Item 1. Business
Avnet, Inc., founded in 1921 and incorporated in New York in 1955, together with its consolidated subsidiaries (the “Company” or “Avnet”), is a global value-added distributor of electronic components, enterprise computer and storage products, IT solutions and services and embedded subsystems.components. Avnet creates a vital link in the technology supply chain that connects the world’s leading electronic component and computer product manufacturers and software developers with a global customer base primarily comprised of original equipment manufacturers (“OEMs”), electronic manufacturing services (“EMS”) providers and original design manufacturers (“ODMs”), systems integrators ("SIs"), independent software vendors ("ISVs") and value-added resellers (“VARs”). Avnet distributes electronic components, computer products and software, as received from its suppliers or through a customized integrated solution, and offers assembly and other value-added services. In addition,
Avnet provides engineeringsupports customers of all types and sizes at each stage of the product lifecycle with a comprehensive portfolio of design materials management and logistics services, system integration and configuration and supply chain services. With deep expertise in design and engineering, broad line distribution, integration and services, customizedAvnet is uniquely positioned to meet specific requirementscritical time-to-market needs for customers globally.
Organizational Structure
At the end of customers and suppliers.
| Region | Fiscal 2014 Sales | Percentage of Sales | ||||
| (Billions) | ||||||
| EM Americas | $ | 4.8 | 17.6 | % | ||
| EM EMEA | 5.1 | 18.5 | ||||
| EM Asia | 6.6 | 24.0 | ||||
| Total EM | 16.5 | 60.1 | ||||
| TS Americas | 6.1 | 22.1 | ||||
| TS EMEA | 3.2 | 11.5 | ||||
| TS Asia | 1.7 | 6.3 | ||||
| Total TS | 11.0 | 39.9 | ||||
| Total Avnet | $ | 27.5 | 100.0 | % | ||
A description of each operating group is presented below. Further financial information by operating group and region is provided in Note 1617 “Segment information” to the consolidated financial statements appearing in Item 15 of this Report.
| Percentage of Sales for Fiscal Year | ||||||||
| Region | 2014 | 2013 | 2012 | |||||
| Americas | 40 | % | 42 | % | 45 | % | ||
| EMEA | 30 | 29 | 29 | |||||
| Asia/Pac | 30 | 29 | 26 | |||||
| 100 | % | 100 | % | 100 | % | |||
Avnet’s foreign operations are subject to a variety of risks. These risks are discussed further under Risk Factors in Item 1A and under Quantitative and Qualitative Disclosures About Market Risk in Item 7A of this Report. Additionally, the specific translation impacts of foreign currency fluctuations, most notably the Euro and the British Pound, on the Company’s consolidated financial statements are further discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Report.
Electronic Components
EC markets and sells semiconductors, electronic components, including interconnect, passive and electromechanical (“IP&E”) devices, and other integrated components from the world’s leading electronic component manufacturers. With a global reach that extends to more than 100 countries, EC’s products and services cater to a diverse customer base serving many end-markets including automotive, communications, computer hardware and peripherals, industrial and manufacturing, medical equipment, and defense and aerospace. EC also offers an array of customer support that helps customers evaluate, design-in, and procure electronic components throughout the lifecycle of their technology products and systems.
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Integrated Solutions
EC provides integrated solutions including technical design, integration and assembly of embedded products, systems and solutions primarily for industrial applications. EC also provides integrated solutions for intelligent embedded and innovative display solutions, including touch and passive displays. In addition, EC develops and manufactures standard board and industrial subsystems and application-specific devices that enable it to produce specialized systems tailored to specific customer requirements. EC serves OEMs that require embedded systems and solutions, including engineering, product prototyping, integration and other value-added services in the medical, telecommunications, industrial and digital editing markets.
Design Chain Solutions
EC offers design chain support that provides engineers with a host of technical design solutions, which help make it economically viable for EC’s suppliers to reach a customer segment that seeks complex products and technologies. With access to a suite of design tools and engineering support from any point in the design cycle, customers can get product specifications along with evaluation kits and reference designs that enable a broad range of applications from concept through detailed design including new product introduction. EC also offers engineering and technical resources deployed globally to support product design, bill of materials development, and technical education and training. By utilizing EC’s design chain support, customers can optimize their component selection and accelerate their time to market. EC’s extensive product line card provides customers access to a diverse range of products from a complete spectrum of electronic component manufacturers.
Supply Chain Solutions
EC’s supply chain solutions provides support and logistical services to OEMs, EMS providers and electronic component manufacturers, enabling them to optimize supply chains on a local, regional or global basis. By combining internal competencies in global warehousing and logistics, finance, information technology and asset management with its global footprint and extensive partner relationships, EC’s supply chain solutions provide for a deeper level of engagement with its customers. These customers can manage their supply chains to meet the demands of a competitive global environment without a commensurate investment in physical assets, systems and personnel. With supply chain planning tools and a variety of inventory management solutions, EC provides solutions that meet a customer’s just-in-time requirements and minimize risk in a variety of scenarios including lean manufacturing, demand flow and outsourcing.
Premier Farnell
PF globally distributes a comprehensive portfolio of electronic components, typically in small order quantities, primarily to support design engineers, maintenance and test engineers, makers and entrepreneurs as they develop technology products. PF brings together the latest products, services and development software, all connected to an industry-leading online engineering community, element14, comprised of more than 500,000 active user members. Through the PF community, purchasers and engineers can access peers and experts, a wide range of independent technical information and proprietary tools.
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Acquisitions
Avnet has historically pursued a strategic acquisition programbusiness acquisitions to further its strategic objectives and support key business initiatives.initiatives, completing 100 acquisitions since 1991. This acquisition program was a significant factor in Avnet becoming one of the largest value-added distributors of electronic components enterprise computerincluding integrated products and storagesolutions. In fiscal 2017, this trend continued with the acquisitions of Premier Farnell, a global distributor of electronic components that utilizes a digital platform to provide innovators and engineers with the latest products, IT services and embedded subsystems.development software, and Hackster.io, an online community that helps users learn how to design, create and program internet-connected hardware. Avnet expects to continue to pursue strategic acquisitions to expand its market presence, increase its scale and scope, and increaseextend its product orand service offerings.
See Item 7.7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of this Annual Report on Form 10-K for additional information on acquisitions completed during fiscal 2017.2014
Discontinued Operations
During fiscal 2017, the Company sold the Technology Solutions operating group (the “TS Business”) or “TS”,
See Note 3 to the Company’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for further discussion on the sale of the TS Business.
Major Products
One of Avnet’s competitive strengths is the breadth and quality of the suppliers whose products it distributes.
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| Years Ended |
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| July 1, |
| July 2, |
| June 27, |
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| 2017 |
| 2016 |
| 2015 |
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| (Millions) |
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Semiconductors |
| $ | 13,537.9 |
| $ | 13,978.0 |
| $ | 14,886.3 |
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Interconnect, passive & electromechanical (IP&E) |
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| 3,397.9 |
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| 2,539.9 |
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| 2,594.7 |
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Other |
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| 504.2 |
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| 222.7 |
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| 174.3 |
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Sales |
| $ | 17,440.0 |
| $ | 16,740.6 |
| $ | 17,655.3 |
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| Years Ended | |||||||||||
| June 28, 2014 | June 29, 2013 | June 30, 2012 | |||||||||
| (Millions) | |||||||||||
| Semiconductors | $ | 13,160.9 | $ | 13,720.8 | $ | 13,461.6 | |||||
| Computer products | 10,571.6 | 9,346.0 | 9,984.4 | ||||||||
| Connectors | 794.7 | 687.6 | 667.5 | ||||||||
| Passives, electromechanical and other | 2,972.5 | 1,704.5 | 1,594.0 | ||||||||
| $ | 27,499.7 | $ | 25,458.9 | $ | 25,707.5 | ||||||
Competition & Markets
The electronic components and computer products industries continueindustry continues to be extremely competitive and are subject to rapid technological advances.competitive. The Company’s major competitors includeinclude: Arrow Electronics, Inc., Future Electronics, and World Peace Group, Mouser Electronics and to a lesser extent, Ingram Micro, Inc. and Tech Data Corp.Digi-Key Electronics. There are also certain smaller, specialized competitors who generally focus on narrower regions, markets, products or particular sectors. In addition, the Company may compete with its own suppliers that maintain a direct salesforce.salesforce and with contract manufacturers and EMS providers that purchase directly from suppliers. As a result of these factors, Avnet must remain competitive in its pricing of goodsproducts and services.
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A key competitive factor in the electronic component and computer product distribution industry is the need to carry a sufficient amount of inventory to meet customers’ rapid delivery requirements. To minimize its exposure related to valuation of inventory on hand, the majority of the Company’s products are purchased pursuant to non-exclusive distributor agreements, which typically provide certain protections for product obsolescence and price erosion. These agreements are generally cancelable upon 30 to 180 days’ notice and, in most cases, provide for or require inventory return privileges upon cancellation. In fiscal 2017, certain suppliers terminated their distribution agreements with the Company, which did not result in any significant inventory write-downs as a result of such terminations. In addition, the Company enhances its competitive position by offering a variety of value-added services, which entail the performance of services and/or processescustomer support tailored to individual customer specifications and business needs, such as point of use replenishment, testing, assembly, supply chain management and materials management. For the year ended June 28, 2014, service sales constituted less than 10% of the Company's total sales.
A competitive advantage is the sizebreadth of the Company'sCompany’s supplier base.product line card. Because of the number of Avnet’s suppliers, many customers can simplify their procurement process and make all of their required purchases from Avnet, rather than purchasing from several different distributors or other vendors.
Seasonality
Historically, Avnet’s business and continuing operations has not been materially impacted by seasonality, with the exception of a relatively minor impact on consolidated results from shifts in regional sales trends from Asia in the growthfirst half of a fiscal year to the western regions of the Americas and EMEA in sales at the TS business during the December quarter primarily driven by the calendar year end selling and buying patternssecond half of key suppliers and customers, respectively.
Number of Employees
At
Available Information
The Company files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, proxy statements and other documents with the U.S. Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934. A copy of any document the Company files with the SEC is available for review at the SEC’s public reference room, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the public reference room by calling the SEC at 1-800-SEC-0330. The Company’s SEC filings are also available to the public on the SEC’s website at http://www.sec.gov and through the New York Stock Exchange (“NYSE”), 20 Broad Street, New York, New York 10005, on which the Company’s common stock is listed.
A copy of any of the Company’s filings with the SEC, or any of the agreements or other documents that constitute exhibits to those filings, can be obtained by request directed to the Company at the following address and telephone number:
Avnet, Inc.
2211 South 47th Street
Phoenix, Arizona 85034
(480) 643-2000
Attention: Corporate Secretary
The Company also makes these filings available, free of charge, through its website (see “Avnet Website” below).
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Avnet Website
In addition to the information about Avnet contained in this Report, extensive information about the Company can be found at http://www.avnet.com, including information about its management team, products and services and corporate governance practices.
The corporate governance information on the Avnet website includes the Company’s Corporate Governance Guidelines, the Code of Conduct and the charters for each of the committees of Avnet’s Board of Directors. In addition, amendments to the Code of Conduct, committee charters and waivers granted to directors and executive officers under the Code of Conduct, if any, will be posted in this area of the website. These documents can be accessed at http://www.avnet.com under the “Investor“Company — Investor Relations — Corporate Governance”Documents & Charters” caption. Printed versions of the Corporate Governance Guidelines, Code of Conduct and charters of the Board committees can be obtained, free of charge, by writing to the Company at the address listed above in “Available Information.”
In addition, the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, if any, filed or furnished pursuant to Section 13(a) or 15(d) of Securities Exchange Act of 1934, as well as Section 16 filings made by any of the Company’s executive officers or directors with respect to Avnet common stock, are available on the Company’s website (http://www.avnet.com under the “Investor“Company — Investor Relations — SEC Filings” caption) as soon as reasonably practicable after the report is electronically filed with, or furnished to, the Securities and Exchange Commission.
These details about Avnet’s website and its content are only for information. The contents of the Company’s website are not, nor shall they be deemed to be, incorporated by reference in this Report.
Item 1A. Risk Factors
This Report contains forward-looking statements with respect to the financial condition, results of operations and business of Avnet. These statements are generally identified by words like “believes,” “plans,” “expects,” “anticipates,” “should,” “will,” “may,” “estimates” or similar expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties. Except as required by law, Avnet does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that may cause actual results to differ materially from those contained in the forward-looking statements include those discussed below.
The factors discussed below make the Company’s operating results for future periods difficult to predict and, therefore, prior results are not necessarily indicative of results to be expected in future periods. Any of the below factors, or any other factors discussed elsewhere in this Report, may have an adverse effect on the Company’s financial results, operations, prospects and liquidity. The Company’s operating results have fluctuated in the past and likely will continue to do so. If the Company’s operating results fall below its forecasts and the expectations of public market analysts and investors, the trading price of the Company’s common stock will likely decrease.
Economic weakness and geopolitical uncertainty could adversely affect the Company’s results and prospects.
The Company'sCompany’s financial results, operations and prospects depend significantly on worldwide economic and geopolitical conditions, the demand for its products and services, and the financial condition of its customers and suppliers. Economic weakness and geopolitical uncertainty have in the past resulted, and may result in the future, in decreased revenues,sales, margins earnings and asset impairments, including goodwill and other intangible assets.earnings. Economic weakness and geopolitical uncertainty may also lead the Company to impair assets, including goodwill, intangible assets and other long-lived assets, take restructuring actions and reduce associated
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expenses in response to decreased revenuessales or margins. The Company may not be able to adequately adjust its cost structure in a timely fashion, which may adversely impact its profitability. Uncertainty about economic conditions may increase foreign currency volatility in markets in which the Company transacts business, which may negatively impact the Company’s results. Economic weakness and geopolitical uncertainty also make it more difficult for the Company to manage inventory levels and/or collect customer receivables, which may result in provisions to create reserves, write-offs, reduced access to liquidity and higher financing costs.
The electronic components and computer industries are highlyCompany experiences significant competitive and if the Company fails to compete effectively,pressure, which may negatively impact its revenues, gross profit margins and prospects may decline.
The market for the Company'sCompany’s products and services is very competitive and subject to rapid technological advances, new market entrants, non-traditional competitors, changes in industry standards and changes in customer needs.needs and consumption models. Not only does the Company compete with other global distributors, it also competes for customers with regional distributors and some of the Company'sCompany’s own suppliers that maintain direct sales efforts. In addition, as the Company expands its offerings and geographies, the Company may encounter increased competition from current or new competitors. The Company'sCompany’s failure to maintain and enhance its competitive position could adversely affect its business and prospects. Furthermore, the Company'sCompany’s efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability.
The size of the Company'sCompany’s competitors vary across market sectors, as do the resources the Company has allocated to the sectors and geographic areas in which it does business. Therefore, some competitors may have greater resources or a more extensive customer or supplier base than the Company has in one or more of its market sectors and geographic areas, which may result in the Company not being able to effectively compete in certain markets which could impact the Company'sCompany’s profitability and prospects.
Changes in semiconductorscustomer needs and consumption models could significantly affect the Company'sCompany’s operating results asresults.
Changes in customer needs and consumption models may cause a large portion of revenues and gross profit come from sales of semiconductors,decline in the Company’s billings, which iswould have a highly cyclical industry.
Due to the Company’s increased online sales, system interruptions and delays that make its websites and services unavailable or slow to respond may reduce the attractiveness of its products and services to its customers. If the Company is unable to continually improve the efficiency of its systems, it could cause systems interruptions or delays and adversely affect the Company’s operating results.
Failure to maintain itsor add relationships with key suppliers could adversely affect the Company’s sales.
One of the Company'sCompany’s competitive strengths is the breadth and quality of the suppliers whose products the Company distributes. However, salesbillings of products and services from one of the Company'sCompany’s suppliers, IBM,Texas Instruments (“TI”), accounted for approximately 13%11% of the Company'sCompany’s consolidated revenuesbillings in fiscal 2014.2017. Management expects IBMTI’s products and services to continue to account for roughly a similar percentage of the Company'sCompany’s consolidated salesbillings in fiscal 2015.2018. The Company'sCompany’s contracts with its suppliers including those with IBM, vary in duration and are generally terminable by either party at will upon notice. To the extent IBM or otherany primary suppliers terminate or significantly
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reduce their volume of business with the Company in the future, because of a product shortage, an unwillingness to do business with Avnet, changes in strategy or otherwise, the Company'sCompany’s business and relationships with its customers could be negatively affected because its customers depend on the Company'sCompany’s distribution of electronic componentstechnology hardware and computer productssoftware from the industry'sindustry’s leading suppliers. In addition, suppliers’ strategy shifts or performance issues may negatively affect the Company’s financial results. The competitive landscape has also experienced a consolidation among suppliers, which could negatively impact the Company’s profitability and customer base. Further, to the extent that any of the Company'sCompany’s key suppliers modify the terms of their contracts including, without limitation, the terms regarding price protection, rights of return, rebates or other terms that protect or enhance the Company'sCompany’s gross margins, it could negatively affect the Company'sCompany’s results of operations, financial condition or liquidity.
The Company'sCompany’s non-U.S. locations represent a significant portion of its revenuesales and, consequently, the Company is exposed to risks associated with operating internationally.
During fiscal
· | potential restrictions on the Company’s ability to repatriate funds from its foreign subsidiaries; |
· | foreign currency and interest rate fluctuations and the impact on the Company’s results of operations; |
· | import and export duties and value-added taxes; |
· | compliance with foreign and domestic import and export regulations, data privacy regulations, business licensing requirements, environmental regulations and anti-corruption laws, the failure of which could result in severe penalties including monetary fines, criminal proceedings and suspension of import or export privileges; |
· | complex and changing tax laws and regulations; |
· | regulatory requirements and prohibitions that differ between jurisdictions; |
· | economic and political instability (including the uncertainty caused by the United Kingdom’s exit from the European Union), terrorism and potential military conflicts or civilian unrest; |
· | fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure; |
· | natural disasters and health concerns; |
· | differing environmental regulations and employment practices and labor issues; and |
· | the risk of non-compliance with local laws. |
In addition to the cost of compliance, the potential criminal penalties for violations of import or export regulations and anti-corruption laws by the Company or its third-party agents create heightened risks for the Company'sCompany’s international operations. In the event that a governing regulatory body determineddetermines that the Company hadhas violated applicable import or export regulations or anti-corruption laws, the Company could be fined significant sums, incur sizable legal defense costs and/or its import or export capabilities could be restricted, which could have a material and adverse effect on the Company'sCompany’s business. Additionally, allegations that the Company has violated a governmental regulation may negatively impact the Company'sCompany’s reputation, which may result in customers or suppliers being unwilling to do business with the
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Company. While the Company has adopted measures and controls designed to ensure compliance with these laws, the Company cannot be assured that such measures will be adequate or that its business will not be materially and adversely impacted in the event of an alleged violation.
The Company'sCompany transacts sales, pays expenses, owns assets and incurs liabilities in countries using currencies other than the U.S. Dollar. Because the Company’s consolidated financial statements are presented in U.S. Dollars, the Company must translate sales, income and expenses, as well as assets and liabilities, into U.S. Dollars at exchange rates in effect during each reporting period. Therefore, increases or decreases in the exchanges rates between the U.S. Dollar and other currencies affect the Company’s reported amounts of sales, operating income, assets and liabilities denominated in foreign currencies. In addition, unexpected and dramatic changes in foreign currency exchange rates may negatively affect the Company’s earnings from those markets. While the Company may use derivative financial instruments to further reduce its net exposure to foreign currency exchange rate fluctuations, there can be no assurance that fluctuations in foreign currency exchange rates will not materially affect the Company’s financial results. Further, foreign currency instability and disruptions in the credit and capital markets may increase credit risks for some of the Company’s customers and may impair its customers’ ability to repay existing obligations.
If the Company’s internal information systems fail to function properly, or if the Company is unsuccessful in the implementation, integration or upgrade of information systems, its business operations could suffer.
The Company is dependent on its information systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable information on financial and operational results. Currently, the Company’s global operations are tracked with multiple information systems. The Company is in the process of implementing a new global enterprise resource planning (“ERP”) platform to meet the current, emerging and future needs of Avnet. This global ERP implementation is extremely complex, in part, because of a wide range of processes, the multiple legacy systems used and the Company’s business operations. There is no guarantee that the Company will be successful in implementing this ERP and other information systems or that there will not be implementation or integration difficulties that will adversely affect the Company’s ability to complete business transactions and ensure accurate recording and reporting of financial data. In addition, the Company may be unable to achieve the expected efficiencies and cost savings as a result of the ERP implementation projects, thus negatively impacting the Company’s financial results. A failure of any of these information systems in a way described above or material difficulties in upgrading these information systems could have an adverse effect on the Company’s business, internal controls and reporting obligations under federal securities laws.
The Company’s acquisition strategy may not produce the expected benefits, which may adversely affect the Company'sCompany’s results of operations.
Avnet has made, and expects to continue to make, strategic acquisitions or investments in companies around the world to further its strategic objectives and support key business initiatives. Acquisitions and investments involve risks and uncertainties, some of which may differ from those associated with Avnet'sAvnet’s historical operations. The risks relating to such acquisitions and investments include, but are not limited to, risks relating to expanding into emerging markets and business areas, adding additional product lines and services, impacting existing customer and supplier relationships, incurring costs or liabilities associated with the companies acquired and diverting management'smanagement’s attention from existing business operations. As a result, the Company'sCompany’s profitability may be negatively impacted. In addition, the Company may not be successful in integrating the acquired businesses or the integration may be more difficult, costly or time-consuming than anticipated. Further, any litigation relating to a potential acquisition will result in an increase in the expenses associated with the acquisition or cause a delay in completing the acquisition, thereby impacting the Company'sCompany’s profitability. The Company may experience disruptions that could, depending on the size of the acquisition, have an adverse effect on its business, especially where an acquisition target may have pre-existing non-compliancecompliance issues or pre-existing deficiencies or material weaknesses in internal controls as those terms are defined under relevant SEC rules and regulations.over financial reporting. Furthermore, the Company
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may not realize all of the anticipated benefits from its acquisitions, which could adversely affect the Company'sCompany’s financial performance.
Major disruptions to the Company’s logistics capability could have a materialan adverse impact on the Company’s operations.
The Company'sCompany’s global logistics services are operated through specialized, centralized or outsourced distribution centers around the globe. The Company also depends almost entirely on third-party transportation service providers for the delivery of products to its customers. A major interruption or disruption in service at one or more of its distribution centers for any reason (such as information technology issues, natural disasters, pandemics, or significant disruptions of services from the Company’s third-party transportation providers) could cause cancellations or delays in a significant number of shipments to customers and, as a result, could have a severean adverse impact on the Company'sCompany’s business partners, and on the Company’s business, operations and financial performance.
If the Company’s internal information systems failCompany sustains cyber attacks or other privacy or data security incidents that result in security breaches, it could suffer a loss of sales and increased costs, exposure to function properly or experience a security breach, or if the Company is unsuccessful in the implementation, integration or upgrade of information systems, its business operations could suffer.
The Company's expanding operations put increasing pressure on the Company's information systems to facilitate the day-to-day operations of the business and to produce timely, accurate and reliable information on financial and operational results. Currently, the Company's global operations are tracked with multiple information systems, some of which are subject to ongoing IT projects designed to streamline or optimize the Company's global information systems. There is no guarantee that the Company will be successful at all times in these efforts or that there will not be implementation or integration difficulties that will adversely affect the Company's ability to complete business transactions timely or the accurate and timely recording and reporting of financial
The costs to eliminate or address the foregoing security breachthreats and vulnerabilities before or after a cyber incident could be significant. The Company’s remediation efforts may not be successful and could result in sensitive data being lost, manipulatedinterruptions, delays or exposed to unauthorized personscessation of service, and loss of existing or to the public. Such a breach may harmpotential suppliers or customers. In addition, breaches of the Company’s reputationsecurity measures and the unauthorized dissemination of sensitive personal, proprietary or confidential information about the Company, its business prospects and subjectpartners or other third parties could expose the Company to legal claims if there is loss, disclosure or misappropriation of or access to the Company’s business partners' information. Assignificant potential liability and reputational harm. As threats related to cybersecurity breachescyber attacks develop and grow, the Company may also find it necessary to make further investments to protect its data and infrastructure, which may impact the Company’s profitability.
Declines in the value of the Company'sCompany’s inventory or unexpected order cancellations by the Company'sCompany’s customers could adversely affect its business, results of operations, financial condition and liquidity.
The electronic components and computerintegrated products industries are subject to rapid technological change, new and enhanced products, changes in customer needs and changes in industry standards and regulatory requirements, which can contribute to a decline in value or obsolescence of inventory. Regardless of the general economic environment, it is possible that prices will decline due to a decrease in demand or an oversupply of products and, as a result of the price declines, there may be greater risk of declines in inventory value. Although it is the policy of many of the Company's Company’s
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suppliers to offer distributors like Avnet certain protections from the loss in value of inventory (such as price protection and limited rights of return), the Company cannot be assured that such policies will fully compensate for the loss in value, or that the vendorssuppliers will choose to, or be able to, honor such agreements, some of which are not documented and, therefore, subject to the discretion of the vendor.supplier. In addition, the majority of the Company'sCompany’s sales are made pursuant to individual purchase orders, rather than through long-term sales contracts. Where there is a contract, such contract is generally terminable at will upon notice. The Company cannot be assured that unforeseen new product developments, declines in the value of the Company'sCompany’s inventory or unforeseen order cancellations by its customers will not adversely affect the Company'sCompany’s business, results of operations, financial condition or liquidity.
Substantial defaults by the Company'sCompany’s customers or suppliers on its accounts receivable or the loss of significant customers could have a significant negative impact on the Company'sCompany’s business, results of operations, financial condition or liquidity.
A significant portion of the Company'sCompany’s working capital consists of accounts receivable from customers.receivable. If customersentities responsible for a significant amount of accounts receivable were to cease doing business, direct their business elsewhere, become insolvent or otherwise unable to pay the amount they owe the Company, or were to become unwilling or unable to make such payments in a timely manner, the Company'sCompany’s business, results of operations, financial condition or liquidity could be adversely affected. An economic or industry downturn could adversely affect the collectability of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of management'smanagement’s expectations. A significant deterioration in the Company'sCompany’s ability to collect on accounts receivable in the United States could also impact the cost or availability of financing under its accounts receivable securitization program (see
The Company may not have adequate or cost-effective liquidity or capital resources.
The Company'sCompany’s ability to satisfy its cash needs and implement its capital allocation strategy depends on its ability to generate cash from operations and to access the financial markets, both of which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company'sCompany’s control.
The Company may need to satisfy its cash needs through external financing. However, external financing may not be available on acceptable terms or at all. As of
Under certain of its credit facilities, the Company is required to maintain certain specified financial ratios and meetpass certain financial tests. If the Company fails to meet these financial ratios and/or pass these tests, it may be unable to continue to utilize these facilities. If the Company is unable to utilize these facilities, it may not have sufficient cash available to make interest payments, on andto repay indebtedness andor for general corporate needs. General economic or business conditions, domestic and foreign, may be less favorable than management expects and could adversely impact the Company'sCompany’s sales or its ability to collect receivables from its customers, which may impact access to the Company'sCompany’s accounts receivable securitization program.
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In order to be successful, the Company must attract, retain, train, motivate and develop key employees, and failure to do so could adversely impact the Company’s results and strategic initiatives.
Identifying, developing internally or hiring externally, training and retaining qualified employees are critical to the Company’s future, and competition for experienced employees in the Company’s industry can be intense. Changing demographics and labor work force trends may result in a loss of knowledge and skills as experienced workers leave the Company. In addition, as global opportunities and industry demand shifts, and as the Company expands its offerings, realignment, training and hiring of skilled personnel may not be sufficiently rapid. From time to time the Company has effected restructurings, which eliminate a number of positions. Even if such personnel are not directly affected by the restructuring effort, such terminations can have a negative impact on morale and the Company’s ability to attract and hire new qualified personnel in the future. If the Company loses existing qualified personnel or is unable to hire new qualified personnel, as needed, the Company’s business, financial condition and results of operations could be seriously harmed.
The agreements governing some of the Company'sCompany’s financings contain various covenants and restrictions that limit themanagement’s discretion of management in operating itsthe business and could prevent management from engaging in some activities that may be beneficial to the Company'sCompany’s business.
The agreements governing the Company'sCompany’s financing, including its credit facility, accounts receivable securitization program and the indentures governing the Company'sCompany’s outstanding notes, contain various covenants and restrictions that, in certain circumstances, limit the Company'sCompany’s ability, and the ability of certain subsidiaries, to:
· | grant liens on assets; |
· | make restricted payments (including, under certain circumstances, paying dividends on common stock or redeeming or repurchasing common stock); |
· | make certain investments; |
· | merge, consolidate or transfer all or substantially all of the Company’s assets; |
· | incur additional debt; or |
· | engage in certain transactions with affiliates. |
As a result of these covenants and restrictions, the Company may be limited in the future in how it conducts its business and may be unable to raise additional debt, repurchase common stock, pay a dividend, compete effectively or make further investments.
The Company may become involved in intellectual property disputes that could cause it to incur substantial costs, divert themanagement’s efforts of management or require it to pay substantial damages or licensing fees.
From time to time, the Company receives notifications alleging infringements of intellectual property rights allegedly held by others relating to the Company'sCompany’s business or the products or services it sells. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of managementmanagement’s efforts and other resources and could have an adverse effect on the Company'sCompany’s operations. Further, the Company may be obligated to indemnify and defend its customers if the products or services the Company sells are alleged to infringe any third party'sparty’s intellectual property rights. While the Company may be able to seek indemnification from its suppliers for itself and its customers against such claims, there is no assurance that it will be successful in obtainingrealizing such indemnification or that the Company will be fully protected against such claims. In addition, the Company is exposed to potential liability for technology that it develops for which it has no indemnification protections. If an infringement claim against the
13
Company is successful, the Company may be required to pay damages or seek royalty or license arrangements, which may not be available on commercially reasonable terms. The Company may have to stop selling certain products or services, which could affect its ability to compete effectively.
Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, changes in business performance or unfavorable assessments from tax audits could adversely affect the Company’s effective tax rates, deferred taxes, financial condition and results of operations.
As a multinational corporation, the Company is subject to the tax laws and regulations of the United States and many foreign jurisdictions. From time to time, regulations may be enacted that could adversely affect the Company’s tax positions. There can be no assurance that the Company’s cash flow, and in some cases the effective tax rate, will not be adversely affected by these potential changes in regulations or by changes in the interpretation of existing tax law and regulations. The tax laws and regulations of the various countries where the Company has operations are extremely complex and subject to varying interpretations. Although the Company believes that its historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that these tax positions will not be challenged by relevant tax authorities or that the Company would be successful in defending against any such challenge.
The Company’s future income tax expense could also be favorably or adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes to its operating structure.
If the Company fails to maintain effective internal controls, it may not be able to report its financial results accurately or timely, or prevent or detect fraud, which could have an adverse effect on the Company’s business or the market price of the Company’s securities.
Effective internal controls over financial reporting are necessary for the Company to provide reliable financial reports and to effectively prevent or detect fraud. If the Company cannot provide reliable financial reports and effectively prevent or detect fraud, its brand and operating results could be harmed. Internal controls over financial reporting may not prevent or detect misstatements because such controls are inherently limited; such limitations include the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls cannot provide absolute assurance with respect to the preparation and fair presentation of financial statements. In addition, if not properly maintained and updated, internal controls over financial reporting may become inadequate. If the Company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved internal controls, or if the Company experiences difficulties in their implementation, the Company’s business and operating results could be harmed. Additionally, the Company may be subject to sanctions or investigations by regulatory authorities, and the Company could fail to meet its reporting obligations, all of which could have an adverse effect on its business or the market price of the Company’s securities.
