SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 27, 1997 or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 1-4224
AVNET, INC.
(Exact name of registrant as specified in its charter)
New York 11-1890605
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Cutter Mill Road, Great Neck, New York 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 466-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange and
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes / X / No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]<PAGE>
The aggregate market value
(approximate) at September 15, 1997 of the
registrant's voting stock held by non-affiliates . . . . . . .$2,625,901,376
The number of shares of the registrant's Common Stock (net of treasury
shares) outstanding at September 15, 1997. . . . . . . . .41,029,709 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement (to be filed
pursuant to Reg. 14A) relating to the Annual Meeting of Shareholders
anticipated to be held November 19, 1997 are incorporated herein by
reference in Part III of this Report.
<PAGE>
PART I
ITEM 1. Business
Avnet, Inc., incorporated in New York in 1955, together with its
subsidiaries (the "Company" or "Avnet"), is one of the world's largest
distributors of electronic components and computer products sold principally
to industrial customers. Electronic component distributors are a vital link
in the chain that connects suppliers of semiconductors, interconnect
products, passives and electromechanical devices and computer products to
original equipment manufacturers (OEMs) who design and build the complete
spectrum of electronic equipment that utilizes the components. Avnet's
primary customers are OEMs, including military contractors and the military.
Components are shipped either as received from Avnet's suppliers or with
assembly or other value added. Avnet adds value to the components which it
sells by customizing them prior to shipment to meet individual customer
specifications. It also provides inventory management services with respect
to the electronic components it sells. Avnet is the electronic distribution
industry leader in the use of integrated materials management solutions,
value-added services, and logistics and information technologies. Avnet
also produces or distributes other electronic, electrical and video
communications products.
"Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995: Any statements made in this Report which are not historical
facts are forward-looking statements that involve risks and uncertainties.
Among the factors which could cause actual results to differ materially are
(i) major changes in business conditions and the economy in general, (ii)
risks associated with foreign operations, such as currency fluctuations,
(iii) allocations of products by suppliers, and (iv) changes in market
demand and pricing pressure.
In order to better focus on its core business and to take advantage of
the growing world markets for electronic components and computer products,
the Company has been undergoing a period of growth by acquisitions since
1991. At the same time, the Company divested those operations deemed
outside of its core business. The Company operates primarily in one
industry segment through its Electronic Marketing Group, which distributes
electronic components and computer products. The Electronic Marketing Group
accounted for 97%, 96% and 90% of Avnet's consolidated sales in *1997, 1996
and 1995, respectively, and it accounted for 96%, 94% and 93% of
consolidated net income during those respective periods.
The Company has indicated its desire to dispose of its Channel Master
business, the sole remaining operation in the Video Communications Group.
As a result of the immaterial size of the Company's Video Communications
*Reference herein to any particular year or quarter generally refers to the
Company's fiscal calendar.
Group, in the event the Company does eventually dispose of its Channel
Master business, the impact on the Company's financial condition, liquidity
and results of operations will not be material.
The industry segments in which Avnet currently operates are as follows:
1. The Electronic Marketing Group is engaged in the marketing,
assembly, and/or processing of electronic and electromechanical components
and computer products, principally for industrial and some commercial and
military use. It also offers an array of value-added services to its
customers, such as inventory replenishment systems, kitting, connector and
cable assembly and semiconductor programming.
2. The Video Communications Group, consisting of the Company's
Channel Master companies, is engaged in the manufacture, assembly and/or
marketing of TV signal processing equipment. Channel Master is a leading
manufacturer of DBS (Direct Broadcast Satellite) TV receiving antennas,
conventional TV roof antennas and commercial satellite antenna systems
("CATS").
The Electrical and Industrial Group, which was eliminated as of the
beginning of the 1996 fiscal year as described below, was engaged in the
distribution of electrical motors and motor parts, electronic production
line supplies, industrial supplies, maintenance and repair parts and
measuring and control devices. During the first quarter of 1996, the
Company completed the sale of the motor, motor repair shop and OEM business
of Brownell Electro. Avnet Industrial, the remaining business of Brownell
which serves the industrial marketplace primarily in maintenance and repair
organizations ("MROs"), together with Allied Electronics, now make up a new
subgroup of the Electronic Marketing Group known as the Industrial Marketing
Group. The results for Brownell (which were not material), including the
business that was sold, were included in the Electronic Marketing Group's
results as of the first quarter of 1996. The Company's Electrical and
Industrial Group was, therefore, eliminated as a business segment at the
beginning of the 1996 fiscal year. There was no restatement of prior period
Group results due to the immaterial impact of the operations to both the
Electronic Marketing Group and the Company as a whole.
The sales, operating income and identifiable assets of the Company's
Electronic Marketing Group (its primary segment) and its U.S. domestic and
foreign operations, prepared in accordance with Statement of Financial
Accounting Standards No. 14, are shown in Note 13 to the Company's
consolidated financial statements appearing in Item 14 of this Report.
The following tables set forth, for each of Avnet's three fiscal years
ended June 27, 1997, June 28, 1996 and June 30, 1995, the approximate amount
of sales and net income of Avnet which is attributable to each industry
segment described above (after allocation of corporate results):
<PAGE>
SALES
(Millions) FISCAL YEARS ENDED
June 27, June 28, June 30,
1997 1996 1995
Electronic Marketing $5,224.4 $5,004.9 $3,873.0
Video Communications 166.2 202.9 246.0
Electrical and Industrial - - 181.0
$5,390.6 $5,207.8 $4,300.0
NET INCOME
(Millions) FISCAL YEARS ENDED
June 27, June 28, June 30,
1997 1996 1995
Electronic Marketing $175.5 $177.3 $130.6
Video Communications 7.3 11.0 10.1
Electrical and Industrial - - (.4)
$182.8 $188.3 $140.3
Electronic Marketing Group
The Electronic Marketing Group continues to be the dominant group in
Avnet, accounting for 97% of Avnet's sales and 96% of its earnings in 1997.
The Electronic Marketing Group can be segmented into two major types of
businesses, the distribution of electronic components and the distribution
of computer products. The electronic components business, which is
comprised of three subgroups and a number of operating units in North
America, Europe, Asia-Pacific and Africa, sells or provides other value-added
services related to electronic component products including, but not
limited to, semiconductors, microprocessors, connectors and passive and
electromechanical devices. The computer products business is comprised of
one subgroup consisting of two operating units with operations in North
America and Europe. The four subgroups of the Electronic Marketing Group
are known as the Original Equipment Manufacturer Marketing Group ("OMG"),
the Computer Marketing Group ("CMG"), the Industrial Marketing Group ("IMG")
and Avnet EMG International. The OMG, IMG and Avnet EMG International
business units make up the electronic components part of the business, and
CMG represents the computer products business.
The table below sets forth the approximate amount of sales of Avnet
which is attributable to each of the four subgroups of the Electronic
Marketing Group:
FISCAL YEARS ENDED
(Millions) June 27, June 28,
1997 1996
Original Equipment Manufacturer
Marketing Group ("OMG") $2,849.8 $2,796.9
Computer Marketing Group ("CMG") 1,084.7 831.8
Industrial Marketing Group ("IMG") 163.1 193.2
EMG North America 4,097.6 3,821.9
Avnet EMG International 1,126.8 1,183.0
$5,224.4 $5,004.9
The OMG, which was formed at the end of 1996, consists of Hamilton
Hallmark (including Hamilton Hallmark Technologies), Time Electronics
(including Avnet Cable Technologies) and Penstock (including Sertek).
Hamilton Hallmark is Avnet's largest and most profitable division. It
is a distributor of semiconductors, computer products, connectors, passives
and electromechanical products for industrial, commercial and military use.
It also offers an array of value-added services to its customers, such as
inventory replenishment systems, kitting and semiconductor programming. It
is franchised by the top five United States semiconductor manufacturers:
Advanced Micro Devices, Intel, Motorola, National Semiconductor and Texas
Instruments. Hamilton Hallmark's customers are principally computer,
telecommunications and aerospace OEMs. Hamilton Hallmark's sales for 1997,
which accounted for approximately 45% of the Electronic Marketing Group's
sales, were up 1% over the prior year.
Time Electronics is the world's leading distributor of interconnect
products including value-added connectors, electromechanical and passive
components and cable assembly services. Time Electronics also distributes
some complementary semiconductor lines. Its customers are principally
industrial and military/aerospace OEMs. Time's Avnet Cable Technologies
unit provides cable assemblies to major computer and medical equipment
manufacturers as well as to other users of complex cable assemblies. Time's
consolidated sales for 1997 were up 7% as compared with 1996 and represented
approximately 7% of the Electronic Marketing Group's sales.
Penstock, which includes Sertek, is the leading U.S. technical
communications specialist distributor. It distributes, designs, engineers
and adds value to microwave/radio frequency wireless, fiber optics and
hybrid components which it sells principally to telecommunication OEMs.
Penstock's fiscal 1997 sales, which represented approximately 2% of the
Electronic Marketing Group's sales, were up approximately 12% as compared
with last year.
<PAGE>
Also part of the OMG is Avnet Integrated Material Services ("IMS").
It is the OMG's materials management and logistic services organization
which acts as a single coordinating point responsible for providing all the
materials and services needed by customers who outsource materials from
multiple Avnet divisions. IMS develops and implements innovative materials
management solutions for the OMG's major domestic customers and their
contract manufacturers. IMS is considered a coordinator for other Avnet
business units, and therefore, does not record any sales of its own.
Avnet's CMG is an international distributor of computer products to
value-added resellers and end users. As a result of the acquisition of
Hall-Mark in July 1993, two independent business units, Avnet Computer and
Hall-Mark Computer Products, now operate together as Avnet's CMG. Avnet
Computer sells industry leading mainframe, mid-range and workstation PC
systems, software and peripherals primarily to end users. Hall-Mark
Computer Products concentrates on sales of computer systems, peripherals and
components to the reseller channel. CMG's 1997 sales of $1.085 billion,
which accounted for approximately 21% of the Electronic Marketing Group's
sales, were up 30% as compared with 1996.
