consolidated statement of operations. These items amounted to $29.7 million pre-tax and relate primarily to: (1) write-downs to the value of receivables considered uncollectible after the Company had exhausted efforts of collecting these amounts from Kent’s pre-acquisition customers ($8.2 million pre-tax); (2) excess and obsolete inventory, primarily for customer-specific inventory held by Kent at the acquisition date that was subsequently determined, through ongoing negotiations with the customer, to require a write-down to net realizable value ($21.6 million pre-tax); and (3) charges to record additional write-downs to approximate fair market value on held-for-sale properties acquired in the Kent acquisition or to record lease reserves for non-cancelable lease obligations on properties the Company committed to exit ($15.9 million pre-tax); (4) net of approximately $16.0 million pre-tax in cash recoveries of certain charges recorded as part of the restructuring and integration charges taken in the fourth quarter of 2001.

      The remaining pre-tax charge recorded in the fourth quarter of fiscal 2002, which amounted to $49.9 million, included an impairment charge of $36.2 million pre-tax to write-down certain of the Company’s investments in unconsolidated Internet-related businesses to their fair market value and $13.7 million pre-tax for severance charges taken for workforce reductions, primarily in the Americas region, with more limited reductions in EMEA and Asia, totaling approximately 850 individuals. The impairments recorded to the Company’s Internet-related investments are considered capital losses for tax purposes and were therefore only deductible to the extent the Company had available capital gains. At that time, there were no capital gains, available or forecasted in the foreseeable future, to offset these losses. Therefore, the Company generally did not record a tax benefit for these losses.

      As of July 3, 2004, the Company’s total remaining reserves for restructuring and other related activities totaled $26.8 million. Of this balance, $3.0 million relates to remaining severance reserves, the majority of which the Company expects to utilize by the end of the first quarter of fiscal 2006. Reserves for $22.4 million relate to reserves for contractual lease commitments, substantially all of which the Company expects to utilize by the end of fiscal 2007. The IT-related and other reserves, which total $1.4 million, relate primarily to remaining contractual commitments, the majority of which the Company expects to utilize by the end of fiscal 2005.

      Operating income for fiscal 2004 was $202.2 million, or 2.0% of consolidated sales as compared with operating income of $12.7 million, or 0.1% of consolidated sales in fiscal 2003. Results for both of these periods include the negative impacts of restructuring and other charges, further discussed above, which totaled $55.6 million, or 0.5% of sales, in fiscal 2004 and $106.8 million, or 1.2% of sales in fiscal 2003. This significant improvement in operating income in absolute dollars and as a percentage of sales is driven by the growth in sales and the reduction in selling, general and administrative expenses, all of which are discussed previously in this MD&A.

      EM reported operating income of $212.5 million, or 3.6% of EM’s sales, in fiscal 2004, which is more than double EM’s operating income in fiscal 2003 of $101.9 million, or 2.0% of EM’s sales. TS’s fiscal 2004 operating income of $98.9 million, or 2.3% of TS’s sales, also improved from $56.2 million, or 1.4% of TS’s sales, in fiscal 2003. These operating income results within Avnet’s operating groups are, similar to the consolidated results, primarily a function of the Company’s ongoing cost reduction efforts across both operating groups and all regions, in addition to the growth in sales year-over-year.

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      The Company’s fiscal 2003 consolidated operating income of $12.7 million was up from a loss of $3.0 million in fiscal 2002, both periods including the negative impacts of restructuring and other charges discussed above ($106.8 million in fiscal 2003 and $79.6 million in fiscal 2002). The improvement in operating income in fiscal 2003 is the result of the early impacts of the Company’s efforts to remove ongoing costs from the business through its restructuring efforts since the end of fiscal 2001.