Failure to comply with the requirements of environmental regulations could adversely affect the Company’s business.
The Company is subject to various federal, state, local and foreign laws and regulations addressing environmental and other impacts from product disposal, use of hazardous materials in products, recycling of products at the end of their useful life and other related matters. While the Company strives to ensure it is in full compliance with all applicable regulations, certain of these regulations impose liability without fault. Additionally, the Company may be held responsible for the prior activities of an entity it acquired. Failure to comply with these regulations could result in substantial costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury. Further, environmental laws may become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations.
14
Not applicable.
Item 2. Properties
The Company owns and leases approximately 1.72.5 million and 7.14.4 million square feet of space, respectively, of which approximately 37%30% is located in the United States. The following table summarizes certain of the Company’s key facilities.
Approximate | Leased | ||||||
Square | or | ||||||
Location | Footage | Owned | Primary Use | ||||
Poing, Germany | 570,000 | Owned | EC warehousing, value-added operations and offices | ||||
Chandler, Arizona | 400,000 | Owned | EC warehousing and value-added operations | ||||
Tongeren, Belgium | 390,000 | Owned | EC warehousing and value-added operations | ||||
Leeds, United Kingdom | 280,000 | Owned | PF warehousing, sales and marketing | ||||
Chandler, Arizona | 230,000 | Leased | EC warehousing, integration and value-added operations | ||||
Gaffney, South Carolina | 220,000 | Owned | PF warehousing | ||||
Hong Kong, China | 180,000 | Leased | EC warehousing and value-added operations | ||||
Phoenix, Arizona | 180,000 | Leased | Corporate and EC Americas headquarters | ||||
Liege, Belgium | 140,000 | Leased | PF warehousing | ||||
Item 3. Legal Proceedings
As a result primarily of certain former manufacturing operations, Avnet has incurred and may have future liability under various federal, state and local environmental laws and regulations, including those governing pollution and exposure to, and the handling, storage and disposal of, hazardous substances. For example, under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) and similar state laws, Avnet is and may be liable for the costs of cleaning up environmental contamination on or from certain of its current or former properties, and at off-site locations where the Company disposed of wastes in the past. Such laws may impose joint and several liability. Typically, however, the costs for cleanupclean up at such sites are allocated among potentially responsible parties based upon each party’s relative contribution to the contamination, and other factors.
Pursuant to SEC regulations, including but not limited to Item 103 of Regulation S-K, the Company regularly assesses the status of and developments in pending environmental and other compliance related legal proceedings to determine whether any such proceedings should be identified specifically in this discussion of legal proceedings, and has concluded that no particular pending environmental legal
The Company is also partycurrently subject to various other lawsuits, claims,pending and potential legal matters and investigations relating to compliance with governmental laws and other legal proceedings arising from time to time in the normal course of business. While litigation is subject to inherent uncertainties, managementregulations, including import/export and environmental matters. The Company currently believes that the ultimate outcomeresolution of these proceedings, individually and in the aggregate,such matters will not have a material adverse effect on the Company’s financial position or liquidity, orbut could possibly be material to its results of operations.
Item 4. Mine Safety Disclosures
15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market price per share
The Company’s common stock is listed on the New York Stock Exchange under the symbol AVT. Quarterly high and low stock closing prices (as reported for the New York Stock Exchange composite transactions) and dividends declared (none in fiscal 2013) for the last two fiscal years were:
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| 2016 |
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| Dividends |
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Fiscal Quarters |
| High |
| Low |
| Declared |
| High |
| Low |
| Declared |
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1st |
| $ | 42.06 |
| $ | 38.80 |
| $ | 0.17 |
| $ | 44.04 |
| $ | 38.63 |
| $ | 0.17 |
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2nd |
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| 48.84 |
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| 40.50 |
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| 0.17 |
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| 46.95 |
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| 42.84 |
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| 0.17 |
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3rd |
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| 47.61 |
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| 44.01 |
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| 0.18 |
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| 44.80 |
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| 37.78 |
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| 0.17 |
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4th |
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| 44.96 |
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| 35.96 |
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| 0.18 |
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| 44.75 |
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| 38.92 |
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| 0.17 |
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| 2014 | 2013 | |||||||||||||||||
| Fiscal Quarters | High | Low | Dividends Declared | High | Low | |||||||||||||
| 1st | $ | 41.73 | $ | 33.97 | $ | 0.15 | $ | 33.51 | $ | 28.91 | ||||||||
| 2nd | 43.43 | 38.77 | 0.15 | 31.62 | 27.01 | |||||||||||||
| 3rd | 46.17 | 39.32 | 0.15 | 36.86 | 30.61 | |||||||||||||
| 4th | 47.50 | 41.68 | 0.15 | 35.39 | 31.54 | |||||||||||||
The declaration and payment of future dividends will be at the discretion of the Board of Directors and will be dependent upon the Company'sCompany’s financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deemsconsiders relevant. In addition, certain of the Company'sCompany’s debt facilities may restrict the declaration and payment of dividends, depending upon the Company'sCompany’s then current compliance with certain covenants.
Record Holders
As of
JulyEquity Compensation Plan Information as of
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| Number of |
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| Securities |
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| Number of |
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| to be Issued |
| Weighted- |
| Securities |
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| Upon |
| Average |
| Remaining |
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| Exercise of |
| Exercise Price of |
| Available for |
| |
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| Outstanding |
| Outstanding |
| Future Issuance |
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| Options, |
| Options, |
| Under Equity |
| |
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| Warrants and |
| Warrants and |
| Compensation |
| |
Plan Category |
| Rights |
| Rights |
| Plans |
| |
Equity compensation plans approved by security holders |
| 4,192,578 | (1) | $ | 40.51 |
| 6,222,481 | (2) |
| Plan Category | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |||||
| Equity compensation plans approved by security holders | 4,599,384 | (1) | $30.84 | 6,371,765 | (2) | |||
(1) | Includes |
(2) | Does not include |
16
Stock Performance Graphs and Cumulative Total Returns
The graph below compares the cumulative 5-year total return of holders of Avnet, Inc.’s common stock with the cumulative total returns of the S&P 500 index and certain of Avnet’s peer companies ("(“peer group"group”) in the electronics and information technology distribution industry.. The graph tracks the performance of a hypothetical $100 investment in Avnet’s common stock, in the peer group, and the S&P 500 index (with the reinvestment of all dividends) from June 27, 200930, 2012 to
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| 6/30/2012 |
| 6/29/2013 |
| 6/28/2014 |
| 6/27/2015 |
| 7/2/2016 |
| 7/1/2017 |
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Avnet, Inc. |
| $ | 100 |
| $ | 108.88 |
| $ | 143.70 |
| $ | 140.37 |
| $ | 136.48 |
| $ | 133.98 |
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S&P 500 |
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| 100 |
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| 120.60 |
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| 150.27 |
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| 161.43 |
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| 167.87 |
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| 197.92 |
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Peer Group |
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| 100 |
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| 118.48 |
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| 173.54 |
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| 159.97 |
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| 169.80 |
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| 224.08 |
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17
| 6/27/2009 | 7/3/2010 | 7/2/2011 | 6/30/2012 | 6/29/2013 | 6/28/2014 | ||||||
| Avnet, Inc. | $100.00 | $111.43 | $151.25 | $143.40 | $156.13 | $206.06 | |||||
| S&P 500 | 100.00 | 114.43 | 149.55 | 157.70 | 190.18 | 236.98 | |||||
| Peer Group | 100.00 | 101.92 | 152.62 | 136.23 | 158.70 | 234.03 | |||||
The stock price performance included in this graph is not necessarily indicative of future stock price performance. The Company does not make or endorse any predictions as to future stock performance. The performance graph is furnished solely to accompany this Report and is not being filed for purposes of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Issuer Purchases of Equity Securities
In August 2011,February 2017, the Company'sCompany’s Board of Directors (the "Board") approvedamended the Company’s existing share repurchase program to authorize the repurchase of up to
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| Total Number of |
| Approximate Dollar |
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| Total |
| Average |
| Shares Purchased |
| Value of Shares That |
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| Number |
| Price |
| as Part of Publicly |
| May Yet Be |
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| of Shares |
| Paid per |
| Announced Plans |
| Purchased under the |
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Period |
| Purchased |
| Share |
| or Programs |
| Plans or Programs |
| ||
April |
| 1,910,445 |
| $ | 44.47 |
| 1,910,445 |
| $ | 449,833,000 |
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May |
| 900,000 |
| $ | 37.01 |
| 900,000 |
| $ | 416,527,000 |
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June |
| 469,859 |
| $ | 37.17 |
| 469,859 |
| $ | 399,062,000 |
|
18
| Period | Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||
| April | 3,800 | $47.18 | — | $223,223,000 | |||||||
| May | 180,774 | $41.82 | 176,074 | $215,860,000 | |||||||
| June | — | — | — | $215,860,000 | |||||||
Item 6. Selected Financial Data
The following selected financial data has been derived from the Company’s consolidated financial statements. The data set forth below should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto.
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| Years Ended |
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| July 1, |
| July 2, |
| June 27, |
| June 28, |
| June 29, |
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| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
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| (Millions, except for per share and ratio data) |
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Consolidated Statement of Operations: (a) |
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Sales (b) |
| $ | 17,440.0 |
| $ | 16,740.6 |
| $ | 17,655.3 |
| $ | 16,804.9 |
| $ | 15,460.0 |
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Gross profit |
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| 2,369.4 |
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| 2,077.9 |
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| 2,210.1 |
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| 2,199.6 |
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| 2,005.7 |
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Operating income (c)(d) |
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| 461.4 |
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| 572.9 |
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| 653.1 |
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| 599.6 |
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| 453.6 |
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Income tax expense |
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| 47.1 |
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| 87.1 |
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| 86.1 |
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| 84.6 |
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| 43.3 |
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Income from continuing operations |
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| 263.4 |
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| 390.9 |
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| 485.4 |
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| 445.4 |
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| 344.3 |
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Income from discontinued operations |
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| 261.9 |
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| 115.6 |
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| 86.5 |
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| 100.2 |
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| 105.7 |
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Net income(e) |
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| 525.3 |
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| 506.5 |
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| 571.9 |
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| 545.6 |
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| 450.1 |
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Per Share: |
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Earnings - diluted: |
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Earnings from continuing operations |
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| 2.05 |
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| 2.93 |
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| 3.50 |
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| 3.18 |
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| 2.46 |
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Earnings from discontinued operations |
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| 2.03 |
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| 0.87 |
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| 0.62 |
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| 0.71 |
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| 0.75 |
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Earnings per share - diluted |
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| 4.08 |
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| 3.80 |
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| 4.12 |
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| 3.89 |
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| 3.21 |
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Cash dividends declared |
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| 0.70 |
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| 0.68 |
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| 0.64 |
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| 0.60 |
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| — |
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Book value per diluted share |
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| 40.28 |
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| 35.23 |
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| 33.80 |
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| 34.90 |
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| 30.64 |
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Consolidated Balance Sheets: |
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Working capital(f) |
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| 5,080.0 |
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| 4,061.5 |
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| 4,312.6 |
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| 3,907.6 |
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| 3,443.0 |
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Total assets |
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| 9,699.6 |
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| 11,239.8 |
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| 10,800.0 |
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| 11,250.7 |
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| 10,466.3 |
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Long-term debt |
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| 1,729.2 |
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| 1,339.2 |
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| 1,646.5 |
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| 1,209.0 |
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| 1,198.6 |
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Shareholders’ equity |
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| 5,182.1 |
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| 4,691.3 |
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| 4,685.0 |
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| 4,890.2 |
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| 4,289.1 |
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Ratios: |
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Operating income as a percentage of sales |
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| 2.6 | % |
| 3.4 | % |
| 3.7 | % |
| 3.6 | % |
| 2.9 | % |
Net income as a percentage of sales |
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| 3.0 | % |
| 3.0 | % |
| 3.2 | % |
| 3.2 | % |
| 2.9 | % |
Quick ratio |
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| 1.8:1 |
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| 0.8:1 |
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| 0.9:1 |
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| 0.8:1 |
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| 0.8:1 |
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Current ratio |
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| 3.1:1 |
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| 1.8:1 |
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| 2.0:1 |
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| 1.8:1 |
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| 1.7:1 |
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Total debt to capital |
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| 25.6 | % |
| 34.7 | % |
| 29.7 | % |
| 29.8 | % |
| 32.2 | % |
| Years Ended | ||||||||||||||||||||
| June 28, 2014 | June 29, 2013 | June 30, 2012 | July 2, 2011 | July 3, 2010 | ||||||||||||||||
| (Millions, except for per share and ratio data) | ||||||||||||||||||||
| Income: | ||||||||||||||||||||
| Sales | $ | 27,499.7 | $ | 25,458.9 | $ | 25,707.5 | $ | 26,534.4 | $ | 19,160.2 | ||||||||||
| Gross profit | 3,225.7 | 2,979.8 | 3,050.6 | 3,107.8 | 2,280.2 | |||||||||||||||
Operating income(a) | 789.9 | 626.0 | 884.2 | 930.0 | 635.6 | |||||||||||||||
Income tax expense(b) | 155.5 | 99.2 | 223.8 | 201.9 | 174.7 | |||||||||||||||
Net income(c) | 545.6 | 450.1 | 567.0 | 669.1 | 410.4 | |||||||||||||||
| Financial Position: | ||||||||||||||||||||
Working capital(d) | 3,975.4 | 3,535.4 | 3,455.7 | 3,749.5 | 3,190.6 | |||||||||||||||
| Total assets | 11,255.5 | 10,474.7 | 10,167.9 | 9,905.6 | 7,782.4 | |||||||||||||||
| Long-term debt | 1,213.8 | 1,207.0 | 1,272.0 | 1,273.5 | 1,243.7 | |||||||||||||||
| Shareholders’ equity | 4,890.2 | 4,289.1 | 3,905.7 | 4,056.1 | 3,009.1 | |||||||||||||||
| Per Share: | ||||||||||||||||||||
| Basic earnings | 3.95 | 3.26 | 3.85 | 4.39 | 2.71 | |||||||||||||||
| Diluted earnings | 3.89 | 3.21 | 3.79 | 4.34 | 2.68 | |||||||||||||||
| Cash dividends paid | 0.60 | — | — | — | — | |||||||||||||||
| Book value per diluted share | 34.90 | 30.64 | 26.12 | 26.28 | 19.66 | |||||||||||||||
| Ratios: | ||||||||||||||||||||
| Operating income as a percentage of sales | 2.9 | % | 2.5 | % | 3.4 | % | 3.5 | % | 3.3 | % | ||||||||||
| Net income as a percentage of sales | 2.0 | % | 1.8 | % | 2.2 | % | 2.5 | % | 2.1 | % | ||||||||||
| Return on capital | 11.4 | % | 10.6 | % | 12.9 | % | 15.2 | % | 14.0 | % | ||||||||||
| Quick ratio | 1.2:1 | 1.2:1 | 1.2:1 | 1.2:1 | 1.4:1 | |||||||||||||||
Working capital(d) | 1.8:1 | 1.7:1 | 1.7:1 | 1.8:1 | 1.9:1 | |||||||||||||||
| Total debt to capital | 29.8 | % | 32.3 | % | 35.4 | % | 27.2 | % | 29.8 | % | ||||||||||
(a) | In February 2017, the Company completed the sale of its TS Business and as such, the results of that business are classified as discontinued operations in all periods presented. |
(b) | Fiscal 2016 contained 53 weeks compared to 52 weeks in the other fiscal years presented. |
(c) | All fiscal years presented include restructuring, integration and other expenses, which totaled |
(d) | All fiscal years presented |
19
(e) | Certain fiscal years presented were impacted by other expense or income amounts that impact the comparability between years including a gain on disposal of the TS Business of $222.4 million after tax in fiscal 2017, a gain on legal settlement of |
(f) | This calculation of working capital is defined as current assets less current liabilities. See the “Liquidity” section contained in Item 7 of this Annual Report on Form 10-k for further discussion on liquidity. |
Summary of quarterly results (unaudited):results:
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| First |
| Second |
| Third |
| Fourth |
| Fiscal |
| |||||
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| Quarter |
| Quarter |
| Quarter |
| Quarter |
| Year(a) |
| |||||
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| (Millions, except per share amounts) |
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2017(b) |
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Sales |
| $ | 4,118.1 |
| $ | 4,273.6 |
| $ | 4,441.9 |
| $ | 4,606.4 |
| $ | 17,440.0 |
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Gross profit |
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| 522.6 |
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| 586.2 |
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| 630.0 |
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| 630.6 |
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| 2,369.4 |
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Net income |
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| 68.9 |
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| 103.2 |
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| 271.8 |
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| 81.4 |
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| 525.3 |
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Diluted earnings per share |
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| 0.53 |
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| 0.79 |
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| 2.10 |
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| 0.65 |
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| 4.08 |
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2016(c) |
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Sales |
| $ | 4,528.6 |
| $ | 4,161.1 |
| $ | 4,081.9 |
| $ | 3,969.0 |
| $ | 16,740.6 |
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Gross profit |
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| 556.1 |
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| 505.1 |
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| 520.9 |
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| 495.8 |
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| 2,077.9 |
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Net income |
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| 130.3 |
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| 156.0 |
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| 123.4 |
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| 96.8 |
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| 506.5 |
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Diluted earnings per share |
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| 0.96 |
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| 1.16 |
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| 0.94 |
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| 0.75 |
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| 3.80 |
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First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Year(a) | ||||||||||||||||
| (Millions, except per share amounts) | ||||||||||||||||||||
2014(b) | ||||||||||||||||||||
| Sales | $ | 6,345.5 | $ | 7,421.9 | $ | 6,683.6 | $ | 7,048.7 | $ | 27,499.7 | ||||||||||
| Gross profit | 735.2 | 848.6 | 804.9 | 837.0 | 3,225.7 | |||||||||||||||
| Net income | 120.6 | 124.9 | 113.9 | 186.3 | 545.6 | |||||||||||||||
| Diluted earnings per share | 0.86 | 0.89 | 0.81 | 1.33 | 3.89 | |||||||||||||||
2013(c) | ||||||||||||||||||||
| Sales | $ | 5,870.1 | $ | 6,699.5 | $ | 6,298.7 | $ | 6,590.7 | $ | 25,459.0 | ||||||||||
| Gross profit | 684.4 | 768.5 | 756.0 | 770.9 | 2,979.8 | |||||||||||||||
| Net income | 100.3 | 137.5 | 86.2 | 126.1 | 450.1 | |||||||||||||||
| Diluted earnings per share | 0.70 | 0.99 | 0.62 | 0.91 | 3.21 | |||||||||||||||
(a) | Quarters may not total to the fiscal year due to rounding. |
(b) | First quarter of fiscal |
(c) | First quarter of fiscal |
20
For an understanding of Avnet and the significant factors that influenced the Company’s performance during the past three fiscal years, the following discussion should be read in conjunction with the description of the business appearing in Item 1 of this Report and the consolidated financial statements, including the related notes and schedule, and other information appearing in Item 15 of this Report. The Company operates on a “52/53 week” fiscal year. Fiscal
There are references to the impact of foreign currency translation in the discussion of the Company’s results of operations. When the U.S. Dollar strengthens and the stronger exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is a decrease in U.S. Dollars of reported results. Conversely, when the U.S. Dollar weakens and the weaker exchange rates of the current year are used to translate the results of operations of Avnet’s subsidiaries denominated in foreign currencies, the resulting impact is an increase in U.S. Dollars of reported results. In the discussion that follows, results excluding this impact, primarily for EMEA,subsidiaries in Europe, the Middle East and Africa (“EMEA”) and Asia/Pacific, are referred to as “excluding the translation impact of changes in foreign currency exchange rates” or “constant currency.”
In addition to disclosing financial results that are determined in accordance with generally accepted accounting principles in the U.S. (“GAAP”), the Company also discloses certain non-GAAP financial information, including:
· | Sales adjusted for certain items that impact the year-over-year analysis, which includes the impact of certain acquisitions by adjusting Avnet’s prior periods to include the sales of acquired businesses, as if the acquisitions had occurred at the beginning of the earliest period presented. In addition, the prior year sales are adjusted for divestitures by adjusting Avnet’s prior periods to exclude the sales of divested businesses as if the divestitures had occurred at the beginning of the earliest period presented. Fiscal 2016 sales are adjusted for the estimated impact of the extra week of sales in fiscal 2016 as discussed above. Sales taking into account these adjustments are referred to as “organic sales.” |
· | Operating income excluding (i) restructuring, integration and other expenses (see Restructuring, Integration and Other Expenses in this MD&A), and (ii) amortization of acquired intangible assets and other. Operating income excluding such amounts is referred to as “adjusted operating income.” Adjusted operating income excludes the TS Business, which is reported within discontinued operations for all periods presented. |
The reconciliation of operating income to adjusted operating income is presented in the following table:
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| July 2, |
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| 2016 |
| 2015 | |||
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| (Thousands) | |||||||
Operating income |
| $ | 461,400 |
| $ | 572,912 |
| $ | 653,146 |
Restructuring, integration and other expenses |
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| 137,415 |
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| 44,761 |
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| 41,848 |
Amortization of acquired intangible assets and other |
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| 54,526 |
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| 9,784 |
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| 18,130 |
Adjusted operating income |
| $ | 653,341 |
| $ | 627,457 |
| $ | 713,124 |
21
| Years Ended | |||||||||||
| June 28, 2014 | June 29, 2013 | June 30, 2012 | |||||||||
| (Thousands) | |||||||||||
| GAAP operating income | $ | 789,940 | $ | 625,981 | $ | 884,165 | |||||
| Restructuring, integration and other expenses | 94,623 | 149,501 | 73,585 | ||||||||
| Amortization of intangible assets and other | 46,783 | 32,370 | 27,785 | ||||||||
| Adjusted operating income | $ | 931,346 | $ | 807,852 | $ | 985,535 | |||||
Management believes that providing this additional information is useful to the readerreaders to better assess and understand operating performance, especially when comparing results with prior periods or forecasting performance for future periods, primarily because management typically monitors the business both including and excluding these adjustments to GAAP results. Management also uses these non-GAAP measures to establish operational goals and, in somemany cases, for measuring performance for compensation purposes. However, any analysis of results on a non-GAAP basis should be used as a complement to, and in conjunction with, results presented in accordance with GAAP.
Results of Operations
Executive Summary
Sales for fiscal
Gross profit margin of
Operating income margin was
| Years Ended | Percent Change | |||||||||||||||||||||||||
| June 28, 2014 | % of Total | June 29, 2013 | % of Total | June 30, 2012 | % of Total | 2014 to 2013 | 2013 to 2012 | |||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||||||||
| Sales by Operating Group: | ||||||||||||||||||||||||||
| EM Americas | $ | 4,844.9 | 17.6 | % | $ | 5,263.8 | 20.7 | % | $ | 5,678.7 | 22.1 | % | (8.0 | )% | (7.3 | )% | ||||||||||
| EM EMEA | 5,094.9 | 18.5 | 4,096.0 | 16.1 | 4,203.3 | 16.4 | 24.4 | (2.6 | ) | |||||||||||||||||
| EM Asia | 6,604.6 | 24.0 | 5,734.6 | 22.5 | 5,051.1 | 19.6 | 15.2 | 13.5 | ||||||||||||||||||
| Total EM | 16,544.4 | 60.1 | 15,094.4 | 59.3 | 14,933.1 | 58.1 | 9.6 | 1.1 | ||||||||||||||||||
TS Americas | 6,084.6 | 22.1 | 5,452.8 | 21.4 | 5,820.6 | 22.6 | 11.6 | (6.3 | ) | |||||||||||||||||
| TS EMEA | 3,151.2 | 11.5 | 3,181.9 | 12.5 | 3,205.6 | 12.5 | (1.0 | ) | (0.7 | ) | ||||||||||||||||
| TS Asia | 1,719.5 | 6.3 | 1,729.8 | 6.8 | 1,748.2 | 6.8 | (0.6 | ) | (1.1 | ) | ||||||||||||||||
| Total TS | 10,955.3 | 39.9 | 10,364.5 | 40.7 | 10,774.4 | 41.9 | 5.7 | (3.8 | ) | |||||||||||||||||
| Total Avnet, Inc. | $ | 27,499.7 | $ | 25,458.9 | $ | 25,707.5 | 8.0 | % | (1.0 | )% | ||||||||||||||||
| Sales by Geographic Area: | ||||||||||||||||||||||||||
| Americas | $ | 10,929.5 | 39.7 | % | $ | 10,716.6 | 42.1 | % | $ | 11,499.3 | 44.8 | % | 2.0 | % | (6.8 | )% | ||||||||||
| EMEA | 8,246.1 | 30.0 | 7,277.9 | 28.6 | 7,408.9 | 28.8 | 13.3 | (1.8 | ) | |||||||||||||||||
| Asia/Pacific | 8,324.1 | 30.3 | 7,464.4 | 29.3 | 6,799.3 | 26.4 | 11.5 | 9.8 | ||||||||||||||||||
| $ | 27,499.7 | $ | 25,458.9 | $ | 25,707.5 | |||||||||||||||||||||
Sales
Items Impacting Year-over-Year Sales Comparisons
During the past three fiscal years,2017, the Company acquired several businesses impacting both operating groups, as presentedPF. There were no acquisitions in the following table.fiscal 2016 and fiscal 2015. To facilitate more meaningful year-over-year comparisons, the discussions that follow include organic sales as well as sales on a reported basis. Unless otherwise noted, amounts relate to Avnet’s continuing operations for all periods presented.
The table below compares Avnet sales by geographic region for fiscal 2017, fiscal 2016 and fiscal 2015.
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Americas |
| $ | 5,163.9 |
| 29.6 | % | $ | 4,801.3 |
| 28.7 | % | $ | 5,154.5 |
| 29.2 | % | 7.6 | % | (6.9) | % |
EMEA |
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| 5,912.9 |
| 33.9 |
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| 5,103.0 |
| 30.5 |
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| 5,053.0 |
| 28.6 |
| 15.9 |
| 1.0 |
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Asia/Pacific |
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| 6,363.2 |
| 36.5 |
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| 6,836.3 |
| 40.8 |
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| 7,447.8 |
| 42.2 |
| (6.9) |
| (8.2) |
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Total Avnet |
| $ | 17,440.0 |
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| $ | 16,740.6 |
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| $ | 17,655.3 |
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| Acquired Business | Group & Region | Approximate Annualized Sales (1) | Acquisition Date | |||||
| (Millions) | ||||||||
| Fiscal 2014 | ||||||||
| MSC Investoren GmbH | EM EMEA | $ | 461 | October 2013 | ||||
| Nisko Semiconductors, Ltd. | EM EMEA | 18 | August 2013 | |||||
| Seamless Technologies, Inc. | TS Americas | 13 | July 2013 | |||||
| Total fiscal 2014 | $ | 492 | ||||||
| Fiscal 2013 | ||||||||
| RTI Holdings | EM Asia | $ | 78 | April 2013 | ||||
| TSSLink, Inc. | TS Americas | 10 | December 2012 | |||||
| Universal Semiconductor, Inc. | EM Americas | 75 | December 2012 | |||||
| Genilogix | TS Americas | 23 | November 2012 | |||||
| Brightstar Partners, Inc. | TS Americas | 14 | November 2012 | |||||
| Magirus AG | TS EMEA | 633 | October 2012 | |||||
| Tekdata Interconnections, Limited | EM EMEA | 10 | October 2012 | |||||
| Internix, Inc. | EM Asia | 264 | August 2012 | |||||
| C.R.G. Electronics, Ltd. | EM EMEA | 24 | August 2012 | |||||
| Pepperweed Consulting | TS Americas | 12 | August 2012 | |||||
| Mattelli Limited | TS EMEA | 1 | July 2012 | |||||
| Altron GmbH & Co KG | EM EMEA | 34 | July 2012 | |||||
| Total fiscal 2013 | $ | 1,178 | ||||||
| Fiscal 2012 | ||||||||
| Ascendant Technology | TS Americas & TS EMEA | $ | 86 | April 2012 | ||||
| Nexicore Services | TS Americas | 85 | April 2012 | |||||
| Controlling interest in a non-wholly owned entity | EM Americas | 62 | January 2012 | |||||
| Pinnacle Data Systems | TS Americas | 27 | January 2012 | |||||
| Canvas Systems | TS Americas & TS EMEA | 118 | January 2012 | |||||
| Unidux Electronics Limited (Singapore) | EM Asia | 145 | January 2012 | |||||
| Round2 Technologies | TS Americas | 54 | January 2012 | |||||
| DE2 SAS | EM EMEA | 11 | November 2011 | |||||
| JC Tally Trading Co. & Shanghai FR International Trading | EM Asia | 99 | August 2011 | |||||
| Prospect Technology | EM Asia | 142 | August 2011 | |||||
| Amosdec SAS | TS EMEA | 83 | July 2011 | |||||
| Total fiscal 2012 | $ | 912 | ||||||
Fiscal
The table below provides the comparison of reported and organic fiscal
| Sales as Reported | Acquisition/Divested Sales | Transfer of Operations from EM to TS(1) | Organic Sales | 2014 to 2013 Organic Sales Change | ||||||||||||||
| (Dollars in millions) | ||||||||||||||||||
| EM | $ | 16,544.4 | $ | 119.9 | $ | — | $ | 16,664.3 | 9.1 | % | ||||||||
| TS | 10,955.3 | — | — | 10,955.3 | (0.2 | ) | ||||||||||||
| Fiscal 2014 | $ | 27,499.7 | $ | 119.9 | $ | — | $ | 27,619.6 | 5.2 | |||||||||
EM | $ | 15,094.4 | $ | 627.1 | $ | (443.2 | ) | $ | 15,278.3 | |||||||||
| TS | 10,364.5 | 166.2 | 443.2 | 10,973.9 | ||||||||||||||
| Fiscal 2013 | $ | 25,458.9 | $ | 793.3 | $ | — | $ | 26,252.2 | ||||||||||
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Fiscal 2017 |
| $ | 17,440.0 |
| $ | 378.3 |
| $ | 17,818.3 |
| 0.1 | % |
| 1.0 | % |
EC |
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| 16,474.1 |
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| — |
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| 16,474.1 |
| 0.2 |
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| 0.8 |
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PF |
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| 965.9 |
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| 378.3 |
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| 1,344.2 |
| (1.3) |
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| 2.7 |
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| $ | 16,740.6 |
| $ | 1,061.4 |
| $ | 17,802.0 |
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| 16,740.6 |
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| 1,361.4 |
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| 1,361.4 |
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| Sales as Reported | Acquisition Sales | Organic Sales | 2013 to 2012 Organic Sales Change | |||||||||||
| (Dollars in millions) | ||||||||||||||
| EM | $ | 15,094.4 | $ | 148.4 | $ | 15,242.8 | (2.5 | )% | ||||||
| TS | 10,364.5 | 153.8 | 10,518.3 | (9.0 | ) | |||||||||
| Fiscal 2013 | $ | 25,458.9 | $ | 302.2 | $ | 25,761.1 | (5.3 | ) | ||||||
EM | $ | 14,933.1 | $ | 707.6 | $ | 15,640.7 | ||||||||
| TS | 10,774.4 | 789.2 | 11,563.6 | |||||||||||
| Fiscal 2012 | $ | 25,707.5 | $ | 1,496.8 | $ | 27,204.3 | ||||||||
(1) | Includes Premier Farnell acquired on October 17, 2016, which has operations in each Avnet region. |
Sales for fiscal
As a result of certain supplier losses, as well as changes to supplier programs that negatively impact gross profit, the Company may experience lower sales decline at TS.