The IMG is comprised of Allied Electronics, Inc. ("Allied") and Avnet
Industrial. Allied is a broad line industrial distributor of active and
passive electronic components, test equipment and electronic equipment which
it sells by means of its catalog and telesales operations. Allied's
principal customers are MROs as well as research and development and
engineering departments of OEMs. Allied's 1997 sales of $134 million, which
represented approximately 3% of the Electronic Marketing Group's sales, were
up approximately 15% as compared with 1996. Avnet Industrial supplies the
industrial, commercial, institutional, agricultural, governmental, mining
and utility markets with a broad line of industrial maintenance and factory
supplies. It also distributes industrial display and control instruments
and measuring devices and it maintains laboratories and service stations for
their repair and recalibration. Avnet Industrial's 1997 sales accounted for
less than 1% of the Electronic Marketing Group's sales.
The Electronic Marketing Group's international activities outside of
North America are conducted by Avnet EMG International, with operations in
Europe, South Africa and the Asia/Pacific region. Avnet EMG International's
sales for 1997 of $1.127 billion accounted for approximately 22% of
Electronic Marketing Group sales. Avnet created its international
operations through a series of acquisitions beginning in June 1991 with
Avnet Access (formerly known as The Access Group), a United Kingdom
electronics distributor based in Letchworth, England. Since the acquisition
of Avnet Access, the Company has completed 13 additional acquisitions for
its Avnet EMG International group. Avnet EMG International has locations
throughout Western Europe and Eastern Europe, and has begun to penetrate the
Asia/Pacific and South African markets. In addition to
the various acquisitions, the Company has created Avnet Time operations in
certain locations which specialize in interconnect products including value-<PAGE>
added connectors, electromechanical and passive components and cable
assembly services. There are currently Avnet Time locations in the U.K.,
France and Germany.
During 1996 and 1995, the Company added eight new operations to Avnet
EMG International - four in Europe, three in the Asia/Pacific region and one
in South Africa.
In July 1995, the Company completed the acquisition of VSI Electronics
consisting of VSI Electronics (Australia) PTY Ltd., an Australian
electronics components distributor and VSI Electronics (NZ) Ltd., a New
Zealand-based electronic components distributor. In September 1995, the
Company completed the acquisition of Setron Schiffer-Eletronik GmbH & Co.,
KG, a limited partnership engaged in electronic distribution (primarily
marketing its products through a catalog) which operates in Germany and 20
other countries in Europe including Eastern Europe. In December 1995, the
Company completed the acquisition of a 70% interest in the Science and
Technology Division of Mercuries and Associates, Ltd., a Tawian-based
electronic components distributor, and in February 1996, the Company
completed the acquisition of an 80% interest in Kopp Electronics Limited,
a South African electronic components distributor.
In January 1995, the Company acquired Lyco Limited, an Ireland-based
electronics components distributor and provider of programming services and
also acquired a 70% interest in WKK Semiconductors, Ltd., a Hong Kong-based
electronic components distributor with operations in Hong Kong and the
People's Republic of China. In March 1995, the Company acquired CK
Electronique, the largest independent programming company in France, which
provides various services including component programming, testing and
taping. In April 1995, the Company completed the acquisition of BFI-IBEXSA
International, Inc., the leading Pan-European technical specialist
distributor of microwave and radio frequency components, magnetic sensors,
connecting devices and other specialty components.
Avnet EMG International currently consists of the operations listed
below. Unless otherwise noted, each of the operations is primarily a
distributor of semiconductors, computer products, connectors and passives
and electromechanical devices for industrial and commercial use. Each
operation also provides a variety of value-added services to its customers.
Avnet EMG Ltd., located in the United Kingdom, does business
through its Avnet Access and Avnet Time operations.
Avnet EMG France does business through its Avnet Composants, Avnet
Time and CK Electronique operations.
Avnet Nortec, the leading Scandinavian electronics distributor, has
operations in Sweden, Norway, Denmark, Finland and Estonia.
Avnet E2000 and its Avnet Time unit have operations in Germany,
Austria and Switzerland.
Avnet Setron is engaged in electronic distribution, primarily
marketing its products through a catalog, with operations in
Germany and 20 other countries in Europe.
Avnet EMG SrL, located in Italy, does business through its Avnet
Adelsy and Avnet DeMico operations.
Avnet Lyco is located in Ireland.
Avnet WKK Components, a joint venture, has operations in Hong Kong
and the People's Republic of China.
BFI-IBEXSA, the leading European technical distributor of microwave
and radio frequency components, magnetic sensors, connecting
devices and other specialty components, has operations in eight
European countries.
Avnet Pacific, formerly VSI Electronics, has operations in
Australia and New Zealand.
Avnet Mercuries is a joint venture located in Taiwan.
Avnet Kopp is a joint venture located in South Africa.
As of June 27, 1997, the Electronic Marketing Group had about 241
locations in the United States, Canada, Europe, South Africa and the
Asia/Pacific region, many of which contain sales, warehousing and
administrative functions for multiple business units. In addition, the
Group has a small number of stores in customers' facilities.
Most of the Electronic Marketing Group's product lines are covered by
nonexclusive distributor agreements with suppliers, cancelable upon 30 to
180 days notice. Most of these agreements provide for the periodic return
to the supplier of obsolete inventory and the return of all standard
inventory upon termination of the contract.
The Electronic Marketing Group's sales by major product class for the
last three years is as follows:
FISCAL YEARS ENDED
(Millions) June 27, June 28, June 30,
1997 1996 1995
Semiconductors $2,938.2 $3,037.6 $2,417.2
Computer products 1,302.0 1,021.1 733.0
Connectors 445.9 404.5 372.3
Other (primarily passives and
electromechanical devices) 538.3 541.7 350.5
$5,224.4 $5,004.9 $3,873.0
All the items sold by the Group are in highly competitive fields. With
regard to many of its product lines, the Group may be in competition not
only with other distributors but also with its own sources of supply.
Central to the business of Avnet and the distribution industry as a whole
is the carrying of a significant amount of inventory to meet rapid delivery
requirements of customers. Avnet enhances its competitive position by
offering a variety of value-added services which entails the performance of
services and/or processes tailored to individual customer specifications
and business needs such as point of use replenishment, testing, assembly and
material management.
Video Communications Group
The Video Communications Group, which consists of the Channel Master
companies located in the U.S., the United Kingdom and Taiwan, principally
designs, develops and manufacturers TV signal processing equipment. Its
sales in 1997 were $166.2 million or approximately 3% of Avnet's
consolidated revenues.
Channel Master is primarily a manufacturer/distributor of TV antennas,
TV rotators and home satellite TV signal receiving and descrambling systems.
Its products are used by home TV viewers and the SMATV (Satellite Master
Antenna TV) and CATV (Community Antenna TV - also known as cable TV)
industries. Channel Master produces DBS (Direct Broadcast Satellite)TV
receiving antennas, VSAT (Very Small Aperture Terminal) commercial satellite
antenna equipment, microwave transmitters and receivers, telcom patch
antennas, signal distribution equipment, and TV/FM audio/video accessories.
Channel Master has two principal manufacturing facilities, one each in the
U.S. and England.
The required materials used in manufacturing Channel Masters' products
are purchased from many suppliers (except for TV Rotators, which are
purchased from a single supply source). Channel Master has no long-term
supply contracts.
Electrical and Industrial Group
As described earlier in this Report, Avnet's Electrical and Industrial
Group was eliminated as of the beginning of 1996 due to the sale of the
motor, motor repair shop and OEM business of Brownell and the transfer of
the Avnet Industrial business to the Electronic Marketing Group. It had
operated primarily in the electrical and electronic industrial equipment
distribution industry and in the industrial maintenance and repair fields.
Number of Employees
At June 27, 1997, Avnet had approximately 9,400 employees.
<PAGE>
ITEM 2. Properties
As of June 27, 1997, Avnet owned or leased approximately 4,166,851
square feet of space for its principal office, warehouse, distribution,
assembly, manufacturing, engineering and research facilities. Approximately
72% of the space was used by the Electronic Marketing Group. The Video
Communications Group used approximately 22% of the space, and the Corporate
office used about 1% of the space. Avnet also owned or leased approximately
246,617 square feet of space which was subleased to others. Of the total
space owned or leased, approximately 78% was located in the United States.
ITEM 3. Legal Proceedings
In the opinion of management, based on all known facts, there are no
material pending or threatened legal proceedings which the Company is
required to report. However, as previously reported, the Company is a
potentially responsible party ("PRP") or has received claims for indemnity
in several environmental cleanups under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). In particular, real
estate owned by the Video Communications Group in Oxford, North Carolina is
listed on the EPA's National Priorities List, and the Company and the prior
owner of the site have entered into a Consent Decree with the EPA pursuant
to which the parties have agreed to clean up the site. Additional
information about this site and other sites is set forth on page 22 of this
Report.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
ITEM 4A. Executive Officers of the Company
The current executive officers of the Company are:
Name Age Office
Leon Machiz 73 Chairman of the Board, Chief Executive
Officer and Director
Roy Vallee 45 President, Chief Operating Officer, Vice
Chairman of the Board and Director
David R. Birk 50 Senior Vice President, General Counsel and
Secretary
Steven C. Church 48 Senior Vice President
Anthony T. DeLuca 47 Senior Vice President and Chief Information
Officer
Burton Katz 55 Senior Vice President
Raymond Sadowski 43 Senior Vice President, Chief Financial
Officer and Assistant Secretary
Richard Ward 57 Senior Vice President
Keith Williams 49 Senior Vice President and Director
John T. Clark 43 Vice President
Charles Smith 50 Vice President
Stephanie Wagoner 38 Vice President and Treasurer
John F. Cole 55 Controller
Mr. Machiz has been Chairman of the Board and Chief Executive Officer
since December 1988.
Mr. Vallee has been Vice Chairman of the Board since November 1992,
President and Chief Operating Officer since March 1992. Prior to March 1992,
he was Senior Vice President and Director of Avnet's worldwide electronic
operations.
Mr. Birk became Avnet's Secretary in July 1997 and has been Senior Vice
President and General Counsel since November 1992; prior thereto he was Vice
President and General Counsel.
Mr. Church has been Senior Vice President since November 1995, and also
holds the position of President of the Avnet OMG. Prior thereto, he was
Vice President, Southwest Area Director for Hamilton Hallmark, Vice
President of Corporate Marketing for Hamilton Hallmark, and President of
Hamilton Hallmark.
Mr. DeLuca has been Senior Vice President and Chief Information Officer
for the past five years.