      Interest expense was $94.6 million in fiscal 2004, down 9.8% as compared with $104.9 million in fiscal 2003. The decrease in interest expense between periods is a function of two factors. First, the Company has reduced its total debt outstanding. The Company’s average balance of debt and drawings under its accounts receivable securitization program during fiscal 2004 was $1.41 billion as compared with $1.62 billion in fiscal 2003. The second factor in this decrease in expense relates to the change in the Company’s effective interest rates due to the composition of the Company’s debt balances. The Company fully repaid its original principal balances of $200.0 million of 6.45% Notes due August 15, 2003 and $250.0 million of 8.20% Notes due October 17, 2003 through tender and early redemption of these notes during fiscal 2003 and the repayment of the remaining principal and interest upon maturity in the first half of fiscal 2004 (see Liquidity and Capital Resources — Financing Transactions for further discussion of this transaction and other debt activity discussed below). Although the Company added $475.0 million of 9 3/4% Notes due February 15, 2008 in the third quarter of fiscal 2003, the Company also entered into hedge contracts for $300.0 million of these notes which effectively converts these notes from a fixed rate of 9 3/4% to a variable rate (7.8% at July 3, 2004) based upon US LIBOR plus a spread. The Company also benefited significantly in the fourth quarter of fiscal 2004 from the offering of the $300.0 million 2% Convertible Debentures due March 15, 2034 and the tender for a portion of the outstanding 7 7/8% Notes due February 15, 2005, both of which closed before the end of the third quarter of fiscal 2004.

      Interest expense was $104.9 million in fiscal 2003 as compared with $124.6 million in fiscal 2002, representing a 15.8% decline year-over-year. This decrease is due primarily to the ongoing debt reductions and reduced drawings under the accounts receivable securitization program (see Liquidity and Capital Resources — Off-Balance Sheet Arrangements for further discussion) during fiscal 2003. Consolidated debt balances at June 27, 2003 were $1.47 billion as compared with $1.63 billion at June 28, 2002. Additionally, the Company had $200.0 million of outstanding drawings under the accounts receivable securitization program at June 28, 2002.

      Other income, net, which includes interest income, was $7.1 million in fiscal 2004 as compared with $26.2 million in fiscal 2003 and $6.8 million in fiscal 2002. The primary variable impacting other income, net, is the effect of foreign currency gains or losses, which resulted in a gain in fiscal 2003 as compared with the results for fiscal 2004 and 2002.

      As discussed further under Liquidity and Capital Resources — Financing Transactions, the Company incurred debt extinguishment costs in both fiscal 2004 and fiscal 2003 associated with the tender and early redemption of a portion of its outstanding publicly traded debt. In completing these transactions the Company incurred debt extinguishment costs, related primarily to premiums and other transaction costs associated with these tenders and early redemptions, which totaled $16.4 million pre-tax, $14.2 million after-tax, or $0.12 per share on a diluted basis in fiscal 2004 and $13.5 million pre-tax, $8.2 million after-tax, or $0.07 per share on a diluted basis in fiscal 2003.

      The Company’s effective tax rate in fiscal 2004 was 25.9% as compared with 41.9% in fiscal 2003. The mix of Avnet’s profits amongst its various international subsidiaries with varying statutory tax rates impacts the Company’s effective tax rates. The continuing improvement in profitability, particularly in the EMEA and Asia/ Pacific regions, has led to an effective tax rate substantially lower than the 35% U.S. federal tax rate. Similarly, the mix of profits amongst international subsidiaries in fiscal 2003 yielded an effective tax rate on the Company’s pre-tax loss that was more favorable than the 35% U.S. federal tax rate.

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      The otherwise favorable rate impacts from the mix of international profits in fiscal 2002 were offset by the impact of the Company’s charges to impair its investment in certain unconsolidated Internet-related businesses, which charges were not deductible for tax purposes (see Restructuring and Other Charges for further discussion). As a result, the effective tax rate in fiscal 2002 was 30.1% as compared with 41.9% in fiscal 2003.