Fiscal 2016 Comparison to Fiscal 2015
EMThe table below provides the comparison of reported and organic fiscal 2016 sales to fiscal 2015 salesto allow readers to better assess and understand the Company’s sales performance.
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| $ | 16,740.6 |
| $ | (300.0) |
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| (6.9) | % |
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Fiscal 2015 |
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| 17,655.3 |
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| 17,653.3 |
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Sales of $15.09$16.74 billion for fiscal 2013 increased 1.1%2016 decreased 5.2% from fiscal 20122015 sales of $14.93 billion. EM$17.66 billion and organic sales in constant currency decreased 1.2%4.4% year over year. These decreases were due to declines in sales in the EC Americas and EC Asia regions, partially offset by an increase in sales in the EC EMEA region. Sales in the Americas decreased 6.9% due to lower overall demand in the industrial markets served by EC Americas and from disruptions in customer delivery and service capabilities resulting from an ERP implementation in the fourth quarter of fiscal 2016. In EMEA, organic sales in constant currency increased 7.0% due to strong demand in the industrial markets served across the region. Asia organic sales decreased 9.5% year over year in constant currency, which was primarily relateddue to decreased select high volume supply chain engagements in fiscal 2016 compared to fiscal 2015.
23
Gross Profit and Gross Profit Margins
Gross profit in fiscal 2017 was $2.37 billion, an increase of $291.5 million, or 14.0%, from fiscal 2016 primarily due to the Americas region, which (i) experienced weaker demand and (ii) exited the loweracquisition of PF. Gross profit margin commercial components business. On a regionalof 13.6% increased 117 basis the Americas organic sales decreased 10.0%points year over year primarily due to the decision to exitacquisition of PF and from the impact of deselecting lower margin commercial components business. For EMEA, despite the ongoing recessionary trendshigh volume supply chain engagements in EC Asia, partially offset by declines in the region, organic sales were relatively flat year over year in constant currency. Asia organic sales increased 6.5% year over year, which wasEC western regions primarily due to a higher volume of fulfillment sales in fiscal 2013. The higher growth rate in Asia resulted in a regional shift in the mix of sales between the Asia region and the western regions, which negatively impacted EM's overall gross profit and operating income margins.
Gross Profit and Gross Profit Margins
Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A expenses”) were
SG&A expenses were $1.46 billion in fiscal 2016, a decrease of $54.9 million, or 3.6%, from fiscal 2015. The year-over-year decrease in SG&A expenses was primarily due to reductions as a result of favorable changes in foreign currency exchange rates between years, and the impact of prior restructuring and cost savings actions and frompartially offset by an increase in SG&A expenses for other costs, including employee merit compensation increases that took place in January 2016. In fiscal 2016, SG&A expenses as a percentage of sales were 8.7% and as a percentage of gross profit partially offset by increases associatedwere 70.3%, as compared with recently acquired businesses that were not fully integrated for the entire8.6% and 68.6%, respectively, in fiscal 2014 and the effects of inflation and other factors.2015. SG&A expenses as a percentage of gross profit at TS decreased 15 basis points from fiscal 2013 due primarily to the benefits of recent restructuring and costs savings actions and the increase in gross profit, partially offset by the increases associated with recently acquired businesses and the effects of inflation and other factors.
Restructuring, Integration and Other Expenses
During fiscal 2014,2017, the Company took certain actions in an effort to reduce future operating costsexpenses in response to current market and Company specific conditions, including activities necessaryrestructuring actions related to achieve planned synergies from recently acquired businesses.the acquisition of PF. In addition, the Company incurred integration, acquisition/divestiture, accelerated depreciation and other costs primarily associated with acquired or divested businesses and for the consolidation of facilities. As a result, during fiscal 2014 the Company recorded restructuring, integration and other expenses of
24
During fiscal
During fiscal
During fiscal 2015, the Company took certain restructuring actions in an effort to reduce future operating costs including restructuring activities for certain regional and global businesses. In addition, the Company incurred integration and other expenses"costs primarily associated with acquired businesses and certain global and regional businesses. As a result, during fiscal 2015 the Company recorded restructuring, integration and other expenses of $41.8 million. The Company recorded $26.0 million for restructuring costs, which consisted of $15.8 million for severance, $4.7 million for facility exit costs, $4.3 million for asset impairments, and $1.2 million for other restructuring expenses. Integration and other costs including acquisition costs were $12.1 million and $2.9 million, respectively. The Company also recorded a net expense of $0.9 million for changes in estimates for restructuring liabilities established in prior years. The after tax impact of restructuring, integration and other expenses were $30.4 million and $0.22 per share on a diluted basis.
See Note 18, “Restructuring expenses” to the Company'sCompany’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for additional information related to restructuring integration and other expenses.
Operating Income
During fiscal
25
During fiscal 2016, the Company had operating income of $317.8$572.9 million, increased 6.2% year over year and operating income margin remained essentially flat at 2.9%, with improvements at TS Asia being offset by declines in the western regions. Corporate net operating expenses were $134.4 million in fiscal 2014 representing a 12.3% decrease as compared with $126.9 million in fiscal 2013.
Interest Expense
Interest expense for fiscal
Interest expense for fiscal
Other Income (Expense),Expense, net
During fiscal
During fiscal
Income Tax Expense
Avnet’s effective tax rate on income before income taxes from continuing operations was 15.2% in fiscal 2013
Avnet’s effective tax rate on income before income taxes was
Avnet’s effective tax rate on income before income taxes was
26
multinational enterprises and the actual outcome of those matters.
See Note 10, “Income taxes” to the Company’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for additional information related to income taxes.
Income from Discontinued Operations
Income from discontinued operations increased $146.3 million to $261.9 million in fiscal 2017 compared to $115.6 million in fiscal 2016. Excluding the gain on sale of $222.4 million net of tax, income from discontinued operations decreased $76.1 million in fiscal 2017, which only contained 34 weeks as a result of the sale of TS being completed on February 27, 2017.
Income from discontinued operations increased $29.1 million to $115.6 million in fiscal 2016 compared to $86.5 million in fiscal 2015. The year over year improvement was primarily driven by lower operating expenses, partially offset by lower sales year over year.
See Note 3, “Discontinued operations” to the Company’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for additional information and detail on the financial results of discontinued operations.
Net Income
As a result of the factors described in the preceding sections of this MD&A, the Company’s net income in fiscal
Liquidity and Capital Resources
Cash Flows
Cash Flows from Operating Activities
The Company generated
27
During fiscal
Cash Flows from Financing Activities
During fiscal
During fiscal
During fiscal
Cash Flows from Investing Activities
During fiscal
During fiscal 2016, the Company used $137.4 million for capital expenditures primarily related to information system development costs, computer hardware and software purchases and facilities costs. Additionally, the Company used $30.7 million for investing activities related to discontinued operations primarily related to acquisitions and capital expenditures for the TS Business.
28
During fiscal 2015, the Company used $133.4 million for capital expenditures primarily related to information system development costs and computer hardware and software purchases.
Financing Transactions
The Company uses a variety of financing arrangements, both short-term and long-term, to fund its operations in addition to cash generated from operations.operating activities. The Company also uses diversifiedseveral sources of funding so that it does not become overly dependent on one source and to achieve a lower cost of funding through these different alternatives. These financing arrangements include public bonds,debt, short-term and long-term bank loans, and an accounts receivable securitization program. For a detailed description of the Company’s external financing arrangements outstanding at
| June 28, 2014 | % of Total Capitalization | June 29, 2013 | % of Total Capitalization | ||||||||||
| (Dollars in thousands) | |||||||||||||
| Short-term debt | $ | 865,088 | 12.4 | % | $ | 838,190 | 13.2 | % | |||||
| Long-term debt | 1,213,814 | 17.4 | 1,206,993 | 19.1 | |||||||||
| Total debt | 2,078,902 | 29.8 | 2,045,183 | 32.3 | |||||||||
| Shareholders’ equity | 4,890,193 | 70.2 | 4,289,125 | 67.7 | |||||||||
| Total capitalization | $ | 6,969,095 | 100.0 | $ | 6,334,308 | 100.0 | |||||||
The Company also has several small lines of credit and other forms of bank debt in the U.S. and various foreign locations to fund the short-term working capital, foreign exchange, overdraft and letter of credit needs of its wholly owned subsidiaries in EMEA, Asia, Latin America and Canada.globally. Avnet generally guarantees its subsidiaries’ obligations under thesesuch debt facilities. Outstanding borrowings under such forms of debt as ofat the end of fiscal 20142017 was
See Note 8, “Debt” to the Company’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for additional information on financing transactions including the Credit Facility, the Program and the outstanding Notes as of July 1, 2017.
Covenants and Conditions
The Program requires the Company to maintain certain minimum interest coverage and leverage ratios in order to continue utilizing the Program. The Program also contains certain covenants relating to the quality of the receivables sold. If these conditions are not met, the Company may not be able to borrow any additional funds and the financial institutions may consider this an amortization event, as defined in the Program agreements, which would permit the financial institutions to liquidate the accounts receivables sold to cover any outstanding borrowings. Circumstances that could affect the Company’s ability to meet the required covenants and conditions of the Program include the Company’s ongoing profitability and various other economic, market and industry factors. Management does not believe that the covenants under the Program limit the Company’s ability to pursue its intended business strategy or its future financing needs. The Company was in compliance with all covenants of the Program as of
The 2012 Credit Facility contains certain covenants with various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures and also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage ratios. Management does not believe that the covenants in the 2012 Credit Facility limit the Company’s
See Liquidity below for further discussion of the Company’s availability under these various facilities.
Liquidity
The Company had cash and cash equivalents of
29
As of June 28, 2014, the Company had a combined total borrowing capacity of $1.80 billion under the 2012 Credit Facility and the Program. ThereJuly 1, 2017, there were $12.0$100.0 million in borrowings outstanding and $2.0$3.1 million in letters of credit issued under the 2012 Credit Facility and $615.0$142.0 million outstanding under the Program. During fiscal 2014,2017, the Company had an average daily balance outstanding under the 2012 Credit Facility of approximately $7.0$475.4 million and $534.0$504.0 million under the Program. During fiscal 2013,2016, the Company had an average daily balance outstanding under the 2012 Credit Facility of approximately $5.0$306.8 million and $570.0$745.2 million under the Program.
During periods of weakening demand in the electronic components industry, the Company typically generates cash from operating activities. Conversely, the Company is more likely to use operating cash flows for working capital requirements during periods of higher growth. During fiscal 2017, the Company generated $221.0 million from operating activities for continuing operations.
Liquidity is subject to many factors, such as normal business operations as well as general economic, financial, competitive, legislative, and regulatory factors that are beyond the Company’s control. CashForeign cash balances generated and held in foreign locations are generally used for ongoing working capital and capital expenditure needs and to support acquisitions. These balancesacquisitions, and are currently expected to be permanently reinvested outside the United States. If these funds were needed for general corporate use in the United States, the Company wouldmay incur significant income taxestaxes. Under certain circumstances the U.S. Internal Revenue Code may permit the distribution of foreign cash and unremitted earnings to repatriate cash held in foreign locations, but only tobe tax-free depending on the extentnature of the repatriated cash is in excess of any outstanding intercompany loans due to Avnet, Inc. from foreign subsidiaries.distribution. In addition, local government regulations may restrict the Company’s ability to move funds among various locations under certain circumstances. Management does not believe such restrictions would limit the Company’s ability to pursue its intended business strategy.
During fiscal 2017, the Company utilized $802.7 million of cash, net of cash acquired, for acquisitions, repaid $242.8 million of assumed debt relating to the acquisition of PF and repaid approximately $1.46 billion of debt primarily with the proceeds from the sale of TS. The Company has made, and expects to continue to make, strategic investments through acquisition activity to the extent the investments strengthen Avnet’s competitive position and meet management’s return on capital thresholds.
In addition to continuing to make investments in acquisitions, as of July 1, 2017, the Company may repurchase up to an aggregate of $399.1 million of the Company’s common stock through a $1.75 billion share repurchase program approved by the Board of Directors. The Company plans to repurchase stock from time to time at the discretion of management, subject to strategic considerations, market conditions and other factors. The Company may terminate or limit the share repurchase program at any time without prior notice. The timing and actual number of shares repurchased will depend on a variety of factors such as share price, corporate and regulatory requirements, and prevailing market conditions. Additionally, the Company currently expects to pay quarterly cash dividends on shares of its common stock, subject to approval of the Board of Directors. During fiscal 2017, the Company paid cash dividends of $88.7 million on its common stock or approximately $0.18 per share on a quarterly basis.
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The following table highlightsCompany also expects to make capital expenditures, including between $75 million and $125 million over the next two fiscal years, to implement a global ERP system. Additionally, as the Company integrates PF and restructures to transform Avnet into an electronic components focused business, the Company expects to use cash for future restructuring, integration and other expenses.
See Item 6, Selected Financial Data in Part II of this Annual Report on Form 10-K for additional information on the Company’s liquidity and related ratios for the past two fiscal years:
| Years Ended | ||||||||||
| June 28, 2014 | June 29, 2013 | Percentage Change | ||||||||
| (Dollars in millions) | ||||||||||
| Current Assets | $ | 8,954.2 | $ | 8,356.9 | 7.1 | % | ||||
| Quick Assets | 6,149.5 | 5,878.3 | 4.6 | |||||||
| Current Liabilities | 4,978.8 | 4,821.4 | 3.3 | |||||||
Working Capital(1) | 3,975.4 | 3,535.4 | 12.4 | |||||||
| Total Debt | 2,078.9 | 2,045.2 | 1.6 | |||||||
| Total Capital (total debt plus total shareholders’ equity) | 6,969.1 | 6,334.3 | 10.0 | |||||||
| Quick Ratio | 1.2:1 | 1.2:1 | ||||||||
| Working Capital Ratio | 1.8:1 | 1.7:1 | ||||||||
| Debt to Total Capital | 29.8 | % | 32.3 | % | ||||||
Long-Term Contractual Obligations
The Company has the following contractual obligations outstanding as of
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| $ | 1,792.7 |
| $ | 50.1 |
| $ | 542.5 |
| $ | 300.1 |
| $ | 900.0 |
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Interest expense on long-term debt obligations(2) |
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| 77.5 |
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| 147.1 |
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| 100.9 |
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Operating lease obligations |
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| 286.9 |
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| 66.5 |
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| 93.4 |
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| 58.3 |
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| 68.7 |
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| Total | Due in Less Than 1 Year | Due in 1-3 Years | Due in 4-5 Years | Due After 5 Years | |||||||||||||||
Long-term debt, including amounts due within one year(1) | $ | 2,080.9 | $ | 865.1 | $ | 565.8 | $ | — | $ | 650.0 | |||||||||
Interest expense on long-term notes(2) | $ | 304.5 | $ | 79.7 | $ | 96.5 | $ | 69.4 | $ | 58.9 | |||||||||
| Operating leases | $ | 377.5 | $ | 91.3 | $ | 125.0 | $ | 69.2 | $ | 92.0 | |||||||||
(1) | Excludes unamortized discount and issuance costs on |
(2) | Represents interest expense due on |
At June 28, 2014,July 1, 2017, the Company had an estimated liability for income tax contingencies of $128.2$106.8 million,, which is not included in the above table. Cash payments associated with the settlement of these liabilities that are expected to be paid within the next 12 months is $7.8 million.$8.4 million. The settlement period for the remaining amount of the unrecognized tax benefits, including related accrued interest and penalties, cannot be determined and therefore was not included in the table.
The Company does not currently have any material long-term commitments for purchases of inventories from suppliers or for capital expenditures.
Critical Accounting Policies
The Company’s consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses. These estimates and assumptions are based upon the Company’s continuous evaluation of available information including historical results and anticipated future events. Actual results may differ materially from these estimates.
The Securities and Exchange Commission defines critical accounting policies as those that are, in management’s view, most important to the portrayal of the Company’s financial condition and results of operations and that require significant judgments and estimates. Management believes the Company’s most critical accounting policies at the end of fiscal 2017 relate to:
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Valuation of Receivables
The Company maintains an allowance for doubtful accounts for estimated losses primarily resulting from customer defaults. Bad debt expense and the related allowance for doubtful accounts is determined based upon historic customer default experience as well as the Company’s regular assessment of the current and historical financial condition of its customers. Therefore, if actual collection experience or the financial condition of customers were to change, management would evaluate whether adjustments to the allowance for doubtful accounts aremight be necessary.
Valuation of Inventories
Inventories are recorded at the lower of cost (first in — first out) or estimated marketnet realizable value. The Company’s inventories include high-technologyelectronic components embedded systems and computing technologies sold into rapidly changing, cyclical and competitive markets wherein such inventories may be subject to declines in market value or technological obsolescence.
The Company regularly evaluates inventories for excess, obsolescence, orcurrent market prices and other factors that may render inventories less marketable. Write-downs are recorded so that inventories reflect the approximate net realizable value and take into account the Company’s contractual provisions with its suppliers, which may provide certain protections to the Company for product obsolescence and price erosion in the form of rights of return, stock rotation rights, obsolescence allowances and price protections. Because of the large number of products and suppliers and the complexity of managing the process around price protections and stock rotations, estimates are made regarding reductions to the realizable value of inventories. Additionally, assumptions about future demand, market conditions and decisions to discontinue certain product lines impact the evaluation of whether to write-down inventories. If assumptions about future demand change or actual market conditions are less favorable than those assumed by management, management would evaluate whether additional write-downs of inventories are required. In any case, actual net realizable values could be different from those currently estimated.
Accounting for Income Taxes
Management’s judgment is required in determining income tax expense, unrecognized tax benefits and in measuring deferred tax assets and liabilities and the valuation allowances recorded against net deferred tax assets. The recoverability of the Company'sCompany’s net operating loss carry-forwardsdeferred tax assets is dependent upon its ability to generate sufficient future taxable income in certain jurisdictions. In addition, the Company considers historic levels and types of income, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances. Should the Company determine that it is not able to realize all or part of its deferred tax assets in the future, additional valuation allowances may be recorded against the deferred tax assets with a corresponding increase to income tax expense in the period such determination is made. Similarly, should the Company determine that it is able to realize all or part of its deferred tax assets that have an associated valuation allowance established, the Company may release a valuation allowance with a corresponding benefit to income tax expense in the period such determination is made.
The Company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters. These liabilities are based on management'smanagement’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. There may be differences between the anticipated and actual outcomes of these matters that may result in changes in estimates to such liabilities. To the extent such changes in estimates are necessary, the Company'sCompany’s effective tax rate may potentially fluctuate as a result. In accordance with the Company'sCompany’s accounting policy, accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense.
32
In determining the Company's effectiveCompany’s income tax rate,expense, management considers current tax regulations in the numerous jurisdictions in which it operates, and exercises judgment for interpretation and application. Changes to such tax regulations or disagreements with the Company'sCompany’s interpretation or application by tax authorities in any of the Company'sCompany’s major jurisdictions may have a significant impact on the Company'sCompany’s income tax expense.
See Note 1 and Note 10 to the Company’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for further discussion on valuation allowances and unrecognized tax benefits.
Goodwill and Intangible Asset Impairment Expenses
The Company has beena significant amount of goodwill and long-lived assets, created through historical acquisitions that are subject to the financial impactrisk of integrating acquired businesses and expenses related to business restructurings, including those related to businesses acquired and in response to market conditions. impairment.
In connection with such events, management is required to make estimates about the financial impact of such restructuring and integration activities that are inherently uncertain. Accrued liabilities are established based on estimates to cover the cost of severance, facility consolidation and closure, lease termination fees, inventory adjustments based upon acquisition-related termination of supplier agreements and/or the re-evaluation of the acquired working capital assets (primarily inventories and receivables), and the impairment of long-lived assets. Actual amounts incurred could be different from those estimated.
During fiscal
In order to estimate the fair value of its reporting units, the Company uses a combination of an income approach, specifically a discounted cash flow methodology, and a market approach. The discounted cash flow methodology includes market participant assumptions for, among other factors, forecasted sales, gross profit margins, operating profit margins,expenses, cash flows, perpetual growth rates and long-term discount rates, all of which require significant judgments and estimates by management which are inherently uncertain. The market approach methodology requires significant assumptions related to comparable transactions, market multiples, capital structure and control premiums. These assumptions, judgments and estimates may change in the future based upon market conditions or other events and could result in a goodwill impairment charge.expense.
Long-lived assets, including property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, which requires the Company to use judgment. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (“asset group”). An impairment is recognized when the estimated undiscounted future cash flows expected by management from the use of the asset group including its eventual disposition is less than its carrying amount. An impairment is measured as the amount by which an asset group’s net book value exceeds its estimated fair value. The determination of fair value requires the Company to make certain judgments and assumptions. The Company considers a long-lived asset to be abandoned when it has ceased use of such abandoned asset and if the Company has no intent to use or repurpose the asset in the future. The Company
33
continually evaluates the carrying value and the remaining economic useful life of all long-lived assets and will adjust the carrying value and remaining useful life if and when appropriate.
See Note 1 and Note 7 to the Company’s consolidated financial statements included in Item 15 of this Annual Report on Form 10-K for further discussion on the goodwill and long-lived asset impairment test evaluations.
Contingencies and Litigation
From time to time, the Company may become a party to, or otherwise be involved in, various lawsuits, claims, investigations and other legal proceedings in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any currentsuch matters will have a material adverse impact on the Company’s financial condition, liquidity or results of operations.
The Company also is currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations, including import/export and environmental matters. For certain of these matters it is not possible to determine the ultimate outcome, and the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for such matters due primarily to being in the preliminary stages of the related proceedings and investigations. The Company currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or liquidity, but could possibly be material to its results of operations in any one reporting period.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements — In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, as amended (“ASU 2014-09”), to supersede nearly all-existing revenue recognition guidance under GAAP. The core principles of ASU 2014-09 are to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Application of the guidance in ASU 2014-09 is expected to require more judgment and estimates within the revenue recognition process compared to existing GAAP. ASU 2014-09 is required to be adopted by the Company in the first quarter of fiscal 2019. The Company expects to adopt the requirements of ASU 2014-09 using retrospective adoption to each prior reporting period presented. The Company also expects that disclosures related to revenue recognition including judgments made will increase compared to existing GAAP. The Company is currently evaluating the impact of the future adoption of ASU 2014-09 on its consolidated financial statements and does not currently expect significant changes in revenue recognition practices for continuing operations compared to existing GAAP.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The update requires a lessee to recognize assets and liabilities on the consolidated balance sheets for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The update will be effective for the Company in the first quarter of fiscal 2020, using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
34
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”). The update amends accounting guidance for intra-entity transfers of assets other than inventory to require the recognition of income tax consequences when the transfer occurs. The update is effective for fiscal years, and Related Policies
In March 2017, the FASB issued Accounting Standards Update 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line item as other employee compensation costs arising from services rendered during the period and allows only the service cost component eligible for capitalization in assets. Other components of the net periodic benefit cost are to be presented separately from the line item that includes the service cost and outside of any subtotal of operating income and the line item must be appropriately described. If a separate line item is not used, the line item used in the income statement to present the other components of net benefit cost must be disclosed. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within that annual period, with early adoption permitted. The amendment is to be applied retrospectively. The new guidance primarily impacts the income statement presentation of net periodic benefit cost and the Company does not consider revenue recognitionbelieve adoption of this standard will have a material impact on its consolidated financial statements including income before income taxes, but the reported amount of operating income will decrease compared to be a critical accounting policy dueexisting presentation.
In May 2017, the FASB issued Accounting Standards Update 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). The update provides guidance as to which changes to the natureterms or conditions of its business because revenues are generally recognized when persuasive evidencea share-based payment award should be accounted for as a modification under Topic 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of an arrangement exists, delivery has occurredaward as an equity or services have been rendered,liability instrument are the sales pricesame immediately before and after the modification. The standard is fixed or determinableeffective for the Company for annual periods beginning after December 15, 2017. Early adoption is permitted and collectabilityprospective application is reasonably assured. Generally, these criteria are met uponrequired. The Company is currently evaluating the actual shipment or delivery of products or services to the customer depending upon the underlying sales terms. Accordingly, although management makes certain estimates related to possible returns of products from customers, discounts and rebates, such amounts do not require significant judgments or assumptions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company seeks to reduce earnings and cash flow volatility associated with changes in interest rates and foreign currency exchange rates by entering into financial arrangements, from time to time, which are intended to provide an economic hedge against all or a portion of the risks associated with such volatility. The Company continues to have exposure to such risks to the extent they are not economically hedged.
The following table sets forth the scheduled maturities of the Company’s debt outstanding at
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Fixed rate debt(1) |
| $ | 0.5 |
| $ | 0.3 |
| $ | 300.2 |
| $ | 0.1 |
| $ | 300.0 |
| $ | 900.0 |
| $ | 1,501.1 |
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| $ | 49.6 |
| $ | 242.0 |
| $ | — |
| $ | — |
| $ | — |
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| $ | 291.6 |
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(1) | Excludes unamortized discounts and issuance costs. |
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| Fiscal Year | |||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||
Fixed rate debt(1) | $ | 159.7 | $ | 252.6 | $ | 301.3 | $ | — | $ | — | $ | 650.0 | $ | 1,363.6 | |||||||||||||
| Floating rate debt | $ | 705.4 | $ | 12.0 | $ | — | $ | — | $ | — | $ | — | $ | 717.4 | |||||||||||||
The following table sets forth the carrying value and fair value of the Company’s debt and the average interest raterates at
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| $ | 1,501.1 |
| $ | 1,576.5 |
| $ | 1,502.7 |
| $ | 1,596.9 |
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| $ | 291.6 |
| $ | 291.6 |
| $ | 1,001.5 |
| $ | 1,001.5 |
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| Carrying Value at June 28, 2014 | Fair Value at June 28, 2014 | Carrying Value at June 29, 2013 | Fair Value at June 29, 2013 | ||||||||||||
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Fixed rate debt(1) | $ | 1,363.6 | $ | 1,474.7 | $ | 1,562.6 | $ | 1,645.1 | |||||||
| Average interest rate | 5.4 | % | 5.8 | % | |||||||||||
| Floating rate debt | $ | 717.4 | $ | 717.4 | $ | 485.2 | $ | 485.2 | |||||||
| Average interest rate | 1.1 | % | 1.1 | % | |||||||||||
(1) | Excludes unamortized discounts |
Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (i.e., offsetting receivables and payables) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign currency exchange contracts typically with maturities of less than sixty days ("(“economic hedges"hedges”). The Company continues to have exposure to foreign currency risks to the extent they are not hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within "other income (expense),“other expense, net."” Therefore, the changes in valuation of the underlying items being economically hedged are offset by the changes in fair value of the forward foreign currency exchange contracts. The amounts representing the fair value of foreign exchange contracts, based upon level 2 criteria under the fair value hierarchy, are classified in the captions “other current assets” or “accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets and were not material as of June 28, 2014 and June 29, 2013. The Company did not have material gains or losses related to the forward foreign currency exchange contracts during fiscal 20142017, 2016 and 2013.2015. A hypothetical 10% change in foreign currency exchange rates under the forward foreign currency exchange contracts outstanding at June 28, 2014
Item 8. Financial Statements and Supplementary Data
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Item 9A. Controls and Procedures
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the reporting period covered by this report on Form 10-K. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report on Form 10-K, the Company’s disclosure controls and procedures are effective such that material information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 28, 2014.July 1, 2017. In making this assessment, management used the 19922013 framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that the Company maintained effective internal control over financial reporting as of July 1, 2017.June 28, 2014.
The Company acquired Premier Farnell Plc. (“PF”) on October 17, 2016. Management excluded PF from its assessment of the effectiveness of the Company’s internal control over financial reporting as of July 1, 2017. PF represented approximately 15% of the Company’s total consolidated assets as of July 1, 2017, and approximately 5% of the Company’s total consolidated sales for the fiscal year ended July 1, 2017.
The Company’s independent registered public accounting firm, KPMG LLP, has audited the effectiveness of the Company’s internal controls over financial reporting as of
Changes in Internal Control Over Financial Reporting
During the fourth quarter of fiscal 2017, there were no changes to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
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The information called for by Item 10 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on
NovemberThe information called for by Item 11 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on
NovemberItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by Item 12 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on
NovemberThe information called for by Item 13 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 on
NovemberThe information called for by Item 14 is incorporated in this Report by reference to the Company’s definitive proxy statement relating to the Annual Meeting of Stockholders anticipated to be held on
November38
a. The following documents are filed as part of this Report:
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| Avnet, Inc. and Subsidiaries Consolidated Financial Statements: |
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| Consolidated Balance Sheets at July 1, 2017 and July 2, 2016 |
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| Schedules other than that above have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto |
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| Page | ||
| 1. | Consolidated Financial Statements: | |
| Avnet, Inc. and Subsidiaries Consolidated Financial Statements: | ||
| 2. | Financial Statement Schedule: | |
| Schedules other than that above have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto | ||
| 3. | Exhibits | |
SIGNATURES
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: August 16, 2017 | By: | /s/ WILLIAM J. AMELIO |
William J. Amelio | ||
Chief Executive Officer and Director | ||
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby authorizes and appoints each of Richard HamadaWilliam J. Amelio and Kevin Moriarty his or her attorneys-in-fact, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute, may do or cause to be done by virtue hereof.
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
AugustSignature | Title | |
/s/ William J. Amelio | Chief Executive Officer and Director (Principal Executive Officer) | |
/s/ WILLIAM H. SCHUMANN, III William H. Schumann, III | Chairman of the Board and Director | |
/s/ RODNEY C. ADKINS Rodney C. Adkins | Director | |
/s/ J. VERONICA BIGGINS | ||
J. Veronica Biggins | Director | |
/s/ MICHAEL A. BRADLEY | ||
Michael A. Bradley | Director | |
/s/ R. KERRY CLARK | ||
R. Kerry Clark | Director | |
/s/ JAMES A. LAWRENCE | ||
James A. Lawrence | Director | |
/s/ Avid Modjtabai | Director | |
/s/ KEVIN MORIARTY Kevin Moriarty | Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) | |
40
Report of Independent Registered Public Accounting Firm
Avnet, Inc.:
We have audited the accompanying consolidated balance sheets of Avnet, Inc. and subsidiaries (the Company)(Avnet) as of June 28, 2014July 1, 2017 and June 29, 2013July 2, 2016, and the related consolidated statements of operations, comprehensive income, shareholders'shareholders’ equity, and cash flows for each of the years in the three-year period ended June 28, 2014July 1, 2017. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule for each of the years in the three-year period ended June 28, 2014July 1, 2017, as listed in the accompanying index. We also have audited the Company'sAvnet’s internal control over financial reporting as of June 28, 2014July 1, 2017, based on the criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company'sAvnet’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management'sManagement’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements an opinion on theand financial statement schedule and an opinion on the Company'sAvnet’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Avnet Inc. and subsidiaries as of June 28, 2014July 1, 2017 and June 29, 2013July 2, 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended June 28, 2014July 1, 2017, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule for each of the years in the three-year period ended June 28, 2014July 1, 2017, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Furthermore, in our opinion, Avnet Inc. maintained, in all material respects, effective internal control over financial reporting as of June 28, 2014July 1, 2017, based on the criteria established in Internal Control - Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Premier Farnell Plc (PF) on October 17, 2016. Management excluded PF from its assessment of the effectiveness of internal control over financial reporting as of July 1, 2017. PF represented approximately 15% of the Company’s total consolidated assets as of July 1, 2017, and approximately 5% of the Company’s total consolidated sales for the fiscal year ended July 1, 2017. Our audit of internal control over financial reporting of Avnet also excluded an evaluation of the internal control over financial reporting of PF.