Mr. Katz has been Senior Vice President of Avnet since November 1990,
and President of Avnet's Time Electronics Division for the past five years.
<PAGE>
Mr. Sadowski became Senior Vice President in November 1992 and Chief
Financial Officer in February 1993. He was previously Avnet's Vice
President and Controller.
Mr. Ward has been Senior Vice President since November 1996, and
President of the Avnet Computer Marketing Group since 1994. Prior thereto,
he was Vice President of Avnet and held various executive positions within
the Avnet Computer business operations.
Mr. Williams has been Senior Vice President of Avnet since November
1993 and President of Avnet's International Electronic Marketing Group since
February 1994. Prior thereto, he was Director of Avnet's International
Operations from October 1993 until February 1994, Vice President of Avnet
from November 1992 until November 1993, President and Managing Director of
Avnet EMG Europe from November 1992 until October 1993, and Manager of
Avnet's European Operations from July 1991 until November 1992.
Mr. Clark has been Vice President of Avnet since 1992.
Mr. Smith has been Vice President since November 1995 and President of
Avnet's Hamilton Hallmark Division since 1993. Previously he was an
executive with Hall-Mark Electronics Corporation.
Ms. Wagoner became Vice President in November 1996 and has served as
Treasurer since February 1993. Prior thereto, Ms. Wagoner served as the
Assistant Treasurer.
Mr. Cole, before becoming Avnet's Controller in February 1993, served
as Controller of Avnet's Brownell Electro, Inc. subsidiary.
Officers of the Company are generally elected each year at the meeting
of the Board of Directors following the annual meeting of shareholders and
hold office until the next such annual meeting or until their earlier death,
resignation or removal.<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Market price per share.
The Company's common stock is listed on the New York Stock Exchange and
the Pacific Stock Exchange. Quarterly market prices (as reported in the
consolidated reporting system for issues listed on the New York Stock
Exchange) for the last two fiscal years were:
Fiscal 1997 1996
Quarters High Low High Low
1st $50 1/4 $39 1/8 $55 5/8 $47 1/2
2nd 61 1/8 47 7/8 53 1/2 41 1/4
3rd 64 7/8 55 1/4 50 7/8 38
4th 64 1/4 55 1/8 54 3/8 41 5/8
Record Holders
As of September 15, 1997 there were approximately 5,253 record holders
of Avnet's common stock.
Dividends
The cash dividend paid on the common stock was 15 cents per share
during each quarter in fiscal 1997 and 1996.
<PAGE>
ITEM 6. Selected Financial Data
(In $ millions, except for per share and ratio data)
Fiscal Years Ended
June 27, June 28, June 30, July 1, June 30,
1997 1996 1995 1994 1993*
Income:
Sales $5,390.6 $5,207.8 $4,300.0 $3,547.7 $2,238.0
Gross profit 961.8 969.1 816.4 696.1 486.8
Operating income 327.7 349.0 261.5 164.8(a) 102.8
Income taxes 130.7 136.8 103.1 66.7 45.1
Earnings 182.8 188.3 140.3 85.3(a) 69.1
Financial Position:
Working capital 1,319.0 1,293.9 1,057.1 888.0 803.1
Total assets 2,594.1 2,521.7 2,125.6 1,787.7 1,247.3
Total debt 514.6 497.5 419.5 303.1 106.7
Shareholders'
equity 1,502.2 1,505.2 1,239.4 1,108.5 868.2
Per Share:
Earnings 4.25 4.31 3.32 2.09(a) 1.91
Dividends .60 .60 .60 .60 .60
Book value 36.55 34.67 30.38 27.26 24.35
Ratios:
Operating income
margin on sales 6.1% 6.7% 6.1% 4.6%(a) 4.6%
Profit margin
on sales 3.4% 3.6% 3.3% 2.4%(a) 3.1%
Return on equity 12.0% 13.3% 12.0% 8.0%(a) 8.1%
Return on capital 10.1% 11.0% 10.1% 7.0%(a) 7.6%
Quick 1.5:1 1.6:1 1.6:1 1.7:1 2.1:1
Working capital 3.3:1 3.5:1 3.3:1 3.4:1 3.9:1
Total debt to
capital 25.5% 24.8% 25.3% 21.5% 10.9%
(a) After special charges of $16.8 ($.41 per share) for (i) restructuring
and integration charges ($13.5 or $.33 per share), (ii) the
retroactive impact of the change in U.S. tax rates ($0.5 or $.01 per
share) and (iii) the cumulative effect of a change in the method of
accounting for income taxes ($2.8 or $.07 per share).
* The selected financial data shown above for fiscal year 1993 does
not include data for Hall-Mark which was acquired by the Company on
July 1, 1993.
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
For an understanding of 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 consolidated financial
statements, including the related notes, and other information appearing
elsewhere in this Report. Reference herein to any particular year or
quarter generally refers to the Company's fiscal calendar.
The Company operates primarily in one industry segment through its
Electronic Marketing Group, which distributes electronic components and
computer products. The Electronic Marketing Group accounted for 97%, 96%
and 90% of Avnet's consolidated sales in 1997, 1996, and 1995, respectively,
and 96%, 94% and 93% of consolidated net income during those respective
periods. Therefore, due to the dominance of the Electronic Marketing Group
and the immaterial size of the Video Communications Group and the Electrical
and Industrial Group (which was eliminated at the beginning of the 1996
fiscal year as described below), this discussion and analysis section will
focus primarily on consolidated information.
The Company has indicated its desire to dispose of its Channel Master
business, the sole remaining operation in the Video Communications Group.
As a result of the immaterial size of the Video Communications Group as
noted above, in the event the Company does dispose of its Channel Master
business, the impact on the Company's financial condition, liquidity and
results of operations will not be material.
The Electronic Marketing Group can be segmented into two major types
of businesses, the distribution of electronic components and the
distribution of computer products. The electronic components business,
which is comprised of three subgroups and a number of operating units in
North America, Europe, Asia-Pacific and Africa, sells or provides other
value-added services related to electronic component products including, but
not limited to, semiconductors, microprocessors, connectors and passive and
electromechanical devices. The computer products business is comprised of
one subgroup which consists of two operating units with locations in North
America and Europe. The four subgroups of the Electronic Marketing Group
are known as the Original Equipment Manufacturer Marketing Group ("OMG"),
the Computer Marketing Group ("CMG"), the Industrial Marketing Group ("IMG")
and Avnet EMG International. The OMG, IMG and Avnet EMG International
business units make up the electronic components part of the business, and
CMG represents the computer products business. The OMG consists of Hamilton
Hallmark (including Hamilton Hallmark Technologies), Time Electronics
(including Avnet Cable Technologies) and Penstock (including Sertek). The
IMG is comprised of Allied Electronics and Avnet Industrial, and Avnet EMG
International includes all of the Electronic Marketing Group's electronic
components operations outside of North America. The CMG consists of Avnet
Computer and Hall-Mark Computer Products. The business of each of these
operations is discussed elsewhere in this Report.
During the first quarter of 1996, the Company completed the sale of the
motor, motor repair shop and OEM business of Brownell Electro. Avnet
Industrial, the remaining business of Brownell which serves the industrial
marketplace primarily in MRO, together with Allied Electronics, now make up
the IMG. The results for Brownell prior to the sale described above (which
were not material), including the business that was sold, were included in
the Electronic Marketing Group's results in the first quarter of 1996. The
Company's Electrical and Industrial Group was, therefore, eliminated as a
business segment as of the beginning of the 1996 fiscal year.
Results of Operations
Consolidated sales were a record $5.391 billion in 1997, or 4% higher
than the $5.208 billion in 1996. This increase was due to increased sales
at each operating unit in the Electronic Marketing Group's North American
operations, including significantly higher sales at the CMG, offset somewhat
by lower sales at Avnet EMG International. The Electronic Marketing Group's
sales in 1997 were $5.224 billion, up 4% as compared with $5.005 billion in
1996, and the Video Communications Group's sales in 1997 were $166 million,
or 18% lower than the prior year's sales of $203 million. All of the
companies within EMG North America (the OMG, the CMG and the IMG) posted
record fiscal year sales in 1997, except for Avnet Industrial as described
below. Sales of the OMG and the CMG were up 2% and 30%, respectively, as
compared with 1996, while sales at EMG International were down 5%. Although
sales of the IMG were down, this was due to the disposition in 1996 of the
group's Brownell business, whose sales were included in the IMG's results
in 1996. Sales at the IMG's Allied Electronics operation were up 15% over
the prior year.
Consolidated sales were $5.208 billion in 1996, or 21% higher than the
$4.300 billion in 1995. This increase was due to strong sales growth at
each operating unit in the Electronic Marketing Group, offset somewhat by
lower sales in the Video Communications Group. The Electronic Marketing
Group's sales in 1996 were $5.005 billion, up 29% as compared with $3.873
billion in 1995, and the Video Communications Group's sales in 1996 were
$203 million, or 18% lower than the prior year's sales of $246 million. Of
the $908 million increase in consolidated sales, approximately $212 million
was contributed by operations acquired during 1996. Without such sales,
consolidated sales would have been approximately 16% higher than in 1995.
Each of the operating units in the Electronic Marketing Group posted double
digit sales increases in 1996 as compared with 1995. Sales of Hamilton
Hallmark, Penstock, the Computer Marketing Group, Time Electronics and
Allied were up 16%, 41%, 32%, 10% and 19%, respectively, in 1996 as compared
with 1995. Sales of Avnet EMG International were up 61% in 1996 as compared
with 1995 and were in excess of $1.183 billion. Excluding the sales
contributed by operations acquired during 1996, Avnet EMG International's
sales would have been approximately 32% higher than in 1995.
<PAGE>
In 1997, sales of semiconductors, computer products, connectors and
other products (principally passives and electromechanical devices),
represented 56%, 25%, 9% and 10%, respectively, of the Electronic Marketing
Group's sales as compared with 61%, 20%, 8% and 11%, respectively, in 1996.