      As a result of the factors described in the preceding sections of this MD&A, the Company’s net income was $72.9 million, or $0.60 per share on a diluted basis, in fiscal 2004 as compared with a net loss of $46.1 million, or $0.39 per share on a diluted basis, in fiscal 2003 and a net loss before cumulative effect of change in accounting principle of $84.4 million, or $0.71 per share on a diluted basis, in fiscal 2002. These results include the negative after-tax impact of restructuring and other charges and debt extinguishment costs of $52.8 million, or $0.44 per share on a diluted basis, in fiscal 2004, $73.9 million, or $0.62 per share on a diluted basis, in fiscal 2003 and $62.1 million, or $0.52 per share on a diluted basis, in fiscal 2002.

      The Company adopted the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, which establishes financial accounting and reporting for acquired goodwill and other intangible assets. The Company’s mechanism for adoption of SFAS No. 142 is further discussed in Note 6 to the consolidated financial statements appearing in Item 15 of this Report. As a result of transition impairment provisions of SFAS 142, the Company recorded an impairment charge of $580.5 million, or $4.90 per share on a diluted basis, in fiscal 2002, which was recorded as a cumulative effect of a change in accounting principle in the first quarter of fiscal 2002.

      The magnitude of the transition impairment charge was significantly impacted by the timing of the effective date of when the fair value analysis was performed and the designation of the reporting unit structure. Since the Company adopted SFAS 142 on June 30, 2001, the fair value analysis was required to be completed as of that date. Due to the difficult business and economic conditions at that date, which severely impacted the market sectors in which the Company operates, and the uncertainty as to when such conditions would materially improve, the fair value of the Company’s businesses was significantly less than it might have been at other times. In other words, in a cyclical business, the timing of a valuation such as this may be an important factor in the outcome of the valuation exercise. The reporting units with the most significant impairment of goodwill are in Europe where the Company had not yet generated an acceptable level of profits and cash flows. In addition, the defined reporting unit structure resulted in an impairment of goodwill which includes goodwill related to certain recent acquisitions that otherwise might not have been impaired.

      The Company conducts its periodic test for goodwill impairment annually, on the first day of the fiscal fourth quarter. The Company’s annual impairment tests in fiscal 2004, 2003 and 2002 have yielded no additional impairments to the carrying value of the Company’s goodwill.

Critical Accounting Policies

      The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. These estimates and assumptions are based upon the Company’s continuous evaluation of historical results and anticipated future events. Actual results may differ from these estimates under different assumptions or conditions.

      The Securities and Exchange Commission defines critical accounting polices as those that are, in management’s view, most important to the portrayal of the Company’s financial condition and results of

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      Valuation of Receivables: The Company maintains an allowance for doubtful accounts for estimated losses resulting from customer defaults. Bad debt reserves are recorded based upon historic default averages as well as the Company’s regular assessment of the financial condition of its customers. Therefore, if collection experience or the financial condition of specific customers were to deteriorate, management would evaluate whether additional allowances and corresponding charge to the consolidated statement of operations are required.

      Valuation of Inventories: Inventories are recorded at the lower of cost (first in — first out) or estimated market value. The Company’s inventories include high-technology components, embedded systems and computing technologies sold into rapidly changing, cyclical and competitive markets whereby such inventories may be subject to early technological obsolescence.

      The Company regularly evaluates inventories for excess, obsolescence or other factors that may render inventories less marketable. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account the Company’s contractual provisions with its suppliers, which provide certain protections to the Company for product obsolescence and price erosion in the form of rights of return and price protection. Because of the large number of transactions and the complexity of managing the process around price protections and stock rotations, estimates are made regarding adjustments to the carrying amount of inventories. Additionally, assumptions about future demand, market conditions and decisions to discontinue certain product lines can impact the decision to write down inventories. If assumptions about future demand change or actual market conditions are less favorable than those projected by management, management would evaluate whether additional write-downs of inventories are required. In any case, actual values could be different from those estimated.

      Accounting for Income Taxes: Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. The carrying value of the Company’s net foreign operating loss carry-forwards is dependent upon its ability to generate sufficient future taxable income in certain tax jurisdictions. In addition, the Company considers historic levels of income, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing a tax valuation allowance. Should the Company determine that it is not able to realize all or part of its deferred tax assets in the future, an additional valuation allowance may be recorded against the deferred tax assets with a corresponding charge to income in the period such determination is made.