/s/ KPMG LLP
Phoenix, Arizona
August 16, 2017
41
AVNET, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
| July 1, |
| July 2, |
| ||
|
| 2017 |
| 2016 |
| ||
|
| (Thousands, except share |
| ||||
|
| amounts) |
| ||||
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 836,384 |
| $ | 1,031,478 |
|
Marketable securities |
|
| 281,326 |
|
| — |
|
Receivables, less allowances of $47,272 and $27,448, respectively |
|
| 3,337,624 |
|
| 2,769,906 |
|
Inventories |
|
| 2,824,709 |
|
| 2,559,921 |
|
Prepaid and other current assets |
|
| 253,765 |
|
| 73,786 |
|
Current assets of discontinued operations |
|
| — |
|
| 2,568,882 |
|
Total current assets |
|
| 7,533,808 |
|
| 9,003,973 |
|
Property, plant and equipment, net |
|
| 519,575 |
|
| 453,209 |
|
Goodwill |
|
| 1,148,347 |
|
| 621,852 |
|
Intangible assets, net |
|
| 277,291 |
|
| 22,571 |
|
Other assets |
|
| 220,568 |
|
| 239,133 |
|
Non-current assets of discontinued operations |
|
| — |
|
| 899,067 |
|
Total assets |
| $ | 9,699,589 |
| $ | 11,239,805 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Short-term debt |
| $ | 50,113 |
| $ | 1,152,599 |
|
Accounts payable |
|
| 1,861,635 |
|
| 1,590,777 |
|
Accrued expenses and other |
|
| 542,023 |
|
| 394,888 |
|
Current liabilities of discontinued operations |
|
| — |
|
| 1,804,229 |
|
Total current liabilities |
|
| 2,453,771 |
|
| 4,942,493 |
|
Long-term debt |
|
| 1,729,212 |
|
| 1,339,204 |
|
Other liabilities |
|
| 334,538 |
|
| 223,053 |
|
Non-current liabilities of discontinued operations |
|
| — |
|
| 43,769 |
|
Total liabilities |
|
| 4,517,521 |
|
| 6,548,519 |
|
Commitments and contingencies (Notes 12 and 14) |
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
Common stock $1.00 par; authorized 300,000,000 shares; issued 123,080,952 shares and 127,377,466 shares, respectively |
|
| 123,081 |
|
| 127,377 |
|
Additional paid-in capital |
|
| 1,503,490 |
|
| 1,452,413 |
|
Retained earnings |
|
| 3,799,363 |
|
| 3,632,271 |
|
Accumulated other comprehensive loss |
|
| (243,866) |
|
| (520,775) |
|
Total shareholders’ equity |
|
| 5,182,068 |
|
| 4,691,286 |
|
Total liabilities and shareholders’ equity |
| $ | 9,699,589 |
| $ | 11,239,805 |
|
| June 28, 2014 | June 29, 2013 | ||||||
| (Thousands, except share amounts) | |||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 928,971 | $ | 1,009,343 | |||
| Receivables, less allowances of $96,382 and $95,656, respectively | 5,220,528 | 4,868,973 | |||||
| Inventories | 2,613,363 | 2,264,341 | |||||
| Prepaid and other current assets | 191,337 | 214,221 | |||||
| Total current assets | 8,954,199 | 8,356,878 | |||||
| Property, plant and equipment, net | 534,999 | 492,606 | |||||
| Goodwill | 1,348,468 | 1,261,288 | |||||
| Intangible assets, net | 184,308 | 172,212 | |||||
| Other assets | 233,543 | 191,696 | |||||
| Total assets | $ | 11,255,517 | $ | 10,474,680 | |||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
| Current liabilities: | |||||||
| Short-term debt | $ | 865,088 | $ | 838,190 | |||
| Accounts payable | 3,402,369 | 3,278,152 | |||||
| Accrued expenses and other | 711,369 | 705,102 | |||||
| Total current liabilities | 4,978,826 | 4,821,444 | |||||
| Long-term debt | 1,213,814 | 1,206,993 | |||||
| Other liabilities | 172,684 | 157,118 | |||||
| Total liabilities | 6,365,324 | 6,185,555 | |||||
| Commitments and contingencies (Note 13) | |||||||
| Shareholders’ equity: | |||||||
Common stock $1.00 par; authorized 300,000,000 shares; issued 138,285,825 shares and 137,126,784 shares, respectively | 138,286 | 137,127 | |||||
| Additional paid-in capital | 1,355,663 | 1,320,901 | |||||
| Retained earnings | 3,257,407 | 2,802,966 | |||||
| Accumulated other comprehensive income | 139,512 | 28,895 | |||||
| Treasury stock at cost, 36,836 shares and 38,238 shares, respectively | (675 | ) | (764 | ) | |||
| Total shareholders’ equity | 4,890,193 | 4,289,125 | |||||
| Total liabilities and shareholders’ equity | $ | 11,255,517 | $ | 10,474,680 | |||
See notes to consolidated financial statements.
42
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended | |||||||
|
|
| July 1, |
| July 2, |
| June 27, | |||
|
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
| (Thousands, except per share amounts) | |||||||
Sales |
|
| $ | 17,439,963 |
| $ | 16,740,597 |
| $ | 17,655,319 |
Cost of sales |
|
|
| 15,070,521 |
|
| 14,662,651 |
|
| 15,445,184 |
Gross profit |
|
|
| 2,369,442 |
|
| 2,077,946 |
|
| 2,210,135 |
Selling, general and administrative expenses |
|
|
| 1,770,627 |
|
| 1,460,273 |
|
| 1,515,141 |
Restructuring, integration and other expenses |
|
|
| 137,415 |
|
| 44,761 |
|
| 41,848 |
Operating income |
|
|
| 461,400 |
|
| 572,912 |
|
| 653,146 |
Other (expense) income, net |
|
|
| (44,305) |
|
| (2,963) |
|
| 5,445 |
Interest expense |
|
|
| (106,691) |
|
| (91,936) |
|
| (87,080) |
Income from continuing operations before taxes |
|
|
| 310,404 |
|
| 478,013 |
|
| 571,511 |
Income tax expense |
|
|
| 47,053 |
|
| 87,104 |
|
| 86,136 |
Income from continuing operations, net of tax |
|
|
| 263,351 |
|
| 390,909 |
|
| 485,375 |
Income from discontinued operations, net of tax |
|
|
| 39,571 |
|
| 115,622 |
|
| 86,538 |
Gain on sale of discontinued operations, net of tax |
|
|
| 222,356 |
|
| — |
|
| — |
Income from discontinued operations, net of tax |
|
|
| 261,927 |
|
| 115,622 |
|
| 86,538 |
Net income |
|
|
| 525,278 |
|
| 506,531 |
|
| 571,913 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
| $ | 2.07 |
| $ | 2.99 |
| $ | 3.55 |
Discontinued operations |
|
|
| 2.06 |
|
| 0.88 |
|
| 0.63 |
Net income per share basic |
|
| $ | 4.13 |
|
| 3.87 |
|
| 4.18 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - diluted: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
| $ | 2.05 |
|
| 2.93 |
|
| 3.50 |
Discontinued operations |
|
|
| 2.03 |
|
| 0.87 |
|
| 0.62 |
Net income per share diluted |
|
| $ | 4.08 |
|
| 3.80 |
|
| 4.12 |
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
| 127,032 |
|
| 130,858 |
|
| 136,688 |
Diluted |
|
|
| 128,651 |
|
| 133,173 |
|
| 138,791 |
Cash dividends paid per common share |
|
| $ | 0.70 |
| $ | 0.68 |
| $ | 0.64 |
| Years Ended | |||||||||||
| June 28, 2014 | June 29, 2013 | June 30, 2012 | |||||||||
| (Thousands, except share amounts) | |||||||||||
| Sales | $ | 27,499,654 | $ | 25,458,924 | $ | 25,707,522 | |||||
| Cost of sales | 24,273,923 | 22,479,123 | 22,656,965 | ||||||||
| Gross profit | 3,225,731 | 2,979,801 | 3,050,557 | ||||||||
| Selling, general and administrative expenses | 2,341,168 | 2,204,319 | 2,092,807 | ||||||||
| Restructuring, integration and other expenses | 94,623 | 149,501 | 73,585 | ||||||||
| Operating income | 789,940 | 625,981 | 884,165 | ||||||||
| Other (expense) income, net | (6,092 | ) | (74 | ) | (5,442 | ) | |||||
| Interest expense | (104,823 | ) | (107,653 | ) | (90,859 | ) | |||||
| Gain on legal settlement, bargain purchase and other (Notes 2 and 13) | 22,102 | 31,011 | 2,918 | ||||||||
| Income before income taxes | 701,127 | 549,265 | 790,782 | ||||||||
| Income tax expense | 155,523 | 99,192 | 223,763 | ||||||||
| Net income | $ | 545,604 | $ | 450,073 | $ | 567,019 | |||||
| Earnings per share: | |||||||||||
| Basic | $ | 3.95 | $ | 3.26 | $ | 3.85 | |||||
| Diluted | $ | 3.89 | $ | 3.21 | $ | 3.79 | |||||
| Shares used to compute earnings per share: | |||||||||||
| Basic | 137,991 | 137,951 | 147,278 | ||||||||
| Diluted | 140,119 | 140,003 | 149,553 | ||||||||
| Cash dividends paid per common share | $ | 0.60 | $ | — | $ | — | |||||
See notes to consolidated financial statements.
43
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
| Years Ended | |||||||
|
|
| July 1, |
| July 2, |
| June 27, | |||
|
|
| 2017 |
| 2016 |
| 2015 | |||
|
|
| (Thousands) | |||||||
Net income |
|
| $ | 525,278 |
| $ | 506,531 |
| $ | 571,913 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments and other |
|
|
| 94,116 |
|
| (45,355) |
|
| (561,022) |
Recognized translation loss and other from divestiture (Note 3) |
|
|
| 181,465 |
|
| — |
|
| — |
Pension adjustments, net |
|
|
| 1,328 |
|
| (34,382) |
|
| (19,528) |
Total comprehensive income (loss) |
|
| $ | 802,187 |
| $ | 426,794 |
| $ | (8,637) |
| Years Ended | |||||||||||
| June 28, 2014 | June 29, 2013 | June 30, 2012 | |||||||||
| (Thousands) | |||||||||||
| Net income | $ | 545,604 | $ | 450,073 | $ | 567,019 | |||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Foreign currency translation adjustments and other | 108,754 | 44,597 | (370,415 | ) | |||||||
| Pension adjustments, net | 1,863 | 30,130 | (52,628 | ) | |||||||
| Total comprehensive income | $ | 656,221 | $ | 524,800 | $ | 143,976 | |||||
See notes to consolidated financial statements.
44
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended July 1, 2017, July 2, 2016 and June 28, 2014, June 29, 2013 and June 30, 201227, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| |
|
| Common |
| Common |
| Additional |
|
|
|
| Other |
| Total |
| |||||
|
| Stock- |
| Stock- |
| Paid-In |
| Retained |
| Comprehensive |
| Shareholders’ |
| ||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Equity |
| ||||||
|
| (Thousands) |
| ||||||||||||||||
Balance, June 28, 2014 |
|
| 138,286 |
| $ | 138,286 |
|
| 1,354,988 |
|
| 3,257,407 |
|
| 139,512 |
|
| 4,890,193 |
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 571,913 |
|
| — |
|
| 571,913 |
|
Translation adjustments |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (561,022) |
|
| (561,022) |
|
Pension liability adjustments, net of tax of $7,540 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (19,528) |
|
| (19,528) |
|
Cash dividends |
|
| — |
|
| — |
|
| — |
|
| (87,330) |
|
| — |
|
| (87,330) |
|
Repurchases of common stock |
|
| (4,001) |
|
| (4,001) |
|
| — |
|
| (159,391) |
|
| — |
|
| (163,392) |
|
Stock-based compensation, including related tax benefits of $4,370 |
|
| 1,211 |
|
| 1,211 |
|
| 52,976 |
|
| — |
|
| — |
|
| 54,187 |
|
Balance, June 27, 2015 |
|
| 135,496 |
|
| 135,496 |
|
| 1,407,964 |
|
| 3,582,599 |
|
| (441,038) |
|
| 4,685,021 |
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 506,531 |
|
| — |
|
| 506,531 |
|
Translation adjustments |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (45,355) |
|
| (45,355) |
|
Pension liability adjustments, net of tax of $21,356 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (34,382) |
|
| (34,382) |
|
Cash dividends |
|
| — |
|
| — |
|
| — |
|
| (88,594) |
|
| — |
|
| (88,594) |
|
Repurchases of common stock |
|
| (9,270) |
|
| (9,270) |
|
| — |
|
| (368,265) |
|
| — |
|
| (377,535) |
|
Stock-based compensation |
|
| 1,151 |
|
| 1,151 |
|
| 44,449 |
|
| — |
|
| — |
|
| 45,600 |
|
Balance, July 2, 2016 |
|
| 127,377 |
|
| 127,377 |
|
| 1,452,413 |
|
| 3,632,271 |
|
| (520,775) |
|
| 4,691,286 |
|
Net income |
|
| — |
|
| — |
|
| — |
|
| 525,278 |
|
| — |
|
| 525,278 |
|
Translation adjustments and other |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 275,581 |
|
| 275,581 |
|
Pension liability adjustments, net of tax of $1,181 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,328 |
|
| 1,328 |
|
Cash dividends |
|
| — |
|
| — |
|
| — |
|
| (88,657) |
|
| — |
|
| (88,657) |
|
Repurchases of common stock |
|
| (6,355) |
|
| (6,355) |
|
| — |
|
| (269,529) |
|
| — |
|
| (275,884) |
|
Stock-based compensation |
|
| 2,059 |
|
| 2,059 |
|
| 51,077 |
|
| — |
|
| — |
|
| 53,136 |
|
Balance, July 1, 2017 |
|
| 123,081 |
| $ | 123,081 |
| $ | 1,503,490 |
| $ | 3,799,363 |
| $ | (243,866) |
| $ | 5,182,068 |
|
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders’ Equity | ||||||||||||||||||
| (Thousands) | |||||||||||||||||||||||
| Balance, July 2, 2011 | $ | 152,835 | $ | 1,233,209 | $ | 2,293,510 | $ | 377,211 | $ | (695 | ) | $ | 4,056,070 | ||||||||||
| Net income | — | — | 567,019 | — | — | 567,019 | |||||||||||||||||
| Translation adjustments | — | — | — | (370,415 | ) | — | (370,415 | ) | |||||||||||||||
| Pension liability adjustments, net of tax of $32,382 | — | — | — | (52,628 | ) | — | (52,628 | ) | |||||||||||||||
| Repurchases of common stock (Note 4) | (11,270 | ) | — | (314,671 | ) | — | — | (325,941 | ) | ||||||||||||||
| Stock-based compensation, including related tax benefits of $4,442 | 1,021 | 30,608 | — | — | (2 | ) | 31,627 | ||||||||||||||||
| Balance, June 30, 2012 | 142,586 | 1,263,817 | 2,545,858 | (45,832 | ) | (697 | ) | 3,905,732 | |||||||||||||||
| Net income | — | — | 450,073 | — | — | 450,073 | |||||||||||||||||
| Translation adjustments | — | — | — | 44,597 | — | 44,597 | |||||||||||||||||
| Pension liability adjustments, net of tax of $19,062 | — | — | — | 30,130 | — | 30,130 | |||||||||||||||||
| Repurchases of common stock (Note 4) | (6,620 | ) | — | (192,965 | ) | — | — | (199,585 | ) | ||||||||||||||
| Stock-based compensation, including related tax benefits of $4,110 | 1,161 | 33,291 | — | — | (67 | ) | 34,385 | ||||||||||||||||
| Acquisition of non-controlling interest (Note 2) | — | 23,793 | — | — | — | 23,793 | |||||||||||||||||
| Balance, June 29, 2013 | 137,127 | 1,320,901 | 2,802,966 | 28,895 | (764 | ) | 4,289,125 | ||||||||||||||||
| Net income | — | — | 545,604 | — | — | 545,604 | |||||||||||||||||
| Translation adjustments | — | — | — | 108,754 | — | 108,754 | |||||||||||||||||
| Pension liability adjustments, net of tax of $5,013 | — | — | — | 1,863 | — | 1,863 | |||||||||||||||||
| Cash dividends | — | — | (82,755 | ) | — | — | (82,755 | ) | |||||||||||||||
| Repurchases of common stock (Note 4) | (208 | ) | (8,408 | ) | (8,616 | ) | |||||||||||||||||
| Stock-based compensation, including related tax benefits of $8,432 | 1,367 | 34,762 | — | — | 89 | 36,218 | |||||||||||||||||
| Balance, June 28, 2014 | $ | 138,286 | $ | 1,355,663 | $ | 3,257,407 | $ | 139,512 | $ | (675 | ) | $ | 4,890,193 | ||||||||||
See notes to consolidated financial statements.
45
AVNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
| Years Ended | |||||||
|
| July 1, |
| July 2, |
| June 27, | |||
|
| 2017 |
| 2016 |
| 2015 | |||
|
| (Thousands) | |||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 525,278 |
| $ | 506,531 |
| $ | 571,913 |
Less: Income from discontinued operations, net of tax |
|
| 261,927 |
|
| 115,622 |
|
| 86,538 |
Income from continuing operations |
|
| 263,351 |
|
| 390,909 |
|
| 485,375 |
|
|
|
|
|
|
|
|
|
|
Non-cash and other reconciling items: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 101,407 |
|
| 70,344 |
|
| 66,436 |
Amortization |
|
| 53,953 |
|
| 9,246 |
|
| 15,755 |
Deferred income taxes |
|
| (17,705) |
|
| 107,598 |
|
| 8,697 |
Stock-based compensation |
|
| 47,686 |
|
| 56,908 |
|
| 62,006 |
Other, net |
|
| 29,104 |
|
| 29,379 |
|
| 55,964 |
Changes in (net of effects from businesses acquired and divested): |
|
|
|
|
|
|
|
|
|
Receivables |
|
| (371,820) |
|
| 191,209 |
|
| (247,645) |
Inventories |
|
| 84,408 |
|
| (416,644) |
|
| (78,339) |
Accounts payable |
|
| 163,604 |
|
| (326,217) |
|
| 117,513 |
Accrued expenses and other, net |
|
| (132,941) |
|
| (161,607) |
|
| (167,907) |
Net cash flows provided (used) by operating activities - continuing operations |
|
| 221,047 |
|
| (48,875) |
|
| 317,855 |
Net cash flows (used) provided by operating activities - discontinued operations |
|
| (589,738) |
|
| 273,190 |
|
| 266,028 |
Net cash flows (used) provided by operating activities |
|
| (368,691) |
|
| 224,315 |
|
| 583,883 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Issuance of notes, net of issuance costs |
|
| 296,374 |
|
| 541,500 |
|
| — |
Repayment of notes |
|
| (530,800) |
|
| (250,000) |
|
| — |
Borrowings (repayments) under accounts receivable securitization, net |
|
| (588,000) |
|
| 79,996 |
|
| 34,362 |
Borrowings (repayments) under senior unsecured credit facility, net |
|
| (50,029) |
|
| 101,200 |
|
| 38,000 |
Borrowings (repayments) under bank credit facilities and other debt, net |
|
| 27,877 |
|
| 18,695 |
|
| (108,486) |
Borrowings of term loans |
|
| 530,756 |
|
| — |
|
| — |
Repayments of term loans |
|
| (511,358) |
|
| — |
|
| — |
Repurchases of common stock |
|
| (275,884) |
|
| (380,943) |
|
| (159,984) |
Dividends paid on common stock |
|
| (88,657) |
|
| (88,594) |
|
| (87,330) |
Other, net |
|
| (1,870) |
|
| (11,448) |
|
| (13,502) |
Net cash flows (used) provided by financing activities - continuing operations |
|
| (1,191,591) |
|
| 10,406 |
|
| (296,940) |
Net cash flows provided (used) by financing activities - discontinued operations |
|
| 3,447 |
|
| 22,949 |
|
| (44,048) |
Net cash flows (used) provided by financing activities |
|
| (1,188,144) |
|
| 33,355 |
|
| (340,988) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
| (120,397) |
|
| (137,375) |
|
| (133,356) |
Acquisitions of businesses, net of cash acquired (Note 2) |
|
| (802,744) |
|
| — |
|
| — |
Other, net |
|
| 18,656 |
|
| 15,574 |
|
| (11,705) |
Net cash flows used for investing activities - continuing operations |
|
| (904,485) |
|
| (121,801) |
|
| (145,061) |
Net cash flows provided (used) by investing activities - discontinued operations |
|
| 2,242,959 |
|
| (30,712) |
|
| (41,282) |
Net cash flows provided (used) by investing activities |
|
| 1,338,474 |
|
| (152,513) |
|
| (186,343) |
|
|
|
|
|
|
|
|
|
|
Effect of currency exchange rate changes on cash and cash equivalents |
|
| 23,267 |
|
| (6,232) |
|
| (52,970) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
— (decrease) increase |
|
| (195,094) |
|
| 98,925 |
|
| 3,582 |
— at beginning of period |
|
| 1,031,478 |
|
| 932,553 |
|
| 928,971 |
— at end of period |
| $ | 836,384 |
| $ | 1,031,478 |
| $ | 932,553 |
|
|
|
|
|
|
|
|
|
|
| Years Ended | |||||||||||
| June 28, 2014 | June 29, 2013 | June 30, 2012 | |||||||||
| (Thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 545,604 | $ | 450,073 | $ | 567,019 | |||||
| Non-cash and other reconciling items: | |||||||||||
| Depreciation | 92,464 | 88,333 | 73,551 | ||||||||
| Amortization | 44,724 | 32,343 | 27,785 | ||||||||
| Deferred income taxes | (15,644 | ) | (10,019 | ) | 11,782 | ||||||
| Stock-based compensation | 45,916 | 43,677 | 35,737 | ||||||||
| Gain on bargain purchase and other (Note 2) | — | (31,011 | ) | (2,918 | ) | ||||||
| Other, net | 88,687 | 75,327 | 66,263 | ||||||||
| Changes in (net of effects from businesses acquired): | |||||||||||
| Receivables | (306,873 | ) | (94,203 | ) | 72,267 | ||||||
| Inventories | (226,141 | ) | 225,667 | 133,178 | |||||||
| Accounts payable | 48,651 | (78,834 | ) | (319,094 | ) | ||||||
| Accrued expenses and other, net | (79,970 | ) | (5,156 | ) | (136,852 | ) | |||||
| Net cash flows provided by operating activities | 237,418 | 696,197 | 528,718 | ||||||||
| Cash flows from financing activities: | |||||||||||
| Issuance of notes in a public offering, net of issuance costs | — | 349,258 | — | ||||||||
| Repayment of notes | (300,000 | ) | — | — | |||||||
Borrowings (repayments) under accounts receivable securitization program, net | 255,000 | (310,000 | ) | 510,000 | |||||||
| Borrowings (repayments) under bank facilities and other debt, net | 38,765 | (180,941 | ) | 85,816 | |||||||
| Repurchases of common stock (Note 4) | (8,616 | ) | (207,192 | ) | (318,333 | ) | |||||
| Dividends paid on common stock | (82,755 | ) | — | — | |||||||
| Other, net | 9,109 | 4,792 | 5,590 | ||||||||
| Net cash flows (used for) provided by financing activities | (88,497 | ) | (344,083 | ) | 283,073 | ||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property, plant and equipment | (123,242 | ) | (97,379 | ) | (128,652 | ) | |||||
| Acquisitions of businesses, net of cash acquired | (116,882 | ) | (262,306 | ) | (313,218 | ) | |||||
| Cash proceeds from divestitures, net of cash divested | — | 3,613 | — | ||||||||
| Other, net | 2,666 | 3,018 | 1,046 | ||||||||
| Net cash flows used for investing activities | (237,458 | ) | (353,054 | ) | (440,824 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 8,165 | 3,419 | (39,437 | ) | |||||||
| Cash and cash equivalents: | |||||||||||
| — (decrease) increase | (80,372 | ) | 2,479 | 331,530 | |||||||
| — at beginning of year | 1,009,343 | 1,006,864 | 675,334 | ||||||||
| — at end of year | $ | 928,971 | $ | 1,009,343 | $ | 1,006,864 | |||||
Additional cash flow information (Note 15)
See notes to consolidated financial statements.