Consolidated gross profit margins were 17.8% in 1997 as compared with
18.6% and 19.0% in 1996 and 1995, respectively. This downward trend is due
primarily to the competitive environment in the electronic distribution
marketplace and to increased sales of computer products, which have lower
gross margins than other products in the Company's product line. Although
operating expenses in absolute dollars were sequentially higher during the
last three years, they decreased as a percentage of sales over that time
span. The Company reduced operating expenses as a percentage of sales to
11.7% in 1997 as compared with 11.9% and 12.9% in 1996 and 1995,
respectively. As a result, operating income of $327.7 million in 1997
represented 6.1% of sales, as compared with $349.0 million or 6.7% of sales
in 1996 and $261.5 million or 6.1% of sales in 1995.
Other income, which has had no material impact on earnings since the
Company liquidated its marketable securities portfolio to partially fund the
July 1, 1993 acquisition of Hall-Mark Electronics, was $11.7 million in 1997
as compared with $2.0 million and $5.1 million in 1996 and 1995,
respectively. Other income in 1997 included the third quarter $7.6 million
gain on the sale of the Company's former Culver City, California facility.
Interest expense was $26.1 million in 1997, as compared with $25.9
million and $23.2 million in 1996 and 1995, respectively. The $0.2 million
increase in interest expense in 1997 as compared with 1996 was due to a
combination of factors. Interest expense in 1996 was positively affected
by the reversal of $1.3 million of interest expense which was accrued at
June 30, 1995 with respect to the Company's 6% Convertible Subordinated
Debentures due 2012 (the "Debentures") as discussed more fully below. The
balance of the change in interest expense, a decrease of $1.1 million, was
due primarily to a lower effective interest rate as average debt outstanding
was about the same in both years. In 1996, average debt outstanding was
approximately 30% higher than in 1995; however, interest expense was only
12% higher due to a combination of a lower effective interest rate and the
impact of the reversal in 1996 of interest expense which was accrued at
June 30, 1995 with respect to the Debentures. Following the Company's
call for redemption of the Debentures (see below), almost 100% of the
outstanding Debentures were converted into common stock of the Company in
September 1995, thereby eliminating the requirement to pay interest on the
Debentures subsequent to the interest payment made on April 15, 1995 and
necessitating the reversal of interest accrued at June 30, 1995.
As a result of factors described above, net income in 1997 was $182.8
million, about 3% lower than the record earnings of $188.3 million achieved
in 1996, but substantially higher than the $140.3 million of net income in
1995. Net income as a percentage of sales was 3.4% in 1997 as compared with
3.6% and 3.3% in 1996 and 1995, respectively. Although net income in
dollars was down 3% in 1997 as compared with 1996, as described above,
earnings per share of $4.25 was down only 1% as compared with $4.31 in 1996,
due to the impact of the Company's stock buyback program (see discussion in
"Liquidity and Capital Resources" section below). The Electronic Marketing
Group's net income in 1997 was $175.5 million, slightly less than the record
net income of $177.3 million achieved in 1996, and significantly higher than
the Group's net income in 1995 of $130.6 million. The Electronic Marketing
Group's net profit margins were 3.4%, 3.5% and 3.4% in 1997, 1996 and 1995,
respectively. Due to the impact of the Company's stock buyback program, the
Electronic Marketing Group's contribution to earnings per share was a record
$4.08 in 1997 as compared with $4.06 and $3.09 in 1996 and 1995,
respectively. The Video Communications Group's net income in 1997 was $7.3
million as compared with $11.0 million and $10.1 in 1996 and 1995,
respectively, and its net profit margins were 4.4%, 5.4% and 4.1% during
those respective years. Income from operations of the OMG, CMG and IMG in
1997 were higher than in 1996 and 1995, while income from operations at
Avnet EMG International in 1997 was below the record amount achieved in
1996.
As the Company has increased its investment in foreign operations, the
impact associated with the volatility of foreign currency exchange rates has
become more apparent. The translation into U.S. dollars of the financial
statements of the Company's foreign subsidiaries resulted in a $20.5 million
charge in 1997, a $5.1 million charge in 1996 and a $10.5 million credit in
1995 which were recorded directly to shareholders' equity. The charge in
1997 was due primarily to the weakening of the French, German, Italian and
Swedish currencies against the U.S. dollar, and the charge in 1996 was due
primarily to the weakening of the U.K., French and German currencies against
the U.S. dollar. The credit in 1995 was due primarily to the strengthening
of the French, German, Swedish and U.K. currencies against the U.S. dollar.
The effect of foreign currency exchange rate fluctuations on the 1997
statement of income was not material. Had the various average foreign
currency exchange rates remained the same during 1997 as compared with 1996,
Avnet EMG International's 1997 sales and net income would have been
approximately 4% higher than the actual reported results for 1997.
Liquidity and Capital Resources
Over the last three years, cash generated from income before
depreciation, amortization and other non-cash items amounted to $670.2
million. During that period, $463.8 million was used for working capital
needs (excluding cash) resulting in $206.4 million of net cash flows
provided from operations. In addition, $209.5 million, net, was needed for
other normal business operations including purchases of property, plant and
equipment ($143.7 million) and dividends ($69.8 million), offset by cash
generated from other immaterial items ($4.0 million). This resulted in $3.1
million being used for normal business operations. During that three-year
period, the Company also used $314.5 million, net, for acquisitions($152.6
million), the repurchase of its common stock ($141.8 million) and the
repayment of other debt ($20.1 million). This overall use of cash of $317.6
million was financed by $323.0 million raised from the issuance of
commercial paper and an increase in bank debt, offset by a $5.4 million
increase in cash.
In 1997, the Company generated $233.0 million from income before
depreciation, amortization and other non-cash items, and used $43.5 million
for working capital needs resulting in $189.5 million of net cash flows
provided from operations. In addition, the Company used $60.5 million for
other normal operations including purchases of property, plant and equipment
($37.3 million, net of $ 10.9 million received in connection with the sale
of the Company's former Culver City, California facility) and dividends
($25.9 million), offset by cash generated from other immaterial items ($2.7
million). This resulted in $129.0 million being generated from normal
business operations. The Company also used $141.8 million to repurchase its
common stock, and $4.6 million for acquisition-related items and the payment
of other debt. This overall net use of cash of $17.4 million was financed
by a $28.9 million increase in bank debt and commercial paper, offset by a
$11.5 million increase in cash.
In 1996, the Company generated $237.1 million from income before
depreciation, amortization and other non-cash items, and used $234.6 million
for working capital needs resulting in $2.5 million of net cash flows
provided from operations. In addition, the Company used $83.4 million for
other normal business operations including purchases of property, plant and
equipment ($55.8 million), dividends ($25.6 million) and other immaterial
items ($2.0 million). This resulted in $80.9 million being used for normal
business operations. The Company also used $108.6 million in connection
with acquisitions, offset by cash received in connection with the sale of
the motor, motor repair shop and OEM business of Brownell Electro, and for
the payment of other debt. This overall use of cash of $189.5 million was
financed by a $188.0 million increase in bank debt and commercial paper and
by the use of $1.5 million of available cash.
The Company's quick assets at June 27, 1997 totaled $859.3 million as
compared with $850.3 million at June 28, 1996. At June 27, 1997, quick
assets exceeded the Company's current liabilities by $281.9 million as
compared with a $331.0 million excess at the end of 1996. Working
capital at June 27, 1997 was $1.319 billion as compared with $1.294 billion
at June 28, 1996. At June 27, 1997 to support each dollar of current
liabilities, the Company had $1.49 of quick assets and $1.79 of other
current assets, for a total of $3.28 as compared with $3.49 at the end of
the prior fiscal year.
In 1995, the Company entered into a revolving credit agreement with
a syndicate of banks led by NationsBank of North Carolina, N.A.
("NationsBank"). The agreement currently provides a five-year facility
with a line of credit of up to $400.0 million, increased from the original
amount of $300.0 million. The Company may select from various interest rate
options and maturities under this facility. The facility serves as a
primary funding vehicle as well as a backup for the Company's commercial
paper program pursuant to which the Company is authorized to issue short-term
notes for current operational business requirements. The Company also
has an additional credit facility with NationsBank which provides a line of
credit up to $100.0 million.
On August 1, 1996, the Company's Board of Directors authorized the
repurchase of up to $200.0 million of Avnet common stock. The stock will
be purchased in the open market from time to time or in directly negotiated
purchases. Through the end of 1997, the Company had repurchased
approximately 2.55 million shares of its common stock for an aggregate
purchase price of $147.4 million ($5.6 million of which had not been paid
at the end of the year due to transactions which had not yet settled).
In August 1995, the Company called for redemption the entire amount of
outstanding Debentures. Holders of $105.2 million of the Debentures
exercised their rights to convert the Debentures into approximately 2.4
million shares of Avnet common stock at a conversion price of $43.00
principal amount per share, thereby increasing shareholders' equity by
$105.2 million. The remaining outstanding Debentures, amounting to $0.1
million, were redeemed on September 15, 1995, at a premium of 1.2% plus
accrued interest. In addition, shareholders' equity was reduced by
approximately $0.9 million due to the write-off of unamortized deferred loan
expenses associated with the Debentures.
At June 27, 1997, the Company had $319.4 million outstanding under its
commercial paper program, $80.6 million (denominated in various foreign
currencies) outstanding under its bank syndicated revolving credit facility,
$100.0 million of the 6 7/8% Notes due March 15, 2004, and $14.6 million of
other debt. This $514.6 million of total debt at June 27, 1997 represents
an increase of $17.1 million over the $497.5 million outstanding at June 28,
1996. The Company's debt to capital (shareholders' equity plus total debt)
ratio was approximately 25% at June 27, 1997 and June 28, 1996. In 1997,
income was more than 10 times greater than fixed charges. Internally
generated cash flow during 1997, represented by net income before
depreciation, amortization and other non-cash items, was $233.0 million or
45% of total debt at June 27, 1997.
During the last three years, the Company's capital rose $605.2 million
to a total of $2.017 billion at June 27, 1997. Shareholders' equity
increased by $393.7 million to $1.502 billion--$435.3 million from earnings,
net of dividends, reinvested in the business, $104.3 million as a result of
the conversion of the Debentures and by $1.5 million, net, from other
sources--offset by a $147.4 million reduction as a result of the Company's
repurchase of its common stock. Total debt increased by $211.5 million over
the last three years to $514.6 million at June 27, 1997. The Company's
favorable balance sheet ratios would facilitate additional financing if, in
the opinion of management, such financing would enhance the future
operations of the Company.