      Restructuring and Integration Charges: The Company has been subject to the financial impact of integrating acquired businesses and charges related to business reorganizations. In connection with such events, management is required to make estimates about the financial impact of such matters that are inherently uncertain. Accrued liabilities and reserves are established to cover the cost of severance, facility consolidation and closure, lease termination fees, inventory adjustments based upon acquisition-related termination of supplier agreements and/or the re-evaluation of the acquired working capital assets (inventory and accounts receivable), and write-down of other acquired assets including goodwill. Actual amounts incurred could be different from those estimated.

      Additionally, in assessing the Company’s goodwill for impairment in accordance with SFAS 142, the Company is required to make significant assumptions about the future cash flows and overall performance of its reporting units. Should these assumptions or the structure of the reporting units change in the future based upon market conditions or changes in business strategy, the Company may be required to record additional impairment charges to its remaining goodwill. See Change in Accounting Principle — Goodwill in this MD&A for further discussion of SFAS 142 and the Company’s evaluation of its goodwill for any potential impairment.

      Contingencies and Litigation: The Company is involved in various legal proceedings and other claims related to environmental, labor, product and other matters, all of which arise in the normal course of business. The Company is required to assess the likelihood of any adverse judgment or outcome to these matters, as well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis by management and internal and, when necessary, external counsel. The required reserves may change in the

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      The Company does not consider revenue recognition to be a critical accounting policy due to the nature of its business in which revenues are generally recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectibility is reasonably assured. Generally these criteria are met upon the actual shipment of product to the customer. Accordingly, other than for estimates related to possible returns of products from customers, discounts or rebates, the recording of revenue does not require significant judgments or estimates. Furthermore, revenues from maintenance contracts, which are deferred and recognized to income over the life of the agreement, are not material to the consolidated results of operations of the Company.

Recently Issued Accounting Pronouncements

      In December 2003, the FASB issued FASB Interpretation No. 46R (“FIN 46R”), Consolidation of Variable Interest Entities, which is a revised Interpretation clarifying some of the provisions of the original Interpretation No. 46 issued in January 2003. FIN 46R requires the consolidation of variable interest entities (“VIEs”), as defined, based upon an assessment of a company’s investment interests in the VIE as it relates to the interests of other investors in the VIE. FIN 46R also includes certain disclosure requirements related to any VIEs. The application of FIN 46R is required for any VIEs or potential VIEs commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application for all other types of VIEs is required in financial statements for periods ending after March 15, 2004. The adoption of FIN 46R did not have a material impact on the Company’s consolidated financial statements.

      In December 2003, the FASB revised Statement of Financial Accounting Standards No. 132 (“SFAS 132”), Employers’ Disclosures about Pensions and Other Postretirement Benefits. The revised SFAS 132 requires additional disclosures about plan assets, benefit obligations, cash flows, benefit costs and other relevant information related to pensions and other postretirement benefits. The disclosure requirements of the revised SFAS 132 are effective for the Company for the fiscal year ended July 3, 2004 and such disclosures are included in Note 10 to the consolidated financial statements included in Item 15 of this Report.

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Liquidity and Capital Resources

      The following table summarizes the Company’s cash flow activities for fiscal 2004, 2003 and 2002, including the Company’s computation of free cash flow. Management believes that the non-GAAP metric of free cash flow is a useful measure to help management and investors better assess and understand the Company’s operating performance and sources and uses of cash. Management also believes analysis of free cash flow assists in identifying underlying trends in the business.