46
Reclassifications — Certain prior period amounts have been reclassified to conform to the current-period Fiscal year — The Company operates on a “52/53 week” fiscal year, which ends on the Saturday closest to June 30th. Fiscal Management estimates — The preparation of financial statements in conformity with generally accepted accounting principles in the United States Cash and cash equivalents — The Company considers all highly liquid investments with an original maturity of three months or less including money market funds to be cash equivalents. Inventories — Inventories, comprised principally of finished goods, are stated at the lower of cost Depreciation, Property, plant, and equipment is 47 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company amortizes intangible assets acquired in business combinations using the straight-line method over the estimated economic useful lives of the intangible assets from the date of acquisition, which is generally between Long-lived assets impairment — Long-lived assets, including property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (“asset group”). An impairment is recognized when the estimated undiscounted cash flows expected to result from the use of the asset group and its eventual disposition is less than its carrying amount. An impairment is measured as the amount by which Goodwill — Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed. The Company does not amortize goodwill, but instead tests goodwill for impairment at least annually in the fourth quarter and, if necessary, records any impairment resulting from such goodwill impairment In performing goodwill impairment testing, the Company may first make a qualitative assessment of whether it is more-likely-than-not that a reporting unit’s fair value is less than its carrying Significant management judgment is required when estimating the fair value of the Company’s reporting units from a market participant perspective including the forecasting of future operating results, the discount rates and expected future growth rates used in the discounted cash flow method of valuation, and in the selection of comparable businesses and related market multiples that are used in the market approach. If the estimated fair value of 48 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Foreign currency translation — The assets and liabilities of foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date, with the related translation adjustments reported as a separate component of shareholders’ equity and comprehensive income. Results of operations are translated using the average exchange rates prevailing throughout the period. Transactions denominated in currencies other than the functional currency of the Avnet subsidiaries that are party to the transactions Income taxes — The Company follows the asset and liability method of accounting for income taxes. Deferred income tax assets and liabilities are recognized for the estimated future tax impact of differences between the consolidated financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized The Company establishes contingent liabilities for potentially unfavorable outcomes of positions taken on certain tax matters. These liabilities are based on management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by the relevant tax authorities. There may be differences between the estimated and actual outcomes of these matters that may result in future changes in estimates to such Self-insurance — In the Revenue recognition In addition, the Company has certain contractual relationships with 49 Table of AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Revenues are recorded net of discounts, customer rebates and estimated returns. Provisions are made for discounts and customer rebates, which are primarily timing or volume specific, and are estimated based on historical trends and anticipated customer buying patterns. Provisions for returns and other sales adjustments are estimated based on historical sales returns experience, credit memo experience and other known factors. Vendor allowances and consideration — Consideration received from suppliers for price protection, product rebates, marketing/promotional activities, or any other programs are recorded when earned under the terms and conditions of such supplier programs as adjustments to product costs or selling, general and administrative expenses depending upon the nature and contractual requirements related to the consideration received. Some of these supplier programs require management to make estimates and may extend over one or more reporting Comprehensive income — Comprehensive income (loss) represents net income for the year adjusted for certain changes in shareholders’ equity. Accumulated comprehensive income items impacting comprehensive income Stock-based compensation Restructuring and Business 50 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Concentration of credit risk — Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash and cash equivalents, marketable securities and trade accounts receivable. The Company invests its excess cash primarily in overnight Fair value — The Company measures financial assets and liabilities at fair value based upon an exit price, representing the amount that would be received Derivative financial instruments — See Note 4 for discussion of the Company’s accounting policies related to derivative financial instruments. Marketable securities — The Company determines the classification of investments in marketable securities at the time of acquisition and reevaluates such designation at each reporting period. The Company has classified its investment in marketable securities as trading with any realized or unrealized changes in fair value being classified within other (expense) income, net in the consolidated statements of operations. See Note 3 for further discussion about marketable securities. Accounts receivable securitization — The Company has an accounts receivable securitization program whereby the Company sells certain receivables and retains a subordinated interest and servicing rights to those receivables. The securitization program does not qualify for off balance sheet sales accounting and is accounted for as a secured financing as discussed further in Note 8. Recently adopted accounting pronouncements — In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by eliminating “step two” from the quantitative goodwill impairment test. Under the new guidance, an entity performs its annual, or interim, goodwill impairment test by comparing the estimated fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s estimated fair value, not to exceed the carrying amount of goodwill allocated to the reporting unit. Additionally, an entity should consider income 51 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. ASU 2017-04 is effective for annual reporting periods, including interim periods within those periods, beginning after December 15, 2019, with early adoption permitted. The Company has early adopted this standard during the fourth quarter of fiscal 2017 in connection with its required annual goodwill impairment test, which did not have an impact on its consolidated financial statements. In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The update provides guidance for eight specific cash flow classification issues with respect to how certain cash receipts and cash payments are presented and classified within the statement of cash flows in an effort to reduce existing diversity in practice. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. ASU 2016-15 should be applied using a retrospective transition method to each period presented. The Company early adopted ASU 2016-15 during fiscal 2017, which had no impact on its consolidated statements of cash flows. 2. Acquisitions Fiscal 2017 Acquisitions Premier Farnell On October 17, 2016, the Company acquired all of the outstanding shares of Premier Farnell Plc (“PF”), a global distributor of electronic components and related products delivering engineering solutions to the electronic system design community utilizing multi-channel sales and marketing resources. The cash consideration paid for the PF acquisition was approximately $841 million, which consisted of £1.85 per share of PF common stock. Additionally, Avnet assumed $242.8 million of debt at fair value. The PF business and the goodwill acquired is being integrated into Avnet’s continuing operations and is considered a reportable segment at the end of fiscal 2017. In connection with the acquisition of PF, the Company incurred certain acquisition related costs during fiscal 2017, including approximately $19.0 million of acquisition related professional fees and closing costs included within restructuring, integration and other expenses, and approximately $45.0 million of expenses within other (expense) income, net for acquisition financing related fees including foreign currency economic hedging costs and bridge financing commitment fees. Since the date of acquisition, PF contributed approximately $22.0 million of income from continuing operations during fiscal 2017. 52 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Preliminary allocation of purchase price The Company has not yet completed its evaluation and determination of certain assets and liabilities acquired, primarily (i) the final valuation of software and technology related amortizable intangible assets acquired; and (ii) the final assessment and valuation of certain income tax accounts. During the fourth quarter of fiscal 2017, the Company updated its estimated acquisition date fair values for assets acquired and liabilities assumed, the most significant of which resulted in a decrease in goodwill of $21.1 million, a decrease in property, plant and equipment of $3.6 million, a decrease in inventories of $6.6 million, a decrease in accounts payable, accrued liabilities and other current liabilities of $21.2 million and a decrease in other long-term liabilities of $10.1 million. The Company expects the final valuations and assessments will be completed by the first quarter of fiscal 2018, which may result in adjustments to the preliminary values included in the following table: Preliminary Acquisition Method Values (Thousands) Cash $ 46,354 Trade and other receivables, net 187,303 Inventories 328,037 Property, plant and equipment 52,621 Intangible assets 295,112 Total identifiable assets acquired $ 909,427 Accounts payable, accrued liabilities and other current liabilities $ 160,724 Short-term debt 242,814 Other long-term liabilities 140,431 Total identifiable liabilities acquired $ 543,969 Net identifiable assets acquired 365,458 Goodwill 475,862 Net assets acquired $ 841,320 Trade receivables of $160.4 million were recorded at estimated fair value amounts; however, adjustments to acquired amounts were not significant as book value approximated fair value due to the short-term nature of trade receivables. Approximately $10.0 million of goodwill associated with the PF acquisition is expected to be deductible for tax purposes. Pro forma and historical results (Unaudited) Unaudited pro forma information from continuing operations is presented as if the acquisition of PF occurred at the beginning of fiscal 2016. The pro forma information presented below does not purport to present what actual results would have been had the acquisition in fact occurred at the beginning of fiscal 2016, nor does the information project results for any future period. 53 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years Ended July 1, July 2, 2017 2016 (Millions, except per share data) Pro forma sales (unaudited) $ 17,818 $ 18,102 Pro forma net income (unaudited) 297 398 Pro forma net income per fully diluted share (unaudited) 2.31 2.99 Pro forma results from continuing operations exclude any benefits that may result from the acquisition due to synergies derived from sales opportunities and the elimination of any duplicative costs. Pro forma results exclude results of discontinued operations and restructuring, acquisition and divestiture related expenses incurred by PF in their historical results of operations and include amortization expense associated with identifiable intangible assets related to the Company’s acquisition of PF. Pro forma results also exclude interest expense related to acquired long-term debt that was repaid in connection with the acquisition, and other expense related to historical divestiture and debt redemption losses. Since the date of acquisition through the end of fiscal 2017, PF generated sales of $965.9 million. During November 2016, the Company acquired Hackster, Inc. (“Hackster”), a start-up online community of engineers, makers and hobbyists. The purchase price of Hackster was not material to the Company’s consolidated financial statements. 3. Discontinued operations and gain on sale of discontinued operations In February 2017, the Company completed the sale of its Technology Solutions operating group (“TS” or the “TS Business”) to Tech Data Corporation (the “Buyer”), for approximately $2.86 billion in a combination of $2.61 billion in cash including estimated closing adjustments discussed further below and 2.8 million shares of the Buyer valued at $247.2 million at closing. The TS Business has been classified as a discontinued operation in the consolidated financial statements for all periods presented as the sale of the TS Business represented a strategic shift to Avnet. In connection with the closing of the TS sale, the Company recognized a gain on sale of discontinued operations, net of tax of $222.4 million. Included in the measurement of the gain were estimates for the income taxes due on the gain and the additional cash consideration expected from the Buyer related to a closing date net working capital sales price adjustment. The Company is finalizing such net working capital sales price adjustment with the Buyer as provided for in the sales agreement. The Company has included its estimated amount due from the Buyer for the closing date net working capital sales price adjustment as the principal component of the $253.8 million of prepaid and other current assets as of July 1, 2017. The final net working capital sales price adjustment, as determined through the established process outlined in the sales agreement, may be materially different from the Company’s estimate. The impact of any probable changes in the net working capital adjustment will be recorded as an adjustment to the gain on sale from discontinued operations in the period such change occurs. Additionally, the income taxes associated with the gain will be impacted by the final geographic allocation of the sales price, which must be agreed to with the Buyer as required in the sales agreement and may be materially different from the Company’s estimates. The impact of any changes in estimated income taxes on the gain will be recorded as an adjustment to the gain on sale from discontinued operations in the period such change in estimate occurs. The Company expects the net working capital sales price adjustment and the income tax on the gain to be finalized by the end of fiscal 2018. 54 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Buyer shares received by the Company are recorded within “Marketable securities” on the Company’s Consolidated Balance Sheets. The Company has classified these shares as trading securities in accordance with ASC 320 due to management having the intent to trade the securities. During fiscal 2017, the Company recorded $34.1 million of unrealized gains on the shares due to changes in fair value between the closing date and July 1, 2017, which are recorded in “Other (expense) income, net” on the Consolidated Statements of Operations using Level 1 quoted active market prices. The definitive sales agreement includes time based contractual restrictions from the closing date related to the Company’s sale of Buyer shares including a 6-month restriction for 50 percent of the shares and a 12-month restriction for the remaining 50 percent. During the fourth quarter of fiscal 2017, the Company entered into economic hedges for the shares during the contractual restriction periods through the purchase of derivative financial instruments, which economically fixes the amount that will be realized upon the sale of the shares at approximately $247 million. The changes in fair value related to such economic share price hedge are also recorded within other (expense) income, net and offset changes in fair value of the underlying shares. In connection with the sale of the TS Business, the Company entered into a Transition Services Agreement (“TSA”), pursuant to which the Buyer will pay the Company to provide certain information technology, distribution, facilities, finance and human resources related services for various periods of time depending upon the services not to exceed approximately two years from the closing date. Expenses incurred by the Company to provide such services under the TSA are classified within selling, general and administrative expenses and amounts billed to the Buyer to provide such services are classified as a reduction of such expenses. At the end of fiscal 2017, the Buyer had initiated the termination of several TSA services and substantially all TSA services are expected to be terminated by the end of fiscal 2018. Financial results of the TS Business through the closing date are presented as “Income from discontinued operations, net of tax” and “Gain on sale of discontinued operations, net of tax” on the Consolidated Statements of Operations. Included within the gain on sale is $181.5 million of expense reclassified out of accumulated comprehensive income primarily related to TS Business cumulative translation adjustments. The assets and liabilities of the TS Business are presented as “Current assets of discontinued operations”, “Non-current assets of discontinued operations”, “Current liabilities of discontinued operations” and “Non-current liabilities of discontinued operations” on the July 2, 2016, Consolidated Balance Sheet. Cash flows associated with the TS Business, including the cash proceeds from its sale are reported as discontinued operations in the consolidated statements of cash flows for all periods presented. 55 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Summarized results of discontinued operations for fiscal 2017, fiscal 2016 and fiscal 2015, are as follows: Years Ended July 1, July 2, June 27, 2017 2016 2015 (Thousands) Sales $ 5,432,140 $ 9,478,682 $ 10,269,338 Cost of sales 4,883,945 8,519,117 9,286,353 Gross profit 548,195 959,565 982,985 Selling, general and administrative expenses 430,003 710,251 759,501 Restructuring, integration and other expenses 7,280 34,557 48,957 Operating income 110,912 214,757 174,527 Interest and other expense, net (24,291) (22,261) (33,073) Income from discontinued operations before income taxes 86,621 192,496 141,454 Income tax expense 47,050 76,874 54,916 Income from discontinued operations, net of taxes 39,571 115,622 86,538 Gain on sale of discontinued operations, net of taxes 222,356 — — Income from discontinued operations, net of taxes $ 261,927 $ 115,622 $ 86,538 Included within selling, general and administrative expenses of discontinued operations was $34.9 million, $47.3 million and $48.9 million of corporate expenses specific to or benefiting the TS Business for fiscal 2017, fiscal 2016, and fiscal 2015, respectively. Corporate costs related to general overhead were not allocated to the TS Business. Subsequent to the first quarter of fiscal 2017, depreciation and amortization of the TS Business long-lived assets ceased due to the TS Business being classified as held for sale. Summarized assets and liabilities of the TS Business as of July 2, 2016, are as follows: July 2, 2016 (Thousands) Receivables, less allowances of $39,356 $ 2,205,213 Inventories 296,310 Prepaid and other current assets 67,359 Total current assets of discontinued operations 2,568,882 Property, plant and equipment, net 159,449 Goodwill 659,368 Intangible assets, net 55,826 Other assets 24,424 Total assets of discontinued operations $ 3,467,949 Accounts payable $ 1,643,004 Accrued expenses and other 161,225 Total current liabilities of discontinued operations 1,804,229 Other Long-term liabilities 43,769 Total liabilities of discontinued operations $ 1,847,998 56 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 4. Derivative financial instruments Many of the Company’s subsidiaries purchase and sell products in currencies other than their functional currencies. This subjects the Company to the risks associated with fluctuations in foreign currency exchange rates. The Company reduces this risk by utilizing natural hedging (i.e., offsetting receivables and The Company The Company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase from suppliers. The Company’s foreign operations transactions are denominated primarily in the following currencies: U.S. Dollar, Euro, British Pound, Japanese Yen, Chinese Yuan and Taiwan Dollar. The Company also, to a lesser extent, has The fair values of derivative financial instruments in the July 1, July 2, 2017 2016 (Thousands) Forward foreign currency exchange contracts not receiving hedge accounting treatment recorded in: Other current assets $ 7,297 $ 9,681 Accrued expenses 4,142 6,369 In addition to amounts included in the above table, there was $34.0 million of accrued expenses related to a 57 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The amount Years Ended July 1, July 2, June 27, 2017 2016 2015 (Thousands) Net derivative financial instrument (loss) gain $ (8,624) $ 274 $ (3,139) Excluded from the above table is The Company’s outstanding economic hedges had 5. Shareholders’ equity Accumulated comprehensive income (loss) The following table includes the balances within accumulated other comprehensive July 1, July 2, June 27, 2017 2016 2015 (Thousands) Accumulated translation adjustments and other $ (86,647) $ (362,228) $ (316,873) Accumulated pension liability adjustments, net of income taxes (157,219) (158,547) (124,165) Total accumulated other comprehensive (loss) income $ (243,866) $ (520,775) $ (441,038) Amounts reclassified out of accumulated comprehensive income (loss), net of tax, to operating expenses and discontinued operations during fiscal 58 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Share repurchase program In Common stock dividend During fiscal 6. Property, plant and equipment, net Property, plant and equipment are recorded at cost and consist of the following: July 1, 2017 July 2, 2016 (Thousands) Buildings $ 136,846 $ 70,882 Machinery, fixtures and equipment 215,155 218,203 Information technology hardware and software 630,352 607,969 Leasehold improvements 99,208 129,156 Depreciable property, plant and equipment, gross 1,081,561 1,026,210 Accumulated depreciation (667,700) (665,055) Depreciable property, plant and equipment, net 413,861 361,155 Land 41,627 37,492 Construction in progress 64,087 54,562 Property, plant and equipment, net $ 519,575 $ 453,209 Depreciation expense related to property, plant and equipment was During the fourth quarter of fiscal 2017, the Company decided to implement a new global Enterprise Resource Planning (“ERP”) system. As a result of this decision, the estimated useful life of its existing ERP system in the Americas has been reduced to 24 months. Included as a component of restructuring, integration and other expenses was $16.0 million of accelerated depreciation expense as a result of such change in estimated useful life. 59 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 7. Goodwill and intangible assets The following table presents the change in goodwill balances by reportable segment for fiscal year Electronic Premier Components Farnell Total (Thousands) Gross goodwill $ 1,666,962 $ — $ 1,666,962 Accumulated impairment (1,045,110) — (1,045,110) Carrying value at July 2, 2016 621,852 — 621,852 Acquisitions 12,818 475,862 488,680 Foreign currency translation 378 37,437 37,815 Carrying value at July 1, 2017 $ 635,048 $ 513,299 $ 1,148,347 Gross goodwill $ 1,680,158 $ 513,299 $ 2,193,457 Accumulated impairment (1,045,110) — (1,045,110) Carrying value at July 1, 2017 $ 635,048 $ 513,299 $ 1,148,347 Based upon the Company’s annual impairment tests performed The following table presents the Company’s acquired identifiable intangible July 1, 2017 July 2, 2016 Acquired Accumulated Net Book Acquired Accumulated Net Book Amount Amortization Value Amount Amortization Value (Thousands) Customer related $ 277,865 $ (79,578) $ 198,287 $ 47,980 $ (34,515) $ 13,465 Trade name 46,915 (6,720) 40,195 3,746 (2,718) 1,028 Technology and other 50,369 (11,560) 38,809 12,356 (4,278) 8,078 $ 375,149 $ (97,858) $ 277,291 $ 64,082 $ (41,511) $ 22,571 Intangible asset amortization expense was Fiscal Year 2018 77,884 2019 75,887 2020 74,164 2021 35,118 2022 10,834 Thereafter 3,404 Total $ 277,291 60 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 8. Debt Short-term debt consists of the following: July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016 Interest Rate Carrying Balance Bank credit facilities and other 2.27 % 4.62 % $ 50,113 $ 122,599 Accounts receivable securitization program — 0.93 % — 730,000 Notes due September 2016 — 6.63 % — 300,000 Short-term debt $ 50,113 $ 1,152,599 Bank credit facilities and other consist of various committed and uncommitted lines of credit and other forms of bank debt with financial institutions utilized primarily to support the working capital requirements of the Company including its foreign operations. In connection with the PF acquisition, discussed further in Note 2, the Company assumed debt including private placement notes, which the Company planned to repay in connection with the acquisition. During fiscal 2017, the Company paid $230.8 million to redeem the assumed private placement notes. The Long-term debt consists of the following: July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016 Interest Rate Carrying Balance Revolving credit facilities: Accounts receivable securitization program 1.53 % — $ 142,000 $ — Credit Facility 2.77 % 1.72 % 99,970 150,000 Notes due: June 2020 5.88 % 5.88 % 300,000 300,000 December 2021 3.75 % — 300,000 — December 2022 4.88 % 4.88 % 350,000 350,000 April 2026 4.63 % 4.63 % 550,000 550,000 Other long-term debt 1.36 % 1.92 % 642 1,551 Long-term debt before discount and debt issuance costs 1,742,612 1,351,551 Discount and debt issuance costs - unamortized (13,400) (12,347) Long-term debt $ 1,729,212 $ 1,339,204 61 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company In December 2016, the Company issued $300.0 million of 3.75% Notes due December 2021 (the “3.75% Notes”). The Company received proceeds of $296.4 million from the offering, net of discounts and debt issuance costs. The 3.75% Notes rank equally in right of payment with all existing and future senior unsecured debt of Avnet and interest will be payable semi-annually each year on June 1 and December 1. The Notes included in the above table including the 3.75% Notes are all publicly registered debt, which do not contain any financial covenants. In February 2017, the Company amended and reduced its accounts receivable securitization program (the “Program”) with a group of financial institutions to allow the Company to transfer, on an ongoing revolving basis, an undivided interest in a designated pool of trade accounts receivable, to provide security or collateral for borrowings up to a maximum of $400.0 million compared to $800.0 million before the amendment. The Program does not qualify for off balance sheet accounting treatment and any borrowings under the Program are recorded as debt in the consolidated balance sheets. Under the Program, the Company legally sells and isolates certain U.S. trade accounts receivable into a wholly owned and consolidated bankruptcy remote special purpose entity. Such receivables, which are In October 2016, certain foreign subsidiaries of the Company (the “Borrowers”) borrowed €479 million under a Senior Unsecured Term Loan Credit 62 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Aggregate debt maturities for the next five fiscal years and thereafter are as follows (in thousands): 2018 $ 50,113 2019 242,234 2020 300,292 2021 80 2022 300,006 Thereafter 900,000 Subtotal 1,792,725 Discount and debt issuance costs - unamortized (13,400) Total debt $ 1,779,325 At 9. Accrued expenses and other Accrued expenses and other consist of the following: July 1, 2017 July 2, 2016 (Thousands) Accrued salaries and benefits $ 205,979 $ 208,624 Accrued operating costs 104,747 47,562 Accrued interest and banking costs 47,481 22,125 Accrued restructuring costs 16,996 15,499 Accrued income taxes 61,552 32,976 Accrued property, plant and equipment 6,491 12,801 Accrued other 98,777 55,301 Total accrued expenses and other $ 542,023 $ 394,888 63 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 10. Income taxes The components of income tax expense (“tax provision”) are Years Ended July 1, 2017 July 2, 2016 June 27, 2015 (Thousands) Current: Federal $ (45,351) $ (16,934) $ 5,497 State and local 4,209 (33) (1,959) Foreign 106,441 92,033 60,082 Total current taxes 65,299 75,066 63,620 Deferred: Federal (30,025) 5,573 39,905 State and local (3,934) 1,351 6,774 Foreign 15,713 5,114 (24,163) Total deferred taxes (18,246) 12,038 22,516 Income tax expense $ 47,053 $ 87,104 $ 86,136 The tax provision is computed based upon income before income taxes from continuing operations from both U.S. and foreign operations. U.S. (loss) income before income taxes from continuing operations was $ See further discussion related to income tax expense for discontinued operations in Note 3. Reconciliations of the federal statutory tax rate to the effective tax rates are as follows: Years Ended July 1, 2017 July 2, 2016 June 27, 2015 U.S. federal statutory rate 35.0 % 35.0 % 35.0 % State and local income taxes, net of federal benefit (1.7) 0.3 0.8 Foreign tax rates, net of valuation allowances (23.5) (12.7) (11.1) Establishment/(release) of valuation allowance, net of U.S. tax expense 1.3 (1.7) (9.0) Change in contingency reserves 3.6 (2.5) 0.9 Tax audit settlements 0.1 (0.7) (2.9) Other, net 0.4 0.5 1.4 Effective tax rate - continuing operations 15.2 % 18.2 % 15.1 % Foreign tax rates represents the impact of the difference between foreign and U.S. federal statutory rates applied to foreign income or loss and also 64 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Avnet’s effective tax rate on income before income taxes from continuing operations was The Company applies the guidance in ASC 740Income Taxes, which requires management to use its judgment to the appropriate weighting of all available evidence when assessing the need for the establishment or the release of valuation allowances. As part of this analysis, the Company examines all available evidence on a jurisdiction by jurisdiction basis and weighs the positive and negative evidence when determining the need for full or partial valuation allowances. The evidence considered for each jurisdiction includes, among other items: (i) the historic levels and types of income or losses over a range of time periods, which may extend beyond the most recent three fiscal years depending upon the historical volatility of income in an individual jurisdiction; (ii) expectations and As of the end of fiscal No The significant components of deferred tax assets and liabilities, included July 1, July 2, 2017 2016 (Thousands) Deferred tax assets: Federal, state and foreign net operating loss carry-forwards $ 269,576 $ 94,892 Inventories valuation 30,330 20,635 Receivables valuation 9,209 9,188 Various accrued liabilities and other 46,922 35,929 356,037 160,644 Less — valuation allowances (241,687) (63,694) 114,350 96,950 Deferred tax liabilities: Depreciation and amortization of property, plant and equipment (152,101) (99,154) Net deferred tax liabilities $ (37,751) $ (2,204) 65 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In addition to net deferred tax liabilities, the Company also has $90.4 million and $98.2 million of income tax related deferred charges included as a component of “other assets” in the consolidated balance sheets as of July 1, 2017, and July 2, 2016, respectively that are the result of a fiscal 2016 business restructuring in EMEA. The change in valuation allowances in fiscal 2017 from fiscal As of Estimated liabilities for unrecognized tax benefits are included in “accrued expenses and other” and “other liabilities” on the consolidated balance sheets. These contingent liabilities relate to various tax matters that result from uncertainties in the application of complex income tax regulations in the numerous jurisdictions in which the Company operates. The change in such liabilities during fiscal Reconciliations of the beginning and ending liability balances for unrecognized tax benefits are as follows: July 1, 2017 July 2, 2016 (Thousands) Balance at beginning of year $ 58,830 $ 60,433 Additions for tax positions taken in prior periods, including interest 10,476 3,496 Reductions for tax positions taken in prior periods, including interest (5,656) (6,349) Additions for tax positions taken in current period 13,659 7,577 Reductions related to settlements with taxing authorities (203) (725) Reductions related to the lapse of applicable statutes of limitations (5,790) (13,188) Adjustments related to foreign currency translation 2,772 (212) Activity of discontinued operations 10,864 7,798 Additions from acquisitions 21,834 — Balance at end of year $ 106,786 $ 58,830 The evaluation of income tax positions requires management to estimate the ability of the Company to sustain its position and estimate the final benefit to the Company. To the extent that these estimates do not reflect the actual outcome there could be an impact on the consolidated financial statements in the period in which the position is settled, the applicable statutes of limitations expire or new information becomes available as the impact of these events are recognized in the period in which they occur. It is difficult to estimate the period in which the amount of a tax position will change as settlement may include administrative and legal proceedings whose timing the Company cannot control. 66 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The effects of settling tax positions with tax authorities and statute expirations may significantly impact the estimate for unrecognized tax benefits. Within the next twelve months, The Company conducts business globally and consequently files income tax returns in numerous jurisdictions including those listed in the following table. It is also routinely subject to audit in these and other countries. The Company is no longer subject to audit in its major jurisdictions for periods prior to fiscal Jurisdiction Fiscal Year United States (Federal and state) 2013 - 2017 Taiwan 2012 - Hong Kong 2011 - 2017 Germany 2010 - Singapore 2008 - 2017 Belgium 2014 - 2017 United Kingdom 2009 - 2017 In connection with the sale of the TS Business during fiscal 2017, several legal entities were sold to the Buyer and post-closing tax obligations are the responsibility of the Buyer. Under the terms of the sale agreement, the Company still maintains responsibility for certain pre-closing taxes including any amounts that arise from audits or other judgments received from tax authorities. The Company believes that its current estimates related to tax reserves and unrecognized tax benefits related to the TS Business are reasonable, but future changes in facts and circumstances could results in significant changes in estimates that impact tax expense from discontinued operations in the period of change. 11. Pension and retirement plans Pension Plan The Company’s noncontributory defined benefit pension plan (the “Plan”) covers substantially all The Plan provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit based upon a The Company also acquired a closed noncontributory defined benefit pension plan in the U.S. in connection with the PF acquisition (the “PF Plan”). The disclosures below include the Plan and the PF Plan from the date of acquisition (collectively, the “Plans”), but do not include the pension plans of certain non-U.S. subsidiaries and other defined benefit plans, which are not considered material. 67 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table outlines changes in benefit obligations, plan assets and the funded status of the July 1, July 2, 2017 2016 (Thousands) Changes in benefit obligations: Benefit obligations at beginning of year $ 588,511 $ 513,406 Acquired benefit obligations 165,046 — Service cost 29,623 39,740 Interest cost 19,323 21,310 Actuarial loss 15,686 41,799 Benefits paid (46,121) (27,744) Benefit obligations at end of year $ 772,068 $ 588,511 Changes in plan assets: Fair value of plan assets at beginning of year $ 516,089 $ 484,408 Acquired plan assets 144,238 — Actual return on plan assets 51,409 19,425 Benefits paid (46,121) (27,744) Contributions 33,750 40,000 Fair value of plan assets at end of year $ 699,365 $ 516,089 Funded status of the plan recognized as a non-current liability $ (72,703) $ (72,422) Amounts recognized in accumulated other comprehensive income: Unrecognized net actuarial losses $ 234,863 $ 235,747 Unamortized prior service credits (691) (2,903) $ 234,172 $ 232,844 Other changes in plan assets and benefit obligations recognized in other comprehensive income: Net actuarial gain $ 9,744 $ 62,659 Amortization of net actuarial losses (14,440) (12,731) Amortization of prior service credits 1,573 1,573 Curtailment recognition of prior service credit 614 — $ (2,509) $ 51,501 Included in accumulated other comprehensive income at 68 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Assumptions used to calculate actuarial present values of benefit obligations are as follows: 2017 2016 Discount rate 3.8 % 3.4 % The discount rate selected by the Company for the Plan reflects the current rate at which the underlying liability could be settled at the measurement date as of Assumptions used to determine net benefit costs are as follows: 2017 2016 Discount rate 3.3 % 4.3 % Expected return on plan assets 8.0 % 8.3 % Components of net periodic pension cost from continuing and discontinued operations during the last three fiscal years are as follows: Years Ended July 1, July 2, June 27, 2017 2016 2015 (Thousands) Service cost $ 29,623 $ 39,740 $ 39,492 Interest cost 19,323 21,310 17,797 Expected return on plan assets (49,279) (40,285) (36,221) Amortization of prior service credits (1,573) (1,573) (1,573) Recognized net actuarial loss 14,440 12,731 13,007 Curtailment recognition of prior service credit (614) — — Net periodic pension cost $ 11,920 $ 31,923 $ 32,502 The Company made Benefit payments are expected to be paid to Plan participants as follows for the next five fiscal years and the aggregate for the five years thereafter (in thousands): 2018 $ 59,643 2019 63,666 2020 39,692 2021 41,288 2022 45,886 2023 through 2027 262,946 69 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Plan’s assets are held in trust and were allocated as follows as of the measurement date at the end of fiscal 2017 2016 Equity securities 50 % 60 % Fixed income debt securities 50 % 40 % Cash and cash equivalents — % — % The general investment objectives of the Plan are to maximize returns through a diversified investment portfolio in order to earn annualized returns that meet the long-term cost of funding the The following table sets forth the fair value of the Level 1 Level 2 Level 3 Total (Thousands) Cash and cash equivalents $ 1,481 $ — $ — $ 1,481 Equities: U.S. common stocks — 221,003 — 221,003 International common stocks — 117,392 — 117,392 Fixed Income: U.S. government agencies — 105,227 — 105,227 International government agencies — 14,366 — 14,366 U.S. and international corporate bonds — 214,024 — 214,024 Other — 25,872 — 25,872 Total $ 1,481 $ 697,884 $ — $ 699,365 70 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table sets forth the fair value of the Level 1 Level 2 Level 3 Total (Thousands) Cash and cash equivalents $ 497 $ — $ — $ 497 Equities: U.S. common stocks — 204,125 — 204,125 International common stocks — 102,193 — 102,193 Fixed Income: U.S. government agencies — 76,991 — 76,991 U.S. corporate bonds — 112,262 — 112,262 Other — 20,021 — 20,021 Total $ 497 $ 515,592 $ — $ 516,089 The fair value of the Plan’s investments in equity and fixed income investments are stated at unit value, or the equivalent of net asset value, which is a practical expedient for estimating the fair values of those investments. Each of these investments may be redeemed daily without notice and there were no material unfunded commitments as of The fixed income investments provide a steady return with medium volatility and assist with capital preservation and income generation. The equity investments have higher expected volatility and return than the fixed income investments. 