Currently, the Company does not have any material commitments for
capital expenditures. The Company and the former owners of a Company-owned
site in Oxford, North Carolina have entered into a Consent Decree and Court
Order with the Environmental Protection Agency (EPA) for the environmental
clean-up of the site, the cost of which, according to the EPA's remedial
investigation and feasibility study, is estimated to be approximately $6.3
million, exclusive of the $1.5 million in EPA past costs paid by the
potentially responsible parties (PRP's). Pursuant to a Consent Decree and
Court Order entered into between the Company and the former owners of the
site, the former owners have agreed to bear at least 70% of the clean-up
costs of the site, and the Company will be responsible for not more than 30%
of those costs. In addition, the Company has received notice from a third
party of its intention to seek indemnification for costs it may incur in
connection with an environmental clean-up at a site in Rush, Pennsylvania
resulting from the alleged disposal of wire insulation material at the site
by a former unit of the Company. Based upon the information known to date,
the Company believes that it has appropriately accrued in its financial
statements for its share of the costs of the clean-ups at all the above
mentioned sites. The Company is also a PRP, or has been notified of claims
made against it, at environmental clean-up sites in Huguenot, New York and
in Hempstead, New York. At this time, the Company cannot estimate the
amount of its potential liability, if any, for clean-up costs in connection
with these sites, but does not anticipate that these matters or any other
contingent matters will have a material adverse impact on the Company's
financial condition, liquidity or results of operations.
The Company is not now aware of any commitments, contingencies or
events within its control which may significantly change its ability to
generate sufficient cash from internal or external sources to meet its
needs.
New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
Per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of
currently required primary EPS with a presentation of Basic EPS. For
entities with complex capital structures, the statement requires the dual
presentation of both Basic EPS and Diluted EPS on the face of the statement
of income. Under this new standard, Basic EPS is computed based on weighted
average shares outstanding and excludes any potential dilution; Diluted EPS
reflects potential dilution from the exercise or conversion of securities
into common stock or from other contracts to issue common stock and is
similar to the currently required fully diluted EPS. SFAS 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods, and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all prior
periods presented. The Company does not expect the impact of the adoption
of this statement to be material to previously reported EPS amounts.
ITEM 7A. Quantative and Qualative Disclosures About Market Risk
See Note 1 to the consolidated financial statements on page 36 of this
Report.
ITEM 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data are listed under Item
14 of this Report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
ITEM 13. Certain Relationships and Related Transactions
The information called for by Items 10, 11, 12 and 13 (except to the
extent set forth in Item 4A above) is incorporated in this Report by
reference to the Company's definitive proxy statement relating to the Annual
Meeting of Shareholders anticipated to be held November 19, 1997.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. The following documents are filed as part of this report:
Page
1. Financial Statements and Supplementary Data
Report of Independent Public Accountants 30
Avnet, Inc. and Subsidiaries Consolidated
Financial Statements:
Statements of Income for the years ended
June 27, 1997, June 28, 1996 and June 30, 1995 31
Balance Sheets at June 27, 1997 and June 28, 1996 32
Statements of Shareholders' Equity for the
years ended June 27, 1997, June 28, 1996 and
June 30, 1995 33
Statements of Cash Flows for the years ended
June 27, 1997, June 28, 1996 and June 30, 1995 34
Notes to Consolidated Financial Statement 35 - 48
2. Financial Statement Schedules
(I) Schedule II for the years ended June 27, 1997,
June 28, 1996 and June 30, 1995 49
Schedules other than those above have been omitted because they are
not applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
Exhibit
No. Description
3A. Certificate of Incorporation of the Company as currently
in effect (incorporated by reference).
3B. By-laws of the Company (incorporated herein by reference
to the Company's Current Report on Form 8-K dated
February 12, 1996, Exhibit 3(ii)).
4. Note: The total amount of securities authorized under any
instrument which defines the rights of holders of
Company's long-term debt does not exceed 10% of the total
assets of the Company and its subsidiaries on a
consolidated basis. Therefore, none of such instruments
are required to be filed as exhibits to this Report. The
Company agrees to furnish copies of such instruments to
the Commission upon request.
Executive Compensation Plans and Arrangements
10A. Restated Employment Agreement dated June 29, 1996 between
the Company and Leon Machiz (incorporated herein by
reference to the Company's Current Report on Form 8-K
dated September 18, 1996, Exhibit 10.1).
10B. Third Amendment dated June 1, 1995 to Employment
Agreement dated July 1, 1992 between the Company and Roy
Vallee (incorporated herein by reference to the Company's
Current Report on Form 8-K dated September 26, 1995,
Exhibit No. 10.2).
10C. Second Amendment dated July 1, 1993 to Employment
Agreement dated July 1, 1992 between the Company and Roy
Vallee (incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended June
30, 1993, Exhibit No. 10E).
<PAGE>
Exhibit
No. Description
10D. Employment Agreement and Amendment to Employment
Agreement dated July 1, 1992 between the Company and Roy
Vallee (incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended
April 2, 1993, Exhibit No. 10).
10E. Employment Agreement dated July 22, 1992 between the
Company and Keith Williams (incorporated herein by
reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1992, Exhibit No. 10F).
10F. Amendment dated July 1, 1996 to Consulting Agreement
dated July 1, 1993 between the Company and David Shaw
(incorporated herein by reference to the Company's
Current Report on Form 8-K dated September 18, 1996,
Exhibit 10.2).
10G. Consulting Agreement dated July 1, 1993 between the
Company and David Shaw (incorporated herein by reference
to the Company's Annual Report or Form 10-K for the
fiscal year ended June 30, 1993, Exhibit 10G).
10H. Avnet 1984 Stock Option Plan (incorporated herein by
reference to the Company's Registration Statement on Form
S-8, Registration No. 2-96800, Exhibit 4-B).
10I. Avnet 1988 Stock Option Plan (incorporated herein by
reference to the Company's Registration Statement on Form
S-8, Registration No. 33-29475, Exhibit 4-B).
10J. Avnet 1990 Stock Option Plan (incorporated herein by
reference to the Company's Commission File No. 1-4224,
Annual Report on Form 10-K for the fiscal year ended June
30, 1992, Exhibit 10E).
10K. Avnet 1995 Stock Option Plan (incorporated herein by
reference to the Company's Current Report on Form 8-K
dated February 12, 1996, Exhibit 10).
10L. Avnet 1996 Incentive Stock Option Plan (incorporated
herein by reference to the Company's Registration
Statement on Form S-8, Registration No. 333-17271,
Exhibit 99).
<PAGE>
Exhibit
No. Description
10M. Avnet Second Incentive Stock Program (incorporated herein
by reference to the Company's Registration Statement on
Form S-8, Registration No. 2-94916, Exhibit 4-B).
10N. 1994 Avnet Incentive Stock Program (incorporated herein
by reference to the Company's Registration Statement on
Form S-8, Registration No. 333-00129, Exhibit 99).
100. Stock Bonus Plan for outside directors (incorporated
herein by reference to the Company's Current Report on
Form 8-K dated September 23, 1997, Exhibit 99.2).
10P. Retirement Plan for Outside Directors of Avnet, Inc.,
effective July 1, 1993 (incorporated herein by reference
to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992, Exhibit 10I).
10Q. Avnet, Inc. Deferred Compensation Plan for Outside
Directors (incorporated herein by reference to the
Company's Current Report on Form 8-K dated September 23,
1997, Exhibit 99.1).
11.* Statement regarding computation of per share earnings.
21.* List of subsidiaries of the Company.
23.* Consent of Arthur Andersen LLP.
24. Powers of Attorney (incorporated herein by reference to
the Company's Current Report on Form 8-K dated
September 23, 1997, Exhibit 24).
27. Financial Data Schedule (electronic filing only).
b. Reports on Form 8-K
None.
*Filed herewith<PAGE>
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AVNET, INC.
(Registrant)
Date: September 24, 1997 By: s/Leon Machiz
Leon Machiz, Chairman of
the Board, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 24, 1997.
Signature Title
s/Leon Machiz Chairman of the Board,
(Leon Machiz) Chief Executive Officer
and Director
* President, Chief Operating
(Roy Vallee) Officer, Vice Chairman of
The Board and Director
* Director
(Eleanor Baum)
* Director
(Gerald J. Berkman)
* Director
(J. Veronica Biggins)
* Director
(Joseph F. Caligiuri)
* Director
(Sylvester D. Herlihy)
* Director
(Ehud Houminer)
* Director
(Salvatore J. Nuzzo)
* Director
(Frederic Salerno)
Signature Title
* Director
(David Shaw)
* Director
(Keith Williams)
* Director
(Frederick S. Wood)
s/Raymond Sadowski Senior Vice President,
(Raymond Sadowski) Chief Financial Officer
and Assistant Secretary
s/John F. Cole Controller and Principal
(John F. Cole Accounting Officer
*By: s/Raymond Sadowski
(Raymond Sadowski)
Attorney-in-Fact
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Avnet, Inc.