      During fiscal 2004, the Company generated $64.7 million of cash and cash equivalents from its operating activities. This is made up of the cash flow generated from net income excluding non-cash and other reconciling items, which includes the add-back of depreciation and amortization, deferred taxes, non-cash restructuring and other charges (see Results of Operations — Restructuring and Other Charges for further discussion) and other non-cash items (primarily the provision for doubtful accounts — see Note 15 to the consolidated financial statements appearing in Item 15 of this Report). The sum of these items yielded cash inflow for the year of $213.7 million. Partially offsetting this amount are cash flows of $149.0 million used for the Company’s working capital needs (excluding cash and cash equivalents) during fiscal 2004. The primary driver of this outflow relate to the growth of receivables ($271.3 million) and inventory ($240.5 million), net of cash flow generation from accounts payable ($285.4 million) and other working capital items ($77.4 million). These trends in working capital are typical of an up-cycle in the electronic components industry as growth in receivables and payables is driven by higher sales and purchasing volumes. Additionally, inventory growth was also expected as the industry moves into an up-cycle, especially in the electronic components sector where longer lead times from suppliers and increased demand from customers typically result in the distributor carrying higher levels of inventory. As a result, EM elected to build inventory in certain products to accommodate the growing levels in demand and in support of customer contractual agreements to purchase certain inventory. Despite this growth in inventory during fiscal 2004, the Company’s inventory turns for the year remained at their highest point since before the last up-cycle ended in fiscal 2001 and actually improved by 18% over inventory turns in fiscal 2003. Within EM on a standalone basis, where the majority of the inventory increases took place, fiscal 2004 inventory turns improved by 16% over fiscal 2003. This improvement in turns is driven by a combination of the increased sales and the selective buildup of inventory primarily in higher volume product lines. Even with some moderate seasonal leveling off of sales in the final

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      Since the industry and economic downturn commenced in fiscal 2001, the Company has significantly reduced its capital expenditures as well as its acquisition and investment activity. However, during fiscal 2004, the Company completed a contingent purchase price payment associated with its January 2000 acquisition of 84% of the stock of Eurotronics B.V., which went to market as SEI. The share purchase agreement for this acquisition called for an additional payment of cash or common stock of the Company if the Company’s share price did not reach $45.25 per share by January 2004. As a result, during the fourth quarter of fiscal 2004, the Company paid, in cash, the sum of $48.9 million as settlement of the Company’s final obligation under this acquisition. This coupled with other, less significant contingent purchase price payments and the acquisition of a minority interest in one of the Company’s foreign subsidiaries resulted in total cash outflow for acquisitions and investments of $50.5 million during fiscal 2004. These outflows for investing activities, offset in part by the favorable impact of foreign currency on cash and cash equivalents and other financing activities, yielded a net free cash flow of $13.5 million. This net free cash flow, coupled with the cash usage for the Company’s retirement, both early and at maturity, of certain of the Company’s debt net of proceeds from new debt issued during fiscal 2004 (see Financing Transactions), resulted in a net decrease in cash during fiscal 2004 of $82.8 million.

      In fiscal 2003, cash flow of $169.5 million was generated from net income (loss) excluding non-cash and other reconciling items and $482.4 million was generated by reductions in working capital (excluding cash and cash equivalents), thus generating net cash flow from operations of $651.9 million. The positive cash flow generated from working capital reductions resulted from the Company’s continued efforts to improve its asset utilization and efficiency, primarily through reductions of receivables (cash inflow of $140.7 million) and inventories (cash inflow of $387.1 million), in what continued to be a stable but weak electronic components and computer products distribution industry during fiscal 2003. In addition to cash flow from operating activities in fiscal 2003, $5.1 million was needed for other business operations including purchases of property, plant and equipment, net of cash proceeds from sales of property, plant and equipment, and cash generated from other items, including the impact of foreign currency exchange rates on the Company’s cash and cash equivalents. The Company also used $9.2 million for acquisitions of operations and investments (primarily contingent purchase price payments) during fiscal 2003, to yield net free cash flow in fiscal 2003 of $637.6 million. A total of $401.4 million of this free cash flow was used to reduce the Company’s borrowings under its accounts receivable securitization program in addition to the retirement of certain of the Company’s long-term debt, net of proceeds from new debt issued during fiscal 2003, with the remaining $236.2 million generating additional cash and cash equivalents during fiscal 2003.