12. Operating 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 operating expenses during the last three fiscal years is as follows: Years Ended July 1, July 2, June 27, 2017 2016 2015 (Thousands) Rent expense under operating leases $ 71,814 $ 66,702 $ 72,713 The aggregate future minimum operating lease commitments, principally for 2018 $ 66,513 2019 52,434 2020 40,956 2021 31,487 2022 26,821 Thereafter 68,735 Total $ 286,946 71 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 13. Stock-based compensation The Company measures all stock-based payments at fair value and recognizes related expense within operating expenses in the consolidated statements of operations over the requisite service period (generally the vesting period). During fiscal Stock plan At Stock options Service based stock option grants have a contractual life of The fair value of stock options is estimated as of the date of grant using the Black-Scholes model based on the assumptions in the following table. The assumption for the expected term is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on U.S. Treasury rates as of the date of grant with maturity dates approximately equal to the expected term at the grant date. The historical volatility of Avnet’s common stock is used as the basis for the volatility assumption. The Company estimates dividend yield based upon expectations of future dividends compared to the market value of the Company’s stock as of the grant date. Years Ended July 1, July 2, June 27, 2017 2016 2015 Expected term (years) 6.0 6.0 6.0 Risk-free interest rate 1.9 % 1.7 % 1.9 % Weighted average volatility 27.9 % 29.7 % 31.6 % Dividend yield 1.5 % 1.9 % 1.8 % 72 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following is a summary of the changes in outstanding options for fiscal Weighted Weighted Average Average Remaining Shares Exercise Price Contractual Life Outstanding at July 2, 2016 2,325,397 $ 34.61 66 Months Granted 1,516,430 45.50 113 Months Exercised (817,598) 31.85 34 Months Forfeited or expired (309,723) 43.58 46 Months Outstanding at July 1, 2017 2,714,506 $ 40.51 82 Months Exercisable at July 1, 2017 1,035,743 $ 33.38 51 Months The weighted-average grant-date fair values of stock options granted during fiscal At The following is a summary of the changes in non-vested stock options for the fiscal year Weighted Average Grant-Date Shares Fair Value Non-vested stock options at July 2, 2016 919,151 $ 11.20 Granted 1,516,430 9.46 Vested (561,403) 5.92 Forfeited (195,415) 9.81 Non-vested stock options at July 1, 2017 1,678,763 $ 11.56 As of Cash received from stock option exercises during fiscal Restricted Delivery of restricted 73 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following is a summary of the changes in non-vested restricted Weighted Average Grant-Date Shares Fair Value Non-vested restricted stock units at July 2, 2016 1,720,219 $ 39.12 Granted 1,082,795 40.70 Vested (1,408,706) 38.77 Forfeited (378,280) $ 40.09 Non-vested restricted stock units at July 1, 2017 1,016,028 $ 40.93 As of Performance Certain eligible employees, including Avnet’s executive officers, may receive a portion of their long-term stock-based During each of fiscal 74 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 14. Commitments and From time to time, the Company may become a party to, or be otherwise involved in various lawsuits, claims, investigations and other legal proceedings arising in the ordinary course of conducting its business. While litigation is subject to inherent uncertainties, management does not anticipate that any The Company is also currently subject to various pending and potential legal matters and investigations relating to compliance with governmental laws and regulations, including import/export and environmental matters. For certain of these matters it is not possible to determine the ultimate outcome, and the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for such matters due primarily to being in the early stages of the related proceedings and investigations. The Company currently believes that the resolution of such matters will not have a material adverse effect on the Company’s financial position or liquidity, but could possibly be material to its results of operations in any one reporting period. As of July 1, 2017 and July 2, 2016, the Company had aggregate estimated liabilities of $14.2 million and $20.2 million, respectively, classified within accrued expenses and other for such compliance-related matters that were reasonably estimable as of such dates. 15. Earnings per share Years Ended July 1, July 2, June 27, 2017 2016 2015 (Thousands, except per share data) Numerator: Income from continuing operations 263,351 390,909 485,375 Income from discontinued operations $ 261,927 $ 115,622 $ 86,538 Net income 525,278 506,531 571,913 Denominator: Weighted average common shares for basic earnings per share 127,032 130,858 136,688 Net effect of dilutive stock based compensation awards 1,619 2,315 2,103 Weighted average common shares for diluted earnings per share 128,651 133,173 138,791 Basic earnings per share - continuing operations 2.07 2.99 3.55 Basic earnings per share - discontinued operations 2.06 0.88 0.63 Basic earnings per share $ 4.13 $ 3.87 $ 4.18 Diluted earnings per share - continuing operations 2.05 2.93 3.50 Diluted earnings per share - discontinued operations 2.03 0.87 0.62 Diluted earnings per share $ 4.08 $ 3.80 $ 4.12 Stock options excluded from earnings per share calculation due to anti-dilutive effect 1,038 378 — 75 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 16. Additional cash flow information The July 1, July 2, June 27, 2017 2016 2015 (Thousands) Provision for doubtful accounts receivable $ 10,741 $ 7,776 $ 11,558 Periodic pension cost 10,071 23,386 23,544 Other, net 8,292 (1,783) 20,862 Total $ 29,104 $ 29,379 $ 55,964 Interest and income taxes paid for continuing and discontinued operations during the last three fiscal years were as follows: Years Ended July 1, July 2, June 27, 2017 2016 2015 (Thousands) Interest $ 116,085 $ 119,941 $ 113,476 Income taxes (1) 413,482 92,993 125,403 (1) Fiscal 2017 includes certain tax payments related to the gain on sale of discontinued operations. The Company includes book overdrafts as part of accounts payable on its consolidated balance sheets and reflects changes in such balances as part of cash flows from operating activities in its consolidated statements of cash flows. Non-cash investing activities related to purchases of property, plant and equipment that have been accrued, but not paid for, were $6.5 million, $12.8 million and $8.3 million as of July 1, 2017, July 2, 2016, and June 27, 2015, respectively. 17. Segment information Prior to the sale of the TS Business, the Company’s reportable segments were the Electronics Marketing and Technology Solutions 76 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years Ended July 1, July 2, June 27, 2017 2016 2015 (Millions) Sales: Electronic Components $ 16,474.1 $ 16,740.6 $ 17,655.3 Premier Farnell 965.9 — — $ 17,440.0 $ 16,740.6 $ 17,655.3 Operating income (loss): Electronic Components $ 661.0 $ 728.7 $ 832.6 Premier Farnell 99.8 — — 760.8 728.7 832.6 Corporate (1) (107.5) (101.2) (119.6) Restructuring, integration and other expenses (Note 18) (137.4) (44.8) (41.8) Amortization of acquired intangible assets and other (54.5) (9.8) (18.1) $ 461.4 $ 572.9 $ 653.1 Assets: Electronic Components $ 7,126.0 $ 7,163.1 $ 6,706.1 Premier Farnell 1,489.6 — — Corporate (1) 1,084.0 608.8 693.3 Discontinued operations — 3,467.9 3,400.6 $ 9,699.6 $ 11,239.8 $ 10,800.0 Capital expenditures: Electronic Components $ 81.6 $ 100.9 $ 100.1 Premier Farnell 15.7 — — Corporate (1) 23.1 36.5 33.3 $ 120.4 $ 137.4 $ 133.4 Depreciation & amortization expense: Electronic Components $ 64.4 $ 44.9 $ 45.2 Premier Farnell 53.7 — — Corporate (1) 37.3 34.7 37.0 $ 155.4 $ 79.6 $ 82.2 Sales, by geographic area: Americas(2) $ 5,163.9 $ 4,801.3 $ 5,154.5 EMEA(3) 5,912.9 5,103.0 5,053.0 Asia/Pacific(4) 6,363.2 6,836.3 7,447.8 $ 17,440.0 $ 16,740.6 $ 17,655.3 Property, plant and equipment, net, by geographic area: Americas(5) $ 296.1 $ 303.3 $ 240.0 EMEA(6) 186.1 129.6 129.8 Asia/Pacific 37.4 20.3 19.8 $ 519.6 $ 453.2 $ 389.6 (1) Corporate is not a reportable segment and represents certain centrally incurred overhead expenses and assets that are not included in the EC and PF measures of profitability or assets. Corporate amounts represent a reconciling item between segment measures and total Company amounts reported in the consolidated financial statements. 77 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (2) Includes sales in the United States of $4.80 billion, $ (3) Includes sales in Germany and the United Kingdom of (4) Includes sales of (5) Includes property, plant and equipment, net, of (6) Includes property, plant and equipment, net, of Listed in the table below are the Years Ended July 1, July 2, June 27, 2017 2016 2015 (Millions) Semiconductors $ 13,537.9 $ 13,978.0 $ 14,886.3 Interconnect, passive & electromechanical (IP&E) 3,397.9 2,539.9 2,594.7 Other 504.2 222.7 174.3 $ 17,440.0 $ 16,740.6 $ 17,655.3 78 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 18. Restructuring Fiscal During fiscal Facility Asset Severance Exit Costs Impairments Other Total (Thousands) Fiscal 2017 restructuring expenses $ 36,073 $ 668 $ 3,478 $ 1,500 $ 41,719 Cash payments (20,118) (596) — (1,500) (22,214) Non-cash amounts (3,939) — (3,478) — (7,417) Other, principally foreign currency translation 170 4 — — 174 Balance at July 1, 2017 $ 12,186 $ 76 $ — $ — $ 12,262 Severance expense recorded in fiscal Fiscal During fiscal Facility Severance Exit Costs Other Total (Thousands) Balance at July 2, 2016 $ 9,854 $ 1,130 $ 3 $ 10,987 Cash payments (5,742) (289) (3) (6,034) Changes in estimates, net (1,574) (550) — (2,124) Non-cash amounts — — — — Other, principally foreign currency translation (37) (1) — (38) Balance at July 1, 2017 $ 2,501 $ 290 $ — $ 2,791 As of 79 AVNET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fiscal 2015 and prior As of 80 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years Ended Balance at Charged to Charged to Balance at Beginning of Expense Other End of Account Description Period (Income) Accounts Deductions Period (Thousands) Fiscal 2017 Allowance for doubtful accounts $ 27,448 $ 10,741 $ 14,361 (a) $ (5,278) (b) $ 47,272 Valuation allowance on tax loss carry-forwards 63,694 4,477 (c) 173,516 (d) — 241,687 Fiscal 2016 Allowance for doubtful accounts 35,629 $ 7,776 $ — $ (15,957) (b) 27,448 Valuation allowance on tax loss carry-forwards 60,834 (412) (e) 3,272 (f) — 63,694 Fiscal 2015 Allowance for doubtful accounts 34,912 11,558 — (10,841) (b) 35,629 Valuation allowance on tax loss carry-forwards 126,441 (43,178) (g) (22,429) (h) — 60,834 (a) Amount relates to increases to the allowance for doubtful accounts from acquisition and divestiture activity and such amounts were not charged to other accounts (b) Uncollectible receivables written off. (c) Primarily related to an increase of $8.8 million due to the establishment of valuation allowances and a reduction of $4.0 million due to a release in valuation allowances. (d) Primarily related to the acquisition of PF and other tax attributes recorded for which the Company does not expect to realize a benefit. (e) Represents a reduction primarily due to the release of a valuation allowance. (f) Primarily related to impact of foreign currency exchange rates on valuation allowances previously established in various foreign jurisdictions. (g) Represents a reduction primarily due to the release of a valuation allowance in EMEA, of which (h) Primarily related to rate changes on valuation allowances previously established in various foreign jurisdictions. 81 INDEX TO EXHIBITS Exhibit Exhibit 2.1 Interest Purchase Agreement, dated as of September 19, 2016, by and among Avnet, Inc. and Tech Data Corporation (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 20, 2016, Exhibit 2.1). 2.2 First Amendment to Interest Purchase Agreement, dated as of February 27, 2017, by and between Avnet, Inc. and Tech Data Corporation (incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 3, 2017, Exhibit 2.2). 3.1 Restated Certificate of Incorporation of the Company (incorporated herein by reference to the 3.2 By-laws of the Company, effective May 9, 2014 (incorporated herein by reference to the 4.1 Indenture dated as of March 5, 2004, by and between the Company and JP Morgan Trust Company, National Association (incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 5, 2004, Exhibit 4.1). 4.2 Officers’ Certificate dated September 12, 2006, establishing the terms of the 6.625% Notes due 2016 (incorporated herein by reference to the 4.3 Indenture dated as of June 22, 2010, between the Company and Wells Fargo Bank, National Association, as Trustee, providing for the issuance of Debt Securities in one or more series (incorporated herein by reference to the Company’s Current Report on Form 8-K dated June 18, 2010, Exhibit 4.1). 4.4 Officers’ Certificate establishing the terms of the 5.875% Notes due 2020 (incorporated herein by reference to the Company’s Current Report on Form 8-K dated June 18, 2010, Exhibit 4.2). 4.5 Form of Officers’ Certificate establishing the terms of the 4.875% Notes due 2022 (incorporated herein by reference to the 4.6 Form of Officers’ Certificate establishing the terms of the 4.625% Notes due 2026 (incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 22, 2016, Exhibit 4.1). 4.7 Form of Officers’ Certificate setting forth the terms of the 3.750% Notes due 2021 (incorporated herein by reference to the Company’s Current Report on Form 8-K dated December 1, 2016, Exhibit 4.1). Note: The total amount of securities authorized under any other instrument that defines the rights of holders of the Company’s long-term debt does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Therefore, these instruments are not 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 10.1 2011 Amended and Restated Employment Agreement between the Company and Richard Hamada (incorporated herein by reference to the Company’s Current Report on Form 8-K dated February 14, 2011, Exhibit 10.2). 10.2 * Form of Letter Agreement between the Company and William Amelio, Peter Bartolotta, and Michael O’Neill. 10.3 Form of Employment Agreement by and between the Company and Gerry Fay and 82 10.4 Employment Agreement by and between Kevin Moriarty and the Company (incorporated herein by reference to the 10.5 Manager’s Agreement 10.6 Form of Change of Control Agreement between the Company and William Amelio, Richard Hamada, Gerry Fay, 10.7 Avnet, Inc. Deferred Compensation Plan for Outside Directors (Amended and Restated Effective Generally as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13, 2010, Exhibit 10.2). 10.8 Avnet Supplemental Executive Officers’ Retirement Plan (2013 Restatement) (incorporated herein by reference to the 10.9 Avnet Restoration Plan (2013 Restatement) (incorporated herein by reference to the 10.10 Avnet, Inc. 2006 Stock Compensation Plan (Amended and Restated Effective Generally as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13, 2010, Exhibit 10.5). 10.11 Avnet, Inc. 2006 Stock Compensation Plan: (a) Form of nonqualified stock option agreement (b) Form of nonqualified stock option agreement for non-employee director (c) Form of performance stock unit term sheet (revised effective August 13, 2009 by (f) below) (d) Form of incentive stock option agreement (e) Long Term Incentive Letter (incorporated herein by reference to the Company’s Current Report on Form 8-K dated May 16, 2007, Exhibit 99.1). (f) Form of performance stock unit term sheet (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 19, 2009, Exhibit 99.1). 10.12 Avnet, Inc. 2010 Stock Compensation Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8, Registration No. 333-171291). 10.13 Avnet, Inc. 2010 Stock Compensation Plan: (a) Form of nonqualified stock option agreement (b) Form of incentive stock option agreement (c) Form of performance stock unit term sheet (d) Form of restricted stock unit term sheet (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 10, 2012, Exhibit 10.1). 10.14 Avnet, Inc. 2013 Stock Compensation and Incentive Plan (incorporated herein by reference to the 10.15 * Avnet, Inc. 2013 Stock Compensation and Incentive Plan: (a) Form of (b) Form of nonqualified stock option agreement (c) Form of performance-based option agreement (d) Form of performance stock unit term sheet 83 10.16 Avnet, Inc. 2016 Stock Compensation and Incentive Plan (incorporated herein by reference to the Company’s Current Report on Form 8-K dated November 10, 2016, Exhibit 10.1). Refer to Exhibit 10.15, above, for the form of 10.17 Avnet Deferred Compensation Plan (Amended and Restated Effective Generally as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13, 2010, Exhibit 10.6). 10.18 Amendment No. 1 to Avnet Deferred Compensation Plan (Amended and Restated Effective Generally as of January 1, 2009) (incorporated herein by reference to the 10.19 Form of Indemnity Agreement. The Company enters into this form of agreement with each of its directors and officers (incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the period ended April 1, 2006, Exhibit 10.1). Bank Agreements 10.20 Securitization Program (a) Amended and Restated Receivables Sale Agreement, dated February 27, 2017, between Avnet, Inc. and Avnet Receivables Corporation (incorporated herein by reference to the Company’s Current Report on Form 8-K dated (b) 10.21 (a) Credit Agreement dated as of (b) Amendment No. 1 to Credit Agreement, dated as of September 14, 2016, between Avnet, Inc., the lenders party thereto and Bank of America, N.A., as administrative agent (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 15, 2016, Exhibit 10.3). 10.22 (a) Senior Unsecured Bridge Credit Agreement, dated as of July 27, 2016, between Avnet, Inc. and Bank of America N.A., as Administrative Agent (incorporated herein by reference to the Company’s Current Report on Form 8-K dated July 28, 2016, Exhibit 10.1). (b) Amendment No. 1 to Senior Unsecured Bridge Credit Agreement, dated as of September 13, 2016, between Avnet, Inc., the lenders party thereto and Bank of America N.A., as administrative agent (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 15, 2016, Exhibit 10.2). (c) Amendment No. 2 and Waiver to Senior Unsecured Bridge Credit Agreement, dated as of October 24, 2016, between Avnet, Inc., the lenders party thereto and Bank of America (incorporated herein by reference to the Company’s Current Report on Form 8-K dated October 24, 2016, Exhibit 10.1). 10.23 Senior Unsecured Term Loan Credit Agreement, dated as of September 14, 2016, between Avnet, Inc., Avnet Holding Europe BVBA, Tenva Group Holdings Limited, the lenders party thereto and Bank of America N.A., as administrative agent (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 15, 2016, Exhibit 10.1). 12.1 * Ratio of Earnings to Fixed Charges. 21 * List of subsidiaries of the Company as of 23.1 * Consent of KPMG LLP. 84 31.1 * Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 ** Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 ** Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS * XBRL Instance Document. 101.SCH * XBRL Taxonomy Extension Schema Document. 101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document. 101.LAB * XBRL Taxonomy Extension Label Linkbase Document. 101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document. 101.DEF * XBRL Taxonomy Extension Definition Linkbase Document. * Filed herewith. ** Furnished herewith. 85PrinciplesBasis of consolidationpresentation — The accompanying consolidated financial statements include the accounts of Avnet, Inc. and all of its majority-owned and controlled subsidiaries (the "Company"“Company” or "Avnet"“Avnet”). All intercompany and intracompany accounts and transactions have been eliminated. Unless indicated otherwise, the information in the Notes to the consolidated financial statements relates to the Company's continuing operations and does not include the results of discontinued operations.presentation.presentation including the presentation of discontinued operations.2014, 2013,2017 and 2012 all contained 2015 contain 52 weeks. weeks compared to 53 weeks in fiscal 2016. Unless otherwise noted, all references to “fiscal 2014”“fiscal” or any other “year” shall mean the Company’s fiscal year.("GAAP"of America (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, reported amounts of sales and expenses and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period.statements. Actual results could differ materially from those estimates.(first-in, first-out) or market,net realizable value, whichever is lower. The Company regularly reviews the cost of inventory against its estimated marketnet realizable value, considering historical experience and any contractual rights of return, stock rotations, obsolescence allowances or price protectionprotections provided by the Company’s suppliers, and records a lower of cost or marketnet realizable value write-down if any inventories have a cost in excess of their estimated marketnet realizable value.Investments — Investments in joint ventures and entities ("ventures") in which the Company has an ownership interest of greater than 50% and exercises control over the ventures are consolidated in the accompanying consolidated financial statements. Non-controlling interests in the years presented are not material and, as a result, are included in the caption “accrued expenses and other” in the accompanying consolidated balance sheets. Investments in ventures in which the Company exercises significant influence but not control are accounted for using the equity method. Investments in ventures in which the Company’s ownership interest is less than 20% and over which the The Company does not exercise significant influence are accounted for usingincorporate any non-contractual protections when estimating the cost method. The Company monitors ventures for events or circumstances that indicate that the fairnet realizable value of a venture is less than its carrying value, in which case the Company would further review the venture to determine if it is other-than-temporarily impaired. During fiscal 2014, 2013 and 2012 the Company did not have any material investments in ventures.inventories. , amortization and useful lives — The Company reports property, plant and equipment at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the assets, required installation costs, interest capitalized during the construction period, and any expenditure that substantially adds to the value of or substantially extends the useful life of an existing asset. Additionally, the Company capitalizes qualified costs related to software obtained or developed for internal use. Software obtained for internal use has generally been enterprise-level business operations, logistics and finance software that is customized to meet the Company’s specific operational requirements. The Company begins depreciation and amortization ("depreciation"(“depreciation”) for property, plant and equipment when an asset is both in the location and condition for its intended use.Depreciation of property,generally provided for bydepreciated using the straight-line method over theits estimated useful lives of the long-lived assets.lives. The estimated useful lives for property, plant, and equipment are typically as follows: buildings — 2-102-10 years; information technology hardware and software — 2-10 years; and leasehold improvements — over the applicable remainingminimum lease term or economic useful life if shorter.shorter.2-105-10 years.45AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)group's net bookgroup’s carrying value exceeds its estimated fair value. For purposes of recognition and measurement of an impairment loss, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largelyindependent of the cash flows of other assets and liabilities. The Company considers a long-lived asset to be abandoned when it has ceased use of such abandoned asset and if the Company has no intent to use or repurpose the asset in the future. The Company continually evaluates the carrying value and the remaining economic useful life of all long-lived assets and will adjust the carrying value and the related depreciation and amortization periodremaining useful life if and when appropriate.testing.testing as a component of operating expenses. Impairment testing is performed at the reporting unit level, and the Company has identified sixhad four reporting units as of the fiscal 2017 annual goodwill impairment testing date defined as each of the three regions (Americas, EMEA, and Asia Pacific) within the Company’s two reportable segments.Electronic Components operating segment and the Premier Farnell operating segment. The Company will perform an interim impairment test between scheduledrequired annual tests if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value.value to determine whether it is necessary to perform the two-step goodwill impairment test.value. If the qualitative assessment indicates it is more-likely-than-not that a reporting unit’s fair value is not greater than its carrying value, the Company must perform a two-stepquantitative impairment test. The Company defines the fair value of a reporting unit as the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants atas of the measurementimpairment test date. To determine the fair value of a reporting unit, the Company primarily uses the income approach methodology of valuation, which includes the discounted cash flow method, and the market approach methodology of valuation, which considers values of comparable businesses to estimate the fair valuesvalue of the Company’s reporting units.thea reporting unit exceeds the carrying value assigned to that reporting unit, goodwill is not impaired and no further analysisimpaired. If the estimated fair value of a reporting unit is required.Ifless than the carrying value assigned to a reporting unit exceeds its estimated fair value in the first step, then the Company is required to perform the second step of the impairment test. In this step, the Company assigns the fair value of the reporting unit calculated in the first step to all of the assets and liabilities of that reporting unit, as ifthen a market participant just acquired the reporting unit in a business combination. The excess of the fair value of the reporting unit determined in the first step of the impairment test over the total amount assigned to the assets and liabilities in the second step of the impairment test represents the implied fair value of goodwill. If the carrying value of a reporting unit’s goodwill exceeds the implied fair value of goodwill, the Company would record an impairment loss equal to theis measured based on such difference. If there is no such excess then all goodwill for a reporting unit is considered impaired.(primarily trade receivables and payables) are translatedremeasured at exchange rates in effect at the balance sheet date or upon settlement of the transaction. Gains and losses from such translationremeasurements are recorded in the consolidated statements of operations as a component of “other (expense) income, (expense), net.” In fiscal 2014, 2013 and 2012, gains or losses on foreign currency translation were not material.in earningswithin income tax expense in the period in which the new rate is enacted. Based upon historical and estimated levels of future taxable income and analysis of other key factors, the Company may increase or decrease a valuation allowance against its deferred tax assets, as deemed necessary, to state such assets at their estimated net realizable value.46AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)contingent liabilities.unrecognized tax benefits. To the extent such changes in estimates are required,required; the Company’s effective tax rate may potentially fluctuate as a result. In accordance with the Company'sCompany’s accounting policies, accrued interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense.United States,U.S., the Company is primarily self-insured for medical, workers’ compensation, medical, and general, product and automobile liability costs; however, the Company also has stop-loss insurance policies in place to limit the Company’s exposure to individual and aggregate claims made. Liabilities for these programs are estimated based upon outstanding claims and claims estimated to be incurred but not yet reported based upon historical loss experience. These estimates are subject to variability due to changes in trends of losses for outstanding claims and incurred but not recordedreported claims, including external factors such as future inflation rates,the number of and cost of claims, benefit level changes and claim settlement patterns.—Revenue— Revenue from the sale of products or services is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured. Generally, these criteria are met upon either shipment or delivery to customers, depending upon the sales terms. Most of the Company’s product sales come from products Avnet purchases from a supplier and holds in inventory. A portion of the Company’s sales are products shipped directly from its suppliers to its customers ("drop-ship"). In such drop-ship arrangements, Avnet negotiates the price with the customer, pays the supplier directly for the products shipped and bears credit risk of collecting payment from its customers. Furthermore, in such drop-shipment arrangements, the Company bears responsibility for accepting returns of products from the customer even if the Company, in turn, has a right to return the products to the original supplier if the products are defective. Under these sales terms, the Company serves as the principal with the customer and, therefore, recognizes the gross sale and cost of sale of the product upon shipment by the supplier. a limited number of its customers and suppliers whereby Avnet assumes an agency relationship in the transaction.sales transaction primarily related to the performance of fulfillment logistics services to deliver product for which the Company is not the primary obligor. In such agency arrangements, the Company recognizes the net fee associated with serving as an agent inwithin sales with no associated cost of sales.Revenues from maintenance contracts are recognized ratably over the lifethe contracts, generally ranging from one to three years.Contentsperiods and may require management to make estimates. periods.typically include(loss) includes foreign currency translation and the impact of the Company’s pension liability adjustments, net of tax (see Note 4).tax.—The— The Company measures stock-based payments at fair value and generally recognizes the associated operating expense in the consolidated statement of operations over the requisite service period (see Note 12)13). A stock-based payment is considered vested for accounting expense attribution purposes when the employee'semployee’s retention of the award is no longer contingent on providing continued service. Accordingly, the Company recognizes all stock-based compensation expense for an award on the grant date for awards granted to retirement eligible employees or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated requisite service period. The expense attribution approach for retirement eligible employees does not affect the overall amount of compensation expense recognized, but instead accelerates the recognition of expense.Exit Activitiesexit activities — The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for employee termination benefits that represent aon-going benefit arrangements in accordance with ASC 712 Nonretirement Postemployment Benefits and accounts for one-time benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations.Obligations. If applicable, the Company records such costs into operating47AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Combinationscombinations — The Company accounts for business acquisitions using the acquisition method of accounting and records any identifiable definite-lived intangible assets separate from goodwill. Intangible assets are recorded at their fair value based on estimates as of the date of acquisition. Goodwill is recorded as the residual amount of the purchase price consideration less the fair value assigned to the individual identifiable assets acquired and liabilities assumed as of the date of acquisition. Contingent consideration, which represents an obligation of the acquirer to transfer additional assets or equity interests to the former owner as part of the exchangepurchase price if specified future events occur or conditions are met, is accounted for at the acquisition date fair value either as a liability or as equity depending on the terms of the acquisition agreement.Eurodollar time deposits and institutional money market funds with the highesthighly rated financial institutions. To reduce credit risk, management performs ongoing credit evaluations of its customers’ financial condition and, in some instances, has obtained credit insurance coverage to reduce such risk. The Company maintains reserves for potential credit losses from customers, but has not historically experienced any material losses related to individual customers or groups of customers in any particular end market or geographic area.onfrom the sale of an asset or paid to transfer a liability, in an orderly transaction between market participants. Accounting standards requireASC 820, Fair Value Measurements, requires inputs used in valuation techniques for measuring fair value on a recurring or non-recurring basis be assigned to a hierarchical level as follows: Level 1 are observable inputs that reflect quoted prices for identical assets or liabilities in active markets. Level 2 are observable market-based inputs or unobservable inputs that are corroborated by market data and Level 3 are unobservable inputs that are not corroborated by market data. During fiscal 2014, 2013,2017, 2016, and 2012,2015, there were no transfers of assets measured at fair value between the three levels of the fair value hierarchy. The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, receivables and accounts payable approximate their fair values at June 28, 2014July 1, 2017 due to the short-term nature of these assets and liabilities. At June 28, 2014July 1, 2017, and June 29, 2013,July 2, 2016, the Company had $19.7$208.3 million and $2.1$8.7 million,, respectively, of cash equivalents that were measured at fair value based upon Level 1 criteria. The Company’s investments in marketable securities were also measured at fair value based upon Level 1 criteria. See Note 78 for further discussion of the fair value of the Company’s long-term debt and Note 1011 for a discussion of the fair value of the Company'sCompany’s pension plan assets.payables)payables in the same foreign currency) as well as by creating offsetting positions through the use of derivative financial instruments, primarily forward foreign exchange contracts typically with maturities of less than 60 days ("(“economic hedges"hedges”). The Company continues to have exposure to foreign currency risks to the extent they are not economically hedged. The Company adjusts any economic hedges to fair value through the consolidated statements of operations primarily within "other“other (expense) income, (expense), net."” Therefore, the changes in valuation of the underlying items being economically hedged are offset byclassified in the same consolidated statements of operations line item as the changes in fair value of the forward foreign exchange contracts. The amounts representing the fair value of forward foreign currency exchange contracts, which are based upon Level 2 criteria under the ASC 820 fair value hierarchy, are classified in the captions “other current assets” or “accrued expenses and other,” as applicable, in the accompanying consolidated balance sheets and were not material as of June 28, 2014July 1, 2017, and June 29, 2013. July 2, 2016. The Company’s master netting and other similar arrangements with various financial institutions related to derivative financial instruments allow for the right of offset. The Company’s policy is to present derivative financial instruments with the same counterparty as either a net asset or liability when the right of offset exists.did not have material gains or losses related to the forward foreign exchange contracts during fiscal 2014 and fiscal 2013.The Companygenerally does not hedge its investments in its foreign operations. The Company does not enter into derivative financial instruments for trading or speculative purposes and monitors the financial stability and credit standing of its counterparties.Accounts receivable securitization —an accounts receivable securitization program wherebyforeign operations transactions primarily in Canadian, other European and Asian foreign currencies.Company sells certain receivables and retainsCompany’s consolidated balance sheets are as follows:subordinated interest and servicing rightsderivative financial instrument used to those receivables. The securitization program does not qualify for sales accounting and is accounted for as a secured financing aseconomically hedge the fair value changes in marketable securities discussed further in Note 3.Recently issued accounting pronouncements — In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 requires the netting of unrecognized tax benefits ("UTBs") against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax48positions. UTBs are required to be netted against all available same-jurisdiction loss or other tax carryforwards, rather than only against carryforwards that are created by the UTBs. ASU 2013-11 is effective for years, including interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 in the first quarter of fiscal 2015 is not expected to have a material impact on the Company's consolidated financial statements.In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity ("ASU 2014-08"), which changes the criteria for determining which disposals should be presented as discontinued operations and the related disclosure requirements. ASU 2014-08 is effective for the Company on a prospective basis in the first quarter of fiscal 2016 with early adoption permitted for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. The adoption of ASU 2014-08 in the first quarter of fiscal 2016 is not expected to have a material impact on the Company's consolidated financial statements. In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), to supersede nearly all existing revenue recognition guidance under GAAP. The core principles of ASU 2014-09 are to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Application of the requirements of ASU 2014-09 may require more judgment and estimates within the revenue recognition process compared to existing GAAP. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2018 using either of two acceptable adoption methods: (i) retrospective adoption to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) adoption with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined within ASU 2014-09. The Company is currently evaluating the potential impact of the future adoption of ASU 2014-09 on its consolidated financial statements. 2. Acquisitions and divestitures2014 AcquisitionsDuring fiscal 2014, the Company acquired three businesses with historical annualized sales of approximately $492.0 million. Cash paid for acquisitions during fiscal 2014 was $116.9 million, net of cash acquired and contingent consideration. The Company has not disclosed the pro-forma impact of the fiscal 2014 acquisitions as such impact was not material.The gross consideration for the acquisitions was $219.7 million, which consisted of the following (in thousands):Cash paid $ 181,645 Contingent consideration 38,081 Total consideration $ 219,726 The contingent consideration arrangements stipulate that the Company pay up to a maximum of approximately $50.0 million of additional consideration to the former shareholders of the acquired businesses based upon the achievement of certain future operating results. The Company estimated the fair value of the contingent consideration using an income approach, which is based on significant inputs, primarily forecasted future operating results of the acquired businesses, not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The Company adjusts the fair value of contingent consideration within operating expenses as a result of the passage of time and if there are changes to the inputs used in the income approach.The Company has not yet completed its evaluation and determination of the fair value of certain assets and liabilities acquired, primarily (i) the final assessment of working capital acquired and liabilities assumed, and (ii) the final valuation of certain income tax accounts. The Company expects these final valuations and assessments will be completed by the first quarter of fiscal 2015, which may result in adjustments to the preliminary values presented in the following table:49AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Acquisition