Great Neck, New York
We have audited the accompanying consolidated balance sheets of Avnet,
Inc. (a New York corporation) and Subsidiaries as of June 27, 1997 and June
28, 1996 and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended June
27, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Avnet, Inc. and
Subsidiaries as of June 27, 1997 and June 28, 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended June 27, 1997 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
s/ARTHUR ANDERSEN LLP
New York, New York
July 30, 1997<PAGE>
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands, except per share data)
Years Ended
June 27, June 28, June 30,
1997 1996 1995
Sales $5,390,626 $5,207,797 $4,300,013
Cost of sales 4,428,779 4,238,743 3,483,649
Gross profit 961,847 969,054 816,364
Selling, shipping, general
and administrative expenses 634,101 620,087 554,881
Operating income 327,746 348,967 261,483
Other income, net 11,749 1,988 5,066
Interest expense (26,076) (25,916) (23,175)
Income before income taxes 313,419 325,039 243,374
Income taxes (Note 7) 130,656 136,783 103,101
Net income $ 182,763 $ 188,256 $ 140,273
Earnings per share $ 4.25 $ 4.31 $ 3.32
Shares used to compute earnings
per share (Note 1) 43,049 43,710 43,421
See notes to consolidated financial statements<PAGE>
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 27, June 28,
1997 1996
Assets:
Current assets:
Cash and cash equivalents $ 59,312 $ 47,808
Receivables, less allowances of $27,915
and $34,615, respectively 800,015 802,442
Inventories (Note 3) 1,007,074 935,612
Other 30,035 27,280
Total current assets 1,896,436 1,813,142
Property, plant and equipment, net (Note 4) 181,509 176,929
Goodwill, net of accumulated amortization of
$49,846 and $36,998, respectively (Note 1) 476,935 494,666
Other assets 39,191 36,919
Total assets $2,594,071 $2,521,656
Liabilities:
Current liabilities:
Borrowings due within one year (Note 5) $ 178 $ 282
Accounts payable 433,762 353,918
Accrued expenses and other (Note 6) 143,513 165,022
Total current liabilities 577,453 519,222
Long-term debt, less due within one year
(Note 5) 514,426 497,223
Total liabilities 1,091,879 1,016,445
Commitments & contingencies (Notes 9 & 11)
Shareholders' equity (Note 10):
Common stock $1.00 par, authorized 60,000,000
shares, issued 44,032,000 shares and
43,842,000 shares, respectively 44,032 43,842
Additional paid-in capital 425,180 418,441
Retained earnings 1,215,550 1,058,350
Cumulative translation adjustments (24,767) (4,243)
Treasury stock at cost, 2,927,000 shares
and 421,000 shares, respectively (157,803) (11,179)
Total shareholders' equity 1,502,192 1,505,211
Total liabilities & shareholders' equity $2,594,071 $2,521,656
See notes to consolidated financial statements<PAGE>
<TABLE>
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 27, 1997, June 28, 1996 and June 30, 1995
(Thousands, except per share data)
<CAPTION>
Additional Cumulative Total
Common Paid-in Retained Translation Treasury Shareholders'
Stock Capital Earnings Adjustments Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994 $41,104 $307,149 $ 780,266 $ (9,692) $ (10,312) $1,108,515
Net income 140,273 140,273
Dividends, $.60 per share (24,437) (24,437)
Cumulative translation adjustments 10,506 10,506
Other, net, principally stock
option and incentive programs 100 3,694 728 4,522
Balance, June 30, 1995 41,204 310,843 896,102 814 (9,584) 1,239,379
Net income 188,256 188,256
Dividends, $.60 per share (26,008) (26,008)
Cumulative translation adjustments (5,057) (5,057)
Conversion of 6% Subordinated
Debentures 2,445 101,838 104,283
Other, net, principally stock
option and incentive programs 193 5,760 (1,595) 4,358
Balance, June 28, 1996 43,842 418,441 1,058,350 (4,243) (11,179) 1,505,211
Net income 182,763 182,763
Dividends, $.60 per share (25,563) (25,563)
Cumulative translation adjustments (20,524) (20,524)
Repurchase of common stock (147,396) (147,396)
Other, net, principally stock
option and incentive programs 190 6,739 772 7,701
Balance, June 27, 1997 $44,032 $425,180 $1,215,550 $(24,767) $(157,803) $1,502,192
</TABLE>
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years Ended
June 27, June 28, June 30,
1997 1996 1995
Cash flows from operating activities:
Net income $182,763 $188,256 $140,273
Add non-cash and other reconciling items:
Depreciation and amortization 49,398 43,547 36,863
Deferred taxes (5,137) (14,490) 5,484
Other, net (Note 12) 5,941 19,744 17,549
232,965 237,057 200,169
Receivables (23,492) (81,665) (117,804)
Inventories (86,863) (171,594) (103,550)
Payables, accruals and other, net 66,929 18,721 35,549
Net cash flows provided from
operating activities 189,539 2,519 14,364
Cash flows from financing activities:
Repurchase of common stock (141,784) -- --
Issuance of commercial paper and bank
debt, net 28,893 188,022 106,100
Payment of other debt (3,250) (12,274) (4,589)
Cash dividends (Note 12) (25,867) (25,612) (18,320)
Other, net 4,541 (1,870) 2,282
Net cash flows (used for) provided
from financing activities (137,467) 148,266 85,473
Cash flows from investing activities:
Purchases of property, plant and
equipment (37,346) (55,811) (50,547)
Acquisition of operations, net (Note 2) (1,359) (96,325) (54,911)
Net cash flows used for investing
activities (38,705) (152,136) (105,458)
Effect of exchange rate changes on cash
and cash equivalents (1,863) (173) 1,077
Cash and cash equivalents:
- increase (decrease) 11,504 (1,524) (4,544)
- at beginning of year 47,808 49,332 53,876
- at end of year $ 59,312 $ 47,808 $ 49,332
Additional cash flow information (Note 12)
See notes to consolidated financial statements
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation - The accompanying financial statements
include the accounts of the Company and all of its subsidiaries. All
intercompany accounts and transactions have been eliminated. The
amount of minority interests at the end of 1997 and 1996, which
amounts are not material, are included in the caption "accrued
expenses and other".
Inventories - Stated at cost (first-in, first-out) or market,
whichever is lower.
Depreciation and amortization - Depreciation and amortization is
generally provided for by the straight-line method over the estimated
useful lives of the assets.
Income taxes - No provision for U.S. income taxes has been made for
$134,178,000 of cumulative unremitted earnings of foreign subsidiaries
at June 27, 1997 because those earnings are expected to be permanently
reinvested outside the U.S. If such earnings were remitted to the
U.S., any net U.S. income taxes would not have a material impact on
the results of operations of the Company.
Statement of cash flows - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be
cash equivalents.
Goodwill - Goodwill represents the excess of the purchase price over
the fair value of net assets acquired. Except for an immaterial
amount of goodwill applicable to purchases made before October 31,
1970, goodwill is being amortized on a straight-line basis over 40
years. The Company continually evaluates the carrying value and the
remaining economic useful life of all goodwill, and will adjust the
carrying value and the related amortization period if and when
appropriate.
Earnings per share - In computing earnings per share for 1995, the 6%
Convertible Subordinated Debentures (which were converted into common
stock in the first quarter of 1996) were considered common equivalent
shares.
Management estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
certain reported amounts of assets and liabilities and disclosure of
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of significant accounting policies (Continued):
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Concentration of credit risk - Financial instruments which potentially
subject the Company to a concentration of credit risk principally
consist of cash and cash equivalents and trade accounts receivable.
The Company invests its excess cash primarily in overnight Eurodollar
time deposits with quality financial institutions. The Company sells
electronic components and computer products primarily to original
equipment manufacturers, including military contractors and the
military, throughout North America, Europe and the Asia/Pacific
region. To reduce credit risk, management performs ongoing credit
evaluations of its customers' financial condition. The Company
maintains reserves for potential credit losses, but has not
experienced any material losses related to individual customers or
groups of customers in any particular industry or geographic area.
Derivative financial instruments - Many of the Company's operations,
primarily its international subsidiaries, occasionally purchase and
sell product 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 as well as by creating
offsetting positions through the use of derivative financial
instruments, primarily forward foreign exchange contracts with
maturities of less than sixty days. The market risk related to the
foreign exchange contracts is offset by the changes in valuation of
the underlying items being hedged. The amount of risk and the use of
derivative financial instruments described above is not material to
the Company's financial position or results of operations. The
Company does not hedge its investment in its foreign operations nor
its floating interest rate exposures.
Fiscal year - The Company's fiscal year ends on the Friday closest to
June 30th. Unless otherwise noted, all references to the "year 1997"
or any other "year" shall mean the Company's fiscal year.
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Acquisitions
Since July 1, 1994, the Company has completed eleven acquisitions
for the Electronic Marketing Group - three in the United States, four
in Europe, three in the Asia/Pacific region and one in South Africa.
Four of these acquisitions were completed during 1996 and seven were
completed during 1995. All acquisitions have been accounted for as
purchases.
The acquisitions completed in 1996 consisted of VSI Electronics,
Setron Schiffer-Electronik GmbH & Co., KG, a 70% interest in the
Science and Technology Division of Mercuries and Associates, Ltd. and
an 80% interest in Kopp Electronics Limited.
The 1995 acquisitions consisted of Penstock, Inc., the
Flippin, Arkansas cable assembly operation of LaBarge, Inc. (now
known as Avnet Cable Technologies), Lyco Limited, a 70%
interest in WKK Semiconductors, Ltd., CK Electronique, BFI-IBEXSA
International, Inc. and Sertek, Inc.
Cash expended (net of cash on the books of the companies acquired) in
1996 and 1995 relating to these acquisitions totaled approximately
$119,000,000 and $70,000,000, respectively. Cash expended for the
acquisition of operations in 1997 includes a deferred payment and cash
paid for professional and other fees associated with various
acquisitions completed during 1996. In the aggregate, the operations
acquired during 1996 and 1995 had sales totaling approximately
$240,000,000 and $170,000,000, respectively, during the fiscal year of
each such operation immediately preceding its acquisition. The
historical results of operations of the companies acquired would not
have had a material effect on the Company's results of operations in
1996 and 1995, on a pro forma basis.
3. Inventories:
June 27, June 28,
(Thousands) 1997 1996
Finished goods $ 917,751 $844,510
Work-in-process 13,714 13,306
Raw materials 75,609 77,796
$1,007,074 $935,612
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Property, plant and equipment, net:
June 27, June 28,
(Thousands) 1997 1996
Land $ 6,740 $ 7,552
Buildings 72,846 78,195
Machinery, fixtures and equipment 286,582 275,911
Leasehold improvements 7,333 7,412
373,501 369,070
Less accumulated depreciation
and amortization 191,992 192,141
$181,509 $176,929
5. External financing:
June 27, June 28,
(Thousands) 1997 1996
6 7/8% Notes due March 15, 2004 $100,000 $100,000
Commercial Paper 319,400 295,700
Bank Syndicated Credit Facility 80,600 93,596
Other 14,604 8,209
514,604 497,505
Less borrowings due within one year 178 282
Long-term debt $514,426 $497,223
In June 1995, the Company entered into a revolving credit agreement
with a syndicate of banks led by NationsBank of North Carolina, N.A.