      In fiscal 2002, cash flow from operating activities totaled $976.3 million. During this period, $151.5 million was generated from net income (loss) excluding non-cash and other reconciling items and the cumulative effect of change in accounting principle. An additional $824.8 million was generated by reductions in working capital (excluding cash and cash equivalents). The cash flow impact of working capital was more significant in fiscal 2002 than in the years thereafter as this year represented the first full fiscal year of the economic downturn and, thus, a period when more significant balance sheet management initiatives were put in place. In addition, the Company used $73.2 million for other business operations including dividend payments, purchases of property plant and equipment, offset in part by cash proceeds on sale of property plant and equipment and net cash generated from other items. The Company also used $34.1 million for acquisitions of operations and investments during 2002. The resulting net free cash flow of $869.0 million along with $394.3 million of cash proceeds from long-term debt financing were used to reduce drawings under the accounts receivable securitization program by $150.0 million and to, net, repay debt balances of $1.051 billion. Finally, cash and cash equivalents increased by $62.0 million for the year.

      The Company uses a variety of financing arrangements, both short-term and long-term, to fund its operations. The Company uses diversified sources of funding so that it does not become overly dependent on one source and to achieve lower cost of funding through these different alternatives. These financing arrangements include public bonds, short-term and long-term bank loans, commercial paper and an accounts

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      The table below highlights the Company’s capital structure:

CAPITAL STRUCTURE

      Long-term debt in the above table includes the fair value adjustment of $13.6 million and $36.2 million at July 3, 2004 and June 27, 2003, respectively, for the hedged 8.00% Notes and 9 3/4% Notes discussed in Financing Transactions below.

      In June 2004, the Company entered into an unsecured, three-year $350.0 million credit facility with a syndicate of banks led by Banc of America LLC and ABN AMRO Incorporated (the “Credit Facility”). The Company may select from various interest rate options, currencies and maturities under the Credit Facility. There were no borrowings under the Credit Facility as of July 3, 2004.

      In March 2004, the Company issued $300.0 million of 2% Convertible Senior Debentures due March 15, 2034 (the “Debentures”). The Debentures are convertible into Avnet common stock at a rate of 29.5516 shares of common stock per $1,000 principal amount of Debentures. The Debentures are only convertible under certain circumstances, including if: (i) the closing price of the Company’s common stock reaches $45.68 per share (subject to adjustment in certain circumstances) for a specified period of time; (ii) the average trading price of the Debentures falls below a certain percentage of the conversion value per Debenture for a specified period of time; (iii) the Company calls the Debentures for redemption; or (iv) certain corporate transactions, as defined, occur. Upon conversion, the Company has the right to deliver to the holder cash or a combination of cash and common stock, in lieu of solely common stock. The Company may redeem some or all of the Debentures for cash any time on or after March 20, 2009 at the Debentures’ full principal amount plus accrued and unpaid interest, if any. Holders of the Debentures may require the Company to purchase, in cash, all or a portion of the Debentures on March 15, 2009, 2014, 2019, 2024 and 2029, or upon a fundamental change, as defined, at the Debentures’ full principal amount plus accrued and unpaid interest, if any.

      The proceeds from the issuance of the Debentures, net of underwriting fees, were $292.5 million. The Company used these proceeds to fund the tender and purchase of $273.4 million of its 7 7/8% Notes due February 15, 2005. The Company incurred debt extinguishment costs of $16.4 million pre-tax, $14.2 million after-tax and $0.12 per share on a diluted basis during fiscal 2004 related primarily to premiums and other transaction costs associated with this tender.

      In March 2004, the Company also repaid in cash its $100.0 million of 6 7/8% Notes that matured on March 15, 2004.

      In September 2003, the Company terminated its former $350.0 million multi-year credit facility which was scheduled to mature on October 25, 2004. There were no outstanding borrowings under this multi-year credit facility at the end of fiscal 2003 or at the time of the termination and, because the Company did not expect to draw on the facility prior to its expiration date, management elected to terminate the facility.