Method Values (Thousands) Cash $ 64,763 Receivables 36,216 Inventories 95,202 Other current assets 6,597 Property, plant and equipment and other non-current assets 28,155 Intangible assets 53,502 Total identifiable assets acquired 284,435 Accounts payable, accrued liabilities and other current liabilities (66,848 ) Short-term debt (45,942 ) Other long-term liabilities (14,535 ) Total identifiable liabilities assumed (127,325 ) Net identifiable assets acquired 157,110 Goodwill 62,616 Net assets acquired $ 219,726 Goodwill of $52.0 million was assigned to the Electronics Marketing ("EM") reportable segment and goodwill of $10.6 million was assigned to the Technology Solutions ("TS") reportable segment. The goodwill recognized is attributable primarily to expected synergies of the acquired businesses. of goodwill that is expectedrecorded to be deductible forother (expense) income, tax purposes is not material. The Company periodically adjusts the value of goodwillnet related to reflect changes that occurderivative financial instruments are as a result of adjustments to the preliminary purchase price allocation during the measurement periods following the dates of acquisition.follows:The Company has recognized restructuring, integration, and other expenses associated with fiscal 2014 and other recent acquisitions, which are described further in Note 17.2013 AcquisitionsDuring fiscal 2013, the Company acquired 12 businesses with aggregate annualized sales of approximately $1.18 billion for a total consideration of $309.0 million, which consisted of the following (in thousands):Cash paid $ 297,484 Contingent consideration 11,467 Total consideration $ 308,951 The contingent consideration arrangements stipulate the Company pay up to a maximum of approximately $22.2 million of additional consideration to the former shareholders of the acquired businesses upon the achievement of certain operating results. The Company estimated the fair value of the contingent consideration using an income approach which is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The Company adjusts the fair value of contingent consideration within operating expenses as a result of the passage of time and if there are changes to the inputs used in the income approach.Cash paid for acquisitions during fiscal 2013 was $262.3 million, net of cash acquired, contingent consideration and purchase price holdback reserves.50AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates (in thousands):Cash $ 29,276 Receivables 226,743 Inventories 91,791 Other current assets 33,689 Property, plant and equipment 25,311 Other assets 47,292 Total identifiable assets acquired 454,102 Accounts payable, accrued liabilities and other current liabilities (157,986 ) Long-term debt (66,367 ) Other long-term liabilities (45,640 ) Total identifiable liabilities assumed (269,993 ) Net identifiable assets acquired 184,109 Goodwill 157,521 Bargain purchase recognized (32,679 ) Net assets acquired $ 308,951 Goodwill of $62.0 million was assigned to the EM reportable segment and goodwill of $95.5 million was assigned to the TS reportable segment. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of the acquired businesses. The amount of goodwill that is expected to be deductible for income tax purposes is not significant. The Company periodically adjusts the value of goodwill to reflect changes that occur as a result of adjustments to the preliminary purchase price allocation during the measurement periods following the dates of acquisition.Included in "Other assets" in$35.2approximately $35.0 million of identifiable intangible assets (seederivative financial instrument losses in other (expenses) income, net, that are associated with foreign currency derivative financial instruments purchased to economically hedge the British Pound purchase price of the PF acquisition as discussed in Note 6) substantially all related to customer relationships.Supplemental information on an unaudited pro forma basis,2 and approximately $34.0 million of derivative financial instrument losses in other (expenses) income, net, that economically hedge the unrealized gain from marketable securities, which is also classified within other (expenses) income, net, as if the fiscal 2013 acquisitionsdiscussed further in Note 3.been consummatedaverage maturities of 56 days and 55 days as of July 3, 2011, is presented as follows: Pro Forma Results For Years Ended June 29, 2013 June 30, 2012 (Millions) Sales $ 25,771 $ 26,872 Net income $ 454 $ 587 With respect to1, 2017, and July 2, 2016, respectively. Under the businesses acquired during fiscal 2013, the Company is unable to determine the amount of salesCompany’s economic hedging policies, gains and earnings of each business subsequent to their respective acquisition dates as each business has been integrated into the Company.Internix, Inc., a company publicly tradedlosses on the Tokyo Stock Exchange, was acquired in the first quarter of fiscal 2013 through a tender offer. After assessing the fair value of the identifiable assets acquired and liabilities assumed, the consideration paid was below fair value even though the price paid per share represented a premium to the trading levels at that time. During fiscal 2013, the Company recognized a gain on bargain purchase related to Internix of $32.7 million before and after tax and $0.23 per share on a diluted basis.In addition to the acquisitions described above, during fiscal 2013, the Company acquired the remaining non-controlling interest in a consolidated subsidiary for a purchase price that was less than its carrying value. The Company has reflected the difference between the purchase price and the carrying value of the non-controlling interest as additional paid-in capital in the accompanying consolidated statement of shareholders' equity for fiscal 2013.51AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2012 AcquisitionsDuring fiscal 2012, the Company acquired 11 businesses with aggregate annualized sales of approximately $912.0 million for total consideration of $413.6 million, which consisted of the following (in thousands):Cash paid $ 390,410 Contingent consideration 23,175 Total consideration $ 413,585 The contingent consideration arrangements stipulate the Company pay up to a maximum of approximately $124 million of additional consideration to the former shareholders of the acquired businesses upon the achievement of certain operating results. The Company estimated the fair value of the contingent consideration using an income approach which is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The Company adjusts the fair value of contingent consideration within operating expenses as a result of the passage of time and if therederivative financial instruments are changes to the inputs used in the income approach.Cash paid for acquisitions during fiscal 2012 was $313.2 million, net of cash acquired, contingent consideration and purchase price holdback reserves.The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective acquisition dates (in thousands):Cash $ 75,016 Receivables 132,195 Inventories 59,463 Other current assets 23,936 Property, plant and equipment 9,729 Other assets 104,368 Total identifiable assets acquired 404,707 Accounts payable, accrued liabilities and other current liabilities (230,747 ) Other long-term liabilities (2,483 ) Total liabilities assumed (233,230 ) Net identifiable assets acquired 171,477 Goodwill 246,425 Bargain purchase recognized (4,317 ) Net assets acquired $ 413,585 Goodwill of $180.0 million was assigned to the EM reportable segment and goodwill of $66.4 million was assigned to the TS reportable segment. The amount of goodwill that is expected to be deductible for income tax purposes is not significant. The Company periodically adjusts the value of goodwill to reflect changes that occur as a result of adjustments to the preliminary purchase price allocation during the measurement periods following the dates of acquisition.Included in "Other assets" in the above table is $93.3 million of identifiable intangible assets (see Note 6).Supplemental information on an unaudited pro forma basis, as if the acquisitions had been consummated as of July 3, 2011, is presented as follows:52AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Pro Forma Results For Year Ended June 30, 2012 (Millions) Sales $ 26,052 Net income $ 568 With respect to the businesses acquired during fiscal 2012, the Company is unable to determine the amount of sales and earnings of each business subsequent to their respective acquisition dates as each business has been integrated into the Company.Unidux Electronic Limited, a Singapore publicly traded company, was acquired in January 2012 through a tender offer. After assessing the fair value of the identifiable assets acquired and liabilities assumed, the consideration paid was below fair value even though the price paid per share represented a premium to the trading levels at that time. Accordingly, the Company recognized a gain on bargain purchase of $4.3 million before and after tax and $0.03 per share on a diluted basis.DivestituresDuring fiscal 2013, the Company divested a small business in TS Asia for which it recognized a loss of $1.7 million before and after tax and $0.01 per share on a diluted basis, which was classified within "Gain on legal settlement, bargain purchase and other."During fiscal 2012, the Company recognized a loss of $1.4 million before tax, $0.9 million after tax and $0.01 per diluted share classified within "Gain on legal settlement, bargain purchase and other"same line item in the consolidated statements of operations related to the impairment of an investment in a small technology company and the write-off of certain deferred financing costs associated with the early termination of a credit facility.3. Accounts receivable securitizationPursuant to the Company's accounts receivable securitization agreement (the “Program”) with a group of financial institutions, as amended, the Company may sell, on a revolving basis, an undivided interest of up to $800.0 million in eligible U.S. receivables while retaining a subordinated interest in the receivables sold. The eligible receivables are sold through a wholly-owned bankruptcy-remote special purpose entity ("SPE") that is consolidated for financial reporting purposes as the Company is the primary beneficiary of the SPE. Such eligible receivables are not directly available to satisfy potential claims of the Company’s creditors. As the Program does not qualify for sales accounting, the receivables and related short-term debt obligation remains on the Company’s consolidated balance sheets. The Program has a one-year term that expires at the end of August 2014, at which time it is expected to be renewed for another one to two years on comparable terms. The Program contains certain covenants, all of which the Company was in compliance with as of June 28, 2014. There were $615.0 million in borrowings outstanding under the Program as of June 28, 2014 and $360.0 million as of June 29, 2013. Interest on borrowings is calculated using a base rateunderlying assets or a commercial paper rate plus a spread of 0.35%. The facility fee is 0.35%.4. Shareholders'liabilities being economically hedged.income (loss): June 28,
2014 June 29,
2013 June 30,
2012 (Thousands) Accumulated translation adjustments and other $ 244,149 $ 135,395 $ 90,798 Accumulated pension liability adjustments, net of income taxes (104,637 ) (106,500 ) (136,630 ) Total accumulated other comprehensive income (loss) $ 139,512 $ 28,895 $ (45,832 ) Comprehensive income (loss) includes foreign currency translation adjustments and pension liability adjustments. income:2014, 20132017, 2016 and 20122015 substantially all related to net periodic pension costs as discussed further in Note 10. 11 and cumulative translation adjustment from the sale of the TS Business discussed further in Note 3.53August 2012,February 2017, the Company'sCompany’s Board of Directors amended the Company'sCompany’s existing share repurchase program to authorize the repurchase of up to $750.0 million1.75 billion of common stock in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend on a variety of factors such as share price, corporate and regulatory requirements, and prevailing market conditions. During fiscal 2014,2017, the Company repurchased 0.26.4 million shares under this program at an average market price of $41.4643.41 per share for a total cost of $8.6275.9 million. Repurchased shares were retired. Since the beginning of the repurchase program through the end of fiscal 2014,2017, the Company has repurchased 18.137.7 million shares at an aggregate cost of $534.1 million1.35 billion, and $215.9399.1 million remains available for future repurchases under the share repurchase program.In May 2014, the Company's Board of Directors approved a dividend of $0.15 per common share to the shareholders of record on June 3, 2014. Dividend payments of $20.7 million were made in June 2014.2014,2017, the Company has paid dividends of $0.60$0.70 per common share and $82.8$88.7 million in total.5. June 28, 2014 June 29, 2013 (Thousands) Buildings $ 132,291 $ 141,886 Machinery, fixtures and equipment 266,416 213,317 Information technology hardware and software 699,466 628,026 Leasehold improvements 118,907 102,301 Depreciable property, plant and equipment, gross 1,217,080 1,085,530 Accumulated depreciation (783,485 ) (691,980 ) Depreciable property, plant and equipment, net 433,595 393,550 Land 31,730 24,834 Construction in progress 69,674 74,222 Property, plant and equipment, net $ 534,999 $ 492,606 $92.5$101.4 million,, $88.3 $70.3 million and $73.6$66.4 million in fiscal 2014, 20132017, 2016 and 2012,2015, respectively. Interest expense capitalized during fiscal 2017, 2016 and 2015 was not material.546.2014.2017. All of the accumulated impairment was recognized in fiscal 2009. Total (Thousands) Gross goodwill $ 1,646,940 $ 994,082 $ 2,641,022 Accumulated impairment (1,045,110 ) (334,624 ) (1,379,734 ) Carrying value at June 29, 2013 601,830 659,458 1,261,288 Additions 51,994 10,622 62,616 Adjustments 2,039 552 2,591 Foreign currency translation 12,594 9,379 21,973 Carrying value at June 28, 2014 $ 668,457 $ 680,011 $ 1,348,468 Gross goodwill $ 1,713,567 $ 1,014,635 $ 2,728,202 Accumulated impairment (1,045,110 ) (334,624 ) (1,379,734 ) Carrying value at June 28, 2014 $ 668,457 $ 680,011 $ 1,348,468 The goodwill additions are a result of businesses acquired during fiscal 2014 (see Note 2) and goodwill adjustments represent the net purchase accounting adjustments for acquisitions during the related measurement periods.Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired and liabilities assumed. The Company is required to test goodwill for impairment at least annually as of the first day of its fiscal fourth quarter. The Company will perform an impairment test between required annual tests if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit that has goodwill is less than its carrying value. Once goodwill has been assigned to a reporting unit, for accounting purposes, the goodwill is no longer directly associated with the underlying acquisitions that the goodwill originated from, but rather the reporting unit to which it has been assigned. During Fiscal 2014, 2013 and 2012 the Company elected to perform the first-step of the two-step goodwill impairment test instead of first performing a qualitative goodwill impairment test.The first step in a two-step impairment test is the comparison of the fair value of a reporting unit with its carrying amount, including goodwill. forin the fourth quarters of fiscal 2014, 20132017, 2016 and 2012,2015, there was no impairment of goodwill in the respective fiscal years.assets, which have a weighted average life of approximately 8 years for each fiscal year presented:assets: June 28, 2014 June 29, 2013 Gross Acquired Amount Accumulated Amortization Net Book Value Gross Acquired Amount Accumulated Amortization Net Book Value (Thousands) Customer relationships $ 319,496 $ (155,604 ) $ 163,892 $ 276,107 $ (109,946 ) $ 166,161 Trade name 5,993 (1,555 ) 4,438 3,320 (480 ) 2,840 Other 18,833 (2,855 ) 15,978 4,177 (966 ) 3,211 $ 344,322 $ (160,014 ) $ 184,308 $ 283,604 $ (111,392 ) $ 172,212 55AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)$44.7$54.0 million,, $32.3 $9.2 million and $27.8$15.8 million for fiscal 2014, 20132017, 2016 and 20122015, respectively. Intangible assets have a weighted average remaining useful life of approximately 4 years as of July 1, 2017. The following table presents the estimated future amortization expense for the next five fiscal years and thereafter (in thousands):Fiscal Year Amortization Expense 2015 $ 41,458 2016 35,512 2017 33,478 2018 24,900 2019 20,756 Thereafter 28,204 Total $ 184,308 7. External financing June 28, 2014 June 29, 2013 (Thousands) Bank credit facilities and other $ 250,088 $ 178,240 Accounts receivable securitization program (Note 3) 615,000 360,000 Current portion of long-term debt — 299,950 Short-term debt $ 865,088 $ 838,190 weighted average interest rate onrepayments were made with the bank credit facilities was 3.2% and 4.3% atproceeds from the endissuance of fiscal 2014 and 2013, respectively. The interest rate on the accounts receivable securitization program was 0.6% at the end of fiscal 2014 and 2013. June 28, 2014 June 29, 2013 (Thousands) 2012 Credit Facility $ 12,000 $ 6,700 6.000% Notes due September 1, 2015 250,000 250,000 6.625% Notes due September 15, 2016 300,000 300,000 5.875% Notes due June 15, 2020 300,000 300,000 4.875% Notes due December 1, 2022 350,000 350,000 Other long-term debt 3,867 2,879 Subtotal 1,215,867 1,209,579 Unamortized discount on notes (2,053 ) (2,586 ) Long-term debt $ 1,213,814 $ 1,206,993 At the end of fiscal 2014, the Company had a five-year$1.00 billion senior unsecured revolving credit facility (the "2012 Credit Facility") with a syndicate of banks, which expires in November 2016. Under the 2012 Credit Facility, the Company may select from various interest rate options, currencies and maturities. The 2012 Credit Facility contains certain covenants, all of which the Company was in compliance with as of June 28, 2014. At June 28, 2014, there were letters of credit aggregating to $2.0 million outstanding which represents a utilization of the 2012 Credit Facility capacity but are not recorded in the consolidated balance sheet as the letters of credit are not debt. At June 29, 2013, there were letters of credit aggregating $2.3 million outstanding.56In July 2014, subsequent to the end of fiscal 2014, theterminated the 2012 Credit Facility and entered intohas a five-year $1.25 billion senior unsecured revolving credit facility (the "2014 Credit Facility"“Credit Facility”) with a syndicate of banks, consisting of revolving credit facilities and the issuance of up to $150.00$150.0 million of letters of credit.credit, which expires in July 2019. Subject to certain conditions, the 2014 Credit Facility may be increased up to $1.50 billion. Under the 2014 Credit Facility, the Company may select from various interest rate options, currencies and maturities. The 2014 Credit Facility contains certain covenants including various limitations on debt incurrence, share repurchases, dividends, investments and capital expenditures. The Credit Facility also includes financial covenants requiring the Company to maintain minimum interest coverage and leverage rations, which the Company was in compliance with as of July 1, 2017. At July 1, 2017, and July 2, 2016, there were $3.1 million and $5.6 million, respectively, in letters of credit issued under the Credit Facility.substantially similar to those covenants containedrecorded within “Receivables” in the 2012consolidated balance sheets, totaled $807.5 million and $1.46 billion at July 1, 2017, and July 2, 2016, respectively. The Program contains certain covenants relating to the quality of the receivables sold. The Program also requires the Company to maintain certain minimum interest coverage and leverage financial ratios, which the Company was in compliance with as of July 1, 2017. The Program has a two-year term that expires in August 2018 and as a result is considered long-term debt as of July 1, 2017. There were $142.0 million in borrowings outstanding under the Program as of July 1, 2017, and $730.0 million as of July 2, 2016. Interest on borrowings is calculated using a base rate or a commercial paper rate plus a spread of 0.40%. The facility fee is 0.40%.Facility.Agreement (the “Term Loan”) entered into with a group of banks. The 2014 Credit Facility is scheduledTerm Loan had a maturity date of October 17, 2019. The proceeds from borrowings under the Term Loan were used to maturefinance a portion of the cash consideration and any fees and expenses related to the Company’s acquisition of PF discussed further in July 2019.Note 2. In March 2017, the Company repaid in full all outstanding amounts due under the Term Loan with a portion of the proceeds from the sale of the TS Business.2015 $ 865,088 2016 264,547 2017 301,286 2018 34 2019 — Thereafter 650,000 Subtotal 2,080,955 Discount on notes (2,053 ) Total debt $ 2,078,902 June 28, 2014,July 1, 2017, the carrying value and fair value of the Company’s debt was $2.08$1.78 billion and $2.19$1.85 billion,, respectively. Fair value was estimated primarily based upon quoted market prices for the Company's long-term notes. At June 29, 2013,July 2, 2016, the carrying value and fair value of the Company’s debt was $2.05$2.49 billion and $2.13$2.59 billion, respectively. FairFor the Notes, fair value was estimated primarily based upon quoted market prices and for other debt instruments fair value approximates carrying value due to the Company's long-term notes.8.market based variable nature of the interest rates on those obligations. June 28, 2014 June 29, 2013 (Thousands) Accrued salaries and benefits $ 339,885 $ 304,606 Accrued operating costs 117,556 92,306 Accrued interest and banking costs 32,878 42,096 Accrued restructuring costs (Note 17) 40,917 46,522 Accrued income taxes 40,829 54,039 Accrued other 139,304 165,533 Total accrued expenses and other $ 711,369 $ 705,102 9.indicatedincluded in the table below. The tax provision for deferred income taxes results from temporary differences arising principallyprimarily from net operating losses, inventories valuation, receivables valuation, certain accrued amounts and depreciation and amortization, net of any changes to valuation allowances.57AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Years Ended June 28, 2014 June 29, 2013 June 30, 2012 (Thousands) Current: Federal $ 71,714 $ 17,212 $ 94,237 State and local 8,038 7,034 19,466 Foreign 91,415 84,965 98,278 Total current taxes 171,167 109,211 211,981 Deferred: Federal 11,305 2,619 6,896 State and local 3,810 2,390 758 Foreign (30,759 ) (15,028 ) 4,128 Total deferred taxes (15,644 ) (10,019 ) 11,782 Income tax expense $ 155,523 $ 99,192 $ 223,763 $235.4(174.3) million,, $174.0 $(2.7) million and $320.3$85.8 million, in fiscal 2017, 2016 and 2015, respectively, and foreign income before income taxes from continuing operations was $465.7$484.7 million,, $375.3 $480.7 million and $470.4$485.7 million in fiscal 2014, 20132017, 2016 and 2012,2015, respectively. Years Ended June 28, 2014 June 29, 2013 June 30, 2012 Federal statutory rate 35.0 % 35.0 % 35.0 % State and local income taxes, net of federal benefit 1.3 1.1 1.8 Foreign tax rates, net of valuation allowances (9.3 ) (7.2 ) (5.4 ) Release of valuation allowance, net of U.S. tax expense (4.8 ) (6.4 ) (2.8 ) Change in contingency reserves (0.1 ) 0.4 0.5 Tax audit settlements (0.6 ) (6.0 ) (1.0 ) Other, net 0.7 1.2 0.2 Effective tax rate 22.2 % 18.1 % 28.3 % includeincludes the impact of valuation allowances established against the Company'sCompany’s otherwise realizable foreign deferred tax assets, which are primarily net operating loss carry-forwards.22.2%15.2% in fiscal 20142017 as compared with an effective tax rate of 18.1%18.2% in fiscal 2013.2016. Included in the fiscal 20142017 effective tax rate is a net tax benefit of $43.8$73 million, which is comprised primarily of (i) a tax benefit of $33.4 million for the release of valuation allowances against deferred tax assets that were determined to be realizable, primarily related to a legal entitythe mix of income in EMEA (discussed further below), and (ii) a netlower tax benefit of $7.0 million resulting from losses related to an investment in a foreign subsidiary.jurisdictions. The fiscal 20142017 effective tax rate is higherlower than the fiscal 20132016 effective tax rate primarily due to a lower amountthe aforementioned favorable mix of tax benefits from audit settlements in fiscal 2014 as compared to fiscal 2013,income, partially offset by a greatertax expense from the establishment of valuation allowances and reserves in fiscal 2017 as compared with the tax benefit from the valuation allowances released in fiscal 2014 as compared with the amount released in fiscal 2013.58AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)semiconductorCompany’s served industries; (iii) jurisdictional specific limitations on the utilization of deferred tax assets including when such assets expire; and related industries; and (iii)(iv) prudent and feasible tax planning strategies.2014,2015, the Company had a partialreleased the remaining valuation allowance against significant net operating loss carry-forward deferred tax assets related to a legal entity in EMEA dueEMEA. Due to among several other factors,the profitability for this entity and the projections for the future, management concluded a history of losses in that entity. In recent fiscal years, such entity has been experiencing improved earnings, which required the partialfull release of the valuation allowance to the extent the entity has projected future taxable income. Inwas appropriate in fiscal 2014 and fiscal 2013, the Company determined a portion of the valuation allowance for such legal entity was no longer required due to the expected continuation of improved earnings in the foreseeable future and, as a result, the Company's effective tax rate was reduced upon the partial release of the valuation allowance, net of the U.S. tax expense. In fiscal 2014 and 2013, the valuation allowance released associated with this EMEA legal entity was $33.6 million and $27.1 million, respectively, net of the U.S. tax expense associated with the release. Excluding the benefit in both fiscal years related to the release of the tax valuation allowance associated with such EMEA legal entity, the effective tax rate for fiscal 2014 and fiscal 2013 would have been 27.0% and 23.0%, respectively.ASC 740 requires a preponderance of positive evidence in order to reach a conclusion to release all or a portion of a valuation allowance when negative evidence exists. The Company will continue to evaluate the need for a valuation allowance against these deferred tax assets and will adjust the valuation allowance as deemed appropriate which, if reduced, could result in a significant decrease to the effective tax rate in the period of the adjustment. $2.77$3.33 billion of cumulative unremitted earnings of foreign subsidiaries at June 28, 2014July 1, 2017, because those earnings are expected to be permanently reinvested outside the U.S. A hypothetical calculation of the deferred tax liability, assuming those earnings were remitted, is not practicable.primarily in “other assets” and “other liabilities” on the consolidated balance sheets, are as follows: June 28,
2014 June 29,
2013 (Thousands) Deferred tax assets: Federal, state and foreign tax loss carry-forwards $ 336,334 $ 333,940 Inventories valuation $ 18,442 $ 19,509 Receivables valuation 26,022 27,185 Various accrued liabilities and other (1,673 ) 33,031 379,125 413,665 Less — valuation allowance (182,123 ) (230,821 ) 197,002 182,844 Deferred tax liabilities: Depreciation and amortization of property, plant and equipment (46,294 ) (50,469 ) Net deferred tax assets $ 150,708 $ 132,375 2013 to fiscal 20142016 was primarily due to (i) a net reductionincrease of $52.7$173.5 million primarily due as a result of the acquisition of PF and other tax attributes recorded for which the Company does not expect to the above mentioned release ofrealize a valuation allowance in EMEA, $33.4 million of which impacted the effective tax rate while the remainder was offset in deferred income taxes, and (ii) a net expense of $4.1 million primarily related to rate changes on valuation allowances previously established in various foreign jurisdictions.June 28, 2014,July 1, 2017, the Company had foreign net operating and capital loss carry-forwards of approximately $1.25$1.07 billion,, of which $6.2$17.3 million will expire during fiscal 20152018 and 2016,2019, substantially all of which have full valuation allowances, $278.4$61.2 million have expiration dates ranging from fiscal 20172020 to 20342037, and the remaining $961.3$986.3 million have no expiration date. The carrying value of the Company’s foreign net operating and capital loss carry-forwards is dependent upon the Company’s ability to generate sufficient future taxable income in certain foreign tax jurisdictions. In addition, the Company considers historic levels and types of income or losses, expectations and risk associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing a taxthe need for valuation allowance.59AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2014 is2017 was primarily due to favorable audit settlements, which are included in the “reductions foracquisition of PF and recognition of newly identified unrecognized tax positions taken in prior periods” captionbenefits as presented in the following table. As of June 28, 2014,July 1, 2017, unrecognized tax benefits were $128.2 million, of which approximately $112.2 million, if recognized, would favorably impact the effective tax rate and the remaining balance would be substantially offset by valuation allowances. As of June 29, 2013, unrecognized tax benefits were $123.9 million, of which approximately $117.7 million, if recognized, would favorably impact the effective tax rate, and the remaining balance would be substantially offset by valuation allowances.$106.8 million. The estimated liability for unrecognized tax benefits included accrued interest expense and penalties of $25.3$15.3 million and $25.0$13.9 million,, net of applicable state tax benefit,benefits, as of the end of fiscal 20142017 and 2013,2016, respectively. June 28, 2014 June 29, 2013 (Thousands) Balance at beginning of year $ 123,930 $ 146,626 Additions for tax positions taken in prior periods, including interest 15,966 11,732 Reductions for tax positions taken in prior periods, including interest (880 ) (33,776 ) Additions for tax positions taken in current period 8,364 7,445 Reductions related to settlements with taxing authorities (14,250 ) (9,064 ) Reductions related to the lapse of applicable statutes of limitations (7,571 ) (2,812 ) Adjustments related to foreign currency translation 2,662 3,779 Balance at end of year $ 128,221 $ 123,930 managementthe Company estimates that approximately $21.5$23.5 million of these liabilities for unrecognized tax benefits will be settled by the expiration of the statutes of limitations or through through agreement with the tax authorities for tax positions related to valuation matters and positions related to acquired entities; such matters are common to multinational companies.entities. The expected cash payment related to the settlement of these contingencies is approximately $7.88.4 million.year 2008. The years remaining subject to audit, by major jurisdiction, are as follows:JurisdictionFiscal YearUnited States (federal and state)20142017Belgium20142017Germany, Taiwan and United Kingdom2009 -2014Netherlands, Singapore and Hong Kong2008 -201410.domestic employees.U.S. employees excluding U.S. employees of the acquired PF business. The Plan meets the definition of a defined benefit plan and as a result, the Company must apply ASC 715 pension accounting to the Plan. The Plan itself, however, is a cash balance plan that is similar in nature to a defined contribution plan in that a participant’s benefit is defined in terms of a stated account balance. A cash balance plan provides the Company with the benefit of applying any earnings on the Plan’s investments beyond the fixed return provided to participants, toward the Company’s future cash funding obligations. Employees are eligible to participate in the Plan following the first year of service during which they worked at least 60AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)PlanPlans as of the end of fiscal 20142017 and 2013:2016: June 28,
2014 June 29,