("NationsBank"). The agreement currently provides a five-year
facility with a line of credit of up to $400,000,000 (increased from
the original amount of $300,000,000). This credit facility is
currently being used primarily as a backup facility to the Company's
commercial paper program and for foreign currency denominated
borrowings at floating rates of interest. At June 27, 1997, the
approximate interest rates on outstanding commercial paper and foreign
currency denominated borrowings were 5.7% and 3.6%, respectively, and
at June 28, 1996 were 5.5% and 4.2%, respectively. The Company also
has in place an additional credit facility with NationsBank which
provides a line of credit of up to $100,000,000.
Annual payments on external financing in 1998, 1999, 2000, 2001 and
2002 will be $178,000, $278,000, $411,437,000, $295,000 and $527,000,
respectively.
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Accrued expenses and other:
June 27, June 28,
(Thousands) 1997 1996
Payroll, commissions and related $ 56,400 $ 54,324
Insurance 16,290 16,211
Income taxes 24,163 35,993
Dividends payable (Note 12) 6,209 6,513
Other 40,451 51,981
$143,513 $165,022
7. Income taxes:
The Company follows the liability method of accounting for income
taxes. Deferred income taxes are recorded for temporary differences
between the amount of income and expense reported for financial and
tax purposes.
A reconciliation between the federal statutory tax rate and the
effective tax rate is as follows:
Years Ended
June 27, June 28, June 30,
1997 1996 1995
Federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal benefit 5.1 4.7 4.7
Amortization of goodwill 1.4 1.3 1.5
Other, net .2 1.1 1.2
Effective tax rate 41.7% 42.1% 42.4%
The components of the provision for income taxes are indicated in the
next table. The provision (future tax benefit) for deferred income
taxes results from temporary differences arising principally from
inventory valuation, accounts receivable valuation, certain accruals
and depreciation.
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. Income taxes (Continued):
Years Ended
(Thousands) June 27, June 28, June 30,
1997 1996 1995
Current:
Federal $ 97,433 $101,408 $ 64,279
State and local 26,018 25,065 16,849
Foreign 12,342 24,800 16,489
Total current taxes 135,793 151,273 97,617
Deferred:
Federal (4,101) (12,857) 3,290
State and local (1,228) (1,773) 861
Foreign 192 140 1,333
Total deferred taxes (5,137) (14,490) 5,484
Provision for income taxes $130,656 $136,783 $103,101
The significant components of deferred tax assets and liabilities
included on the balance sheet as of the beginning and end of 1997 were
as follows:
(Thousands) June 27, June 28,
1997 1996
Deferred tax assets:
Inventory valuation $ 10,139 $ 9,607
Accounts receivable valuation 7,727 9,689
Various accrued liabilities and other 18,195 16,725
36,061 36,021
Deferred tax liabilities:
Depreciation and amortization of
property, plant and equipment 1,657 3,877
Other 3,268 6,645
4,925 10,522
Net deferred tax assets $31,136 $25,499
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Pension and profit sharing plans:
During the three years ended June 27, 1997, the following amounts were
charged (credited) to income under the Company's pension plan, 401(k)
plan and a discretionary profit sharing plan:
Years Ended
(Thousands) June 27, June 28, June 30,
1997 1996 1995
Pension $ 953 $ (416) $ (289)
401(k) 606 475 486
Profit sharing 1,413 1,407 1,396
The Company's noncontributory defined benefit pension plan and its
401(k) plan cover substantially all domestic employees, except for
those at one unit covered by a profit sharing plan. The
noncontributory pension plan was amended as of January 1, 1994 to
provide defined benefits pursuant to a cash balance feature whereby a
participant accumulates a benefit based upon a percentage of current
salary, which varies with age, and interest credits. At June 27,
1997, the market value of the pension plan assets was $146,826,000 and
these assets were comprised of common stocks (59%), U.S. Government
securities (36%), corporate debt obligations (4%) and money market
funds (1%).
The assumed interest rate was 8% in each of the last three years and
the expected return on plan assets was 9% in 1997 and 1996, and 8% in
1995. Under the cash balance plan, service costs are based solely on
current year salary levels; therefore, projected salary increases are
not taken into account. The pertinent calculations covering the
pension (charge)/credits, obligations and prepaid pension cost are
summarized below:
Years Ended
(Thousands) June 27, June 28, June 30,
1997 1996 1995
Earned:
Return on Plan assets - actual $27,810 $13,274 $13,285
Higher than expected
return - deferred (17,024) (3,057) (4,570)
Expected return 10,786 10,217 8,715
Amortization of 7/1/85 excess
assets 2,830 2,830 2,829
Amortization of prior service
credits 321 321 321
13,937 13,368 11,865
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. Pension and profit sharing plans (Continued):
Years Ended
(Thousands) June 27, June 28, June 30,
1997 1996 1995
Less benefits:
Present value of benefits
earned during year 6,302 6,047 5,762
Interest on projected benefit
obligation 8,588 6,905 5,814
14,890 12,952 11,576
Net (charge)/credit to income $ (953) $ 416 $ 289
Funded status of the Plan:
Years Ended
(Thousands) June 27, June 28, June 30,
1997 1996 1995
Projected benefit obligation:
Vested benefits $114,679 $ 95,420 $ 77,161
Non-vested benefits 3,632 3,956 3,120
Accumulated and projected
benefit obligation 118,311 99,376 80,281
Unamortized 7/1/85 excess assets 10,469 13,299 16,129
Cumulative differences in:
Return on Plan assets 28,874 11,850 8,793
Projected benefit obligation (22,197) (11,891) 273
Unamortized prior service credits 2,935 3,256 3,577
138,392 115,890 109,053
Less market value of Plan assets 146,826 125,277 118,024
Prepaid pension cost $ 8,434 $ 9,387 $ 8,971
The absence of a future salary assumption amount and the large
unamortized prior service credit are due to the adoption of the cash
balance plan. Not included in the above tabulations are pension plans
of certain non-U.S. subsidiaries which are not material.
9. Long-term leases:
The Company leases many of its operating facilities and is also
committed under lease agreements for transportation and operating
equipment. Rent expense charged to operations for the three years
ended June 27, 1997 is as follows:
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Long-term leases (Continued):
Years Ended
(Thousands) June 27, June 28, June 30,
1997 1996 1995
Buildings $18,297 $17,899 $19,065
Equipment 4,278 4,228 4,857
$22,575 $22,127 $23,922
At June 27, 1997, aggregate future minimum lease commitments,
principally for buildings, in 1998, 1999, 2000, 2001, 2002 and
thereafter (through 2011) are $19,982,000, $15,404,000, $11,042,000,
$7,815,000, $6,359,000 and $20,429,000, respectively.
10. Stock-based compensation plans:
Stock option plans:
The Company has four stock option plans with shares still available
for grant:
1990 and 1996 1988 and 1995
Qualified Plans Non-Qualified Plans
Minimum exercise price
as a percentage of fair
market value at date 1990 Plan - 100% 1988 Plan - 50%
of grant 1996 Plan - 100% 1995 Plan - 85%
Life of options 10 years 10 years
Exercisable In whole or 25% annually
installments after one year
Plan termination date 1990 Plan 11/28/00 1988 Plan 12/31/98
1996 Plan 12/31/06 1995 Plan 8/31/05
Shares available for 1990 Plan 180,525 1988 Plan 2,930
grant at June 27, 1997 1996 Plan 1,000,000 1995 Plan 320,625
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Stock-based compensation plans (Continued):
Under the non-qualified plans, the excess of the fair market value at
the date of grant over the exercise price is considered deferred
compensation which is amortized and charged against income as it is
earned.
Pertinent information covering options is as follows:
Option and market prices
are per share 1997 1996 1995
Outstanding at end of year:
Shares - Total 2,212,088 1,777,061 1,615,122
Exerciseable 923,963 766,936 683,372
Option prices $13.50-62.50$13.50-47.00 $13.50-44.50
Market prices at
date granted $19.75-62.50$19.75-51.81 $19.75-44.50
Granted:
Shares 661,000 389,500 527,500
Option prices $48.75-62.50$28.00-47.00 $28.00-44.50
Exercised:
Shares 189,473 192,838 100,139
Option prices $14.00-47.00$14.00-38.50 $14.00-38.50
Canceled and expired:
Shares 36,500 34,723 5,573
Option prices $24.25-48.75$17.63-47.00 $17.63-29.00
Employee stock purchase plan:
In October 1995, the Company implemented the Avnet Employee Stock
Purchase Plan (ESPP). Under the terms of the ESPP, eligible employees
of the Company are offered options to purchase shares of Avnet Common
Stock at a price equal to 85% of the fair market value on the first
or last day, whichever is lower, of each monthly offering period. A
total of 500,000 shares of Avnet common stock were initially reserved
for sale under the ESPP. At June 27, 1997, employees had purchased
216,723 shares and 283,277 shares were still available for purchase
under the ESPP.
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Stock-based compensation plans (Continued):
Incentive stock:
The Company has an Incentive Stock Program wherein a total of 289,864
shares were still available for award at June 27, 1997 based
upon operating achievements. Delivery of incentive shares is spread
equally over a four-year period and is subject to the employee's
continuance in the Company's employ. As of June 27, 1997, 74,618
shares previously awarded have not yet been delivered. The program
will terminate on December 31, 1999.
At June 27, 1997, 4,363,927 common shares were reserved for stock
options (including the ESPP) and stock incentive programs.
Pro forma information:
The Company follows Accounting Principles Board Opinion No. 25
(APB No.25), "Accounting for Stock Issued to Employees" in accounting
for its stock-based compensation plans. In applying APB No. 25, no
expense was recognized for options granted under the various stock
option plans (except in the rare circumstances where the exercise
price was less than the fair market value on the date of the grant)
nor was expense recognized in connection with shares purchased by
employees under the ESPP. Statement of Financial Accounting Standards
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation"
requires disclosure of pro forma net income as if a fair value-based
method of measuring stock-based compensation had been applied.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years. Reported and pro forma net income are as follows:
Years Ended
June 27, June 28,
(Thousands, except earnings per share) 1997 1996
Net income: As reported $182,763 $188,256
Pro forma 179,835 187,059
Earnings per share: As reported $4.25 $4.31
Pro forma 4.20 4.29
The fair value of the stock options granted is estimated on the date
of grant using the Black-Scholes option pricing model. The weighted
average assumptions used, and the weighted average estimated fair
value of an option granted are as follows:
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. Stock-based compensation plans (Continued):
Years Ended
June 27, June 28,
1997 1996
Expected life (years) 5.7 5.0
Risk-free interest rates 6.7% 5.5%
Volatility 24.0% 23.0%
Dividend yield 1.2% 1.3%
Weighted average fair value $16.75 $12.76
11. Contingent liabilities:
From time to time, the Company may become liable with respect to
pending and threatened litigation, taxes and environmental and other
matters. The Company has been designated a potentially responsible
party or has had other claims made against it in connection with
environmental clean-ups at several sites. Based upon the information
known to date, the Company believes that it has appropriately reserved
for its share of the costs of the clean-ups and it is not anticipated
that any contingent matters will have a material adverse impact on the
Company's financial condition, liquidity or results of operations.