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      In February 2003, the Company used the proceeds of $465.3 million, net of underwriting fees, from the issuance in that month of the Company’s $475.0 million of 9 3/4% Notes due February 14, 2008 (the “9 3/4% Notes) to redeem $159.1 million of its 6.45% Notes due August 15, 2003 (the “6.45% Notes”) and $220.1 million of its 8.20% Notes due October 17, 2003 (the “8.20% Notes”). The excess proceeds after these early redemptions were held in an escrow account and used to repay the remaining principal on the 6.45% and 8.20% Notes at their respective maturity dates plus interest due through their maturities. The Company incurred debt extinguishment costs of $13.5 million pre-tax, $8.2 million after tax and $0.07 per share on a diluted basis during fiscal 2003 related primarily to premiums and other transaction costs associated with the tender and early redemption of the 6.45% and 8.20% Notes.

      The Company has two interest rate swaps with a total notional amount of $400.0 million in order to hedge the change in fair value of the 8.00% Notes due November 15, 2006 (the “8% Notes”) related to fluctuations in interest rates. These contracts are classified as fair value hedges and mature in November 2006. The interest rate swaps modify the Company’s interest rate exposure by effectively converting the fixed rate on the 8% Notes to a floating rate (4.5% at July 3, 2004) based on three-month U.S. LIBOR plus a spread through their maturities. In July 2003, the Company entered into three additional interest rate swaps with a total notional amount of $300.0 million in order to hedge the change in fair value of the 9 3/4% Notes related to fluctuations in interest rates. These hedges are also classified as fair value hedges and mature in February 2008. These interest rate swaps modify the Company’s interest exposure by effectively converting the fixed rate on the 9 3/4% Notes to a floating rate (7.8% at July 3, 2004) based on three-month U.S. LIBOR plus a spread through their maturities. The hedged fixed rate debt and the interest rate swaps are adjusted to current market values through interest expense in the consolidated statements of operations. The fair value of the interest rate swaps at July 3, 2004 and June 27, 2003 was $13.6 million and $36.2 million, respectively, and is included in other long-term assets in the consolidated balance sheet. Additionally, included in long-term debt is a comparable fair value adjustment increasing the total liability by these same amounts.

      In addition to its primary financing arrangements, the Company has several small lines of credit in various locations to fund the short-term working capital, foreign exchange, overdraft and letter of credit needs of its wholly owned subsidiaries in Europe and Asia. Avnet generally guarantees its subsidiaries’ debt under these facilities.

      The Company has a $350.0 million accounts receivable securitization program (the “Program”) with two financial institutions whereby it may sell, on a revolving basis, an undivided interest in a pool of its trade accounts receivable. Under the Program, the Company may sell receivables in securitization transactions and retain a subordinated interest and servicing rights to those receivables. Receivables sold under the Program are sold without legal recourse to third party conduits through a wholly owned bankruptcy-remote special purpose entity that is consolidated for financial reporting purposes. The Program qualifies for sale treatment under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. The availability for financing under the Program is dependent on the level of the Company’s trade receivables from month to month. There were no receivables sold under the Program at July 3, 2004 or at June 27, 2003. The purpose of the Program is to provide the Company with an additional source of liquidity at interest rates more favorable than it could receive through other forms of financing. The term of the current Program agreement extends to August 2005.

      The Program agreement discussed above requires the Company to maintain minimum senior unsecured credit ratings in order to continue utilizing the Program in its current form. These minimum ratings triggers are Ba3 by Moody’s Investor Services (“Moody’s”) or BB- by Standard & Poors (“S&P”). The Program also contains certain covenants relating to the quality of the receivables sold under the Program. If these conditions are not met, the Company may not be able to borrow any additional funds under the Program and the financial institutions may consider this an amortization event, as defined in the Program agreement, which would permit the financial institutions to liquidate the accounts receivable sold under the Program to cover any outstanding

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      The Credit Facility discussed in Financing Transactions contains certain covenants with various limitations on debt incurrence, dividends, investments and capital expenditures and also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios, as defined. Management does not believe that the covenants in the Credit Facility limit the Company’s ability to pursue its intended business strategy or future financing needs. The Company was in compliance with all covenants of the Credit Facility as of July 3, 2004.