2013 (Thousands) Changes in benefit obligations: Benefit obligations at beginning of year $ 391,880 $ 375,156 Service cost 36,733 36,920 Interest cost 17,155 14,653 Actuarial loss (gain) 34,726 (13,545 ) Benefits paid (23,327 ) (21,304 ) Benefit obligations at end of year $ 457,167 $ 391,880 Changes in plan assets: Fair value of plan assets at beginning of year $ 365,373 $ 301,449 Actual return on plan assets 67,914 45,228 Benefits paid (23,327 ) (21,304 ) Contributions 40,000 40,000 Fair value of plan assets at end of year $ 449,960 $ 365,373 Funded status of the plan recognized as a non-current liability $ (7,207 ) $ (26,507 ) Amounts recognized in accumulated other comprehensive income: Unrecognized net actuarial losses $ 158,103 $ 173,069 Unamortized prior service credits (6,050 ) (7,623 ) $ 152,053 $ 165,446 Other changes in plan assets and benefit obligations recognized in other comprehensive income: Net actuarial gain $ (2,280 ) $ (30,870 ) Amortization of net actuarial losses (12,686 ) (14,898 ) Amortization of prior service credits 1,573 1,573 $ (13,393 ) $ (44,195 ) The Plan was amended effective June 1, 2012 to improve pre-retirement death benefits so that the pre-retirement death benefits will be payable without regard to marital status, and will be based on 100% of the participant's vested cash account. The increase in liability was recognized as a prior service cost and amortization began in fiscal year 2013.June 28, 2014July 1, 2017, is pre-taxa before tax expense of $158.1$234.9 million of net actuarial losses whichthat have not yet been recognized in net periodic pension cost, of which $13.0$15.0 million is expected to be recognized as a component of net periodic pension cost during fiscal 2015.2018. Also included is a pre-taxbefore tax net benefit of $6.1$0.7 million of prior service credits whichthat have not yet been recognized in net periodic pension costs, of which $1.6$1.6 million is expected to be recognized as a component of net periodic pension costs during fiscal 2015.2018. In connection with the sale of the TS Business, a significant number of former employees became terminated vested employees under the Plan. If the aggregate amount of former employee withdrawals from their Plan balances reach a certain threshold during a fiscal year, then a settlement charge would be required under ASC 715 pension accounting in the period that such aggregate withdrawals exceed the threshold. Weighted average assumptions 2014 2013 Discount rate 4.00% 4.50% 61AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)June 28, 2014.July 1, 2017. The selectedestimated discount rate isin fiscal 2017 and fiscal 2016 was based primarily upon an average rate determined by matchingon the expected cash outflows of the Plan to aspot yield curve constructedapproach, which applies the individual spot rates from a portfolio of highly rated (minimum AA rating) fixed-income debt instruments with maturities consistent with the expectedbond yield curve to each future year’s estimated cash outflows.Weighted average assumptionsflows. 2014 2013 Discount rate 4.50% 4.00% Expected return on plan assets 8.50% 8.50% Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Thousands) Service costs $ 36,733 $ 36,920 $ 28,380 Interest costs 17,155 14,653 14,925 Expected return on plan assets (30,908 ) (27,905 ) (26,938 ) Recognized net actuarial losses 12,686 14,898 9,680 Amortization of prior service credits (1,573 ) (1,573 ) (1,875 ) Net periodic pension cost $ 34,093 $ 36,993 $ 24,172 $40.0$33.8 million of contributions in fiscal 2014 and fiscal 2013 and expects to make approximately $40.0 million of contributions in fiscal 2015.2015 $ 31,997 2016 26,982 2017 30,786 2018 34,646 2019 39,082 2020 through 2024 273,509 20142017 and 2013:2016: 2014 2013 Equity securities 75 % 75 % Fixed income debt securities 24 % 24 % Cash and cash equivalents 1 % 1 % Plan’sPlans pension obligations while maintaining reasonable and prudent levels of risk. The target rate of return on Planthe Plans assets is currently 8.5%8.0%, which represents the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation.obligation based upon the targeted investment allocations. This assumption has been determined by combining expectations regarding future rates of return for the investment portfolio along with the historical and expected distribution of investments by asset class and the historical rates of return for each of those asset classes. The mix of equity securities is typically diversified to obtain a blend of domestic and international investments covering multiple industries. The PlanPlan’s assets do not include any material investments in Avnet common stock. The Plan’sPlans investments in debt62AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)securities. Thesecurities with varying maturities. As of July 1, 2017, the Company’s current target allocation for the Plans investment portfolio is for equity securities, both domestic and international, to represent approximately 76.0%60% of the portfolio with a policy for minimum investment in equity securities of approximately 60.0% of the portfolio and a maximum of approximately 92.0%.portfolio. The majority of the remaining portfolio of investments is to be invested in fixed income debt securities.Plan'sPlans investments as of June 28, 2014July 1, 2017: Level 1 Level 2 Level 3 Total (Thousands) Cash and cash equivalents $ 3,025 $ — $ — $ 3,025 Equities: U.S. common stocks — 267,741 — 267,741 International common stocks — 71,273 — 71,273 Fixed Income: U.S. government agencies — 10,439 — 10,439 U.S. corporate bonds — 97,482 — 97,482 Total $ 3,025 $ 446,935 $ — $ 449,960 Plan'sPlan’s investments as of June 29, 2013:July 2, 2016: Level 1 Level 2 Level 3 Total (Thousands) Cash and cash equivalents $ 3,032 $ — $ — $ 3,032 Equities: U.S. common stocks — 219,225 — 219,225 International common stocks — 56,458 — 56,458 Fixed Income: U.S. government agencies — 10,004 — 10,004 U.S. corporate bonds — 76,654 — 76,654 Total $ 3,032 $ 362,341 $ — $ 365,373 June 28, 2014July 1, 2017.11. Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Thousands) Rent expense under operating leases $ 106,620 $ 94,087 $ 92,624 buildings,office and warehouse space, in fiscal 20152018 through 20192022 and thereafter, are as follows (in thousands):632015 $ 91,242 2016 69,823 2017 55,204 2018 39,359 2019 29,846 Thereafter 92,015 Total $ 377,489 The preceding table includes the remaining operating lease commitments that are included as a component of the Company’s restructuring liabilities (see Note 17).12.2014, 2013,2017, 2016, and 2012,2015, the Company recorded stock-based compensation expense of $45.9$53.9 million,, $43.7 $56.9 million, and $35.7$62.0 million,, respectively, for all forms of stock-based compensation awards.June 28, 2014,July 1, 2017, the Company had 11.310.6 million shares of common stock reserved for stock-based awards,payments, which consisted of 1.82.7 million shares for unvested or unexercised stock options, 6.2 million shares available for stock-based awards under plans approved by shareholders, 1.5 million shares for restricted stock units and performance share units granted but not yet vested, and vested but not yet exercised, 6.40.2 million available for future awards under plans approved by shareholders, 2.8 million for restricted stock incentive and performance shares granted but not yet vested, and 0.4 million shares available for future awardpurchases under the Company'sCompany’s Employee Stock Purchase Plan ("ESPP").Stock, vest in 25% increments on each anniversary of the grant date,, commencing with the first anniversary, and require an exercise price of 100% of the fair market value of common stock at the date of grant. Stock-based compensation expense associated with all stock options during fiscal 2014, 20132017, 2016 and 20122015 was $4.7$5.8 million,, $4.0 $4.2 million and $3.1$3.6 million,, respectively. Years Ended June 28,
2014 June 29,
2013 June 30,
2012Expected term (years) 6.0 6.0 6.0 Risk-free interest rate 1.7 % 0.9 % 1.2 % Weighted average volatility 34.3 % 35.0 % 33.7 % Dividend yield 1.5 % 0.0 % 0.0 % 642014:2017: Shares Weighted Average
Remaining
Contractual LifeOutstanding at June 29, 2013 2,579,188 $ 26.65 70 Months Granted 417,692 39.04 109 Months Exercised (1,185,004 ) 24.65 40 Months Forfeited or expired (2,700 ) 17.47 3 Months Outstanding at June 28, 2014 1,809,176 $ 30.84 81 Months Exercisable at June 28, 2014 820,520 $ 27.40 61 Months 2014, 20132017, 2016 and 20122015 were $11.45, $11.33$9.46, $10.69 and $9.67,$11.68, respectively.June 28, 2014,July 1, 2017, the aggregate intrinsic value of all outstanding stock option awards was $23.3$6.2 million and all exercisable stock optionsoption awards was $13.4 million.ended June 28, 2014:2017: Shares Non-vested stock options at June 29, 2013 944,290 $ 10.21 Granted 417,692 11.45 Vested (373,326 ) 9.87 Forfeited — — Non-vested stock options at June 28, 2014 988,656 $ 10.86 June 28, 2014,July 1, 2017, there was $2.6$8.9 million of total unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.22.1 years. The total fair value of sharesstock options vested, as of the vesting dates, during fiscal 2014, 20132017, 2016 and 20122015 were $3.7$3.3 million,, $3.4 $4.6 million and $3.6$4.0 million,, respectively.2014, 20132017, 2016, and 20122015 totaled $4.7$25.2 million,, $2.1 $0.8 million,, and $2.4$2.6 million,, respectively. The impact of these cash receipts is included in “Other, net” aswithin financing activityactivities in the accompanying consolidated statements of cash flows.incentive sharesincentive shares,stock units, and the associated compensation expense, is spread equallyrecognized over the vesting period and is generally subject to the employee’s continued service and employment byto the Company, except for employees who are retirement eligible.eligible under the terms of the restricted stock units. As of June 28, 2014, 2.0July 1, 2017, 1.0 million shares previously awarded have not yet vested. Stock-based compensation expense associated with restricted incentive sharesstock units was $34.4$42.4 million,, $26.8 $43.9 million and $21.0$50.5 million for fiscal years 2014, 20132017, 2016 and 2012,2015, respectively.65incentive shares for thestock units during fiscal year ended June 28, 2014:2017: Shares Non-vested restricted incentive shares at June 29, 2013 2,009,510 $ 29.62 Granted 1,060,152 39.05 Vested (972,420 ) 31.33 Forfeited (95,355 ) $ 33.54 Non-vested restricted incentive shares at June 28, 2014 2,001,887 $ 33.60 June 28, 2014,July 1, 2017, there was $51.7$19.9 million of total unrecognized compensation expense related to non-vested restricted incentive shares,stock units, which is expected to be recognized over a weighted-average period of 2.32.1 years. The total fair value of restricted incentive sharesstock units vested during fiscal 2014, 20132017, 2016 and 20122015 was $30.5$54.6 million,, $25.4 $42.5 million and $19.5$36.2 million,, respectively.sharesEligibleshare units incentive compensation through the performance share program, which allows for the vesting of shares based upon achievement of certain market and performance-based criteria (“Performance Share Program”). The Performance Share Program provides for the vesting to each grantee of a number of shares of Avnet’s common stock at the end of a ofincluding economic profit, return on capital employed and total shareholder return.2014, 20132017, 2016 and 2012,2015, the Company granted 0.2 million, 0.3 million and 0.3 million performance shares, respectively, of which approximately none have been forfeited.share units. The actual amount of performance sharesshare units vested at the end of each three-year period is measured based upon the actual level of achievement of the defined performance goals and can range from 0% to 200% of the initial award grant. During fiscal 2014, 20132017, 2016 and 2012,2015, the Company recognized stock-based compensation expense associated with the Performance Share Program of $5.8$4.6 million,, $11.9 $7.6 million and $10.5$6.8 million,, respectively.Director stock-based compensationNon-employee directors are awarded shares equal to a fixed dollar amount of Avnet common stock upon their re-election each year, as part of their director compensation. Directors may elect to receive this compensation in the form of common stock or they may elect to defer their compensation to be paid in common stock at a later date. During fiscal 2014, 2013 and 2012, compensation expense associated with the outside director stock-based compensation plan was $1.0 million, $1.0 million and $1.1 million, respectively.Employee stock purchase planThe Company has an Employee Stock Purchase Plan ("ESPP") under the terms of which eligible employees of the Company are allowed to purchase shares of Avnet common stock at a price equal to 95% of the fair market value on the last day of each monthly offering period. The ESPP is not compensatory based on its terms.The Company has a policy of repurchasing shares on the open market to satisfy shares purchased by employees under the ESPP, and expects future repurchases during fiscal 2015 to be similar to the number of shares repurchased during fiscal 2014, based on current estimates of participation in the ESPP program. During each of fiscal 2014, 2013 and 2012, 0.06 million shares of common stock were purchased under the ESPP program.13. Commitments and contingenciesBellDuring fiscal 2011, the Company recognized a contingent liability for potential unpaid import duties associated with the acquisition of Bell. Prior to the acquisition of Bell by Avnet, Customs and Border Protection (“CBP”) initiated a review of the importing process at one of Bell’s subsidiaries and identified compliance deficiencies. Subsequent to the acquisition of Bell by Avnet, CBP began a compliance audit. The Company evaluated projected duties, interest and penalties that potentially may be66imposed as a result of the auditrecognized a contingent liability of $10.0 million which was recorded to goodwill in fiscal 2011. Depending on the ultimate resolution of the matter with CBP, the Company estimates that the range of the potential exposure associated with the liability may be up to $73.0 million; however, the Company believes the contingent liability recorded is a reasonable estimate of the liability based upon the facts currently available at this time.LCD Class Action SettlementThe Company filed a proof of claim in the settlement of a class action proceeding that sought damages from certain manufacturers of LCD flat panel displays. A settlement was reached in the proceedings and in the first quarter of fiscal 2014 the federal district judge overseeing the proceeding issued an order approving the distribution of settlement funds to the class claimants and the Company received an award payment of $19.1 million. In the third quarter of fiscal 2014, the federal district judge overseeing the proceedings issued an order approving a final distribution of funds and the Company received a final award payment of $3.0 million. The total award of $22.1 million is classified within "gain on legal settlement, bargain purchase and other" in the consolidated statements of operations.Otherongoingsuch matters will have a material adverse effect on the Company’s financial condition, liquidity or results of operations.14. Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Thousands, except per share data) Numerator: Net income $ 545,604 $ 450,073 $ 567,019 Denominator: Weighted average common shares for basic earnings per share 137,991 137,951 147,278 Net effect of dilutive stock options, restricted incentive shares and performance shares 2,128 2,052 2,275 Weighted average common shares for diluted earnings per share 140,119 140,003 149,553 Basic earnings per share $ 3.95 $ 3.26 $ 3.85 Diluted earnings per share $ 3.89 $ 3.21 $ 3.79 None of the Company's outstanding stock options were excluded from the calculation of diluted earnings per share in fiscal 2014. Options to purchase 0.6 million and 0.2 million shares for fiscal years 2013 and 2012, respectively, were excluded from the calculations of diluted earnings per shares because the exercise price for those options was above the average market price of the Company’s stock during such fiscal years. Inclusion of these options in the respective diluted earnings per share calculations would have had an anti-dilutive effect.6715."Other, net"“Other, net” component of non-cash and other reconciling items within operating activities from continuing operations in the consolidated statements of cash flows consisted of the following:following during the last three fiscal years: Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Thousands) Provision for doubtful accounts receivable $ 17,943 $ 30,802 $ 35,632 Periodic pension cost (Note 10) 34,093 36,993 24,172 Other, net 36,651 7,532 6,459 Total $ 88,687 $ 75,327 $ 66,263 Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Thousands) Interest $ 111,608 $ 106,735 $ 89,529 Income taxes $ 181,117 $ 141,196 $ 192,717 16.areoperating groups. As a result of the Company'ssale of the TS Business and the acquisition of Premier Farnell, during the fourth quarter of fiscal 2017, the Company changed its reportable segments ("to the Electronic Components (“EC”) and Premier Farnell (“PF”) operating groups").EMgroups. EC markets and sells semiconductors and interconnect, passive and electromechanical devices and embedded products. EM markets and sells its products and servicesintegrated components to a diverse customer base serving many end-markets including automotive, communications, computer hardware and peripheral, industrial and manufacturing, medical equipment, and defense and aerospace. EM also offers an array of value-added services that help customers evaluate, design-in and procureend-markets. PF distributes electronic components throughout the lifecycle of their technologyand related products and systems. By working with EM, customers and suppliers can accelerate their time to market and realize cost efficiencies in both the design and manufacturing process.As a leading global IT solutions distributor, TS focuses on the value-added distribution of enterprise computing servers and systems, software, storage, services and complex solutions from the world’s foremost technology manufacturers. TS partners with its customers and suppliers to create and deliver effective data center and IT lifecycle solutions that solve the business challenges of end-user customers locally and around the world. TS serves a number of customer segments, from VARs, system integrators and independent software vendors to the worldwide OEM market for computing technologyelectronic system design community utilizing multi-channel sales and non-PC OEMs requiring embedded systems and solutions including engineering, product prototyping, integration and other value-added services. TS also provides the latest hard disk drives, microprocessor, motherboard and DRAM module technologies to manufacturers of general-purpose computers and system builders.marketing resources.At the beginning of fiscal 2014, the Company began excluding amortization expense associated with acquired intangible assets from the operating income of the EM and TS operating groups in order to measure such operating results consistent with how many technology companies measure operating performance and given that such amortization expense is non-cash in nature. As a result of this change, prior period segment information has been recast to conform to the new measure of profitability used during fiscal 2014. The change in the measure of operating group profitability did not impact the determination of the Company’s operating groups or the previously reported consolidated financial results.68At the beginning of fiscal 2014, a portion of the Company's reverse logistics operations, which was previously included in the EM operating group, was combined within the TS operating group. The Company also combined its regional computing components operations within EM and TS into a single global organization within TS. As a result of these changes, sales, operating income and assets previously reported in the EM operating group in fiscal 2013 have been included within the TS operating group in fiscal 2014. The Company does not view the amount of sales, operating income, or assets of such transferred operations to be a material change to the composition of its operating groups for financial reporting purposes. Sales related to such transferred operations reported in the EM operating group in fiscal 2013 were $443.3 million. The transfer of such operations between operating groups did not impact the determination of the Company’s operating groups or the previously reported consolidated financial results.69 Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Millions) Sales: Electronics Marketing $ 16,544.4 $ 15,094.4 $ 14,933.1 Technology Solutions 10,955.3 10,364.5 10,774.4 $ 27,499.7 $ 25,458.9 $ 25,707.5 Operating income (loss): Electronics Marketing $ 747.9 $ 635.7 $ 759.6 Technology Solutions 317.8 299.1 338.9 Corporate (134.4 ) (126.9 ) (112.9 ) 931.3 807.9 985.6 Restructuring, integration and other expenses (Note 17) (94.6 ) (149.5 ) (73.6 ) Amortization of acquired intangible assets and other (46.8 ) (32.4 ) (27.8 ) $ 789.9 $ 626.0 $ 884.2 Assets: Electronics Marketing $ 6,840.2 $ 6,316.3 $ 6,024.3 Technology Solutions 4,140.2 3,838.4 3,738.5 Corporate 275.1 320.0 405.1 $ 11,255.5 $ 10,474.7 $ 10,167.9 Capital expenditures: Electronics Marketing $ 38.0 $ 24.1 $ 58.5 Technology Solutions 43.8 26.6 41.3 Corporate 41.4 46.7 28.8 $ 123.2 $ 97.4 $ 128.6 Depreciation & amortization expense: Electronics Marketing $ 48.8 $ 51.8 $ 38.9 Technology Solutions 59.0 47.3 39.2 Corporate 29.4 21.6 23.2 $ 137.2 $ 120.7 $ 101.3 Sales, by geographic area: $ 10,929.5 $ 10,716.6 $ 11,499.3 8,246.1 7,277.9 7,408.9 8,324.1 7,464.4 6,799.3 $ 27,499.7 $ 25,458.9 $ 25,707.5 Property, plant and equipment, net, by geographic area: $ 306.2 $ 283.0 $ 278.5 199.4 177.9 150.8 Asia/Pacific 29.4 31.7 31.9 $ 535.0 $ 492.6 $ 461.2 ______________________(1)$9.68 billion, $9.43 billion4.48 billion and $10.00$4.79 billion for fiscal 2014, 20132017, 2016 and 2012,2015, respectively.(2)$3.31$2.29 billion and $1.36 billion,$589.8 million, respectively, for fiscal 2014.2017. Includes sales in Germany and the United Kingdom of $2.78$2.13 billion and $1.22 billion,$378.1 million, respectively, for fiscal 2013.2016. Includes sales in Germany and the United Kingdom of $2.60$2.10 billion and $1.40 billion,$412.8 million, respectively, for fiscal 2012.2015.70AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)(3)$2.63$2.18 billion,, $2.93 $2.45 billion and $1.19 billion$928.4 million in Taiwan, China (including Hong Kong) and Singapore, respectively, for fiscal 2014.2017. Includes sales of $2.28$2.86 billion,, $2.44 $2.44 billion and $1.16 billion$903.0 million in Taiwan, China (including Hong Kong) and Singapore, respectively, for fiscal 2013.2016. Includes sales of $1.90$3.42 billion,, $2.30 $2.43 billion and $1.20 billion$951.9 million in Taiwan, China (including Hong Kong) and Singapore, respectively, for fiscal 2012.2015.(4)$298.1$289.1 million,, $273.4 $297.1 million and $266.7$237.0 million in the United States for fiscal 2014, 20132017, 2016 and 2012,2015, respectively.(5)$95.5$85.6 million,, $61.0 $52.1 million, and $12.6$39.8 million in Germany, BelgiumUK and the United Kingdom,Belgium, respectively, for fiscal 2014.2017. Fiscal 20132016 includes property, plant and equipment, net, of $92.7$72.5 million in Germany $45.1and $40.0 million in Belgium and $13.1 million in the United Kingdom.Belgium. Fiscal 20122015 includes property, plant and equipment, net, of $90.6$70.2 million in Germany $26.4and $41.1 million in Belgium and $17.3 million in the United Kingdom.Belgium.Company'sCompany’s major product categories and the related sales for each of the past three fiscal years: Years Ended June 28,
2014 June 29,
2013 June 30,
2012 (Millions) Semiconductors $ 13,160.9 $ 13,720.8 $ 13,461.6 Computer products 10,571.6 9,346.0 9,984.4 Connectors 794.7 687.6 667.5 Passives, electromechanical and other 2,972.5 1,704.5 1,594.0 $ 27,499.7 $ 25,458.9 $ 25,707.5 17.integration and other expenses20142014,2017, the Company took certain actions in an effort to integrate acquisitions and to reduce future operating costs including activities necessary to achieve planned synergies from recently acquired businesses. In addition, the Company incurred integration and other costs primarily associated with acquired or divested businesses and for the consolidationexpenses. Restructuring expenses are included as a component of facilities. The following table presents the restructuring, integration and other expenses incurred during fiscal 2014: Year Ended June 28, 2014 (Thousands) Restructuring expenses $ 65,749 Integration costs 20,455 Other costs including acquisition costs 8,767 Changes in estimates for prior year restructuring liabilities (348 ) Restructuring, integration and other expenses before tax $ 94,623 Restructuring, integration and other expenses after tax $ 70,773 Restructuring, integration and other expenses per share on a diluted basis $ 0.50 71AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)20142017 is presented in the following table: Other Total (Thousands) Fiscal 2014 restructuring expenses $ 53,260 $ 11,608 $ 881 $ 65,749 Cash payments (29,191 ) (3,028 ) (9 ) (32,228 ) Non-cash amounts (260 ) (4,906 ) (538 ) (5,704 ) Other, principally foreign currency translation (65 ) 23 10 (32 ) Balance at June 28, 2014 $ 23,744 $ 3,697 $ 344 $ 27,785 20142017 related to the reduction, or planned reduction, of over 1,100350 employees, primarily in executive management, operations, sales and business support functions, in connection with cost reduction actions taken in both operating groups, including reductions in recently acquired or integrated businesses.functions. Facility exit costs primarily consistsconsist of liabilities for remaining lease obligations andfor exited facilities. Asset impairments relate to the impairment of long-lived assets for facilities and information technology systemsas a result of the Company has ceased using.underlying restructuring activities. Other restructuring costs related primarily to other miscellaneous restructuring and exit costs. Of the $65.7 million in restructuring expenses recorded during fiscal 2014, $41.3 million related to EM, $23.1 million related to TS and $1.3 million related to corporate business support functions. As of June 28, 2014, managementThe Company expects the majority of the remaining severance, facility exit costs and other liabilitiesamounts to be paid by the end of fiscal 2015.Integration costs are primarily2018. Of the $41.7 million in restructuring expenses recorded during fiscal 2017, $28.4 million related to the integration of acquired businesses, integration of regional business unitsEC, $3.0 million related to PF and incremental costs incurred as part of the consolidation, relocation and closure of warehouse and office facilities. Integration costs include consulting costs for information technology system$10.3 million related to Corporate executive and business operation integration assistance, facility moving costs, legal fees, travel, meeting, marketing and communication costs that are incrementally incurred as a result of such integration activities. Also included in integration costs are incremental salary costs specific to integration, consolidation and closure activities. Other costs consists primarily of professional fees incurred for acquisitions, additional costs incurred for businesses divested or exited in current or prior periods, any ongoing facilities operating costs associated with the consolidation, relocation and closure of facilities once such facilities have been vacated or substantially vacated, and other miscellaneous costs that relate to restructuring, integration and other expenses. Integration and other costs in fiscal 2014 were comprised of many different costs, none of which were individually material.20132013,2016, the Company incurred restructuring expenses related to various restructuring actions intended to reduce costs in response to the then current market conditions. The following table presents the restructuring, integration and other expenses incurred during fiscal 2013: Year Ended June 29, 2013 (Thousands) Restructuring expenses $ 120,048 Integration costs 35,742 Other costs including acquisition costs (3,224 ) Changes in estimates for prior year restructuring liabilities (3,065 ) Restructuring, integration and other expenses before tax $ 149,501 Restructuring, integration and other expenses after tax $ 116,382 Restructuring, integration and other expenses per share on a diluted basis $ 0.83 72AVNET, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)20142017 activity related to the remaining restructuring liabilities from continuing operations established during fiscal 20132016 is presented in the following table: Severance Facility
Exit Costs and Asset Impairments Other Total (Thousands) Balance at June 29, 2013 $ 25,254 $ 16,211 $ 370 $ 41,835 Cash payments (20,137 ) (7,672 ) (326 ) (28,135 ) Changes in estimates, net (2,283 ) (1,601 ) 963 (2,921 ) Non-cash amounts — 928 (485 ) 443 Other, principally foreign currency translation 166 408 89 663 Balance at June 28, 2014 $ 3,000 $ 8,274 $ 611 $ 11,885 Of the $120.0 million in restructuring expenses recorded during fiscal 2013, $68.9 million related to EM, $48.0 million related to TS and $3.1 million related to corporate business support functions. June 28, 2014,July 1, 2017, management expects the majority of the remaining severance, and facility exit and other liabilities related to fiscal 2016 restructuring actions to be utilized by the end of fiscal 2015.2018.Integration costs incurred related primarily to the integration of acquired businesses and incremental costs incurred as part of the consolidation and closure of certain office and warehouse facilities.Other costs incurred during fiscal 2013 related primarily to professional fees for advisory services and legal and accounting due diligence procedures and other legal costs associated with acquisitions. Included in other costs is a benefit of $11.2 million related to a change in estimate for a contingent consideration liability for which payment was no longer expected.Fiscal 2012During fiscal 2012, the Company incurred expenses to reduce costs, including costs related to the acquisition and integration activities associated with acquired businesses as follows: Year Ended June 30, 2012 (Thousands) Restructuring expenses $ 50,253 Integration costs 9,392 Other costs including acquisition costs 17,226 Changes in estimates for prior year restructuring liabilities (3,286 ) Restructuring, integration and other expenses before tax $ 73,585 Restructuring, integration and other expenses after tax $ 52,963 Restructuring, integration and other expenses per share on a diluted basis $ 0.35 Of the $50.3 million in restructuring expenses recorded during fiscal 2012, $27.5 million related to EM and $22.8 million related to TS.Integration costs incurred related primarily to the integration of acquired businesses and incremental costs incurred as part of the consolidation and closure of certain office and warehouse facilities.Other costs incurred during fiscal 2012 related primarily to professional fees for advisory and broker services, legal and accounting due diligence, and other legal costs associated with acquisitions. Other costs also included $6.7 million for legal claims associated with acquired and divested businesses.73June 29, 2013,July 2, 2016, there was $4.7$4.5 million of restructuring liabilities remaining related to restructuring actions taken in fiscal years 20122015 and prior, the majority of which relates to facility exit costs. The remaining balance for such historical restructuring liabilities as of June 28, 2014July 1, 2017 was $1.2$1.9 million, which is expected to be paid by the end of fiscal 2016.2018.28, 2014, June 29, 2013 and June 30, 201227, 2015Account Description Balance at Beginning of Period Charged to Expense (Income) Charged to Other Accounts Deductions Balance at End of Period (Thousands) Fiscal 2014 Allowance for doubtful accounts $ 95,656 $ 17,943 $ — $ (17,217 ) (a) $ 96,382 Valuation allowance on foreign tax loss carry-forwards (Note 9) 230,821 (52,719 ) (b) 4,021 (c) — 182,123 Fiscal 2013 Allowance for doubtful accounts 106,319 30,802 — (41,465 ) (a) 95,656 Valuation allowance on foreign tax loss carry-forwards (Note 9) 244,093 (41,572 ) (d) 28,300 (e) — 230,821 Fiscal 2012 Allowance for doubtful accounts 107,739 35,632 — (37,052 ) (a) 106,319 Valuation allowance on foreign tax loss carry-forwards (Note 9) 310,772 (30,785 ) (35,894 ) (f) — 244,093 (a)(b)$39.6$56.5 million impacted the effective tax rate offset by $6.0$8.6 million, which impacted deferred taxes associated with the release of the valuation allowance (see Note 9).allowance.(c)(d)Represents a reduction primarily due to the release of valuation allowance in EMEA, of which $31.9 million impacted the effective tax rate offset by $4.8 million, which impacted deferred taxes associated with the release of the valuation allowance (see Note 9).(e)Primarily related to additional valuation allowances for newly acquired companies and companies with a history of losses.(f)Primarily relates to the translation impact of changes in foreign currency exchange rates and acquired valuation allowances.
NumberExhibitNumber3.1Company'sCompany’s Current Report on Form 8-K dated February 12, 2001, Exhibit 3(i)).Company'sCompany’s Current Report on Form 8-K dated May 9, 2014, Exhibit 3.1).Officers' Certificate dated August 19, 2005, establishing the terms of the 6.00% Notes due 2015 (incorporated herein by reference to the Company's Current Report on Form 8-K dated August 15, 2005, Exhibit 4.2).4.3Officers'Company'sCompany’s Current Report on Form 8-K dated September 12, 2006, Exhibit 4.2).4.4Officers’ Certificate dated March 7, 2007, establishing the terms of the 5 7/8% Notes due 2014 (incorporated herein by reference to the Company’s Current Report on Form 8-K dated March 7, 2007, Exhibit 4.2).4.54.64.7Officers'Company'sCompany’s Current Report on Form 8-K datedNovember 20, 2012, Exhibit 4.1).Erin LewinMaryAnn Miller (incorporated herein by reference to the Registrant'sCompany’s Form 10-K for the fiscal year ended June 29, 2013, Exhibit 10.3).10.3Employment Agreement by and between the Company and Phillip Gallagher (incorporated herein by reference to the Registrant's Form 10-Q for the period ended December 28, 2013, Exhibit 10.2).10.4Company'sCompany’s Current Report on Form 8-K dated September 1, 2013, Exhibit 10.1).Employmentbybetween Avnet Europe Executive BVBA and between the Company and Steve Phillips (incorporated herein by reference to the Company's Current Report on Form 8-K dated December 19, 2008, Exhibit 10.2).10.6Employment Agreement by and between the Company and Harley FeldbergPatrick Zammit (incorporated herein by reference to the Company’s AnnualQuarterly Report on Form 10-K for the fiscal yearperiod ended June 29, 2013,January 2, 2016, Exhibit 10.5)10.1).10.7Erin Lewin,MaryAnn Miller, Kevin Moriarty, Patrick Zammit, Peter Bartolotta and Steve PhillipsMichael O’Neill (incorporated herein by reference to the Company’s Current Report on Form 8-K dated February 14, 2011, Exhibit 10.3).10.8Form of Change of Control Agreement between the Company and each of Harley Feldberg, Phillip Gallagher and MaryAnn Miller, (incorporated herein by reference to the Company's Current Report on Form 8-K dated December 19, 2008, Exhibit 10.3).76ExhibitNumberExhibit10.9Avnet 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).10.10Amended and Restated Avnet 1997 Stock Option Plan (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 29, 2006, Exhibit 10.1).10.11Retirement Plan for Outside Directors of Avnet, Inc., (Amended and Restated Effective Generally as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13, 2010, Exhibit 10.1).10.1210.13Registrant'sCompany’s Form 10-K for the fiscal year ended June 29, 2013, Exhibit 10.13).10.14Registrant'sCompany’s Form 10-K for the fiscal year ended June 29, 2013, Exhibit 10.14).10.15Avnet 1999 Stock Option Plan (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 29, 2006 Exhibit 10.2).10.16Avnet, Inc. 2003 Stock Compensation Plan (Amended and Restated Effective Generally as of January 1, 2009) (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13, 2010, Exhibit 10.4).10.17Avnet, Inc. 2003 Stock Compensation Plan:(a) Form of nonqualified stock option agreement(b) Form of nonqualified stock option agreement for non-employee director(c) Form of incentive stock option agreement(d) Form of performance stock unit term sheet(incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 29, 2006, Exhibit 10.3).10.1810.1910.2010.2177ExhibitNumberExhibit10.22Registrant'sCompany’s Current Report on Form 8-K dated November 8, 2013, Exhibit 10.1).10.23incentiverestricted stock option agreementunit term sheet(d)restricted stock unit term sheetawards under the 2016 Stock Compensation and Incentive Plan.10.2410.25Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended July 2, 2011, Exhibit 10.21).10.2610.27Form option agreements for stock option plansSeptember 8, 2004,March 3, 2017, Exhibit 10.4)10.2).(a) Non-Qualified stock option agreement for 1999 Stock Option PlanIncentive stock option agreement for 1999 Stock Option Plan(c) Incentive stock option agreement for 1996 Stock Option Plan(d) Non-Qualified stock option agreement for 1995 Stock Option PlanBank Agreements10.28Securitization Program(a)Third Amended and Restated Receivables SalePurchase Agreement, dated as of June 28, 2001 betweenFebruary 27, 2017, among Avnet, Inc., as Originator, and Avnet Receivables Corporation, the companies and financial institutions party thereto and JPMorgan Chase Bank, N.A., as Buyeragent (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 26, 2002,March 3, 2017, Exhibit 10J)10.1).(b) Amendment No. 1, dated as of February 6, 2002, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 26, 2002, Exhibit 10K).(c) Amendment No. 2, dated as of June 26, 2002, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 26, 2002, Exhibit 10L).(d) Amendment No. 3, dated as of November 25, 2002, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated December 17, 2002, Exhibit 10B).(e) Amendment No. 4, dated as of December 12, 2002, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated December 17, 2002, Exhibit 10E).(f) Amendment No. 5, dated as of August 15, 2003, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 15, 2003, Exhibit 10C).(g) Amendment No. 6, dated as of August 3, 2005, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 13, 2005, Exhibit 10.1).78ExhibitNumberExhibit(h) Amendment No. 7, dated as of August 29, 2007, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated August 13, 2010, Exhibit 10.7).(i) Amendment No. 8, dated as of August 26, 2010, to Receivables Sale Agreement in 10.27(a) above (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 1, 2010, Exhibit 10.2).(j) Second Amended and Restated Receivables Purchase Agreement dated as of August 26, 2010 among Avnet Receivables Corporation, as Seller, Avnet, Inc., as Servicer, the Financial Institutions party thereto and JPMorgan Chase Bank, N.A. as Agent (incorporated herein by reference to the Company’s Current Report on Form 8-K dated September 1, 2010, Exhibit 10.1).(k) Amendment No. 1, dated as of December 28, 2010, to the Second Amended and Restated Receivables Purchase Agreement in 10.27(j) above (incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the period ended October 1, 2011, Exhibit 10.2).(l) Amendment No. 2, dated as of August 25, 2011, to the Second Amended and Restated Receivables Purchase Agreement in 10.27(j) above (incorporated herein by reference to the Company's Current Report on Form 8-K dated August 26, 2011, Exhibit 10.1).(m) Amendment No. 3 dated as of March 7, 2012, to the Second Amended and Restated Receivables Purchase Agreement in 10.27(j) above (incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2012, Exhibit 10.1).(n) Amendment No. 4 dated as of August 23, 2012, to the Second Amended and Restated Receivables Purchase Agreement in 10.27(j) above (incorporated herein by reference to the Company's Current Report on Form 8-K dated August 24, 2012, Exhibit 10.1).(o) Amendment No. 5 dated as of August 22, 2013 to the Second Amended and Restated Receivables Purchase Agreement (incorporated herein by reference to the Company's Current Report on Form 8-K dated August 22, 2013, Exhibit 10.1).10.29November 18, 2011July 9, 2014, among Avnet, Inc., each other subsidiary of the Company party thereto, Bank of America, N.A., as Administrative Agent, and each lender thereto (incorporated herein by reference to the Company’s Current Report on Form 8-K dated November 22, 2011,July 9, 2014, Exhibit 10.1).12.1*June 29, 2013.July 1, 2017.*******Filed herewith.**79