12. Additional cash flow information:
Other non-cash and reconciling items primarily include provisions for
doubtful accounts and, in 1997, is net of the gain on the sale of the
Company's former Culver City, California facility of $7,578,000.
Due to the change in the Company's fiscal year (see Note 1) and its
historical dividend payment dates, the fiscal year ended July 1, 1994
includes the cash payment of the July 1, 1994 dividend. This results
in the inclusion of three quarterly dividend payments in 1995 as
compared with four quarterly payments in 1996 and 1997.
In the first quarter of 1996, the entire amount of outstanding 6%
Convertible Subordinated Debentures due 2012 ($105,263,000 at June 30,
1995) was converted into common stock or redeemed for cash.
The net cash disbursed in each of the three years in connection with
acquisitions (See Note 2), as well as the net cash collected in those
years from dispositions, are reflected as "cash flows from acquisition
of operations, net".
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. Additional cash flow information (Continued):
Interest and income taxes paid were as follows:
Years Ended
June 27, June 28, June 30,
(Thousands) 1997 1996 1995
Interest $ 26,123 $28,019 $23,279
Income taxes 145,387 139,600 94,167
13. Segment and geographic information:
The Company operates primarily in one industry segment through its
Electronic Marketing Group, which distributes electronic components
and computer products. For each of the last three years, the
Electronic Marketing Group's sales, operating income and identifiable
assets were greater than 89% of the comparable consolidated totals.
For the years presented, the Company's other two industry segments,
the Video Communications Group and the former Electrical and
Industrial Group, individually accounted for less than 10% of the
Company's consolidated sales, operating income and identifiable
assets. Geographic information is as follows:
Years Ended
June 27, June 28, June 30,
(Millions) 1997 1996 1995
Sales:
Domestic operations $4,044.5 $3,839.9 $3,411.8
Foreign operations 1,346.1 1,367.9 888.2
$5,390.6 $5,207.8 $4,300.0
Operating income:
Domestic operations $ 299.5 $ 293.9 $ 228.3
Foreign operations 52.0 77.2 53.5
Corporate (23.8) (22.1) (20.3)
$ 327.7 $ 349.0 $ 261.5
Identifiable assets:
Domestic operations $1,831.0 $1,722.1 $1,602.9
Foreign operations 663.3 718.4 466.6
Corporate 99.8 81.2 56.1
$2,594.1 $2,521.7 $2,125.6
<PAGE>
AVNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Segment and geographic information (Continued):
Information for the Company's primary industry segment, the Electronic
Marketing Group (domestic and foreign), is as follows: (See pages 3
to 10 of this Report for a description of the segments.)
Years Ended
June 27, June 28, June 30,
(Millions) 1997 1996 1995
Sales $5,224.4 $5,004.9 $3,873.0
Operating income 339.4 353.3 261.9
Identifiable assets 2,381.3 2,346.3 1,888.8
Property, plant and equipment:
Additions 31.2 50.1 43.2
Depreciation 27.4 24.1 18.7
14. Summary of quarterly results (unaudited)
(Millions, except per share data):
Gross Income Earnings
Quarter Sales profit Pre-tax After-tax per share
1st - 97 $1,281.8 $232.5 $ 73.6 $ 42.4 $ .97
- 96 1,189.1 228.7 76.7 44.6 1.02
2nd - 97 1,331.8 240.0 78.5 45.6 1.05
- 96 1,301.6 239.8 80.6 46.7 1.07
3rd - 97 1,378.4 243.6 80.9 47.4 1.10
- 96 1,387.5 251.4 84.9 48.9 1.12
4th - 97 1,398.6 245.7 80.4 47.4 1.13
- 96 1,329.6 249.2 82.8 48.1 1.10
Year - 97 $5,390.6 $961.8 $313.4 $182.8 $4.25
- 96 5,207.8 969.1 325.0 188.3 4.31
<PAGE>
<TABLE>
SCHEDULE II
AVNET, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 27, 1997, June 28, 1996, and June 30, 1995
(Thousands)
<CAPTION>
<S> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged to
Description beginning of costs and other Deductions - Balance at
period expenses accounts- describe end of
describe period
1997
Allowance for doubtful
accounts $34,615 $10,107 $588 (a) $17,395 (b) $27,915
1996
Allowance for doubtful
accounts 23,421 19,073 420 (a) 8,904 (b) 34,615
605 (c)
1995
Allowance for doubtful
accounts 21,975 14,007 456 (a) 13,990 (b) 23,421
973 (c)
(a) Recovery of
amounts previously
written off
(b) Uncollectible
accounts written off
(c) Acquisitions
<PAGE>
INDEX TO EXHIBITS
Exhibit Numbered
Number Exhibit Page
11. Statement regarding computation of earnings per share 51
21. List of subsidiaries of the Registrant 52
23. Consent of Arthur Andersen LLP 53
See pages 25 to 27 for a list of exhibits which are incorporated by
reference and not filed herewith.
<PAGE>
EXHIBIT 11
AVNET, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Thousands, except per share data)
(A) In computing earnings per share, common shares issuable upon the exercise
of outstanding stock options have been considered as common equivalent
shares. In computing earnings per share in fiscal 1995, the 6%
Convertible Subordinated Debentures which were converted into common
stock in the first quarter of 1996, were considered common equivalent
shares.
Years Ended
June 27, June 28, June 30,
1997 1996 1995
Weighted average number of common shares 42,598 43,333 40,723
Common equivalent shares:
Conversion of 6% Convertible
Subordinated Debentures -- -- 2,448
Issuance of incentive shares and
exercise of employees' stock options,
using treasury stock method 451 377 250
Common and common equivalent shares used
to compute earnings per share 43,049 43,710 43,421
Net income $182,763 $188,256 $140,273
Interest expense on convertible
debentures - net of tax -- -- 3,778
Income used for computing earnings
per share $182,763 $188,256 $144,051
Earnings per share based upon
the weighted average number of shares
outstanding during the year $ 4.25 $ 4.31 $ 3.32
<PAGE>
EXHIBIT 21
AVNET, INC. AND SUBSIDIARIES
SUBSIDIARIES OF AVNET, INC.
JURISDICTION
NAME OF INCORPORATION
AB Avnet EMG which includes seven subsidiaries Sweden
Allied Electronics, Inc. Delaware
Avnet, Inc. Delaware
Avnet Computer Technologies, Inc. Delaware
Avnet Computer Technologies Leasing, Inc. Delaware
Avnet Direct, Inc. Delaware
Avnet EMG GmbH does business as Avnet E2000 Germany
Avnet Setron Elektronik Vertrieb GmbH which includes
two subsidiaries and affiliates Germany
Avnet EMG S.r.l. does business as: Italy
Avnet Adelsy
Avnet DeMico
Avnet EMG Ltd. does business as: England
Avnet Access
Avnet Time
Avnet France, S.A. which includes three subsidiaries France
Avnet Holding Corporation II Delaware
Avnet Holding Germany GmbH Germany
Avnet International (Canada) Ltd. does business as: Ontario
Allied Electronics
Avnet Computer
Avnet Leasing Center
Hall-Mark Computer Products
Hamilton Hallmark
Penstock
Time Electronics
Avnet International (Taiwan) Limited Taiwan
Avnet Kopp (Pty.) Limited which includes two subsidiaries South Africa
Avnet Lyco Limited which includes one subsidiary Ireland
Avnet Marketing Services California
Avnet - Mercuries Company Limited Taiwan
Avnet de Mexico, S.A. de C.V. Mexico
Avnet Pacific Pty. Ltd. Australia
Avnet Pacific (NZ) Limited New Zealand
Avnet WKK Components Limited Hong Kong
BFI-IBEXSA International S.A which includes eight
subsidiaries France
Channel Master Communications, Inc. Delaware
Channel Master (Holdings) Limited England
Channel Master Satellite Systems, Inc. New York
Channel Master (UK) Limited England
Disti Export Trading Corp. Barbados
Optional Systems Resources, Inc. Delaware<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's Registration
Statement on Form S-3 No. 33-51835 relating to debt securities of Avnet,
Inc. and Registration Statements on Form S-8 No. 2-84883, No. 2-96800,
No. 332-9475, No. 33-43855, No. 33-64765, No. 333-17271, No. 2-94916, No.
333-00129, and No. 33-62583, relating to common stock of Avnet, Inc.
issuable under the 1981, 1984, 1988, 1990, 1995, and 1996 Stock Option
Plans, the Avnet Second Incentive Stock Program, the 1994 Avnet Incentive
Stock Program and the Avnet Employee Stock Purchase Plan, respectively.
s/ARTHUR ANDERSEN LLP
New York, New York
September 24, 1997
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-END> JUN-27-1997
<CASH> 59,312
<SECURITIES> 0
<RECEIVABLES> 827,930
<ALLOWANCES> 27,915
<INVENTORY> 1,007,074
<CURRENT-ASSETS> 1,896,436
<PP&E> 373,501
<DEPRECIATION> 191,992
<TOTAL-ASSETS> 2,594,071
<CURRENT-LIABILITIES> 577,453
<BONDS> 514,426
0
0
<COMMON> 44,032
<OTHER-SE> 1,458,160
<TOTAL-LIABILITY-AND-EQUITY> 2,594,071
<SALES> 5,390,626
<TOTAL-REVENUES> 5,402,375
<CGS> 4,428,779
<TOTAL-COSTS> 5,020,865
<OTHER-EXPENSES> 42,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,076
<INCOME-PRETAX> 313,419
<INCOME-TAX> 130,656
<INCOME-CONTINUING> 182,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,763
<EPS-PRIMARY> 4.25
<EPS-DILUTED> 0
</TABLE>