      See Liquidity for further discussion of the Company’s availability under these various facilities.

Liquidity

      The Company had total borrowing capacity of $700.0 million at July 3, 2004 under the Credit Facility and the Program, against which $18.9 million in letters of credit were issued under the Credit Facility as of July 3, 2004, resulting in $681.1 million of net availability. The Company also had an additional $312.7 million of cash and cash equivalents at July 3, 2004. There are no significant financial commitments of the Company outside of normal debt and lease maturities as disclosed in Long-Term Contractual Obligations below. Management believes that Avnet’s borrowing capacity, its current cash availability and the Company’s expected ability to generate operating cash flows are sufficient to meet its projected financing needs. If the current up-cycle in the electronic components and computer products industry continues, the Company is less likely to generate positive cash flows from working capital reductions. However, any additional cash requirements are expected to be offset by the operating cash flows generated by the Company’s enhanced profitability model resulting from the significant cost reductions achieved by the Company in recent years. Furthermore, the next significant public debt maturity is not until the $400.0 million 8% Notes mature in November 2006, which provides over two years for the Company to review repayment or refinancing alternatives.

      The following table highlights the Company’s liquidity and related ratios for the past two years:

COMPARATIVE ANALYSIS — LIQUIDITY

(1)	Ratios that include cash and cash equivalents include $78.5 million of restricted cash held in escrow at June 27, 2003 to fund remaining principal and interest payments on the 6.45% and 8.20% Notes (see Financing Transactions for further discussion).

      The Company’s quick assets (consisting of cash and cash equivalents and receivables) at July 3, 2004 have increased primarily due to the increase in receivables as a function of the growth in sales volumes during fiscal 2004 net of a lesser decrease in cash and cash equivalents used to fund the growth of the business and for the pay-down of certain of the Company’s debt balances (see Cash Flow and Financing Transactions for

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Long-Term Contractual Obligations

      The Company has the following contractual obligations outstanding as of July 3, 2004 (in millions):

      At July 3, 2004, the Company has five interest rate swaps outstanding on two of its fixed rate debt instruments which have yielded a fair value adjustment of $13.6 million to the Company’s long-term debt included in the consolidated balance sheet at July 3, 2004.

      The Company does not currently have any material commitments for capital expenditures.

      The Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements intended to provide a hedge against a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not hedged.

      The Company has used interest rate swaps that convert certain fixed rate debt to variable rate debt, effectively hedging the change in fair value of the fixed rate debt resulting from fluctuations in interest rates. At July 3, 2004, the Company had five interest rate swaps outstanding under which the Company pays a variable interest rate and receives a fixed interest rate. The following table sets forth the scheduled maturities and the total fair value (generally based on quoted market prices) of the Company’s debt outstanding at July 3, 2004 (dollars in millions):

      Many of the Company’s subsidiaries, on occasion, purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with the fluctuations of foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (offsetting receivables

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      The financial statements and supplementary data are listed under Item 15 of this Report.

      None.

      The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the reporting period covered by this Annual Report on Form 10-K. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, the Company’s disclosure controls and procedures are effective such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms relating to the Company.

      During the last quarter of fiscal 2004, there have been no changes to the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

      Not applicable.

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PART III

      The information called for by Item 10 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on November 11, 2004.

      The information called for by Item 11 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on November 11, 2004.

Equity Compensation Plan Information as of July 3, 2004

(1)	Includes 9,719,173 outstanding options and 23,304 stock incentive shares awarded but not yet delivered.
(2)	Includes 6,292,551 options available for grant, 181,655 incentive shares not yet awarded and 919,671 shares authorized for the Employee Stock Purchase Plan but not yet allocated.
(3)	Options assumed through acquisitions accounted for as purchases are excluded from (1) above. The outstanding balance of acquired options was 294,070 (column (a)) with a related weighted average exercise price of $38.48 (column (b)).